For a pay-TV programmer, which are taxable — broadcast royalties, film taken only to copy, videotapes reworked in post-production, signal transmission, and post-production done for others?

Plain-English summary

Showtime Entertainment, a pay-television programmer serving about 1.9 million subscribers (roughly 118,000 in New York State, 25,800 in New York City), was considering owning its own post-production, playback and uplink facilities in New York. It asked how the sales and use tax would apply to films and videotapes it takes delivery of, to transmitting its programming, and to post-production and transmission services it might perform for others.

The Department answered issue by issue.

• Broadcast royalties are not a "sale." A royalty or license fee Showtime pays for the right to broadcast a motion picture is not a "sale" under § 1101(b)(5), so no sales or use tax is due — whether the picture arrives on film or on videotape.
• Film taken only to copy is not a taxable license. When Showtime takes delivery of a film solely to convert it to videotape and returns it untouched, it holds the film only for reproduction. Under 20 NYCRR 526.7(f), mere temporary possession for reproduction is not a license to use, so this is not taxable.
• A videotape reworked in post-production is a taxable license. A videotape that Showtime changes during post-production is a license to use (§§ 1101(b)(5), 1105(a); 20 NYCRR 526.7(f)(3)), so its delivery is taxable. But the tax base is not the whole charge — it is allocated: the State portion is the percentage of Showtime's subscribers who are in New York State, and the City portion is the percentage who are in New York City (relative to New York State subscribers).
• Transmitting signals is not taxable. The electronic signals Showtime transmits from its playback and uplink facilities are not tangible personal property, and the transmission is neither a telegraph service nor an information service (TSB-M-80(18)S). So transmitting its own programming is not subject to sales tax.
• Post-production for others depends on who supplies the tape. If a third party supplies the videotape and Showtime edits, dubs and mixes it, Showtime is performing a taxable processing service under § 1105(c)(2) (20 NYCRR 527.4(d)) and must collect tax (based on its charge) unless it has an exemption certificate or Direct Payment Permit. If Showtime supplies the videotape, it is instead making a taxable sale of that tangible personal property (the charge for the stock plus the work), unless the sale is for resale or otherwise exempt. Either way, the rate is the rate where the processed videotape is delivered.
• Playback/uplink tied to that post-production is not taxable. When Showtime provides playback and uplink services for a third party in conjunction with post-production it performed, it is not a mere conduit — it transmits material it helped create — so these are not a telegraph or information service and are not taxable (TSB-M-80(18)S). But those charges must be separately stated on the bill.

What this means for you

"Reproduction only" vs. "reworking it" is the line for media on film or tape. Holding property just to copy it and returning it untouched isn't a taxable license to use; changing the material in post-production is.

A broadcast royalty isn't a "sale." Paying for the right to broadcast content is a royalty/license fee outside the sales tax — separate from any tax on the physical tape you take and rework.

Who furnishes the tape flips the analysis. Working on a customer-supplied tape is a taxable processing service; supplying the tape yourself is a taxable sale of goods. Different theory, same need to charge tax absent an exemption.

Transmitting signals isn't a taxable telegraph or information service. Electronic signals aren't tangible personal property, and sending program signals you helped create isn't acting as a conduit — but separately state those charges.

Multi-state delivery can mean an allocated base. For the reworked-videotape license, the taxable base was apportioned by New York (and New York City) subscribers, not the full charge — watch for allocation when the same content serves many jurisdictions.

Common questions

Q: Do I owe tax on the royalty I pay to broadcast a movie?
A: No. A broadcast royalty or license fee isn't a "sale" under § 1101(b)(5), so it isn't taxed — on film or on videotape.

Q: I take a film only to copy it to tape, then send the film back. Taxable?
A: No. Possession solely for reproduction isn't a taxable license to use (20 NYCRR 526.7(f)).

Q: What about a videotape I actually edit and change?
A: That's a taxable license to use, but the base may be allocated (here, by New York and New York City subscriber percentages).

Q: Is editing a customer's tape taxable?
A: Yes — it's taxable processing under § 1105(c)(2). If you instead supply the tape yourself, it's a taxable sale of the tape unless resale or an exemption applies.

Q: Is transmitting the finished program taxable?
A: No. Transmitting electronic signals isn't a sale of tangible personal property or a telegraph/information service (TSB-M-80(18)S) — but separately state playback/uplink charges.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — tax on retail sales of tangible personal property
• Tax Law § 1101(b)(5) — "sale" includes transfer of possession, rental, lease or license to use
• Tax Law § 1105(c)(2) — tax on producing/fabricating/processing property furnished by another
• 20 NYCRR 527.4(d) — processing = a service changing the nature, shape or form of property
• 20 NYCRR 526.7(f) — reproduction rights vs. taxable license to use
• TSB-M-80(18)S — electronic signals not tangible personal property; transmission not a telegraph or information service

Also cited in the opinion:

• Opinion of Counsel, December 10, 1965 (subscriber-based allocation of the tax base)
• Howitt v. Street and Smith Publications, Inc., 276 N.Y. 345; Matter of Frissell v. McGoldrick, 300 N.Y. 370 (reproduction-rights principle)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a81_70s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81(70)S
Sales Tax
December 31, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S810722A

On July 22, 1981, a Petition for Advisory Opinion was received from Showtime
Entertainment, 1633 Broadway, New York, New York 10036.
Petitioner offers various programming services to cable television systems, multipoint
distribution service (MDS) and master antenna television systems (SMATV). Petitioner raises the
following issues relative to its activities.
(1)

whether it will be required to pay a New York State and New York City Use tax
when it takes delivery in New York City of films or video tapes, and if the use tax is
applicable, what method of allocation will be used to determine the tax base upon
which the tax will be computed if Showtime's pay television programming services
are licensed to foreign states, as well as, New York State cable television, multipoint
distribution service (MDS) and satellite master antenna systems (SMATV);

(2)

whether the transmission of the Showtime programs from Showtime playback or
uplink facilities in New York State (or City) would be considered an effective in-state
delivery of property subject to the New York State and New York City sales tax;

(3)

whether Showtime will be required to collect a State or local sales tax if it supplies
post production, playback, or uplink services to third parties; and if the sales tax is
applicable to promotional, advertising, marketing or entertainment post production
services performed for third parties, what is the tax base upon which the tax will be
computed: the cost of the film or videotape stock provided or the production cost
incurred for the production of the promotional, advertising, marketing or
entertainment material recorded on such film or videotape stock.

Currently, Showtime has approximately 1,900,000 subscribers in over 900 cable systems.
Approximately 118,000 subscribers are located in New York State, approximately 25,800 of which
are located in New York City. Showtime offers motion pictures and entertainment specials to
subscribers for a monthly fee. The product exhibited as a part of the Showtime service is generally
licensed directly from major or independent theatrical and feature film producers and other
distributors, and in some cases is produced by Showtime itself. Those programs licensed from others
are obtained either on a flat-fee basis or on the basis of a fee per-subscriber served.
Showtime's own productions are also licensed to other pay television programmers for use
on their affiliated systems and to cable systems which do not subscribe to the Showtime service.

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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Showtime received compensation from its affiliated systems on the basis of a percentage of the
monthly subscriber fee charged by that system to its subscribers.
Showtime programming is distributed to the systems it serves primarily by means of a
domestic communication satellite. The satellite service is obtained by Showtime from RCA
American Communications, Inc. which relays the Showtime service to distribution points throughout
the United States, from playback and uplink facilities located in Vernon Valley, New Jersey. Satellite
transmission makes Showtime available to any cable system which installs a receiving antenna and
enters into a contractual agreement with Showtime. Showtime's post production work is currently
performed by independent contractors.
Showtime is currently examining the feasibility of performing its own post production
services at a location in New York State and owning and operating its own playback and uplink
facilities in New York State. The playback facility may be located with the post production facilities
in New York City. It is also anticipated that these facilities will enable Showtime to supply post
productions, playback and uplink services to third parties.
A post production facility performs such services as film to video tape transfer, audio
recording and mixing, video tape and film editing, and video tape dubbing. Showtime's proposed
post production facility will prepare Showtime promotional, marketing and entertainment material
and integrate this material with the Showtime programming elements for satellite feed. Showtime
may perform similar services for third parties.
An uplink transmits audio, video and data signals to a satellite. Showtime's proposed uplink
facility will be located in the New York metropolitan area at a sight to be determined after
completion of frequency coordination studies.
A playback facility transfers the video and audio electronic signals previously recorded on
video tape into the satellite transmission system. If the playback facility is located at the uplink
facility, a microwave transmission system will link the two facilities.
Presently, when Showtime licenses a product from a producer, a film or video tape is
delivered to a receiving location in Fort Lee, New Jersey. The films or videotapes are sent to the
RCA facilities in Vernon Valley where they are integrated with the Showtime promotional material
and are transmitted to the satellite. Films must first be transferred to videotapes to permit such
transmission. Should Showtime locate its proposed post production and playback facilities in New
York State, these films or videotapes would be delivered to Showtime in New York for integration
and transmission to the uplink and satellite.
Section 1105(a) of the Tax Law imposes a tax on "The receipts from every retail sale of
tangible personal property, except as otherwise provided in this article." The term "sale" is defined
in section 1101(b)(5) as "Any transfer of title or possession or both,. . . rental, lease or license to use
or consume . . . for a consideration."
Section 1105(c)(2) of the Tax Law imposes a tax on the service of:

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"Producing, fabricating, processing, printing or imprinting tangible personal property,
performed for a person who directly or indirectly furnishes the tangible personal
property, not purchased by him for resale, upon which such services are performed."
Section 527.4 of the Sales and Use Tax Regulations provides, in part as follows:
"(d) Processing. Processing is the performance of any service on tangible personal
property for the owner which effects a change in the nature, shape, or form of the
property.
"Example 3: A person, cuts, edits, dubs sound, and adds titles to convert exposed and
developed film footage into a completed film. Such procedures constitute taxable
processing of the film."
Section 526.7(f) of the Sales and Use Tax Regulations provides, in part, as follows:
"(f) Reproduction rights. (1) The granting of a right to reproduce an original painting,
illustration, photograph, sculpture, manuscript or other similar work is not a license
to use or a sale, and is not taxable, where the payment made for such right is in the
nature of a royalty to the grantor under the laws relating to artistic and literary
property.
"(2) Mere temporary possession or custody for the purpose of making the
reproduction is not deemed to be a transfer of possession which would convert the
reproduction right into a license to use. See Howitt v. Street and Smith Productions,
Inc., 276 N.Y. 345 and Matter of Frissell v. McGoldrick, 300 N.Y. 370.
"(3) Where some use other than reproduction is made of the original work such as
retouching or exhibiting a photograph, the transaction is a license to use, which is
taxable.
Petitioner indicates that when it obtains broadcast rights for a motion picture from a
distributor or producer, it pays a royalty or licensing fee, as provided in its contract with such
distributor or producer. When the licensed motion picture is recorded on film, it must be converted
to videotape for broadcast transmission. This may be accomplished in either of two ways. First, the
distributor or producer may send the film directly to Petitioner who will make the conversion, using
its own equipment. Second, the film may be sent by the distributor or producer to a processing
laboratory, mutually acceptable to both the producer or distributor and Petitioner, where the
conversion to videotape will be made. In this instance, the producer or distributor receives back from
the processing laboratory both the film and the videotape. Pursuant to the contract terms, the
producer or distributor then forwards the videotape to Petitioner and bills Petitioner for the cost of
the converted videotape.
The payment made by Petitioner, pursuant to its contract with a film producer or distributor,
as a royalty or license fee for the right to broadcast a motion picture is not a "sale" as defined in
section 1101(b)(5) of the Tax Law, irrespective of whether the motion picture is received by

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Petitioner on film or videotape. Therefore, no sales or use tax is payable by Petitioner with respect
to such royalty or broadcasting license fee.
When Petitioner takes delivery of a film in connection with its post production operations,
for the purpose of conversion to videotape, no further use of the film will be made, and Petitioner
will return the film, untouched, to the licensor. Since Petitioner takes possession of the film solely
for reproduction purposes, Petitioner does not receive a license to use the film with the meaning of
the Tax Law. 20 NYRR 526.7(b). Petitioner is not liable for payments of State or local sales and use
taxes upon taking delivery of a film under such circumstances.
Videotapes received by Petitioner from producers will be used directly in Petitioner's post
production operations. These videotapes will undergo changes in the course of post production
operations. Petitioner, therefore, receives a license to use such videotapes. 20 NYCRR 526.7(f)(3).
The delivery of videotapes to Petitioner under these circumstances is, therefore, subject to the State
and local sales and use taxes. Tax Law §§1101(b)(5) and 1105(a).
The sales tax with respect to the license to use the videotapes will not be based on the whole
of the charge for such video tape, including processing, paid by Petitioner, but only on part of such
charge. The portion subject to State sales tax will be the percentage of subscribers to Petitioner's
programs located in New York State to Petitioner's total subscribers. The portion of such charge
subject to the City tax in addition to the State tax will similarly be the percentage of Petitioner's New
York City subscribers to total New York State subscribers. Opinion of Counsel, December 10, 1965.
The electronic signals transmitted by Petitioner's playback and uplink facilities are not
tangible personal property. TSB-M-80(18)S. The transmission of such signals by Petitioner to a
satellite for broadcast purposes is not, therefore, a taxable sale of tangible personal property under
section 1105(a) of the Tax Law. Further, in transmitting such signals, Petitioner provides neither a
telegraph service nor an information service within the meaning of the Tax Law. TSB-M-80(18)S.
Petitioner's transmission of its program over its own playback and uplink facilities is, therefore, not
subject to State or local sales tax.
Providing post production services to third parties will entail audio recording and mixing,
videotape and film editing, and videotape dubbing by Petitioner. If the videotape used in post
production operations is provided by the purchaser of the service, or its agent, Petitioner will be
performing the service of processing tangible personal property, taxable under section 1105(c)(2)
of the Tax Law. 20 NYCRR 527.4(d).
Petitioner must, therefore collect State and local sales taxes on the performance of post
production services for third parties under these circumstances, unless a properly completed
exemption certificate or Direct Payment Permit received from the customer. The tax will be based
on the price charged by Petitioner for such services.
If Petitioner provides the videotape used in its post production operations, it will not be
rendering a taxable processing service. Rather, Petitioner will be making a sale of tangible personal
property. If the transaction is not excluded from the Tax Law as a purchase for resale, and does not
come within any of the exemption provisions of the Tax Law, it will be subject to State and local

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taxes by virtue of section 1105(a) of the Tax Law. The charge by Petitioner to its customer for
videotape stock provided by Petitioner and post production work performed on the videotape
represents the amount subject to tax, unless a properly completed exemption certificate or Direct
Payment Permit is received from the customer.
In both transactions involving post production for third party customers the rate of tax to be
collected will be the rate in effect where the processed videotape is delivered to the customer. When,
pursuant to the contract, Petitioner will provide playback and uplink services, such delivery will
occur at Petitioner's playback and uplink facility.
Playback and uplink services provided by Petitioner to third parties in conjunction with post
production services are not subject to sales tax. Petitioner prepares the final version of a program for
a third party. In transmitting electronic signals for the purpose of broadcasting that program,
Petitioner does not act as a mere conduit of material given to it by a third party. Petitioner is
transmitting material which it has helped create. Petitioner's playback and uplink services, therefore,
are not a telegraph service within the meaning of the Tax Law. TSB-M-80(18)S. Nor are such
services information services within the meaning of the Tax Law.TSB-M-80(18)S. Since, under
these circumstances, Petitioner's playback and uplink services do not constitute one of the taxable
services enumerated in the Tax Law, these services are not subject to sales tax. Charges for such
services, however, must be separately stated on Petitioner's bills to its customers.

DATED: December 18, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau