Are in-flight movie projection systems and the movie films rented to airlines taxable in New York, and where does delivery occur?

Plain-English summary

Inflight Services, Inc. contracts with airlines to furnish, for a fixed monthly charge, light-weight film projectors, screen assemblies, and ear sets, and to supervise installing this equipment on aircraft; it keeps title and the airline returns the gear at contract's end. It also supplies a set number of feature films per year. It books films with California distributors, ships them to New York, screens them for airline reps in New York City, then installs some reels on aircraft at New York airports but ships most prints (by COMAT, at no charge) to airports outside New York. Booking orders warrant the film "will not be exhibited in or over New York State." It asked whether it owes or must collect New York sales tax on the film rentals.

The Department's holdings:

• The projection equipment is exempt. The film projection systems installed on aircraft are exempt commercial-aircraft machinery and equipment under § 1115(a)(21).
• The related services are exempt too. Preparing projectors for use, exchanging movie reels, and rewinding film qualify for the § 1105(c)(3)(v) aircraft exception, so no tax is due on those service charges.
• The films themselves are not exempt. Movie films are neither machinery/equipment nor property for aircraft maintenance and repair, so the § 1115(a)(21) exemption does not reach them.
• Film rentals are taxed on a destination basis. New York sales tax is a "destination tax" — the point of delivery controls both the tax incidence and the rate (20 NYCRR 525.2(a)(3)); that the film is not shown in or over New York doesn't matter (F & M Schaefer Brewing Co. v. Gerosa). A taxable transaction occurs when a film is installed on aircraft in New York, or delivered in New York to an airline for installation by its own people. But if a film is merely delivered in New York to an airline acting as a common carrier for shipment to Inflight's out-of-state employees, no taxable transfer occurs — with proper supporting documentation.
• Month-to-month billing follows the film. A rental with possession transferred in New York makes that month's charge taxable; no tax is due on later monthly billings if the film hasn't been exhibited in or over New York that period and is in fact exported for out-of-state use.
• Re-rental and self-use. Films intended for re-rental can be rented from the distributor tax-free with a Resale Certificate (Form ST-120); but self-use of the films in New York (e.g., previews before airline approval) is subject to the compensating use tax (§ 1110).
• Separate the charges. When an invoice mixes taxable and exempt charges, they must be separately stated, or tax applies to the entire amount (20 NYCRR 533.2(a)(1), (b)(2)).

What this means for you

Equipment and content are taxed differently. Machinery and equipment installed on commercial aircraft (and services on it) can be exempt, but the media or content supplied with it — like movie films — is analyzed on its own and may be fully taxable.

Delivery point drives the tax, but exporting for out-of-state use can lift it. A New York delivery to a customer is generally taxable even if the goods leave the state right away. But delivering to a common carrier for out-of-state shipment, and actually exporting for out-of-state use, can avoid the tax — provided you keep documentation.

Separate your invoice lines and mind self-use. Break out taxable versus exempt charges or the whole invoice is taxed; buy re-rental inventory with a resale certificate; and remember that using rental property yourself in New York (previews, demos) triggers use tax.

Common questions

Q: The projectors we install on aircraft — are those taxable?
A: No. Film projection systems installed on commercial aircraft are exempt machinery and equipment under § 1115(a)(21), and the services of preparing/exchanging/rewinding qualify for the § 1105(c)(3)(v) aircraft exception.

Q: We deliver a film in New York but it's shipped out of state and never shown here. Is the rental taxable?
A: If you deliver it to the airline as a common carrier for out-of-state shipment and it's exported for out-of-state use, no taxable transfer occurs — but you must keep documentation. If the film is installed on aircraft in New York or delivered to the airline here for its own installation, it's taxable.

Q: We preview the films in New York before the airline accepts them. Any tax on that?
A: Yes. Self-use of the films in New York — such as previews — is subject to the compensating use tax under § 1110, even though the films are otherwise held for re-rental.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — taxes retail sales, including rentals, of tangible personal property
• Tax Law § 1115(a)(21) — exempts commercial aircraft and machinery/equipment installed on it
• Tax Law § 1105(c)(3) — taxes installing/maintaining/servicing property; exception (v) for aircraft-related services
• Tax Law § 1110 — compensating use tax (on self-use in New York)
• 20 NYCRR 525.2(a)(3) — New York sales tax is a "destination tax"; delivery point controls
• 20 NYCRR 533.2(a)(1), (b)(2) — taxable and exempt charges must be separately stated

Cases and determinations cited:

• F & M Schaefer Brewing Co. v. Gerosa, 4 N.Y.2d 423, aff'd 3 A.D.2d 898, appeal dismissed 358 U.S. 282 — a sale with delivery taken in the taxing state is taxable even if the goods are transported out immediately
• Matter of Vincent S. Jerry & Sons Inc., Decision of the State Tax Commission, Feb. 22, 1980, TSB-H-80(58)S

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a86_52s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86(52)S
Sales Tax
December 10, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S840518A

On May 18, 1984 a Petition for Advisory Opinion was received from Inflight Services, Inc.
485 Madison Avenue, New York, New York 10022.
The issue raised is whether Petitioner is liable for the payment or collection of New York
State sales tax with respect to movie film prints rented to domestic and foreign airlines.
Petitioner contracts with commercial airlines to furnish, for a fixed monthly charge, special
light-weight film projectors, screen assemblies and ear sets, and to provide engineers to supervise
the installation of this equipment into aircraft by the manufacturer. Petitioner retains title to the
projection system and the airline agrees to return such equipment to petitioner upon termination of
the contract.
The rental agreement ("Agreement") between Petitioner and an airline further requires
Petitioner to supply a certain number of full feature movie films per year for each projection system.
Petitioner places bookings for the film prints with motion picture distributors in California and
engages a common carrier to transport the prints to its New York offices. Petitioner has the films
mounted on reels and arranges screenings of each film for airline representatives to be held in New
York City. After acceptance of a film by the airline, some reels may be placed on projectors in
aircraft located in New York airports, but most of the prints of the new film issue are shipped by
COMAT (company materials airline transportation) at no charge to Petitioner to various airports
outside New York State for delivery to aircraft at such locations.
Petitioner's employees are available at all major airports within the United States to perform
systems maintenance and the services of exchanging and rewinding films. The Agreement states that
where such services are to be performed outside of the United States and Canada, Petitioner may
train personnel of the airline to perform the services of preparing projectors and movie reels for use
on the next flight.
The terms of the Agreement commit Petitioner to supply 36 motion picture films in each 12
month period and the airline to pay a set film rental fee and a fixed service charge for each completed
motion picture showing. Petitioner is required to render billings of such charges to the airline by the
calendar month.
Copies of booking orders supplied by Petitioner state: "We hereby warrant that said film will
not be exhibited in or over New York State". Conversely, the Agreement specifies that the airline,
"in its sole discretion," will determine when the exhibit of a film is consistent with its schedules.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86(52)S
Sales Tax
December 10, 1986

Petitioner contends that its rentals and re-rentals of movie films are not taxable transactions
because possession is taken and conveyed outside of New York State and, moreover, no use occurs
within the State.
Section 1105(a) of the Tax Law imposes a sales tax on the receipts from every retail sale
(which includes rental) of tangible personal property, "except as otherwise provided in this article."
Section 1115(a) of the Tax Law (as added by L. 1978, Ch. 773, effective March 1, 1979)
provides an exemption from New York State sales and use tax for:
(21) "Commercial aircraft primarily engaged in intrastate, interstate or foreign
commerce, machinery or equipment to be installed on such aircraft and property used
by or purchased for the use of such aircraft for maintenance and repairs and flight
simulators purchased by commercial airlines."
The film projection systems furnished by Petitioner for installation on aircraft are exempt
machinery and equipment within the meaning and intent of the above quoted section of the Tax Law.
The exemption, however, does not extend to the motion picture films supplied by Petitioner, because
they are neither machinery or equipment, nor property used for the maintenance and repair of
aircraft.
Accordingly, rentals of film prints by Petitioner to an airline are subject to the sales tax,
which is deemed to be a "destination tax", in the sense that "the point of delivery or point at which
possession is transferred by the vendor to the purchaser or designee controls both the tax incident
and the tax rate". (20 NYCRR 525.2(a)(3)). The fact that the film is not shown in or over New York
State has no bearing on the tax consequence. The Courts have held that:
[a] sale of goods in which delivery is taken by the purchaser within the seller's state
is a local transaction which is taxable; ... and it is immaterial "that the goods are to
be transported out of [the taxing state] immediately on delivery", for the
"consumption of the transaction was an event within [the taxing state] which gave it
authority to levy tax on ... the sales," (citation omitted). F & M Schaefer Brewing
Co. v. Gerosa, 4 NY 2d 423, 427; affd 3 AD2d 898; appeal dismissed, 358 U.S. 282).
Consequently, a taxable transaction occurs whenever a film is installed by Petitioner on
aircraft located in New York State, or is delivered, within the State, to an airline for installation on
aircraft by its own personnel. If a film is merely delivered in New York to an airline acting as a
common carrier for shipment to Petitioner's employees at an out-of-State location, no taxable transfer
of property has taken place and Petitioner need not collect sales tax thereon, provided proper
documentation is maintained to support such transactions.
Petitioner bills the airline for movie rentals on a month-to-month basis. Therefore, the rental
of a film with possession transferred in New York subjects the rental amounts charged for that film
in the month in which transfer occurred to the applicable New York State and local sales tax. No

-3­
TSB-A-86(52)S
Sales Tax
December 10, 1986

tax will be due on rentals charged on subsequent monthly billings if the film has not been exhibited
in or over New York State in that transaction period and, in fact, is exported from New York State
for use outside New York State. Cf. Matter of Vincent S. Jerry & Sons Inc., Decision of the State
Tax Commission, Feb. 22, 1980, TSB-H-80 (58)S.
Section 1105(c)(3) of the Tax Law (as amended by L. 1978, Ch. 773, effective March 1,
1979) imposes a sales tax on the receipts from every sale of "[i]nstalling tangible personal property
... or maintaining, servicing or repairing tangible personal property, ... except:
(v) such services rendered with respect to commercial aircraft, machinery or
equipment and property used by or purchased for the use of such aircraft as such
aircraft, machinery or equipment, ... are specified in [1115(a)(21)] of this article....
Petitioner's services of preparing projectors for use, including exchanges of movie reels and
rewinding film, qualify for this exemption. Thus, no tax is due on service charges billed to the
airline under the terms of the Agreement.
It should be noted that whenever Petitioner renders to its customer an invoice which includes
both charges subject to tax and exempt charges, the taxable and nontaxable amounts must be stated
separately thereon. If such amounts are not so separately stated, tax must be collected on the entire
amount charged. 20 NYCRR 533.2(a)(1);(b)(2).
Finally, insofar as film prints are intended for re-rental, no tax is due on their rental from the
distributor if Petitioner furnishes that supplier with a properly completed Resale Certificate (Form
ST-120). However, any self use of these films by Petitioner within New York State, such as for
previews preceding approval by an airline, is subject to the compensating use tax imposed by Section
1110 of the Tax Law.

DATED: December 10, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.