Were copyrighted-image license fees, image-research fees, image lists, catalogs, and transportation charges taxable in Texas?

Plain-English summary

COMPANY X licensed customers to reproduce copyrighted images and sometimes charged a $75 research fee when a customer did not use any slides.

The Comptroller reaffirmed that the right to reproduce a copyrighted image under the described facts was not taxable. COMPANY X's $75 research fee also was nontaxable because the search was limited to its own inventory and arose when the image transaction was canceled, much like a restocking charge.

The result would change if the research or list covered images from third-party photographers or studios. That would be a taxable information service. A sold list limited to COMPANY X's own offerings appeared to be an internal price list and was taxable as tangible personal property, like a retailer's merchandise catalog.

Transportation of nontaxable tangible personal property or nontaxable services was not taxed.

What this means for you

The scope and form of the image search mattered. Research confined to the licensor's own inventory was treated differently from a market-wide list involving third parties.

Common questions

Was the image-reproduction license taxable? No, under the stated facts.

Was the $75 own-inventory research fee taxable? No.

What if the search included third-party images? The charge became taxable as an information service.

Was a sold internal price list taxable? Yes, as tangible personal property.

Was transportation taxable? Not when it related to nontaxable property or services.

Citations and references

• The letter did not cite a numbered statute, regulation, or case.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1110C01

Original ruling text

May 15, 1991

Dear *:

I am responding to your letter further questioning the taxability
of services provided by your client, *.

As stated in the January response to *, the right to use
a copyrighted image for the purpose of reproduction as described
in her fact situation is not taxable. In that response, I also
explained that charges for duplication and charges for information
services may be taxed. The later item is the basic concern in
your current correspondence. I have reviewed your letter and have
carefully considered the discussions you provide.

I agree that a photograph/image in itself is not commonly thought
of as "news" or "information," nor does it, within itself meet the
definition of an information service. However, photographs are
often intricate to news or current information because as the old
saying goes "a picture is worth a thousand words."

In this context, a list of properties for sale can be described in
words or can be described by photograph. Likewise, a listing of
photographs available for copyright use from various markets is
the same as a listing of real property available for lease or sale
from multiple listings: both are information services. Neither
the realty nor the image may be thought of as "current;" however,
the list maintained is "current." The sale of such a list is
taxable as an information service whether maintained manually or
electronically.

On the other hand, when I read your description of the research
provided by COMPANY X, it appears you are describing an operation
which is completely self contained. That is, the "list" and
"research" is limited to images available through COMPANY X's own
inventory; it does not encompass images available through other
photographers or studios, etc. The research fee is charged when
COMPANY X's customer does not use any of the slides. In other
words, the nontaxable "sale" is cancelled. This may be compared
with the restocking charge associated with the return of tangible
personal property to the seller, thereby cancelling the
taxable/nontaxable "sale." This fee is not taxable.

Likewise if a list is sold, it appears to be COMPANY X's internal
price list. This is taxed as the sale of tangible personal
property, much like a retailer's sale of its merchandise catalog.

Based upon my stated understanding of the service provided, the
$75 research fee charged by COMPANY X is not taxable. I should
point out that if my understanding is not accurate and COMPANY X's
research/list involves third parties, it is considered the
charge for an information service and taxable.

Your discussion regarding transportation is correct. Transporta-
tion of nontaxable tangible personal property or nontaxable ser-
vices is not taxed.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

You may also write to Tax Administration Division, Comptroller
of Public Accounts.

Sincerely,

Tax Administration Division