What Texas sales, use, hotel occupancy, and fuel taxes apply to (and can be exempted or refunded for) a motion picture production company filming in Texas?

Subject

Equipment — Used In Motion Picture/Video/Audio Recording (Cameras, Lights, Microphones, Instruments Costumes, Wind/Fog Machines/Computers)

Plain-English summary

This 1992 letter responds to a motion picture producer planning to film in Texas, laying out how Texas sales, use, hotel occupancy, and motor fuel taxes apply to a film production. The Comptroller's central point: for sales tax purposes, a film producer is treated as a manufacturer when the film will be shown in theaters or on TV, so the exemptions available to manufacturers extend to production companies.

The letter draws a sharp line based on how long an item is expected to last. Materials used directly in production (film, videotape, audiotape) and goods or equipment with a useful life of less than six months -- props, costumes, set-construction materials, lights, batteries, make-up, and similar consumables that get used up or discarded during the shoot -- can be purchased tax free with an exemption certificate, along with repair labor and parts for that equipment. Certain production services (film processing, voice-overs, Foley work, dubbing, editing) are also exempt. This useful-life exemption does not extend to rented or leased equipment.

Equipment that lasts more than six months (cameras, sound equipment, and similar durable gear) was not fully exempt at the time of this letter. Instead, the letter describes a phased-in relief program tied to purchase date: a 25% refund of state sales tax for qualifying equipment bought in 1990-91 (with no refund available for purchases from October 1991 through September 1993), a 50% reduction for purchases in the last quarter of 1993, a 75% reduction for 1994 purchases, and -- as flagged in the ALERT banner at the top of the letter -- a full exemption effective January 1, 1995, once Tax Code § 151.318 was amended to exempt manufacturing machinery and equipment (other than hand tools) regardless of useful life.

The letter also covers several related taxes: use tax on out-of-state purchases used in Texas (with credit for tax already paid to another state), a hotel occupancy tax exemption for stays of 30 or more consecutive days (must be claimed at check-in; local city/county hotel taxes can still apply), and a refund program for state fuel tax paid on off-road fuel use (generators, unlicensed vehicles, boats), claimable within 12 months of use. A separate list of items -- vehicles, fuel for on-road use, meals, office equipment, communication equipment, rented/leased equipment, security services, soft drinks, telecommunications charges, waste removal, and alcohol -- remains fully taxable and outside the refund program.

What this means for you

Film and video production companies

If you're producing content for theatrical or TV exhibition, ask suppliers about exemption certificates for props, costumes, set materials, and other items with a useful life under six months -- but be ready to state on the certificate the specific reason for the exemption (e.g., "lumber for building sets which will be thrown away within six months"). Track purchase dates carefully for cameras and other long-lived equipment, since the tax treatment for those items depended heavily on when they were bought during the 1990-1995 phase-in.

Accountants and tax professionals advising production companies

Because this letter predates the 1995 full exemption, remember it describes a transitional regime -- clients relying on this letter for current guidance should be told that manufacturing equipment (excluding hand tools) has been 100% exempt without regard to useful life since January 1, 1995, per the amendment to Tax Code § 151.318 flagged in the letter's own ALERT banner. Confirm current STAR guidance before advising on today's rules.

Business owners handling incidental costs on a Texas shoot

Note the specific carve-outs that stay taxable regardless of the manufacturing exemption: vehicle purchases/rentals, on-road fuel, meals, office equipment, phones/pagers, rented or leased equipment, security services, soft drinks, telecom services, waste removal, and alcohol. Budget sales tax into these categories even if your production otherwise qualifies for manufacturer-style exemptions.

Common questions

Q: Does a film production company automatically get manufacturer tax status in Texas?
A: Only for films intended for exhibition in theaters or on TV -- the letter states a producer "is a manufacturer when producing a film that will be exhibited in theaters or on T.V.," which triggers eligibility for manufacturer-level exemptions.

Q: Can rented camera or lighting equipment be purchased tax free under this exemption?
A: No. The letter is explicit that the useful-life exemption "does not apply to rented or leased equipment or other rented items," regardless of how long the item is expected to last.

Q: What happened to the sales tax refund for cameras and sound equipment bought in 1992?
A: Under the schedule described in the letter, no refund was available for equipment purchased between October 1, 1991 and September 30, 1993 -- the 25% refund only covered purchases from January 1, 1991 through September 30, 1991, with expanded relief (50%, then 75%, then full exemption) phased in starting in late 1993.

Q: Is hotel occupancy tax exempt for a whole production shooting on location in Texas?
A: Only the 6% state hotel occupancy tax, and only if the stay is 30 or more consecutive days, with the exemption claimed at check-in; city and county hotel taxes can still apply.

Citations and references

Statutes:

• Tex. Tax Code § 151.318 (manufacturing exemption; letter's ALERT banner notes the section was later amended to grant a full exemption on manufacturing machinery and equipment, excluding hand tools, without regard to useful life, effective 1-1-95)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205L1174D02

Original ruling text

ALERT: Section 151.318 was amended to allow 100% exemption on manufacturing machinery and equipment (excluding hand tools) without respect to useful life effective 1-1-95.

May 18, 1992

Dear ***:

I understand the *** will be filming a motion picture in Texas.

For sales tax purposes, a producer is a manufacturer when producing a film that

will be exhibited in theaters or on T.V. The exemptions available to

manufacturers are also available to these producers. In Texas, manufacturers

are allowed to purchase certain goods and services tax free.

For example, the *** may give suppliers exemption certificates

instead of paying sales tax on props, set dressing, costumes, and set building

materials provided these items have a useful life of less than six months from

the date of purchase.

To buy these items tax free, the producer gives suppliers exemption

certificates. The certificate should list the items bought and the specific

reason for the claiming the exemption. For example "lumber for building sets

which will be thrown away within six months."

Materials: Materials used directly in production activities are exempt if they

are necessary or essential to the manufacturing process. This includes film,

videotape and audio tape.

Machinery and Equipment with a Useful Life of Less Than Six Months: This group

includes some goods, machinery and equipment used directly in the production of

the film. But the equipment or machinery must be consumed and without value

within six months of the day it was bought. If the equipment is exempt, any

repair labor and repair parts or maintenance of the equipment is also exempt.

However, this exemption does not apply to rented or leased equipment or other

rented items.

Here are some examples of goods that will qualify for the exemption - if they

are used and worn out or thrown away within six months:

Batteries

Costumes

Lights

Make-up

Plants and shrubbery

Props

Repair parts for cameras, lighting equipment or sound equipment

Screenplays - printed copies

Set construction materials - paint, nails, lumber, etc.

Shooting scripts - printed copies

Special effects supplies

Services: These services can be purchased tax free - film processing, voice

overs, Foley services, dubbing and editing are exempt.

Machinery and Equipment That Lasts More Than Six Months: Machinery and

equipment that lasts more than six months and is used directly in the film

production may be exempt, depending on the date of purchase. And this exemption

does not apply to rented or leased equipment.

First there is a provision for a refund of 25 percent of the state sales tax

paid on 1990 and 1991 purchases of cameras, sound equipment and other equipment

used directly in the production. The refund will not include any local sales

taxes paid.

A producer must request a refund during the next calendar year after paying the

tax. The request is made on a claim form supplied by the Comptroller. The form

requires the name, address and Texas sales tax permit number of the seller, the

date of the purchase, the date tax was paid, the invoice number, the purchase

price and the amount of tax paid. A producer may apply for a refund of 25

percent of the state tax paid on qualifying machinery and equipment purchased

during the period beginning January 1, 1991, and ending September 30, 1991. No

refund will be paid on equipment purchased from October 1, 1991, through

September 30,1993.

A producer may claim a 50-percent reduction in state tax paid on qualifying

manufacturing machinery and equipment purchased from October 1, 1993, through

December 31, 1993. There will be a 75-percent state tax reduction for

qualifying equipment purchased in calendar year 1994. And in 1995, a producer

may claim a complete exemption from state and local sales and use tax on

qualifying equipment.

Taxable Items: Here is a partial list of the goods and services that are

taxable and not eligible for the tax refund program. Most personal property is

taxable. And, many services are taxable.

Cars, trucks, vans, and trailers - purchases and rentals

Fuel purchased for use on the roads and highways

Meals

Office equipment

Pagers, cellular phones, and other communication equipment

Rented or leased equipment

Security services

Soft drinks

Telecommunications services such as mobile phone charges

Waste removal

Wine, beer, liquor

Use Tax: Texas use tax is due on items purchased outside the state and used in

Texas. The use tax is the same rate as the sales tax. However, we do allow

credit for any sales tax paid to another state.

Hotel Occupancy Tax: The 6 percent state hotel occupancy tax is not due if you

stay for 30 consecutive days. But, you must claim this exemption when you

check-in.

County and city hotel tax may still apply.

Fuel Used Off the Road: A producer may get a refund of tax paid on fuel used

off-road. Examples of off-road use include:

Fuel used in a generator: Fuel use in unlicensed vehicles, such as tractors and

three-wheelers, and

Fuel used in boats.

You have 12 months from the day the fuel is used to claim a refund. Refund

forms are available through our toll-free number. Be sure to keep receipts -

you will need proof of the number of gallons purchased.

My number is 1-800-531-5441 if you have any questions.

Sincerely,

Adina Whittemore

Tax Administration Division