A company duplicates (dubs) master audio or video tapes into copies. Does dubbing count as manufacturing or processing, and can the company get a refund or reduction of sales/use tax on its dubbing equipment?

Plain-English summary

A taxpayer that duplicates master video tapes (making "dubs") asked the Comptroller about the tax treatment of this activity. The Comptroller confirmed that making duplicates of master tapes is processing or manufacturing, which means the taxpayer's dubbing machinery and equipment may qualify for a sales or use tax refund or reduction under a phased-in schedule tied to the purchase date.

The refund/reduction schedule described in the letter is:

• January 1, 1991 – September 30, 1991: a refund of 25% of the state tax paid on dubbing machinery and equipment (local sales taxes are not refunded); the refund must be requested during the calendar year after the tax was paid, using a Comptroller claim form.
• October 1, 1991 – September 30, 1993: no refund on equipment purchased in this window.
• October 1, 1993 – December 31, 1993: a 50% reduction in state tax on dubbing equipment purchased during that period.
• Calendar year 1994: a 75% state tax reduction for manufacturing equipment purchased that year.
• Calendar year 1995: a complete exemption from state and local sales and use tax on qualifying dubbing equipment purchases.

None of the exemption, reduction, or refund provisions apply to rented or leased equipment. The letter also confirms the taxpayer may claim an exemption on supplies used and consumed in the dubbing process, and may issue a resale certificate to suppliers when buying blank tapes that will be resold as duplicates — but must pay tax on any tapes not resold to customers, and must collect tax on the total charge for the dubs it sells.

What this means for you

Audio/video duplication and dubbing businesses

If your business makes copies ("dubs") of master audio or video tapes, this letter treats that activity as processing or manufacturing for Texas sales/use tax purposes. That classification is what opens the door to the equipment refund/reduction schedule described above — but note the schedule is date-specific to purchases made in the early-to-mid 1990s, so the percentages and windows here are historical and would need to be checked against current law for any purchase made today.

Anyone claiming the equipment refund

The refund is not automatic — you must affirmatively request it during the calendar year after the tax was paid, using the Comptroller's claim form, which asks for the seller's name, address, and Texas sales tax permit number, plus the purchase date, date tax was paid, invoice number, purchase price, and tax amount paid. Rented or leased dubbing equipment does not qualify for any of the refund, reduction, or exemption provisions.

Buying blank tape stock and consumable supplies

Supplies that are used and consumed during the dubbing process can be purchased tax-exempt. Blank tapes intended for resale as duplicates can be bought using a resale certificate — but if some of those tapes are not ultimately resold to a customer, tax is owed on those. Tax must be collected on the full charge to the customer for the finished dubs.

Common questions

Q: Is making duplicate copies of master video tapes considered "manufacturing" or "processing" for Texas tax purposes?
A: Yes — the letter states that making duplicates of master tapes is processing or manufacturing.

Q: Can a business get money back on sales/use tax it already paid for dubbing equipment?
A: Yes, if the equipment was purchased between January 1, 1991 and September 30, 1991, the business can apply for a refund of 25% of the state tax paid (not local tax), by requesting it during the following calendar year on a Comptroller claim form.

Q: What about equipment purchased right after that refund window closed?
A: No refund is available for dubbing equipment purchased from October 1, 1991 through September 30, 1993, according to the letter.

Q: Does the tax break ever become a full exemption?
A: Per the letter's schedule, yes — after a 50% reduction (Oct 1 - Dec 31, 1993) and a 75% reduction (calendar year 1994), qualifying dubbing equipment purchased in calendar year 1995 would be completely exempt from state and local sales and use tax.

Q: Does the refund/reduction/exemption apply to leased or rented dubbing equipment?
A: No — the letter is explicit that the exemption, tax reduction, and refund provisions do not apply to rented or leased equipment.

Q: Can this taxpayer's supplier relationship avoid tax on blank tapes bought for resale?
A: Yes — a resale certificate may be given to the supplier when purchasing tapes that will be resold as duplicates, but tax must still be paid on any tapes not actually resold to customers, and tax must be collected on the total charge for the dubs sold.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1183D01

Original ruling text

July 20, 1992

Dear **:

As we discussed, ** duplicates master video tapes. Making duplicates
of master tapes is processing or manufacturing. Dubbing equipment may qualify
for a sales or use tax refund or reduction.

You may apply for a refund of 25 percent of the state tax paid on dubbing
machinery and equipment purchased during the period beginning January 1, 1991,
and ending September 30, 1991. (Any refund will not include any local sales
taxes paid.) No refund will be paid on equipment purchased from October 1,
1991,through September 30, 1993.

You must request the 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.

Beginning October 1, 1993, through December 31, 1993, you may claim a
50-percent reduction in state tax paid on dubbing equipment purchased during
that period. There will be a 75-percent state tax reduction for manufacturing
equipment purchased in calendar year 1994. And in 1995, you may claim a
complete exemption from state and local sales and use tax on any purchase of
dubbing qualifying equipment.

The exemption, tax reduction and the refund provision do not apply to rented or
leased equipment.

You may also claim an exemption from tax on any supplies that are used and
consumed during the dubbing process. And you may give a resale certificate to
your supplier when you purchase tapes that will be resold as duplicates. Don't
forget to pay tax on any tapes that are not resold to your customers and to
collect tax on the total charge for the dubs.

If you have any questions or need more information, please call. My number is
1-800-531-5441 ext. 3-4614. Or you may write to the Tax Administration
Division.

Sincerely,

Adina Whittemore
Tax Administration Division