Does producing a motion picture, video, or audio recording for sale, license, distribution, broadcast, or exhibition count as manufacturing for Texas sales tax purposes, and can a producer buy or rent production materials, equipment, and services (like film processing, dubbing, and editing) tax-free?

Subject

Producer — Motion Picture, Video, And Audio Production Treated As Manufacturing — Exemption For Materials, Equipment, And Services Including Film Processing, Dubbing, And Editing

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9311L1283F11

Plain-English Summary

This 1993 letter tells a producer that making a motion picture, video recording, or audio recording — where a copy will ultimately be sold, licensed, distributed, broadcast, or exhibited — is treated by the Comptroller as manufacturing. That classification unlocks several sales and use tax exemptions for production companies.

Using an exemption certificate, a producer can buy tax-free:

• Materials that are necessary and essential to, and used directly in, the production.
• Machinery, equipment, and accessories used directly in the production, as long as that equipment or machinery will be consumed and have no remaining value within six months of purchase.
• Processing services used in production, including film processing, voice-overs, [a redacted service — likely Foley/sound effects work], and editing.

The letter also describes a phase-in schedule for the exemption on qualifying manufacturing machinery and equipment: a 50% reduction in state sales tax for equipment purchased between October 1, 1993 and December 31, 1993, a 75% reduction for equipment purchased during calendar year 1994, and a full (100%) exemption from state and local sales and use tax for equipment purchased starting in 1995.

Separately, a producer can also claim an exemption on machinery and equipment that is rented for use directly in the production process — the letter gives cameras, lights, costumes, microphones, and fog/wind machines as examples — and if the rental itself is exempt, no tax is due on associated transportation and damage-waiver charges. This rental exemption does not cover office equipment, transportation equipment, motor vehicles, hand tools, or equipment that is merely incidental to the production.

To claim any of these exemptions, the producer completes an exemption certificate stating that the item will be used directly in producing a motion picture, video, or audio recording that will be sold, licensed, distributed, broadcast, or exhibited.

Finally, the letter includes a partial list of goods and services that do not qualify for the manufacturing exemption, including battery chargers, bull horns, cars/trucks/vans/trailers, director's chairs, road fuel, gas cans, generators, ice chests, janitorial supplies, ladders, meals, non-special-effects microwave link systems, mobile offices, ordinary pagers/cellular phones, rakes, security services, shipping cases, shovels, sledgehammers, soft drinks, sun umbrellas, mobile phone telecommunication charges, waste removal, water coolers, and alcoholic beverages.

What This Means For You

Two ALERT banners at the top of this letter flag that the law has since changed twice, and both changes make the exemption more generous than what's described in the 1993 letter body:

1. Effective January 1, 1995, Tax Code Section 151.318 was amended to allow a 100% exemption on qualifying manufacturing machinery and equipment (excluding hand tools) without regard to useful life. The letter's own text already anticipated the 1995 step of the phase-in reaching full exemption — the ALERT confirms that as of 1-1-95 the exemption became complete and permanent (not just for that one year), and dropped any useful-life restriction that might otherwise have applied to the equipment.
2. Effective October 1, 1999, Tax Code Section 151.3185 was added specifically to address the motion picture industry. This means that for production activity on or after that date, producers should look to the newer, motion-picture-specific statute rather than relying solely on this 1993 letter's general manufacturing-exemption reasoning.

If you are a film, video, or audio producer in Texas today: This letter describes the state of the law as of November 1993, including a temporary phase-in schedule (50%/75%/100% across late 1993 through 1995) that is no longer relevant — the exemption has been full since 1-1-95, and a dedicated motion-picture statute (Section 151.3185) has existed since October 1999. Use this letter only as historical background on how the manufacturing classification and exemption certificate process originated; consult current Section 151.318 and 151.3185 (and related rules) for the operative rules.

If you're deciding what qualifies for the exemption: The letter's test is whether an item is used directly in the production process. Items that are merely convenient or incidental — office equipment, general communications gear, meals, water coolers, security, waste removal — are excluded even if used on a production set, per the letter's own example list.

Q&A

Q: Does making a movie or video count as "manufacturing" for Texas sales tax purposes?
A: Yes, according to this letter — production of a motion picture, video, or audio recording, a copy of which will be sold, licensed, distributed, broadcast, or exhibited, is considered manufacturing.

Q: Can a producer buy film processing, dubbing, and editing services tax-free?
A: Yes. The letter states a producer may use an exemption certificate to claim exemption on processing such as film processing, voice-overs, a redacted service, and editing.

Q: What about equipment purchased for the production — is it fully tax-exempt?
A: It depends on when it was purchased, per the letter's phase-in schedule: 50% state tax reduction for equipment bought October 1 through December 31, 1993; 75% reduction for equipment bought in calendar year 1994; and full exemption from state and local sales and use tax for equipment bought in 1995. The ALERT confirms that starting January 1, 1995, the exemption became a full 100% exemption without regard to useful life.

Q: Can equipment be rented tax-free instead of purchased?
A: Yes, if the machinery and equipment is used directly in the production process — the letter gives cameras, lights, costumes, microphones, and fog/wind machines as examples. If the rental is exempt, associated transportation and damage waiver charges are also not taxed.

Q: What doesn't qualify for the exemption?
A: The letter lists numerous excluded items, including office equipment, transportation equipment, motor vehicles, hand tools, equipment merely incidental to the production, director's chairs, generators, mobile offices, security services, meals, and alcoholic beverages, among others.

Q: Is this 1993 letter still the current rule?
A: Not entirely. The ALERT banners note that Section 151.318 was amended effective 1-1-95 to make the manufacturing equipment exemption a full 100% exemption without regard to useful life, and that Section 151.3185 was added effective 10/01/1999 specifically for the motion picture industry — so producers today should check those provisions rather than relying only on this letter's 1993 phase-in language.

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.

ALERT: Section 151.3185 was added to the Tax Code to specifically address the motion picture industry effective 10/01/1999.

November 17, 1993

Dear **:

The production of a motion picture or a video or audio recording, a

copy of which will be sold or offered for ultimate sale, license,

distribution, broadcast or exhibition is now considered manufacturing.

Production companies may claim the following exemptions when producing

a motion picture or a video or audio recording, a copy of which will

be sold or offered for ultimate sale, license, distribution, broadcast or

exhibition

A producer may use an exemption certificate to claim a tax exemption

when purchasing: materials necessary and essential to and used

directly in the production, machinery and equipment and accessories

used directly in the production if the equipment or machinery will be

consumed and without value within six months of the day it was bought,

processing, such as film processing, voice overs, ** services,

and editing.

A producer may claim a 50-percent reduction in state sales 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.

A producer may claim an exemption from tax on machinery and equipment

rented for use in the production. The exemption only applies to

machinery and equipment used directly in the production process.

Examples include cameras and accessories, lights and accessories,

costumes, microphones and accessories, fog machines and wind machines.

This exemption does not include office equipment, transportation

equipment, motor vehicles, hand tools and equipment incidental to the

production.

If the rental is exempt, no tax is due on associated transportation and

damage waiver charges.

To claim an exemption, a producer completes an exemption certificate

stating the equipment will be used directly in the production of a

(one of the following) motion picture, video or audio recording a copy

of which will be tone or more of the following) sold, licensed,

distributed, broadcast or exhibited.

There are limitations on the manufacturing exemption. Here is a partial

list of the goods and services that do not qualify for the exemption:

Battery charger

Bull horn

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

Director's chair

Fuel purchased for use on the roads and highways

Gas can

Generator

Ice chest

Janitorial supplies or equipment

Ladder

Meals

Microwave link system (unless the system is rented to create special

effects)

Mobile offices

Pagers, cellular phones, and other communication equipment (except those

used exclusively on the set)

Rake

Security services

Shipping case

Shovel

Sledge hammer

Soft drinks

Sun umbrella

Telecommunication services such as mobile phone charges

Waste removal (including waste that will be recycled)

Water cooler

Wine, beer, liquor

My number is 512/463-4614, if you have any questions.

Sincerely,

Adina Whittemore

Tax Administration Division

NOTE: Previous Accession Number 9402009L.2 and/or 9402009L