Does the Texas manufacturing exemption apply to equipment, materials, and services purchased by a television broadcaster?

Plain-English summary

Superseding-law note: The letter itself carries an ALERT stating that property used in producing motion picture, video, or audio recordings and broadcasts became subject to Section 151.3185 effective October 1, 1999. This 1994 letter predates that change, so its analysis reflects pre-1999 law; taxpayers should check current Comptroller guidance for purchases made on or after that date.

A television broadcaster asked the Comptroller's office to clarify which sales tax exemptions apply to broadcasting equipment, materials, and services, and provided a list of specific items for review. The Comptroller explained that because broadcasters produce TV and radio programs for consideration, they qualify for the manufacturing exemption in Section 151.318.

That exemption is limited to: (1) materials necessary and essential to, and used directly in, producing a broadcast program for which the station will receive consideration; (2) machinery, equipment, and accessories used directly in production that will be consumed and without value within six months of purchase; and (3) for equipment/machinery lasting longer than six months and used directly in production, a state tax reduction of 75 percent (with local city, county, or transit taxes still due) — with that equipment becoming fully exempt from state and local tax after January 1, 1995.

The exemption applies only to machinery and equipment used directly in the production process — examples given are cameras and accessories, lights and accessories, and microphones and accessories. It does not cover office equipment, transportation equipment, transmission equipment, or equipment that is merely incidental to production.

Applying these rules to the broadcaster's submitted list:

• Television systems design and engineering — Designing a production system is generally not an improvement to realty and is not a taxable service unless the designer also sells the equipment; if the equipment is sold, tax is due on the design service unless the customer claims the manufacturing exemption.
• Television system installation — Installing a system (including cables) that the installer did not sell is not taxable; if the installer also sold the equipment and/or cables, tax is due unless the customer claims the manufacturing exemption.
• Cable and connectors — Taxable, unless the customer claims the manufacturing exemption.
• Consoles and racks — Taxable, unless the customer claims the manufacturing exemption.
• Electronic equipment — Taxable, unless the customer claims the manufacturing exemption.

To claim the exemption, the broadcaster must give the seller an exemption certificate stating the equipment will be used directly in production.

What this means for you

Television and radio broadcasters

If you produce programs for consideration, you can claim the Section 151.318 manufacturing exemption on materials and short-lived equipment used directly in production, and a phased-in reduction (75 percent, moving to full exemption after January 1, 1995) on longer-lived production equipment. To claim it, give your equipment seller an exemption certificate. The exemption does not reach office equipment, transportation equipment, transmission equipment, or equipment that is only incidental to production — those remain taxable.

Vendors selling equipment, design, or installation services to broadcasters

Whether you owe tax on design or installation services depends on whether you also sold the underlying equipment: if you didn't sell it, labor-only design/installation is generally not taxable; if you did sell it, collect tax on the related services unless your broadcaster-customer furnishes a valid manufacturing exemption certificate. Straight equipment sales (cable, connectors, consoles, racks, electronic equipment) are taxable unless the customer claims the exemption.

Anyone relying on this letter today

This is a 1994 letter. The Comptroller's own ALERT on the letter states that Section 151.3185, effective October 1, 1999, brought property used in producing motion picture, video, or audio recordings and broadcasts under a different statutory framework. Confirm current treatment before relying on this analysis for post-1999 purchases.

Common questions

Q: Do television broadcasters qualify for Texas's manufacturing exemption?
A: Yes. Because they produce programs for consideration, broadcasters qualify for the manufacturing exemption under Section 151.318, covering materials and equipment used directly in production.

Q: What equipment is excluded from the exemption?
A: Office equipment, transportation equipment, transmission equipment, and equipment that is only incidental to the production process are not covered.

Q: Is equipment design or installation service taxable?
A: Only if the person providing the design or installation also sold the equipment. In that case, tax is due on the service unless the customer claims the manufacturing exemption; if the equipment wasn't sold by that same party, the labor-only service is not taxable.

Q: Does this 1994 letter still reflect current law?
A: Not entirely. The letter carries its own ALERT that Section 151.3185, effective October 1, 1999, changed the tax treatment of property used to produce motion picture, video, or audio recordings and broadcasts. Confirm current Comptroller guidance for purchases after that date.

Citations and references

• Tex. Tax Code § 151.318 (manufacturing exemption; basis for the ruling's analysis)
• Tex. Tax Code § 151.3185 (effective 10/01/1999; referenced only in the letter's superseding-law ALERT, not applied in the 1994 analysis itself)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9410L1317F03

Original ruling text

ALERT: Property used in the production of motion picture, video, or audio recordings and broadcasts became subject to the provisions of 151.3185 effective 10/01/1999.

October 13, 1994

Dear *****:

You wrote asking for clarification of the sales tax exemptions that apply

to broadcasters. Because broadcasters produce TV and radio programs for

consideration, they qualify for the manufacturing exemption found in

Section 151.318.

This exemption is limited to:

materials necessary and essential to and used directly in the production

of broadcast program for which the station will receive consideration, and

machinery and equipment and accessories used directly in the production if

the equipment or machinery will be consumed and without value within six

months from the day it was purchased, and

a state tax reduction of 75 percent on the purchase of machinery and

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

productions. The local taxes - any city, county, or transit taxes will

be due on these purchases. After January 1, 1995, this equipment will be

exempt from state and local taxes.

The exemption only applies to machinery and equipment used directly in the

production process. Examples include cameras and accessories, lights and

accessories, and microphones and accessories. The exemption does not

include office equipment, transportation equipment, transmission

equipment, and equipment incidental to the production.

Here is the list you sent:

Television systems design and engineering

This is the design of a production system. Typically, a production system

is not an improvement to realty. Design of the system is not a taxable

service unless you sell the equipment. If you sell the equipment, you

should collect tax on this service unless your customer claims the

manufacturing exemption.

Television system installation

Installation of a system (including cables) that you did not sell is not

taxable. If you sell the equipment and/or the cables, collect tax unless

your customer claims the manufacturing exemption.

Cable and connectors

Collect tax on the cable and connectors unless your customer claims the

manufacturing exemption.

Consoles and racks

Collect tax on the consoles and racks unless your customer claims the

manufacturing exemption.

Electronic equipment

Collect tax on this equipment unless your customer claims the

manufacturing exemption.

To claim an exemption, the broadcaster should give you an exemption

certificate stating the equipment will be used directly in the production.

I hope this answers your questions. My number is 463-4614, if you have any

other questions.

Sincerely,

Adina Whittemore

Tax Administration

NOTE: Previous Accession Number 9410596L