For a Texas advertising agency, are charges to write copy and produce, edit, or create a master (audio, video, or film) for a commercial taxable, and how does that differ from charges for copies (dubs)?

Plain-English summary

An advertising agency (or someone working with one) asked the Texas Comptroller's Tax Administration Division to clarify two things: (1) the difference between nontaxable copywriting done for "use in any medium" and taxable employee-fabricated property, and (2) how "copywriting for use in any medium" differs from "radio and television dubs" and "electrical transcriptions."

The Comptroller's answer, grounded in Subsection (a)(5) of Rule 3.321 (which defines nontaxable services), draws the line at whether the copy becomes part of employee-fabricated property that is itself sold as a taxable item. If it does, tax is due on the entire charge for that item — including any separately stated charge for the copywriting.

For master recordings specifically, the letter explains:

• A radio or television dub is a copy of an audio, video, or film master.
• Charges to create the master — including the charges to write the copy used to create it — are not taxable.
• Once copies are dubbed from the master, the charges for those copies are taxable.
• Editing an existing commercial is treated the same as creating a new master — charges to edit are not taxable.
• If an advertising agency is charged for studio time and video stock by a production or post-production company doing this master-creation or editing work, those charges are also not taxable, and the agency may issue an exemption certificate stating the exemption is for creating a master, a copy of which will be sold, licensed, distributed, or broadcast.
• However, tax is due on the sale of copies of the edited commercial.

The letter notes it is based on the facts presented and could change if the facts differ, and it references a previous accession number (9508424L) for the same matter.

What this means for you

Advertising agencies

Charges you incur to write copy and create or edit a commercial's master (audio, video, or film) are not taxable. But once dubbed copies of that master are made — whether for distribution, broadcast, or licensing — the charges for those copies are taxable, even though the master itself was not.

Production and post-production companies

Studio time and video stock charges billed to an advertising agency for creating or editing a master can be accepted as exempt from tax if the agency provides an exemption certificate stating the exemption is for creating a master, a copy of which will be sold, licensed, distributed, or broadcast.

Accountants and tax professionals

When advising on advertising/media production costs, separate the analysis into two buckets: (1) copywriting and master creation/editing (not taxable, per Rule 3.321(a)(5)), and (2) dubbing or copying from that master (taxable). The nontaxability of the master does not carry over to the copies made from it.

Common questions

Q: Is copywriting for an advertisement taxable?
A: Not by itself. Under Rule 3.321(a)(5), nontaxable services like copywriting become taxable only if the copy becomes part of employee-fabricated property that is sold as a taxable item — in which case tax is due on the entire charge for that item, including the copywriting portion.

Q: Are charges to create a master (audio, video, or film) taxable?
A: No. Charges to create a master, including the charges to write the copy used to create it, are not taxable.

Q: Are charges for copies (dubs) made from that master taxable?
A: Yes. Once copies are dubbed from the master, the charges for the copies are taxable.

Q: Is editing an existing commercial treated differently from creating a new master?
A: No — editing an existing commercial is treated the same as creating a new master, so charges to edit are not taxable.

Q: Can an advertising agency avoid tax on studio time and video stock charged by a production company?
A: Yes, if that charge is for creating or editing a master. The agency may issue an exemption certificate stating the exemption is for creating a master, a copy of which will be sold, licensed, distributed, or broadcast.

Q: Is the sale of copies of the edited commercial taxable?
A: Yes — tax is due on the sale of copies of the edited commercial.

Citations and references

Regulations:

• 34 Tex. Admin. Code Rule 3.321, Subsection (a)(5) (nontaxable services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9508L1366G11

Original ruling text

August 7, 1995

Dear **:

Thank you for your letter of July 18, 1995. You asked for a clarification
of the difference between nontaxable copywriting for use in any medium and
taxable employee-fabricated property.

Subsection (a)(5) of Rule 3.321 defines non tangible services. The
definition provides that the listed items are not taxable unless related
to the sale of employee-fabricated property or the sale of other taxable
items. Therefore, if the copy becomes a part of employee-fabricated
property, tax is due on the entire charge, including separately-stated
charges for copywriting, for the item.

You also asked that we explain how "copywriting for use in any medium"
differs from "radio and television dubs" and "electrical transcriptions."

For sales tax purposes, a radio or television dub is a copy of an audio,
video, or film master. Charges to create a master, including charges to
write the copy used to create the master, are not taxable. However, if
copies are dubbed from the master, the charges for the copies are taxable.

Editing an existing commercial is the same as creating a new master.
Charges to edit the existing commercial are not taxable. If an advertising
agency incurs charges for studio time and video stock from a production or
post-production company, these charges are not taxable. An exemption
certificate may be issued for these items. The certificate should state
that the exemption is for creating a master, a copy of which will be sold,
licensed, distributed, or broadcast. However, tax is due on the sale of
copies of the edited commercial.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line
is 512/475-0037. You also may write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9508424L