Do a TV broadcaster's transmitters, related repair labor/parts, and the electricity used to run them qualify for Texas's manufacturing sales tax exemption?

Plain-English summary

A television broadcaster argued that its transmitters -- along with the repair labor, parts, and electricity used to run them -- should be exempt from Texas sales tax, either as manufacturing equipment (Rule 3.300(d)(1)(A)) or as "containers or packing supplies" completing the manufacturing process (Rule 3.314(b)(1)). The Comptroller disagreed on both counts.

The key distinction: Tax Code § 151.318(p) treats the production of a motion picture or video recording (sold, licensed, distributed, or broadcast) as manufacturing. But a broadcaster is only "manufacturing" while it's actually producing that copy -- filming or recording it. The transmitter's job is different: it broadcasts the already-finished product to viewers. Broadcasting or exhibiting a finished recording isn't itself manufacturing, so the transmitter, its repair labor and parts, and the electricity used to run it all fall outside the exemption. The commercial-electricity exemption (§ 151.317(c)(2)(A)(i)) is limited the same way -- it only reaches electricity used to process tangible personal property for sale, not to broadcast a finished product.

The letter also addressed a second question: software and computer equipment used to compile traffic reports. The Comptroller found that equipment doesn't qualify either, because it's used to gather news before production begins, not to produce the broadcast itself. By contrast, recording equipment actually used to film or record a live broadcast does qualify for the manufacturing exemption.

What this means for you

Television and radio broadcasters

Equipment used to actually record or film content you'll broadcast can qualify for the manufacturing exemption, but equipment that transmits or broadcasts the already-finished product -- including transmitters and the electricity that powers them -- does not. Draw the line at the moment production of the recording is complete.

News-gathering and traffic-report operations

Computers and software used to gather raw information (like traffic conditions) ahead of producing a broadcast segment are treated as pre-production tools, not manufacturing equipment, and are taxable.

Accountants and tax professionals

This letter is a useful illustration of how narrowly the Comptroller reads "manufacturing" for broadcasters: the exemption tracks the physical act of producing a recording, not the broader business of operating a broadcast station. Purchases have to be sorted item-by-item against that line.

Common questions

Q: Can a broadcaster claim the manufacturing exemption on its transmitter?
A: No. Per this letter, transmitters (plus associated repair labor, parts, and electricity) broadcast an already-finished product and don't qualify, even though the broadcaster may separately qualify as a manufacturer for its production equipment.

Q: What equipment does qualify for the exemption?
A: Recording equipment actually used to film or record a live broadcast qualifies, because that's the production of the motion picture or video recording under § 151.318(p).

Q: Does software used for traffic reports qualify?
A: No, per this letter -- it's used to gather news before production begins, which the Comptroller treats as outside the manufacturing process.

Citations and references

Statutes and rules:

• Tax Code § 151.318(p) (production of a motion picture/video recording as manufacturing)
• Tax Code § 151.317(c)(2)(A)(i) (commercial electricity exemption limited to processing tangible personal property for sale)
• 34 Tex. Admin. Code Rule 3.300(d)(1)(A) (manufacturing exemption)
• 34 Tex. Admin. Code Rule 3.314(b)(1) (containers/packing supplies completing the manufacturing process)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9702164L

Original ruling text

February 27, 1997

Dear ***:

Thank you for your letter of February 19, 1997, concerning transmission
equipment used by broadcasters.

You feel that transmitters used by broadcasters should qualify as exempt per
Rule 3.300 (d)(1)(A). You have noted that broadcasters qualify as
manufacturers for their purchases of production equipment. In the alternative,
you feel that the transmitters may qualify for exemption per Rule 3.314 (b)(1)
as "containers or packing supplies purchased by manufacturers for use as part
of the completion of the manufacturing process."

Question. Are the transmitters, associated repair labor, parts and electricity
used in broadcasting exempt from tax?

Response. The exemption does not apply to the transmitter. Texas Tax Code
Section 151.318 (p) states that "(t)he production for consideration of a motion
picture or a video recording, a copy of which is sold or offered for ultimate
sale, licensed, distributed, broadcast or otherwise exhibited, is considered
"manufacturing" for the purposes of this section."

Broadcasters are only engaged in the production of this "motion picture or
video recording" when they are actually producing the copy. The statute does
not state that broadcasts themselves are tangible personal property. It also
does not state that the act of broadcasting or exhibition of the finished
copies or recording is considered manufacturing.

Texas Tax Code Section 151.317 (c)(2)(A)(i), concerning commercial electricity
purchases, limits the exemption to the processing of "tangible personal
property for sale as tangible personal property."

Section 3.314 (b)(1), concerning containers and shipping supplies, states "(for
the purposes of this rule, the manufacturing process is complete when the
tangible personal property being produced has been packaged.." (emphasis
added).

Question: The software programs and related computer equipment used for
traffic reports should also qualify as necessary and essential to the
processing equipment. Without this software and computer equipment it would be
impossible to compile the information necessary to broadcast a complete,
accurate and timely traffic report.

Response. This equipment does not qualify. It appears to be used in the
gathering of news prior to the beginning of production. Recording equipment to
actually film or record live broadcasts will qualify for exemption.

This opinion is based on the facts presented. Different facts though similar,
may result in different answers.

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,
Kevin Koller
Tax Policy Division