Can a photographer who sells images online buy a computer and scanner tax-free, and does it matter whether the scanner scans a negative or a finished photo?

Plain-English summary

A professional photographer who had begun selling images electronically for internet/website use bought a scanner (to import photographs for sale) and a computer (to enhance/adjust images and transmit them to clients), and asked whether these purchases qualified for the manufacturing sales tax exemption.

The Comptroller confirmed photographers who sell their images are "manufacturers" under § 151.318, and that the 1999-added § 151.318(t) (from House Bill 3211) extends the exemption to pre-press equipment like computers, cameras, and film used in the printing process. But the letter draws a precise, use-based line for each item:

• The computer: exempt tax-free purchase, but only if used to process unfinished photographs (cropping, editing, touching up) held for sale. If the same computer is also used for email, word processing, or general internet access, that's "divergent use," and tax is owed on the fair market rental value of the computer for the period of that nonexempt use (Rule 3.287(e)).
• The scanner: this is where the ruling gets specific. A scanner used to digitize an already-finished photograph — for uploading to a website or emailing to a customer — is NOT exempt, because that's not "processing" equipment; it's just transmitting an already-completed product. But a negative/transparency scanner, used to scan raw negatives into the computer as part of editing images that aren't yet finished, IS exempt, because that scanning is a step that causes a chemical or physical change to a photograph that will be sold.

What this means for you

Photographers selling images online or electronically

The tax-exempt status of your equipment turns on the stage of the image at the time the equipment is used, not just the category of "computer equipment." A scanner that digitizes a raw negative for editing is exempt manufacturing equipment; the same physical scanner used only to post a finished photo online is not. Track (and be ready to document) which scanning/computer tasks are pre-finish editing versus post-finish distribution.

Accountants advising photography businesses

This letter is a useful companion to other 1999 photographer rulings on Sec. 151.318(t): it shows the exemption line isn't drawn at the equipment category (all "computer equipment" or all "scanners") but at the specific function performed — processing an unfinished product versus handling a finished one. Also track divergent-use exposure on multi-purpose computers under Rule 3.287(e).

Common questions

Q: Is a computer used by a photographer to edit images tax-exempt?
A: Yes, if used only to enhance/adjust unfinished photographs held for sale — but tax is owed on the fair rental value for any divergent (non-photography) use like email or web browsing.

Q: Is a scanner used to scan finished photographs for a website tax-exempt?
A: No — scanning an already-finished photo for internet/web placement or transmission is not considered processing equipment.

Q: Is a negative/transparency scanner tax-exempt?
A: Yes, if it's used to scan transparencies into a computer as part of editing images not yet finished — that use causes a physical/chemical change to a photograph being processed for sale.

Q: Can another photographer rely on this letter?
A: Only the taxpayer who requested it can use it for detrimental reliance, and the ruling is based on the specific facts presented.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.318 — manufacturing exemption; photographers who sell images are manufacturers
• Tex. Tax Code § 151.318(t) — pre-press machinery/equipment/supplies exemption (added by House Bill 3211, 1999 session)
• 34 Tex. Admin. Code Rule 3.287(e) — exemption certificates; tax on divergent nonexempt use

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9911852L

Original ruling text

November 2, 1999

Dear **:

This is in response to your request for a ruling on the following fact
situation and question.

I have been advised to write to request your advice on whether or not a tax
exemption is appropriate in the case of a recent purchase for my business.

I am a professional photographer, and have begun to sell my photographs
electronically, for Internet and web site usage. For this purpose, I have
purchased a scanner to import the photographs which will be sold, and a
computer to make adjustments and enhancements to the images, and to transmit
the images electronically to my clients.

My professional organization has advised me that equipment purchased for the
creation of salable goods is exempt from state sales tax. Please advise me as
to whether these two purchases fall into that category.

Response: Equipment used by photographers to create photographs for sale is
exempt from sales tax. Texas Tax Code Section 151.318 governs the exemption of
tangible personal property used by persons (manufacturers) who fabricate or
process tangible personal property to be sold. Photographers who sell their
photographic images are manufacturers. In the recent legislative session, House
Bill 3211 added subsection (t) as a clarification to the exemption for
manufacturers in Section 151.318:

The clarification in Section 151.318(t) states:

In addition to the other items exempted under this section, pre-press
machinery, equipment, and supplies, including computers, cameras, film, film
developing chemicals, veloxes, plate-making machinery, plate metal, litho
negatives, color separation negatives, proofs of color negatives, production
art work, and typesetting or composition proofs, that are necessary and
essential to and used in connection with the printing process are exempted from
the tax imposed by this chapter if they are purchased by a person engaged in
printing or imprinting tangible personal property for sale.

A computer that is used only to process unfinished photographs, by enhancing or
adjusting (cropping, editing, touching up, etc.) unfinished pictures held for
sale, may be purchased tax-free by a photographer. Divergent use of the
computer will occur, if the computer is used for purposes other than the
creation of photographs for sale, such as email, word processing, accessing the
Internet, etc. Sales tax is due on the fair-market value rental value of the
computer during the divergent use. See subsection (e) of Rule 3.287 -
Exemption Certificates.

A scanner that is used to scan a finished photograph for Internet and web site
placement, or to electronically transmit to a customer or potential customer,
is not considered to be processing equipment and may not be purchased tax-free
as manufacturing equipment. A negative scanner, that scan transparencies into
computers used in editing images, may be purchased tax-free by photographers
because it is used during a process to cause a chemical or physical change to
photograph that will be sold.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy