Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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A & M Records, Inc. v. State Board of Equalization . . . (1988)

Sales of Master Tapes and Records Are Not Exempt Services of Artists

Taxpayer, a record company, purchased master tapes and records from recording artists outside of California and used the masters to produce copies of the recordings. Taxpayer also made duplicate masters and leased them to record clubs to produce copies. Taxpayer contended that: (a) its contracts with recording artists were service contracts, not sales; (b) it was entitled to produce evidence at trial that some masters were never used in California; and (c) the duplicate masters were exempt from tax because they were leased in the same form as acquired.

The court of appeal held in favor of the Board, finding that the true object of the contracts with the recording artists was for the production of the master tapes and records, not for the services of the artists. The court also held that the trial court properly refused to allow the taxpayer to introduce evidence that some masters had never been used in California, since the taxpayer had not raised that issue in its claim before the Board. The court further held that the duplicate masters and original masters were different items of tangible property, and taxpayer could not lease the duplicates tax-free as leases of property in the same form as acquired, since it produced the duplicates from the original masters. A & M Records, Inc. v. State Board of Equalization (1988) 204 Cal.App.3d 358.