Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 330.2715.600


330.2715.600 Radio Commercials Delivered Electronically. A taxpayer is in the business of sending radio commercials from recording studios hired by their customers (advertising agencies) directly to radio stations through a multimedia communications network established by the taxpayer. The multimedia communications network is comprised of Record Send Terminals (RST's) located at various recording studios, and Receive Playback Terminals (RPT's) located at radio stations. The RPT's and RST's communicate with the taxpayer's Network Operations Center located in California through standard telephone lines. The recording studios do not pay taxpayer for use of the RST's or RPT's. Rather, taxpayer provides such equipment to them free of charge.

The RST's and RPT's are essentially customized multimedia computers (equipped with modems) that are either purchased or leased by the taxpayer, with the taxpayer paying sales tax reimbursement or use tax resulting from the purchase or lease. The Taxpayer's Network Operations Center functions essentially like a switchboard, receiving radio commercials from an RST located at a recording studio and routing the radio commercial to the appropriate RPT at the radio station.

The taxpayer's charges to advertising agencies are based on the number of commercials distributed at one time to a radio station on the agencies' behalf and the time frame within which the distribution is made. In cases where a radio station is not part of the taxpayer's multimedia communications network, i.e., the radio station does not have an RPT on-site, the taxpayer will transfer the radio commercial onto audio tape at its out-of-state facility and have the tape delivered by courier to the radio station. In those instances, the taxpayer pays sales tax on the purchase price of the blank tapes.

Under the facts presented, the taxpayer is regarded as using the RST's and the RPT's itself, rather than leasing them. The charges made by the taxpayer are not for the RST's and RPT's, but for the transmission of the recordings. The transfer electronically of the radio commercials from the recording studios to the radio station through the taxpayer's multimedia communications network is not a sale of tangible personal property and, therefore, is not a taxable transaction.

On the other hand, when the taxpayer's out-of-state facility copies a radio commercial onto audio tape and then sends the audio tape to a radio station in California, there is a transfer of tangible personal property, the audio tape. Since the taxpayer is a retailer engaged in business in California, the transfer of the audio tape for a measurable monetary consideration to a radio station in California is a taxable transaction. The measure of tax for the transfer of the audio tape is the sales price of the unprocessed recording media (the blank audio tape). (Regulation 1527(a)(1).) 1/4/96.