Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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375.0000 MOTION PICTURES—Regulation 1529

Annotation 375.0057


(1) In General—Producers

375.0057 Format Changes, EPKs and Screeners—When Taxable. The United States and some parts of the world utilize a "NTSC" format for videotapes. Other parts of the world utilize other formats such as "PAL" or "SECAM." A studio will sometimes retain a firm to convert a qualified motion picture from one broadcast format to another broadcast format. To complete the work, the firm purchases raw film or tape stock, uses its machinery to transfer the qualified motion picture onto the raw film or tape, and then sells the resulting product to the studio. Sometimes the conversion results in the studio obtaining a single master in another format, and additional post-production is required prior to manufacturing release prints. Other times multiple copies are produced.

Regulation 1529(d)(11) defines a release print as a copy of a qualified motion picture complete in all aspects, which is of a quality suitable for exhibition or broadcast. The manufacture of release prints is not the performance of qualified production services and the sale of a release print to a person for exhibition or broadcast is a retail sale subject to sales tax. (Regulation 1529(b)(3)(A).) Therefore, if the firm converts a qualified motion picture from an NTSC format into multiple broadcast quality copies (release prints) in a different format, the charges will be taxable, absent some exemption or exclusion, e.g., a sale for resale or a sale in interstate or foreign commerce. However, if the conversion is to a different format upon which additional post production must be performed before release prints can be made (such as the addition of foreign language credits and sound track), the work of the company to perform the conversion constitutes qualified production services, and the charges are not taxable.

Electronic Press Kits (EPKs) and "Screeners" may or may not fall into the category of release prints. An EPK is either a video or DVD prepared for movie studios to be distributed to local television stations prior to the release of a new movie. The studio sends a master of the EPK to the duplicating facility, which fabricates several hundred tape or DVD copies of the EPK for the studio. EPKs often require additional sound editing and color correction before the tape or DVD can be broadcast. If the EPKs are of broadcast quality and are used for exhibition or display without further editing, they constitute release prints and the charges of the duplicating facility are taxable. If the EPKs are not of exhibition or broadcast quality, then the preparation of the EPKs constitutes qualified production services and the charges would be nontaxable.

"Screeners" are promotional or marketing copies of motion pictures that are distributed to video stores, critics, industry executives, etc. for personal use. Screeners routinely are "burned in" with an anti-piracy warning making them unsuitable for broadcast or exhibition. If the screeners have anti-piracy warnings, they do not qualify for exhibition or broadcast and are not release prints. Charges to produce such screeners would not be taxable. 4/8/04. (2005–2).