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 375.0887


(1) Generally

375.0887 Qualified Motion Pictures. Company A, a limited partnership with two general partners, provides post-production services to clients, including Company B, also a limited partnership. A is the general partner of B. Thus, A and B are managed by the same two individuals. B has no employees but owns equipment which is installed, maintained, and operated by A's employees. B produces and markets various types of videotapes including promotional and "how-to" tapes, travelogues, pilot programs, trailers and commercials. In producing videotapes, B engages A to hire scriptwriters, directors, and actors on an independent contractor basis. A charges B for the use of the independent contractors with respect to B's production. Post production work, involving supplying certain electronic treatment to a "raw" videotape in order to make a "master tape" is provided by only A. The treatment includes, among other things, editing a creation of certain graphics and graphic animation, recording of the voice track to be synchronized with the picture, and the creation of special effects. A also reproduces copies of the "master tape." The following questions were asked:

(1) Are the products of B "qualified motion pictures?"

The promotional and "how-to" tapes, travelogues, pilot programs, trailers and commercials qualify as qualified motion pictures. If motion pictures for private noncommercial use are produced, such as motion pictures videotapes of weddings and graduations, they would not qualify as qualified motion pictures.

(2) Are the activities of A "qualified production services?"

When A edits, creates computer graphics or graphic animation, records voice tracks, and creates special effects on the film, tape or other audiovisual embodiment in connection with the production of all or any part of the qualified motion pictures produced by B, A performs qualified production services. A's creation of other graphics, such as artwork, would not qualify as qualified production services. A would be the consumer of such artwork. Its subsequent transfer of the artwork pursuant to a contract for qualified production services (e.g., special effects) would not be subject to tax. A's reproduction of copies of the master tape is not a qualified production service when the work performed by A is to duplicate the copies for exhibition or broadcast.

(3) Are A and B required to collect sales tax in connection with any of their activities?

A's charge to B for qualified production services is not subject to tax. A's charge to B for duplicate tapes for exhibition or broadcast is subject to tax unless the sale is a sale for resale. B's transfer of the qualified motion picture to its customers is not subject to tax under circumstances described in section 6010.6(a)(2). B's retail sales of release prints are subject to sales tax. 2/9/89.