Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
515.0000 SERVICE ENTERPRISES GENERALLY—Regulation 1501
(a) IN GENERAL—SERVICE DISTINGUISHED FROM SALE
515.0006 Design and Set Rentals for Video Productions. A company is engaged in the business of designing and building sets for video productions which are used mostly in television commercials and music videos. Detailed drawing, rendering, and overlays are prepared to illustrate the proposed appearance of the set, ideas for camera positions and lighting effects. The walls, platforms and other components of the set are usually prefabricated at the company's shop from materials purchased ex-tax under resale certificates. The set components are then loaded on to the company's vehicles for transportation to the location of the shoot, unloaded and assembled together. The company then dresses the set by positioning props, cameras, and lighting. It also controls the art production crew and directs necessary changes in the positioning of cameras and props. When the shooting is completed, the set is disassembled with all usable materials being returned to the shop and the remaining materials discarded. Generally, the invoices simply bill a lump sum for "cost of sets", "set construction" or "set construction: rental" without listing the separate components. The company did not charge or report tax on the lump sum charges for set construction because it believed that it performed artistic design services and did not sell or lease tangible personal property.
Since the customers desire the property produced by the design services (the sets) and not the design services per se, the transactions are not services. Since the company transfers possession of the sets to its customers for a consideration, their transactions are leases. A lease is defined to include "rental, hire and license," and, with certain exceptions not relevant here, leases are "sales" and "purchases". The design services are required to produce the property in the form desired by the customer and are, therefore, generally taxable as "part of the sale" of the property. In this case, the contracts show that the service of designing sets was offered to the customers together with the sets as a package. Therefore, the design services are "part of the sale" of the sets and are fully taxable, with the exception of installation labor. The remaining charges (i.e. transportation, disassembly labor, etc.), which were not separately stated, are also subject to tax. 4/23/91.