Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 515.1364


515.1364 Television Commercial Encoding and Monitoring Services. A company enables television advertisers to more accurately and efficiently determine whether the television commercials they have purchased have been broadcast at the time and in the form and market agreed to under a contract. The company has obtained from the FCC an exclusive right to use one line of the 525 that appear on a television screen. It has developed a device that encodes on this line a signature which is unique to each commercial. An independent party has been contracted to do the actual encoding on the master copy of the commercial using this company's equipment. The company has also developed a device that can monitor all television broadcasts in a given market and record exactly what commercials have been broadcast, the time they were broadcast, and the audio and visual quality of the commercial.

The described encoding procedures constitute fabrication labor but are excluded from the definition of a "sale" and "purchase" as qualified production services. As for the monitoring service, the company will issue reports to the customers in the form of a computer printout or in the form of a data file transmitted over a communication line between computers. Under these facts, the true object of the contract with the customers is the rendering of a service. The company's charge for the monitoring service is not subject to tax even though some tangible personal property is transferred to the customers. 9/1/89.