Tax Type
Retail Sales and Use Tax
Description
Publishing and broadcasting; Videotapes, films or other audiovisual work
Topic
Taxability of Persons and Transactions
Date Issued
09-08-1995
September 8, 1995
Re: Request for Ruling: Retail Sales and Use Tax
Dear****************:
This will reply to your letter of July 18, 1995 in which you seek a ruling on the tax status of various transactions within which your company, the "Taxpayer," will engage.
RULING
I will address the tax status of the charges by an audiovisual company to the Taxpayer and that company's purchases under each of the two situations below.
Situation 1: The Taxpayer hires a company to prepare and present a video presentation during the Taxpayer's annual meeting. The presentation will be made only once. In making the video the company will videotape various activities taking place and various objects at the Taxpayer's location, lease various pieces of equipment, and purchase specialized services from service providers such as directors, camera operators, etc. The company will bill the Taxpayer a lump sum for the presentation and tape, but will separately state on the sales invoice charges for the following: scripting, equipment leases, preproduction and production services, reimbursements for travel, the tape, etc.
Charges by the company to the Taxpayer: You suggest that the "true object" of the above situation is to obtain the professional services of the company and thus the total charge for the presentation and tape is exempt from the tax. However, the department traditionally has held that while the production of a videotape includes personal services, the true object of the transaction is the tape itself. (See P.D. 93-87 (3/29/93), copy enclosed.) Thus, although the company may separately state on the invoice charges for the various services and items of tangible personal property provided, the entire charge is taxable.
This is true even under the new exemption found in Code of Virginia § 58.1609.6(6). The department has interpreted this exemption, which became effective July 1, 1995, as applying to feature film, program, and documentary producers, audiovisual production companies, and others engaged in the production of tapes for licensure, distribution, commercial exhibition, broadcast, or for use in the production of another exempt work. The exemption does not extend to producers of tapes and films intended for other than commercial distribution, such as in-house training tapes and corporate pieces. (See P.D. 95-198 (7/31/95) and Tax Bulletin 95-5, copies enclosed.) Although the videotape will be shown to the Taxpayer's numerous shareholders whom you also suggest are its customers and the presentation is made in a large exhibition hall, l do not find that the tape will be commercially exhibited as envisioned by the exemption. Thus, notwithstanding the new exemption, the total charges made by the company for the tape and presentation are taxable.
Purchases by the company: As explained in P.D. 95-198, the company is the taxable user and consumer of all tangible personal property purchased or leased in connection with the production the tape. Transactions involving both the transfer of tangible personal property and the provision of services likewise are taxable to the company. However, as P.D. 89-114 (4/7/89), copy enclosed, points out, purchases by the company of purely service transactions, such as film processing, editing, sound mixing, acting, choreography, directly, dialogue, coaching, casting, etc. which do not involve a transfer of tangible personal property generally are not subject to the tax.
Situation 2: The same company will be engaged by the Taxpayer to prepare a public relations advertising videotape. The tape will be designed to educate the public about an issue and will be widely distributed at no charge to consumer groups, schools, civic organizations, trade organizations and other groups including customers, potential customers and the general public. The company will bill the Taxpayer a lump sum for the production of the tape. It will bill the Taxpayer separately for reproductions. The company's production process will be similar to that explained in Situation 1.
Charges by the company to the Taxpayer: From the information provided, it appears that this public relations videotape will qualify for the new exemption explained above as it will be distributed to the public. Thus, the total charge for the completed tape is exempt under this new provision. In addition, the total charge for the tape is also exempt from the tax as a charge for media advertising under Code of Virginia § 58.1-609.6(5) .
Charges for the reproduction of the tapes are taxable under subdivision (a)(iii) of Code of Virginia § 58.1-609.6(6) which states "audiovisual works and incidental tangible personal property described in clauses (i) and (iii) shall be subject to tax as otherwise provided in this chapter to the extent of the value of their tangible components prior to their use in the production of any audiovisual work and prior to their enhancement by any production service."
Purchases by the company: The production services, tangible personal property, and equipment used in producing the tape may be purchased by the company exempt from the tax. However, if the company uses the same equipment in producing both taxable and exempt works it may purchase it exempt from the tax using a Form ST-20A, copy enclosed, and remit use tax to the department as explained in Tax Bulletin 95-5.
Furthermore, while advertisers traditionally have been deemed the taxable users and consumers of all tangible personal property used in producing media advertising, they too qualify for the new exemption to the extent that the audiovisual works they produce are for licensure, commercial exhibition, distribution, broadcast, etc.
I trust this answers your questions, but should you have any other questions about this matter, please contact**************** in my Office of Tax Policy at**************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9960H
Rulings of the Tax Commissioner