Tax Type
Retail Sales and Use Tax
Description
Scripts for film production; Service vs. sale
Topic
Taxability of Persons and Transactions
Date Issued
10-26-1995
October 26, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************:
This will reply to your letter of May 22, 1995 in which you contest a recent sales and use tax assessment for your company, **********(the "Taxpayer") for the period July 1990 through April 1995.
FACTS
The Taxpayer, a production business that finds actors and writers to write scripts for film production groups, contests the tax assessed during a recent audit on scripts sold to customers (other production groups). You suggest that due to the substantial service element in producing the scripts, sales of the scripts represent nontaxable service transactions. However, the auditor held the scripts taxable as sales of tangible personal property.
DETERMINATION
Notwithstanding the service element involved in creating scripts and other creative works, the department traditionally has held that the true object of transactions in which creative works are provided in tangible format is the tangible product produced. P.D.90-163 (9/11/90), copy enclosed, specifically states that the tax applies to the sale or lease of an original play as it does to any other creative work in tangible form. For instance, Virginia Regulation (VR)630-10-8.2 provides that the tax applies to the sale of original paintings and sculptures without deduction for the labor charges necessary to produce such works.
Beginning July 1, 1995, production services and tangible personal property provided in connection therewith, such as scripts, are exempt from the tax when used in the production of an exempt audiovisual work. I am enclosing a copy of P.D. 95-198 (7/31/95) which explains the new exemption. Thus, scripts now are exempt from the tax when produced for and used in exempt audiovisual works.
Accordingly, the tax was properly assessed with respect to the scripts. However, upon payment in full of the tax and interest assessed, l will agree to waive any accrued interest.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9679H
Rulings of the Tax Commissioner