Tax Type
Retail Sales and Use Tax
Description
Leases and rentals; Theatrical royalties including hard copy
Topic
Royalties
Taxability of Persons and Transactions
Date Issued
04-27-1995
April 27, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will respond to your letter seeking correction of a sales and use tax assessment of your client, **************(the "Taxpayer") for the period June 1991 through May 1994.
FACTS
The Taxpayer is a nonprofit drama production company actively engaged in live stage productions. It was audited and held liable for the tax on purchases of production rights and related tangible personal property, such as scripts, music scores and tapes. You suggest that the assessment was erroneous as the "true object" of the theatrical license transactions between the Taxpayer and the right holders is to obtain permission to perform the plays and musicals, and that the acquisition of scripts and books was incidental to that purpose. Accordingly, you assert that the charges for exempt services and should be removed from the assessment.
DETERMINATION
The department traditionally has held that royalties paid by a taxpayer which provide not only the intangible right to use theatrical scripts and musical scores but also the tangible copies of these items are analogous to leases of tangible personal property, and accordingly are taxable. [See P.D. 90-163 (9/11/90) specifically relating to royalties on theatrical works and P.D. 91-29 (3/11/91) relating to royalties in general, copies enclosed.]
You assert that the "true object" of the transactions is to obtain the permission to perform the plays and musicals and that the acquisition of the scripts and books is incidental to that purpose. You liken the instant transaction to the department's policy with respect to charges for workshops which include charges for required workbooks and tapes which have been determined to be an exempt service under Code of Virginia §58.1-609.5(1). That situation is readily distinguishable from the instant case, as the workshop could be conducted without the workbooks and tapes and still be of value to the attendees. In this case, however, it is unlikely that the Taxpayer would derive anything of value from merely having the permission to perform a play or music score without a tangible copy of the play/score.
This situation is also analogous to transactions in which an artist is commissioned to paint a portrait. In such situations, the entire transaction is deemed to be a taxable sale of tangible personal property in spite of the fact that a considerable amount of the charge represents the artist's labor.
Based upon the department's longstanding policy, I find no basis to revise the assessment. A revised Notice of Assessment with accrued interest will be mailed to the Taxpayer shortly.
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Sincerely,
Danny M. Payne
Tax Commissioner
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OTP/8507H
Rulings of the Tax Commissioner