Tax Type
Retail Sales and Use Tax
Description
Motion picture production
Topic
Taxability of Persons and Transactions
Date Issued
04-07-1989
April 7, 1989
Re: Request for Ruling: Sales and Use Tax
Dear****************
This will reply to your letter of March 28, 1989, in which you request a ruling on the application of the sales and use tax to various items used in the production of motion pictures.
FACTS
Your corporation will conduct filming within Virginia in connection with the production of a motion picture for theatrical release. You wish to determine whether the industrial manufacturing exemption set forth in Va. Code §58.1-608(1) applies to such activities; whether the tax applies to items and services that become a part of the completed film are subject to the tax; and whether the tax applies to services such as acting, choreography, coaching, casting, etc.
RULING
Manufacturing Exemption
Va. Code §58.1-608(1) provides an exemption from the sales and use tax for "machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in ... manufacturing ... products for sale or resale."
The Virginia Supreme Court has interpreted this exemption as applying only to those businesses which manufacture products for sale or resale "only in the industrial sense." Golden Skillet v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973). Va. Code §58.1-602(9) defines businesses that are "industrial in nature" as including, but not limited to those "classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification Manual."
The department has not traditionally deemed the filming of a motion picture to be an industrial activity such as to qualify for the exemption. Further, motion picture production is classified in code 78 of the Standard Industrial Classification Manual. As such, the industrial manufacturing exemption will not apply to your corporation's activities within Virginia.
Thus, any tangible personal property purchased or used by your corporation in Virginia will be subject to the tax. In addition, the tax will apply to all rentals of hotel and motel accommodations of less than 90 continuous days.
Resale Exemption
In this case, the resale exemption will apply to any item of tangible personal property that will physically pass to theaters or others who will be licensed to show the motion picture. This includes the materials that are incorporated into the copies of the motion picture that will be licensed for exhibition.
The resale exemption does not apply to items used in the production, which do not become a physical part of the finished product. Thus, the exemption does not apply to raw film stock, which is used in the production of motion pictures, but does not physically become a part of the licensed copies of the motion picture. This is directly analogous to film used by commercial photographers in the creation of photographic prints, which has been deemed subject to the tax under long-standing departmental policy. See enclosed ruling dated August 21, 1974 and Virginia Regulation 630-10-82.
Services
The Virginia sales and use tax does not apply to purely service transactions, which do not involve a sale or transfer of tangible personal property. In addition, Va. Code §58.1-608(2) exempts from the tax "personal service transactions which involve sales as inconsequential elements for which no separate charges are made."
Thus, services such as film processing, editing, sound mixing, acting, choreography, directing, dialogue, coaching, casting, etc., will generally not be subject to the tax. See enclosed Virginia Regulation 630-10-97.1.
I trust that this has answered your questions, but please do not hesitate to contact the department if any further questions arise.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner