Tax Type
Retail Sales and Use Tax
Description
Services; professional or personal; Entertainment production
Topic
Taxability of Persons and Transactions
Date Issued
07-31-1995
July 31, 1995
Re: Request for Ruling: Retail Sales and Use Tax
Dear********************
This will reply to your letter seeking clarification of the department's policy with respect to audiovisual production, entertainment production, production and content management services provided by your client, ********* the "Taxpayer".
RULING
I will address each of the services provided by the Taxpayer individually below:
Audiovisual Production
The Taxpayer contracts with a client to produce a finished video product. It performs the following tasks: concept development, script writing, production management, direction and editing. Essentially all of the technical services required to deliver the final product -- a video tape -- are provided by vendors such as editing houses, video studios, lighting rental companies, post-production houses, or independent contractors (camera people, actors, narrators).
New Policy/Law
Effective July 1, 1995, Virginia law provides a sales tax exemption for audiovisual production, to the extent that the audiovisual works are being produced for licensure, distribution, commercial exhibition, broadcast, or for use the production of another exempt work. The department has interpreted this exemption as applying to feature film, program, and documentary producers, audiovisual production companies, and others engaged in the production of tapes for use in the above manner. The exemption does not extend to producers of tapes and films not intended for commercial distribution including in-house training tapes and corporate pieces generally.
Under the new exemption, production services or fabrication in connection with the production of any portion of an exempt audiovisual work, and the provision of production facilities or equipment therewith, are exempt from the tax. Exempt production services include, but are not limited to, photography, sound, music, special effects, animation, dubbing, mixing, editing, etc. Also exempt is tangible personal property incidental to the performance of the production services or fabrication, such as scripts, musical scores, storyboards, film, tapes, etc. Thus, virtually all services and tangible personal property provided by the Taxpayer in connection with the production of an exempt audiovisual work, including stand alone video script and speech writing for use in video productions by others, are now exempt from the tax. However, if the services and tangible property are for use in the production of a taxable video, they, likewise are taxable. For the tax treatment of scriptwriting prior to the enactment of the new exemption, see PD 90-163, copy enclosed.
Finally, an exemption extends to the equipment, parts, and accessories thereto used or to be used in the production of exempt audiovisual works. Exempt equipment includes, but is not limited to, cameras and related equipment; computers for graphics, animation, imaging; lighting equipment not affixed to realty; etc. Items affixed to realty, or for use in an administrative manner will remain taxable.
Accordingly, the determining factor as to the tax status of the various production services/products purchased by the Taxpayer depends on the type of work produced -- if the audiovisual work qualifies for the exemption, the various production services, incidental tangible personal property, and equipment used in producing such are also exempt. However, if the tape is taxable, then everything used to produce it, including services in connection with the sale of the tape, like editing, dubbing, mixing, the rental of studios, are taxable, as explained below.
Entities engaged in the production of both taxable and exempt audiovisual works will be required to prorate the tax on equipment and other purchases used in both taxable and exempt manners. I am enclosing a copy of a Tax Bulletin which explains the exemption in greater detail and a certificate of exemption, Form ST-20A, which should be used to make purchases under the above exemption exempt of the tax.
Prior Policy/Policy Applicable to Taxable Works Under the New Law
Prior to the enactment of the new legislation, audiovisual production companies were required to pay the tax on virtually all purchases of tangible personal property used in their production activities and on the tangible personal property and related services used in producing the tape (if purchased from another vendor). In addition, audiovisual producers were required to collect the tax on the total charge for the final product, including any services in connection therewith, unless the tape was for advertising in the media. See PDs 93-40 (3/4/93) and 87-110 (3/30/87), copies enclosed.
Entertainment Production
The Taxpayer recommends and contracts entertainment for private shows (conventions, meetings, etc.). In addition, it may provide pre-production and on-site management (sound/lights/crews) for the shows. Technical facilities are provided by vendors such as sound and lighting rental companies.
Code of Virginia §58.1-609.5(1) provides an exemption from the sales tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made." Thus, charges by the Taxpayer for recommending and contracting with entertainment for private show, as well as for pre-production and on-site management, are charges for exempt services. The Taxpayer is required to pay the tax on equipment rentals for use in providing its services.
Production Management
The Taxpayer performs scenic concept design, procurement of sound, lights, projection systems, crews, advance technical coordination and stage management. As with entertainment production, the Taxpayer is deemed to be providing an exempt service and while no tax is due on the charge made to its customers, the Taxpayer is liable for the tax on rentals of equipment and purchases of all tangible personal property used in providing the services.
Content Management
The Taxpayer also engages in the development and structure of meeting content, speaker recommendations, and presentation coaching. No vendors, hardware, or products are involved in this function. This is also a nontaxable service transaction under Code of Virginia §58.1-609. 5(1 ) .
I trust this answers your questions, but should you have any others, please contact*****in my Office of Tax Policy at****************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9119H
Rulings of the Tax Commissioner