REQUEST LETTER

 

03-008

 

NAME

ADDRESS

 

To: Pam Hendrickson

 

Re: Private Letter Ruling

 

Attached is a copy of a letter I received requesting a tax exempt status for a production company that is in town to film a television movie of the week. Many states are giving tax rebates on sales tax for production related purchases.

 

I appreciate your expediting the private letter ruling as the company is in pre-production now and will shoot in May and be wrapped no doubt by the end of June.

 

Let me know if you have any questions, or you may also contact NAME, the production accountant.

 

Thanks for your help.

 

NAME

ADDRESS

PHONE

FAX

 

Dear NAME:

As we discussed earlier today, I am inquiring into the possible sales tax exempt status for COMPANY. As you know, we are a film production company and all items we purchase for the screen would be considered a “re-sale” item. This would include film stock, set dressing, props, construction and any other product that is “seen” on screen.

 

As we also discussed – Utah has so much to offer Production Companies. For Utah to stay competitive it will have to embrace the “tax-rebate” idea. Many states have a tax rebate in place and because of this have continued to be successful in bringing production companies into their state. With this joint effort we can continue to keep production revenues here in the USA vs. loosing revenues to Canada, New Zealand, etc.

 

COMPANY has just completed photography in STATE where we receive all of the sales taxes paid during our stay back as a rebate. Prior to this location we were in CITY, STATE. They had in place the sales exempt status for production companies. This status again is for products that are seen on screen. Since the completion of our project STATE has passed their Tax Rebate Refund Program.

 

There are many other States which have tax rebate programs. Due to this they will continue to be the leaders in receiving production revenues.

 

Please let me know if we are eligible to receive the sales tax exempt status. If so, then we will need the proper paperwork to forward to our vendors. Thank you for all your help. If you have any questions please call me at PHONE.

 

Best regards,

 

NAME

 

Cc: NAME

 

RESPONSE LETTER

 

May 5, 2003

 

NAME

ADDRESS

 

RE: Private Letter Ruling Request – Sales Tax Exemption for Production Companies

 

Dear NAME,

 

We have received your request for a private letter ruling concerning Utah’s sales tax laws and any exemption that may apply to production companies. The letter you attached from COMPANY. (“COMPANY”) also refers to a “tax-rebate” program in STATE where a production company is rebated the sales taxes it paid on its taxable purchases and rentals in that state. Such a program is not currently available in Utah and would require enactment by the Legislature. However, we will address your request with respect to existing tax policy and any exemptions that might apply.

 

Sales By A Production Company. Under current Utah law, the only exemption that specifically relates to a film production company is found in Utah Code Ann. §59-12-104(6), which exempts from taxation the “sales of commercials, motion picture films, prerecorded audio program tapes or records, and prerecorded video tapes by a producer, distributor, or studio to a motion picture exhibitor, distributor, or commercial television or radio broadcaster[.]” Accordingly, if COMPANY is a producer, a distributor, or a studio, it can sell these items tax-free only if the sale is made to a motion picture exhibitor, distributor, or commercial television or radio broadcaster.” NAME would need to charge and collect sales tax on any other sale of non-exempt tangible personal property.

 

Sales To A Production Company. As to COMPANY leases and purchases of tangible personal property while making a film, there is no specific Utah exemption from taxation similar to that in STATE, which applies to items “seen” on screen. Again, such an exemption would require legislative action to amend current law.

 

However, STATE may be able to purchase certain items used to make a film tax-free under Utah’s resale exemption. UCA §59-12-104(27). An item qualifies for exemption if it is resold to a customer or if it becomes a necessary and component part of the final taxable product. COMPANY may purchase tax-free all items that physically become part of the film and items to which title passes to COMPANYcustomers. For example, if COMPANY purchases a video tape, uses the tape to produce a film, and sells that tape to its customer, it may purchase that tape tax-free. To purchase items that qualify for this exemption tax-free, COMPANY must issue the vendor an exemption certificate.

 

On the other hand, COMPANY must pay sales tax on all purchases of personal tangible property that it uses or consumes in the filmmaking process or to which it retains title. For instance, if COMPANY purchases a camera or prop, it must pay tax on that purchase. Also, if COMPANY purchases video tape to make a master tape, then reproduces the master and sells the copies, it must pay sales tax on the purchase of the video tape used as a master because this tape is not resold. COMPANY is also responsible for sales tax on its rental of tangible personal property for use in the filmmaking process, even if the rented items appear on screen. COMPANY is considered to have consumed all rentals of tangible personal property used in producing a film and, accordingly, is subject to taxation on the transactions.

 

Whether or not sales tax is applied to charges for “construction” depends on whether the construction occurs on real or tangible personal property. Under Utah Admin. Rule R865-19S-78(A) (“Rule 78”), amounts paid for labor to install tangible personal property in connection with other tangible personal property are subject to sales tax. As the filmmaking process often involves temporary and non-permanent structures, it is conceivable that much of the construction involved in this process is performed on tangible personal property and, therefore, is taxable. Nevertheless, under subsection (B) of Rule 78, charges for labor to install tangible personal property to real property are not subject to taxation, regardless of whether the personal property becomes part of the real property.

 

Should you have any other questions, please contact us.

 

For the Commission,

 

 

 

Marc B. Johnson

Commissioner

 

MBJ/KC

03-008

 

Cc: NAME

ADDRESS