96-054
Response
April 17, 1996
Request
March
12, 1996
Dear
XXXXX
I
appreciate the time you spent talking with me on the phone today and as
promised would like to submit this letter to you as a basis on which you can
make a sales tax statement of clarification To reiterate our conversation, we
have an out-of-state client who contracted with XXXXX to provide video
production services during a two day function they held in Park City a few
weeks ago. They provided their own tape stock and asked us to document the
proceedings on that tape. To that end, we provided two individuals who provided
sound, lighting, and video gathering services using our equipment. Upon
completion of the project, we shook hands and left leaving the responsibility
of what to do with the tape to them.
We
invoiced them for two days of “video production” at our normal day rate and
four hours of travel time plus 6.125% sales tax. Upon receipt of their check,
they included a note indicating that they had not included the sales tax
portion of our invoice, and unless supplied with a clarification of sales tax
application, would not.
We
would appreciate a statement of clarification on this issue. If it is your
determination that this transaction is not taxable, I would appreciate it if
you would indicate what factors made this particular transaction non-taxable so
we can avoid confusion on similar future transactions. Thank you for your
prompt attention.
Sincerely;
XXXXX
XXXXX
Subject: Sales Tax
I
noticed on the latest invoice from your company that we were charged 6.125% sales
tax (5% state of Utah, 1.125% Salt Lake County) Since the end product of the
service we purchased from you was shipped out of state to us, we feel we should
not be taxed. Furthermore, since your operator ran the equipment and we
supplied our own video tapes, our purchase from you was only a service, which
is normally not taxable.
From
our telephone conversation last September, I am aware that your auditors
informed you that video production was taxable in Utah. However, since the
finished video tapes were shipped to us in North Carolina this should be
considered an interstate sale and therefore, not taxable.
I
spoke to our field auditor about this issue and she agrees that under North
Carolina law we would not pay tax on this invoice; however, she suggested that
you send us a general statute explaining why Utah charges tax on video
production. You can probably get this from your auditor.
I
am submitting payment for invoice XXXXX less the $$$$$ sates tax. I will
contact you at a later date about the sales tax after I receive the statue and
review it with our auditor.
Thanks
for your help in this matter. Please call me if you have any questions.
Sincerely,
XXXXX
XXXXX
RE: Advisory Opinion - Application of
sales tax to charges for video services
Dear
XXXXX
We have received your request for an
opinion as to the application of sales tax to charges for video services
provided by your company to an out-of-state client. We appreciate your including their letter because it gives us
some insight as to the basis for their assertion that your services are not
taxable. Your client seems to think
that the transaction constitutes a non-taxable interstate sale. We address that point first as follows:
Sales made in interstate commerce
are not subject to Utah sales tax.
However, the fact that commodities purchased in Utah are eventually
transported outside of Utah is not enough to constitute an interstate sale. When the object of the transaction is
delivered to the buyer in Utah, the transaction is a Utah sale, even if the
buyer intends to take the item outside of Utah. An interstate sale, on the other hand, is a transaction in which:
1.
the seller is bound by express terms of the transaction to make delivery
across state lines,
2.
the out-of-state delivery is essential and not incidental to the sale,
and
3.
the seller actually physically delivers the item outside of Utah.
We cannot determine from your
request whether this sale meets the criteria for an interstate sale. Your letter indicates that you “shook hands”
and left the tape with them. Their
letter to you indicates that the tape was sent to them. In any event, to qualify as an interstate
sale, XXXXX must either physically deliver the products across the state line
or send the product out of state by common carrier as a condition of the
sale. If you sent the video to the
customer via common carrier, retain the bill of lading or other shipping
documents with your tax record to support the exemption. If your client or your client’s
representative took possession of the tape in Utah, the sale is a Utah sale
even if XXXXX later took the tape out of state.
Having addressed the interstate sale
issue, we turn next to the question of whether the service provided by XXXXX to
XXXXX are taxable as sales of tangible personal property. Like other photographic services, video
production services typically include a mix of professional services and
tangible personal property (the video tape).
However, the real object of the sale is the final tangible product
(photograph, film, or video) and, such sales are taxable. Therefore, when XXXXX sells a video, all
charges associated with production of that video are taxable.
Your transaction with XXXXX,
however, presents a slightly different situation. XXXXX owned and supplied the tape to XXXXX. Although XXXXX filmed the event, it did not
produce the activity that was filmed, edit the tape, add graphics or
music. Nevertheless, the video tape
supplied by XXXXX was significantly altered and enhanced by XXXXX. That enhanced video was the real object of
the sale, and unless the sale qualifies as an interstate sale as discussed
above, it was taxable.
As a rule, you should be collecting
and remitting sales tax on your video services. If a customer disputes the sales tax, the taxpayer has recourse
through the Tax Commission’s refund procedure.
Under that procedure, your customer would normally request the refund
from your company. Your company would,
in turn, request the refund from the Tax Commission. However, when you are faced with a refund request, you are within
your rights to ask the customer to produce evidence that the refund is due.
Your customer may contact the Tax Commission for written confirmation that the
refund is due.
If you disagree with this opinion,
you may formally request a declaratory judgment on the issue within 30 days of
the date of this letter. If you
determine that your transaction with XXXXX was a taxable Utah sale, XXXXX must
remit the sales tax to you. In this
case, we will allow XXXXX to apply directly to the Commission for a refund in
order to preserve their appeal rights on the issue. XXXXX may direct its refund request to:
XXXXX
Please let us know if we can be of
further assistance.
For the Commission,
Alice Shearer
Commissioner