96-154
Response October 21, 1996
Request
Tax
Commission October 1, 1996
I am starting a video production business, focusing
mainly on wedding videos, but also doing family, church, or school parties, as
well as other video taping and editing. This will be a small, part time,
home-based business. The question I have is in regards to when I should charge
sales tax.
In talking with several people at the Tax
Commission, it seems that video taping or editing the tape is a professional
service that should not be charged sales tax. But if I tape an event, then sell
that tape to a customer, then it might be eligible for sales tax. However, if
the event is taped on a tape provided by a customer, then I'm only selling the
service, not the tape, and sales tax should not apply. So you can see why I'm
confused.
Here are several example scenarios that would apply
to this question.
I
tape an event, edit the tape, add music, titles and other effects, and sell the
final product to the customer on a tape provided by myself or on a tape
provided by the customer. This would be like a wedding video
"package".
I
tape an event on a tape provided by the customer or myself, but don't do any
"post production" work, e.g., editing, adding music, etc. In other
words, I'm just providing the professional service of video taping an event.
A
customer has previously taped an event and wants me to do the post produc tion
editing. I provide the final work to the customer on a tape provided either by
myself or the customer, and charge for my editing services.
Video
duplication: I make copies of a tape for a customer, charging a certain amount
for each copy, and the copies are done on tapes provided either by myself or
the customer.
I
sell blank tapes to a customer for the same price for which I bought them.
Thanks for you help with this.
XXXXX
XXXXX
Advisory Opinion - sales tax on video services and
sales
Dear XXXXX
We
have received your request for sales tax guidance pertaining to sales tax on
video tape services and sales. We offer
the following tax advice:
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 you sell a
video, all charges associated with production of that video are taxable. This is true even if your customer supplies
the video tape because your service significantly alters and enhances the
tape. The enhanced video was the real
object of the sale, and it is taxable under the circumstances you describe.
You
are entitled to make certain purchases tax free under the resale
exemption. An item qualifies for
exemption if you resell the item to your customer or if it becomes a necessary
and component part of the final taxable product. On the other hand, you must pay sales tax on all purchases of
personal tangible property that you will use or consume in the process of
making video productions. For instance,
if you purchase a camera or prop, you must pay tax on that purchase. The assumption underlying the sales tax is
that the tax will be paid by the final consumer of the tangible personal
property. You are the final consumer of
items that you use up in the process of making videos, items that you rent for
use in making videos or items to which you retain title. The following examples will illustrate
difference:
a. If
you purchase a video tape, use the tape to produce a film, and sell that tape
to your customer, you may purchase the tape tax free. However, your customer must pay sales tax on the total purchase
price of the finished product.
b. If
you purchase a video tape, use the tape to make a master, then reproduce the
master and sell the copies, you must pay sales tax on the purchase of the tape
used as a master if you are not reselling it.
However, you may purchase the tapes used for reproduction and sale tax
free because your customer will be paying sales tax on the entire finished
product.
c. Assume
the same facts as in “b” above, except that your customer purchases both the
master and the reproductions. In this
case, you may purchase all of the tapes tax free because all of the tapes are
resold to your customer.
Please
let us know if you have other questions.
For
the Commission,
Joe
B. Pacheco,
Commissioner