When a syndicate sends newspapers photocopies of a comic strip to publish, is it selling a reproduction right or taxable property?

Plain-English summary

The Hearst Corporation's King Features Syndicate syndicates daily comic strips: it mails each newspaper client a photocopy of six daily installments each week and grants a one-time right to publish the strip. It asked whether this is a right to reproduce (non-taxable) or a sale of tangible personal property for sales and use tax.

The Department held the transfers are taxable sales of tangible personal property.

• The reproduction-right exclusion is narrow. Under 20 NYCRR 526.7(f), granting a right to reproduce an original painting, illustration, photograph, or similar work is non-taxable only where the payment is a royalty and possession is merely temporary for making the reproduction. All conditions must be met.
• These facts don't fit. The photocopy is not an original illustration, and the newspaper's possession of it is permanent, not a temporary custody for reproduction. So the transaction is a sale of tangible personal property, not a reproduction right.
• But it may be exempt production equipment. The Department noted that artwork, illustrations, and photographs may qualify as machinery and equipment under § 1115(a)(12) (TSB-M-79(7.1)S). The comic strips are exempt if used directly and predominantly in producing tangible personal property for sale — here, the newspaper. That exemption applies to state and local tax except New York City's (§ 1107(b); local exemption under § 1210(a)(1)).

What this means for you

Delivering a physical copy to publish is a property sale, not automatically a reproduction license. Sending a newspaper (or any customer) a physical copy they keep and use to print is generally a taxable sale of tangible personal property — even if you call it a one-time publication right.

The reproduction-right exclusion is all-or-nothing. To be non-taxable, you need an original work, royalty payment, and only temporary possession for the reproduction. Permanent transfer of a photocopy breaks the exclusion.

Look to the production-equipment exemption instead. Content used directly and predominantly to produce a product for sale — like strips a newspaper prints and sells — can be exempt as machinery and equipment under § 1115(a)(12). Note that exemption doesn't extend to New York City's sales tax.

Common questions

Q: We grant newspapers a one-time right to publish. Isn't that a non-taxable reproduction right?
A: Not on these facts. The copy isn't an original work and the newspaper keeps it permanently, so the reproduction-right exclusion doesn't apply — it's a taxable sale of property.

Q: Is there any exemption then?
A: Possibly. The strips can qualify as production machinery and equipment under § 1115(a)(12) if used directly and predominantly to produce the newspaper (a product for sale).

Q: Does that exemption cover New York City sales tax?
A: No. The § 1115(a)(12) machinery-and-equipment exemption doesn't apply to the New York City sales tax (§ 1107(b)).

Citations and references

Regulation, statutes, and guidance:

• 20 NYCRR 526.7(f) — reproduction rights vs. a license to use or a sale
• Tax Law § 1115(a)(12) — production machinery and equipment exemption
• Tax Law § 1107(b); § 1210(a)(1) — New York City machinery exemption not available; local exemption
• TSB-M-79(7.1)S — artwork, illustrations, and photographs may qualify as machinery and equipment

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a87_14s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-87(14)S
Sales Tax
March 12, 1987

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S861216A

On December 16, 1986, a Petition For Advisory Opinion was received from The Hearst
Corporation, 959 Eighth Avenue, New York, New York 10019.
The issue raised is whether the sale of a photographic copy of an original comic strip is a
right to reproduce or the sale of tangible personal property for purposes of the sales and use taxes
imposed under Articles 28 and 29 of the Tax Law.
Petitioner's King Features Syndicate Division syndicates daily comic strips. Petitioner
contracts with various newspapers around the country and grants them a one-time right to publish
a particular comic strip. The comic strip supplied to each newspaper by Petitioner consists of a
photocopy of six daily installments of the particular comic strip. The photocopy is mailed out on
a weekly basis to each newspaper client. The newspaper client uses each installment of the comic
strip on the appropriate day of the week to print its newspaper.
Section 526.7(f) of the Sales Tax Regulations provides as follows:
(f) Reproduction rights. (1) The granting of a right to reproduce an original painting,
illustration, photograph, sculpture, manuscript or other similar work is not a license
to use or a sale, and is not taxable, where the payment made for such right is in the
nature of a royalty to the grantor under the laws relating to artistic and literary
property.
(2) Mere temporary possession or custody for the purpose of making the
reproduction is not deemed to be a transfer of possession which would convert the
reproduction right into a license to use. (See Howitt v. Street and Smith Publications,
Inc., 276 N.Y. 345 and Matter of Frissell v. McGoldrick, 300 N.Y. 370).
(3) Where some use other then reproduction is made of the original work, such as
retouching or exhibiting a photograph, the transaction is a license to use, which is
taxable. 20NYCRR 526.7.
A right to reproduce will be deemed to exist only if all of the requirements of regulation
section 526.7(f) are met. In the instant case, it is clear that the property at issue is not an original
illustration within the meaning of the regulation. Furthermore, a right to reproduce cannot exist
where possession or custody of the property is more than merely temporary for purposes of making
the reproduction. Petitioner has demonstrated nothing which would indicate that the newspaper's
possession of the property transferred is anything other than permanent. Accordingly, it must be
concluded that Petitioner's transfers of cartoon strips are sales of tangible personal property within
the meaning of regulation section 526.7(f).

RODERICK G. W. CHU, COMMISSIONER
GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (3/83)

-2­
TSB-A-87(14)S
Sales Tax
March 12, 1987

It should be noted however, that the Tax Commission has determined that artwork,
illustrations, layouts, drawings, paintings, mechanicals, overlays, designs, photographs and paste-ups
may qualify as machinery and equipment within the meaning of section 1115(a)(12) of the Tax Law.
TSB-M-79(7.1)S. Accordingly, such cartoon strips will qualify for the exemption afforded under
section 1115(a)(12) if they are used directly and predominantly in the production of tangible personal
property for sale. Such machinery and equipment would be similarly exempt from local sales tax
(other than New York City's) pursuant to the provisions of section 1210(a)(1) of the Tax Law.
Section 1107(b) of the Tax Law provides that such machinery and equipment does not qualify for
exemption from the sales tax imposed within the City of New York.

DATED: March 12, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.