Can a broadcaster allocate the sales tax on its production purchases based on where its viewers are, since the audience is in and out of New York?

Plain-English summary

Showtime Entertainment packages motion pictures and specials into a 24-hour program feed for satellite transmission. To prepare programs for its own use, it buys videotape editing and dubbing, audio recording/mixing, and promotional/on-air elements; buys the material and duplicate prints/tapes those services are performed on; and rents editing-room equipment and screening rooms. Because its viewers are located both in and outside New York, it asked whether the tax on these purchases could be allocated by audience location.

The Department held no allocation is allowed — Showtime is the taxpayer on the full amount.

• Showtime is the ultimate consumer. These are purchases of processing services (§ 1105(c)(2)), tangible personal property (§ 1105(a)), and rentals (§ 1101(b)(5)) — Showtime is the end user, not a reseller; no title passes to its viewers.
• Destination = where the property is delivered to Showtime. Sales tax is a destination tax (20 NYCRR 525.2(a)(3)); tax on a service follows where the serviced property is delivered to the customer (526.7(e)(1)). Services and property delivered to Showtime in New York are fully taxable; if delivered out of state for later New York use, use tax applies on the purchase price at the New York use location (§ 1110).
• Equipment rentals and screening rooms. Editing-room equipment rentals are taxable where Showtime has the right to use them. A screening room without equipment is not taxable (it's real property). But when the room comes with projection equipment that Showtime directs (or it supplies its own operator), possession is deemed transferred and the whole charge is taxable — except separately stated, reasonable operator wages and room rent. Undifferentiated records mean the whole amount is taxed (532.2(b)(2)).
• No allocation by broadcast destination. The law allows no deduction based on the property's later use, and the destination of the broadcast signal has no bearing on the tax. (Cable television service receipts themselves are not taxable.)

What this means for you

Where your audience is doesn't cut your input tax. When you buy production services, footage, and rentals as the end user, New York taxes the full purchase where it's delivered to you. The fact that your finished signal reaches viewers nationwide — or worldwide — does not let you allocate or reduce the tax.

Delivery point is the lever, not viewership. The only geography that matters is where the serviced property or equipment is delivered to or used by you. In-state delivery is fully taxable; out-of-state delivery followed by New York use triggers use tax at the New York rate.

Separate out the genuinely non-taxable pieces. Bare room rent and a projection operator's reasonable wages can be carved out — but only if separately and reasonably stated on the invoice. Lump them into a single equipment charge and the entire amount is taxed.

Common questions

Q: Most of my viewers are outside New York. Can I allocate the tax on my editing and footage?
A: No. As the end user, you owe tax on the full purchase where it's delivered to you. Viewer location is irrelevant.

Q: I take delivery of footage out of state, then use it in New York. Any tax?
A: Yes — compensating use tax on the purchase price at the New York rate for the place of use.

Q: Is renting a screening room taxable?
A: Not if it's just the room (real property). If it includes projection equipment you control, the whole charge is taxable except separately stated, reasonable operator wages and room rent.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 1105(a) — taxes retail sales of tangible personal property
• Tax Law § 1105(c)(2) — taxes producing, fabricating, processing, printing, or imprinting property
• Tax Law § 1110 — compensating use tax
• Tax Law § 1101(b)(5) — rentals of tangible personal property are sales
• 20 NYCRR 525.2(a)(3); 526.7(e) — destination tax; tax follows where the serviced property is delivered
• 20 NYCRR 532.2(b)(2) — itemize taxable and exempt charges or the whole amount is taxed
• New York State Cable Television v. Tax Commission, 88 Misc2d 601; Shanty Hollow Corp. v. Tax Commission, 111 AD2d 968

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_23s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-87(23)S
Sales Tax
May 22, 1987

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

PETITION NO. S821004C

On October 4, 1982, a Petition for Advisory Opinion was received from Showtime
Entertainment, 1533 Broadway, New York, New York 10036.
The issue raised is whether the sales and use taxes imposed under Article 28 and 29 of the
Tax Law on Petitioner's purchases of tangible personal property and processing services, used to
integrate videotapes containing entertainment features with promotional elements for television
broadcasting, are subject to allocation because the viewers of the programs are located both within
and without New York State.
Petitioner offers motion picture and entertainment specials packaged as 24 hour program feed
for satellite transmission. The products exhibited are usually obtained from theatrical and feature
film producers or distributors in the form of videotapes - or film prints which must be converted to
videotape before broadcasting.
Petitioner inquires whether an allocation based upon location of Petitioner's viewing audience
may be applied to the following costs incurred in preparing, for its own use, programs for satellite
transmission:
(A)

Purchases of the services of videotape editing and dubbing; audio recording, mixing
and dubbing; and preparing the promotional and on-air-advertising elements of a
program.

(B)

Purchases of material upon which the above mentioned services will be performed,
and of duplicate prints and tapes.

(C)

Rental of editing room equipment and screening rooms.

Section 1105(a) of the Tax Law imposes tax on "[t]he receipts of every retail sale of tangible
personal property, except as otherwise provided in this article".
Section 1105(c)(2) of the Tax Law imposes tax on the receipts from every sale, except for
resale, of the services of "[p]roducing, fabricating, processing, printing or imprinting tangible
personal property, performed for a person who directly or indirectly furnishes the...property, not
purchased by him for resale, upon which such services are performed".
The Sales and Use Tax Regulations of the State Tax Commission explain in Section
525.2(a)(3) that the sales tax is a "destination tax" where the point of delivery or point at which
possession of tangible personal property is transferred by the vendor to the purchaser or designee
controls both the tax incident and the tax rate. Similarly, tax on the receipts from rendering a service
is determined by the location where the serviced property is delivered to the customer. 20 NYCRR
526.7(e)(1).
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-87(23)S
Sales Tax
May 22, 1987

Section 1110 of the Tax Law imposes a tax for the use within this State of any tangible
personal property purchased at retail, and of any tangible personal (except merchandise inventory)
on which a service described in Tax Law 1105(c)(2) has been performed, on which tax has not been
paid.
Thus, purchases of the services listed under (A) whether or not performed in New York State,
are taxable if the serviced property is delivered to Petitioner within the State. If delivery is taken out­
of-state for subsequent use in-state, such property will be taxed on the basis of the purchase price
and at the rate in effect at the location of use.
Similar considerations apply to purchases of the tangible personal property listed under (B).
Section 1101(b)(5) of the Tax Law defines the terms "sale, selling or purchase" to include
rentals of tangible personal property.
Accordingly, rentals of editing room equipment are taxable at the rate in effect at the location
where Petitioner has the right to custody, possession or use of the equipment. 20 NYCRR
526.7(e)(4).
Regulation Section 526.8(c) states that, for the purposes of administering the Tax Law, real
property is not considered tangible personal property.
Therefore, screening room rental charges which do not include the use of equipment are not
taxable.
However, screening room costs usually include the use of the projecting equipment and may
include the services of an equipment operator. When Petitioner has the right to direct the technician
provided or supplies his own operator, possession of the equipment is deemed to have been
transferred, making the entire rental charge a sale subject to tax.
Nevertheless, any portion of the rental amount representing the operator's wages and rent for
the room (if reasonable in relation to prevailing wage and rent rates) is not taxable, if shown
separately from the taxable charge on the invoice rendered. 20 NYCRR 526.7(e) 4, 5 and 6.
If the sales record lacks sufficient detail for determining taxable and exempt charges, the total
amount billed will be subject to tax. 20 NYCRR 532.2(b)(2).
The receipts from the sales of cable television services Petitioner provides are not subject to
the sales tax. (New York State Cable Television v. Tax Commission of New York, 88 Misc2d 601).
Furthermore, no transfer of title to or possession of tangible personal property occurs between
Petitioner and its customers. Thus, the aforementioned transactions are retail sales to the Petitioner
as the ultimate user and taxpayer. (Cf. Shanty Hollow Corp. v. New York State Tax Commission,
111 AD2d 968).

-3­
TSB-A-87(23)S
Sales Tax
May 22, 1987

Consequently, whenever the costs here at issue are subject to tax, they are fully taxable in
accordance with the above quoted sections of the Tax Law and regulations, which allow no
deductions from such taxable receipts based on the subsequent use of the acquired property or
services; nor has the destination of the television broadcast signals initiated by such use any bearing
on the tax status of the purchases.

DATED: May 22, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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