A commercial photography studio creates images (conventional film transparencies or digital media) for advertising clients and, on request, does pre-press production work (scanning, color-adjusting, image-setting, and proofing) to prepare 4-color film and proofs for the client's printer. Which of the studio's cameras, computers, scanners, and other equipment qualify for Texas's manufacturing exemption?

Plain-English summary

A commercial photography studio creates visual images for clients' advertising, using either conventional cameras (film developed into a transparency, not a printed photo) or digital cameras (image recorded to electronic media like a disk or CD). If a customer wants to do their own pre-press production, the studio just sells them the transparency or the electronic media. If the customer wants the studio to handle pre-press too, the studio scans the transparency (or starts directly from digital media), color-adjusts and arranges the images with production computers and software, copies the result to a CD, and runs it through image-setting equipment to produce 4-color film for the customer's printer plus a paper proof showing what the final print will look like. The studio also builds sets and buys props to photograph the client's products. The studio argued each of these tools causes a physical or chemical change to the product it's manufacturing for sale (the transparency, the electronic media, the 4-color film, the proof) and asked which items qualify for the manufacturing exemption.

The Comptroller agreed the studio is a manufacturer under Sec. 151.318, because photographers who sell their photographic images fabricate/process tangible personal property for sale. The 1999 legislature's House Bill 3211 added Sec. 151.318(t), specifically exempting pre-press machinery, equipment, and supplies (including cameras, film, film developing chemicals, plate-making machinery, and similar items) that are necessary and essential to the printing process, when bought by someone printing tangible personal property for sale. Applying that, the studio can give its vendors an exemption certificate for: conventional and digital cameras, scanners used to scan transparencies into computers, computers and software used to edit images, image-setting and proofing equipment, and set materials/props. As always, anyone claiming this exemption must pay tax on the fair market rental value of an item for any period it's used for a nonexempt purpose (Rule 3.287(e)).

Note on this page's title: STAR's own subject heading for this letter lists batteries, flash bulbs, a lens filter, enlargers, darkroom equipment, and stands as covered items, but none of those items are mentioned anywhere in the studio's fact pattern or the Comptroller's exemption list — the letter discusses only cameras, scanners, computers/software, image-setting/proofing equipment, and set materials/props. This page's subject_title has been corrected to list only the items the letter actually addresses.

What this means for you

Commercial photography studios doing their own pre-press work

Your cameras (film or digital), scanners, editing computers/software, and image-setting/proofing equipment can be bought tax-free with an exemption certificate under Sec. 151.318(t), since you're treated as a manufacturer producing the transparency, digital media, film, or proof for sale — but track any nonexempt use, since divergent use triggers fair-market-rental-value tax.

Advertising and print production clients working with photography studios

Understanding that your studio can buy this equipment tax-free may be relevant if you're negotiating pricing or reviewing vendor invoices, though the exemption applies to the studio's own equipment purchases, not to what it charges you.

Accountants and tax professionals

A useful worked example of Sec. 151.318(t)'s 1999 pre-press clarification applied specifically to a photography studio's production chain (camera → transparency/digital media → scan → edit → image-set → proof), distinct from a traditional print shop's pre-press equipment.

Common questions

Q: Are a photography studio's cameras exempt from Texas sales tax as manufacturing equipment?
A: Yes, under Sec. 151.318(t), since the studio is manufacturing a transparency or electronic media image for sale.

Q: Does the exemption cover computers and software used to edit and color-adjust images?
A: Yes, along with scanners, image-setting equipment, and proofing equipment used in the pre-press process.

Q: Are darkroom equipment, enlargers, batteries, flash bulbs, or lens filters addressed in this letter?
A: No — despite STAR's heading listing these items, the letter's fact pattern and exemption list only cover cameras, scanners, computers/software, image-setting/proofing equipment, and set materials/props.

Q: Can I rely on this letter for my own photography or pre-press business?
A: No. It's based on the specific facts submitted and can be relied on only by the taxpayer to whom it was issued; other facts, even if similar, may produce a different result.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.318 (manufacturing exemption)
• Texas Tax Code Section 151.318(t) (pre-press machinery, equipment, and supplies exemption, added by H.B. 3211)
• 34 Tex. Admin. Code Rule 3.287(e)(1-4) (exemption certificates; divergent use)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9907559L

Original ruling text

July 20, 1999

Dear Mr. **:

Thank you for your letter concerning sales and use tax exemptions for
manufacturers.

Situation: STUDIO COMPANY is in the business of creating visual images and
preparing those images for a print media. Generally, the printed material
advertises your client's products. STUDIO COMPANY is not engaged in the actual
printing.

The visual images are created with cameras, either conventional (uses film) or
digital (electronic media). When a photograph is taken with a conventional
camera, the exposed film is taken from the camera and developed. For
commercial applications no negative is created and the image is not printed on
paper, rather a transparency is developed from the same piece of film that was
removed from the camera. If the customer wishes to do his or her own pre-press
production work, then the customer is sold the transparency. When a photograph
is taken with a digital camera, the image is recorded on electronic media (a
digital camera is essentially a computer that edits digital images). If the
customer wishes to do their own pre-press production work, the customer is sold
the electronic media such as a disk or CD. In addition, you often construct
sets and acquire props in order to photograph the product as the customer
requires.

It is your contention that conventional cameras (film) cause a chemical change
to the product being manufactured for sale: the transparency. The cameras
focus light, which causes chemical changes to the film that, when processed,
will become the transparency the customer receives. It is your contention that
digital cameras cause a physical change in the product being manufactured for
sale: the electronic media. The cameras focus light, which causes an
electronic imprint on the magnetic disk or CD, which the customer receives. It
is also your contention that the sets you construct and the props you provide
cause either a chemical or physical change in the product, depending on whether
conventional or digital cameras are used, by becoming part of the image on the
transparency or the electronic media.

If the customer desires, you will also produce the items necessary for the
printing of the images created above. The first step in this process is
converting the transparency to magnetic media, (i.e. scanning into a computer).
This is, of course, not necessary for images produced with a digital camera
discussed above. Through the use of production computers and software the
images are color adjusted, manipulated and arranged into the desired print
format. These digital images are copied to a CD, which is given to the
customer. Image setting equipment then produces 4-color film for the customer
to take to his printer. The 4-color film is also used to produce a proof for
the customer. A proof is a rendering of the image on paper (created with the
4-color film) as it will appear when printed. This proof is created so the
customer may see what the final printed image will look like, which is not
possible looking at 4-color film.

It is your contention that each of these types of equipment: scanners,
production computers, image setters and proofing equipment cause either a
chemical or physical change in the product being manufactured. The computers
and scanners make physical changes in the image's digital files, which are
copied to a CD and transmitted to the image setter. The image setter makes
physical and chemical changes in the 4-color film. Proofing equipment then
produces a proof on paper from the 4-color film. The end products are the CD,
the 4-color film and the proof.

Response: Texas Tax Code Section 151.318 governs the exemption of tangible
personal property used by persons (manufacturers) who fabricate or process
tangible personal property to be sold. Photographers who sell their
photographic images are manufacturers. In the recent legislative session,
House Bill 3211 added subsection (t) as a clarification to the exemption for
manufacturers in Section 151.318:

The clarification in Section 151.318(t) states:

In addition to the other items exempted under this section, pre-press
machinery, equipment, and supplies, including computers, cameras, film, film
developing chemicals, veloxes, plate-making machinery, plate metal, litho
negatives, color separation negatives, proofs of color negatives, production
art work, and typesetting or composition proofs, that are necessary and
essential to and used in connection with the printing process are exempted from
the tax imposed by this chapter if they are purchased by a person engaged in:

(1) printing or imprinting tangible personal property for sale; or

(2) producing a publication for the dissemination of news of a general
character and of a general interest that is printed on newsprint and
distributed to the general public free of charge at a daily, weekly, or other
short interval.

Therefore, your photographic studio may give an exemption certificate to the
vendor for purchase of the following equipment:

Cameras (conventional and digital)
Scanners that scan transparencies into computers used in editing images
Computers and software used in editing images (e.g., adjust color, etc.)
Image setting and proofing equipment
Set materials and props

Note: A person who claims an exemption for an item is required to pay tax on
any divergent use based on the fair market rental value of the item during the
period of nonexempt use. See Rule 3.287(e)(1-4) regarding exemption
certificates.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division