How does Utah sales and use tax apply to a video production business's equipment rentals and purchases, and to the charges it bills clients for finished commercials, corporate videos, and film/video productions?

Plain-English summary

A sole-proprietor film and video producer asked the Tax Commission a comprehensive set of questions about sales and use tax on the equipment used to make commercials, corporate videos, and other productions, and on the charges billed to clients (both for-profit and nonprofit). The Commission's answer covers four areas:

1. Equipment rentals. All rentals of tangible personal property used to produce videos (cameras, audio gear, lighting, trucks, etc.) are taxable. A rental of real property is not.

2. Equipment purchases. The producer must pay sales tax on purchases of items used or consumed in making a production -- for example, a camera or a prop the producer keeps. But items that become part of the final product sold to the customer, or that will be resold, can be purchased tax-free using a resale exemption certificate. The ruling walks through worked examples: a tape used to produce a film and then sold to the customer as part of the final product can be bought tax-free (the customer pays tax on the finished product); a tape used only to make a master that's then copied and sold is taxable to the producer (not resold); but if the customer buys both the master and the copies, even the master tape qualifies for exemption because title passes to the customer.

3. Making taxable sales to clients. With specific exceptions, the producer must collect and remit sales tax on the entire price of the finished production -- including the value of writing, producing, and editing services, not just the tangible tape or file. The exceptions:

• Sales of commercials, films, and prerecorded video tapes to a distributor, television broadcaster, or motion picture exhibitor are exempt (with an exemption certificate, Form TC-721, kept on file).
• Sales to a religious or charitable organization are exempt only if the purchase is for the organization's own regular religious or charitable activities AND the organization is IRS-recognized under section 501(c)(3) (a Utah organization will have its own exemption number).
• Sales to federal or Utah state/local government agencies are exempt.
• Items sold for resale are exempt, but only the truly resold items -- if the customer buys a master for reproduction that it keeps rather than resells, that master is taxable because it isn't being resold.
• In every exempt case, the purchaser must complete an exemption certificate for the producer's records, and taxable/nontaxable items on the same invoice must be separately itemized or the whole charge is taxed.

4. Tax numbers, exemption certificates, and use tax. A producer collecting sales tax needs a Utah sales tax license/number. If a supplier fails to charge sales tax on a taxable purchase, the producer should pay the tax to the supplier directly, not to the Commission. Purchases from out-of-state or mail-order vendors that don't collect Utah tax trigger use tax, which the producer must remit directly to the Commission.

What this means for you

Video, film, and commercial production businesses

Track carefully which equipment purchases become part of what you sell to a customer (potentially exempt as resale) versus what you consume/retain yourself (taxable). On the sales side, expect to charge tax on your full production price -- your creative/editing services aren't automatically exempt just because they're intangible; the exemption depends on WHO the customer is (broadcaster/distributor/exhibitor, qualifying charity, government) not on the nature of your services.

Producers working with nonprofit or government clients

Don't assume "nonprofit" alone is enough -- the customer must specifically be an IRS-recognized 501(c)(3) organization buying for its own regular religious or charitable activities, and you need an exemption certificate on file. A 501(c)(4) or other nonprofit category doesn't qualify (see the related 501(c)(4) convention-exemption denial in PLR 95-038).

Accountants and tax professionals

This ruling is a comprehensive, practical walkthrough of the resale-exemption "primary use" and "title passage" tests applied to a service-heavy creative business, plus a clean statement of the buyer-category exemptions (distributor/broadcaster/exhibitor, § 501(c)(3) charity, government) that apply to finished production sales regardless of how much of the price is labor/service versus tangible media.

Common questions

Q: Do I owe sales tax on camera and equipment rentals for a video shoot?
A: Yes -- equipment rentals used to produce videos are taxable, per this ruling.

Q: Is the whole price I charge a client for a finished video taxable, including my editing and production labor?
A: Generally yes -- Utah taxes the entire finished-production price unless a specific buyer-category exemption applies (broadcaster/distributor/exhibitor resale, qualifying 501(c)(3) charity, or government).

Q: Can I buy a tape or other media tax-free if I plan to sell the finished product on it to my client?
A: Yes, if the tape becomes part of the product you sell and title passes to the customer -- use a resale exemption certificate. If you keep the item (like a master you don't sell), you owe tax on it.

Q: What if my supplier forgets to charge me sales tax on a taxable purchase?
A: Pay the tax to the supplier directly, not the Tax Commission, according to this ruling. For purchases where no Utah vendor is positioned to collect (out-of-state or mail order), you owe use tax directly to the Commission.

Q: Can I rely on this ruling for my own production business?
A: Not automatically -- it binds the Commission only for the taxpayer and facts presented. Confirm your own transactions against the same tests (title passage, buyer category, separately-stated billing).

Citations and references

No specific statute or rule section number is quoted verbatim in the surviving text of this ruling; the response references Utah's general sales/use tax framework and identifies the relevant exemption certificate as Form TC-721.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/96-078.pdf

Original ruling text

96-078

Response
May 15, 1996

Request

XXXXX

Tax
Policy Analyst

Utah
State Tax Commission

210
North 1950 West

Salt
Lake City, UT 84134

Dear
XXXXX

I
am in the business of writing and producing film and video tape television
commercials, television programs, corporate films and videos plus films and
videos for non-profit foundations and Corporations. My company, a proprietorship, is called XXXXX.

I
have several questions regarding the collection and payment of taxes for my
business. Would you please give me an
advisory opinion on the following questions?

I.
Which of the following goods and
services needed for the production of films and videos will I be required to
pay sales taxes on? Please consider
that some of my work will be for legal non-profit entities and some for
broadcast.

Rental
Of:

Microphones

Audio Mixers (equipment)

Misc audio gear

Audio recorders

Walkie talkies (radios)

Motion picture and video cameras

Camera lenses

Misc. Camera gear (heads, tripods,
controls, mat box, filters)

Video tape machines

Lights and light stands

Grip equipment

Dolly and track

Flags, scrims, stands, etc.

Electrical equipment

Generators

Cables, connectors, etc.

Trucks, vans and cars

Prop rental

Wardrobe rental

Wagons and horse teams

Purchase
Of:

Film (unexposed raw stock)

Video tape (new raw stock)

Audio tape (new raw stock)

Tape boxes

Prop purchase

Wardrobe purchase

Set construction materials

Art Department supplies

Services
of:

Film processing and printing

Film to video transfer

Video tape dubs of edited master
tapes given to clients as part of total production contract.

Video tape dubs of camera master
tapes

Video tape dubs of film transfer
masters

Misc. video tapes (screening, client
approval, etc.)

Video tape editing facility
(off-line and on-line, includes editor)

Audio editing and mixing facility
(includes engineer)

Music composer (write, arrange,
conduct and produce music)

II.
For clients who contract with my
company to write, direct and produce a film or video tape:

a) Do I pay taxes for the goods and services I use to create
(produce) a film or video? Please
consider that my clients are for-profit corporations, legal nonprofit
foundations/corporations, TV stations and TV networks.

b) If I have paid taxes on the goods and services to produce a
film or video, am I then required to collect additional and duplicate sales tax
from clients on the total cost of the completed production?

Please consider that some of my clients are end users and
some sell copies of my productions to the public or to other divisions of their
own organizations. Still others show my
work in public and charge admission while others, especially non-profits, show
the work in public and don't charge admission.
Some clients broadcast my tapes and films on television.

c) Am I required to collect taxes on the dubs or copies of the tapes
I produce for my clients?

d) If a client is a non-profit foundation or a non-profit
corporation, what does their non-profit status mean to me in terms of the sales
taxes I am expected to pay for goods and services used during production? What does it mean in terms of collecting
sales tax, if any, from a client for the completed production considering? Do I collect tax from video tape copies that
I sell to a non-profit client?

e) What is the appropriate and legal use of the tax exempt
number given to me by the State Tax Commission?

1.) For films or tapes that will be broadcast on
television?

2.) For films or tapes that will be used internally by a for-Profit
corporation (i.e., training)?

3.) For films or tapes that will be used externally by a for-Profit
corporation (i.e., marketing)?

4.) For films or tapes that will he sold commercially by
a non-Profit corporation?

5.) For films or tapes that will be used internally by a non-Profit
corporation?

f) In other words, does the fact that I am producing a film or
video for a non-profit entity mean that I don't pay taxes on the goods and
services that are required to make the film or video?

III.
Who is responsible if a suppler of
mine fails to charge me sales tax? I
have heard stories of the tax Commission collecting taxes from producers that a
supplier should have collected on goods and services sold to the producer. Is this possible?

IV.
If a suppler forgets to charge me
sales tax do I pay him the tax even though he didn't ask for it, or do I pay it
directly to the Tax Commission?

Thank
you for considering these questions.
Please call me if I can provide further clarification.

Sincerely,

XXXXX

XXXXX

Advisory
Opinion - application of sales tax to equipment and supplies used to produce
video tapes

Dear
XXXXX

We have received your request for an
opinion regarding the application of sales tax to the equipment and supplies
that you use to produce video tapes and to sales to your customers. We offer the following guidance on these
issues:

1. Equipment rentals: You must pay sales tax on all rentals of personal
tangible property used to produce video tapes.
All of the items on the list provided in your letter are subject to
tax. A rental of real property is not
subject to sales tax.

2. Equipment purchases: 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. You may purchase certain items for resale
tax free upon issuing the vendor an exemption certificate. 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.

The assumption underlying this
exemption 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. You may purchase tax free all items that
become part of the final product and
items to which title passes to your customer. 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 his or her purchase
of the finished product.

b. If
you purchase a video tape, use the tape to make a master, then reproduce the
master to and sell the copies, you must pay sales tax on the purchase of the
tape used as a master because 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 the master
and the reproductions. In this case,
even the tape used to make the master is eligible for exemption because title
to it passes to your customer.

When you purchase taxable and
non-taxable items at the same time, your vendor must separately itemize the
non-taxable items, or the entire charge is taxable.

If you mistakenly paid sales tax on
items purchased for resale, you are entitled to a refund if you file a claim
within three years of the date of payment.
Normally, you will request a refund from the vendor from whom you
purchased the item. If you have accrued
and paid use tax in error, you may apply for a refund directly from the
commission.

If any of your customers requests a
refund from you, you may take an adjustment on your next sales tax return. If you have questions about the refund
process, please contact XXXXX of our Customer Service Division at XXXXX.

Use tax is due on items that you
purchase through mail order or from an out-of-state vendor. In many cases the vendor will not collect
and remit the tax due on these sales, so you are required to remit the sales
tax directly to the commission.

3. Making
taxable sales: With the exceptions discussed below, you
must collect and remit sales tax on the entire price of the final video tape production,
including the cost of your services like writing, producing, and editing the
film. The following are exceptions to
this rule:

a.
Sales of commercials, motion picture
films, and prerecorded video tapes by a producer, distributor or studio to a
motion picture exhibitor, distributor or commercial television broadcaster are
exempt. If your customer is a
distributor, television broadcaster or motion picture exhibitor, you need not
collect sales tax on the sale. Your
customer must complete an exemption certificate form (TC-721), and you must
keep the form with your tax records.

b.
A religious or charitable
organization may purchase your videos tax free if the purchase is made in the
conduct of the organization regular religious or charitable activities. To qualify, the organization must be
recognized by the Internal Revenue Service as exemption from tax under Section 501
(3) of the Internal Revenue Code. If it
is a Utah organization, it will have an exemption number issued by the state.

c.
You are not required to collect
tax on sales of video tapes to a federal, agency or an agency of the State of
Utah or its political subdivisions.

d. You
are not required to collect sales tax on items sold to a customer who is
purchasing it for resale. However, you
must collect sales tax on any items that you sell your customer that will not
be resold. For instance, if your
customer purchases a master for reproduction, the master is taxable because it
will not be resold.

In each of these cases, the
purchaser must complete an exemption certificate for your tax records. If your customer is purchasing both taxable
and non-taxable items, you must separately itemize the non-taxable items on the
bill or invoice, or the entire charge is taxable.

4. Tax numbers and exemption
   certificates: As a vendor who is
   responsible for collecting sales tax, you are required to have a Utah sales tax
   license. Your request mentions that you have an exemption number issued by the
   Tax Commission. Because your business
   does not appear to be a non-profit or otherwise tax exempt entity, we assume
   that the number is associated with your sales tax license. Your sales tax number is used on sale tax
   returns and it must be included on any exemption certificate that you give a
   vendor for your resale purchases. A
   supplier must charge you sales tax unless you give him an exemption
   certificate. If your supplier fails to
   collect sales tax on a taxable transaction, you should pay the tax to the
   supplier -- not the Tax Commission.

When your customer claims an
exemption, the customer must complete an exemption certificate for your
records. If you fail to obtain an
exemption certificate to verify an exemption, you may be held liable for the
tax later.

Please let us know if you have other
questions.

For the Commission,

Alice Shearer,

Commissioner