Is a local video production company's editing/assembly work taxable when it's producing a highlight tape that gets distributed free to TV stations for broadcast?

Plain-English summary

A small organization received video footage voluntarily sent in each week by college athletic departments around the country, then paid a local Utah video production company to digitize and assemble the best clips into a five-minute college football highlight tape, adding music and sound effects. The organization then uplinked the finished tape by satellite to television stations nationwide, free of charge, for use in their sports segments -- funded by a single sponsor, and never sold (the organization was barred by the NCAA from selling the tape). The production company was charging sales tax on its editing/assembly services at an hourly rate, and the organization asked whether that was correct, pointing to a possible "commercials, films, audio and video tapes" exemption or an analogy to professional service fees.

The Commission agreed the transaction was exempt, but for a more specific reason than the organization suggested. Utah Code Ann. § 59-12-104(6) exempts sales of "commercials, motion picture films, prerecorded audio program tapes or records, and prerecorded video tapes" by a producer, distributor, or studio to a motion picture exhibitor, distributor, or commercial television or radio broadcaster. The Commission characterized the roles in this transaction as: the video production company is the "producer" (it performed production steps to create the video), and the requesting organization is the "distributor" (it distributes the finished tape to broadcasters). Because the transaction fit squarely within that producer-to-distributor structure, the Commission held it exempt from Utah sales tax.

What this means for you

Organizations that produce content for free broadcast distribution

If you commission a production company to create video content that you then distribute to television or radio broadcasters -- even for free, even funded by a sponsor rather than direct sales -- that production work can qualify for Utah's media-industry sales tax exemption, provided it fits the producer/distributor/broadcaster chain in § 59-12-104(6).

Video and audio production companies

Whether your services are taxable can depend heavily on who your client is and what they do with the finished product. Producing content for a client that then distributes it to broadcasters may make your services exempt, even if you'd otherwise expect standard production/editing labor to be taxed.

Accountants and tax professionals

This ruling is a useful, concrete application of § 59-12-104(6)'s producer/distributor/broadcaster framework outside the traditional commercial-advertising context -- here applied to a nonprofit-style sports highlight reel distributed at no charge, showing the exemption doesn't require a traditional sale-for-money to a broadcaster.

Common questions

Q: Is video editing/production work always taxable in Utah?
A: Not always. If the work fits Utah's producer-to-distributor-to-broadcaster chain under § 59-12-104(6), the sale can be exempt.

Q: Does the content have to be sold for money to qualify for this exemption?
A: This ruling found the exemption applied even where the finished tape was distributed to broadcasters for free, funded by a sponsor rather than direct sales.

Q: Does this ruling apply to my production company or organization?
A: No. It binds the Commission only for the requesting organization and the facts described. Another taxpayer can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Statutes:

• § 59-12-104(6) (exemption for commercials/films/tapes sold by a producer to a distributor or broadcaster)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-074.htm

Original ruling text

98-074

Response January 20, 1999

REQUEST LETTER

October 29, 1998

Dear Mr. Chapman:

We have recently made the attempt to begin a small
business. Our first attempt in such a venture on our own We request an Advisory
Opinion of a Utah State Sales Tax situation we
believe to be erroneously charged to us by a local business for services
being performed.

Each week we receive numerous video tapes from various
colleges and universities around the country. We assemble, categorize and judge
this footage and narrow it into one five-minute tape highlighting the best in
college football from around the country. We do not purchase these tapes from
the various institutions. Rather, they are sent to us voluntarily by various
Athletic Departments.

We pay a local video production facility to digitize
and assemble the footage, add music and sound effects, etc. They deliver a
finished product to us on a single video tape. We then uplink this tape via
satellite to television stations across the county free of charge to be used in
their sports segments on their nightly news or in their weekend sports
programming. Production costs here in Utah are paid by a single sponsor. We
don't sell or make the tape available for sale in any way, shape or form (we're
prohibited to do so by the NCAA).

We're currently being charged sales tax on all the
services provided by this local video production company-their services being
charged to us at an hourly rate. We wonder if this service is taxable under
these circumstances and if this may be exempt from Utah State Sales Tax.
Perhaps under the "Commercials, Films, Audio and Video Tapes" clause
or because this is a service similar to attorney's, consultant's, dentist's or
other professional fees.

If you have any questions or need additional
information or clarification on any aspect of this activity, please don't
hesitate to call me at #####.

Executive Director

RESPONSE
LETTER

January 20, 1999

RE: Advisory
Opinion - Sales Tax on Transaction with Video Production Facility

Dear NAME,

We have received your request for an advisory opinion
concerning the application of sales tax on a video that you have a local video
production facility (Aproduction company@)
put together for you. Your concern is
that sales tax should not be charged on this transaction, which consists of
your organization supplying the production company with a number of videos
tapes, parts of which are then assembled onto one tape as per your
instructions. You have specifically
asked whether this transaction is exempted from sales tax.

Utah Code Ann. '59-12-104(6)
provides a sales tax exemption for Asales
of commercials, motion picture films, prerecorded audio program tapes or
records, and prerecorded video tapes by a producer, distributor, or studio to a
motion picture exhibitor, distributor, or commercial television or radio
broadcaster.@ The production
company in your transaction has been contracted to perform some of the steps in the production process
for a video that your organization distributes for broadcast. As such, the Commission determines that the
production company is a producer and your organization is a distributor for
purposes of this sales tax exemption.
Thus, the transaction in question between your company and the
production company is exempt from sales tax.

Please contact us if you have any other questions.

For the Commission,

Joe B. Pacheco, CPA

Commissioner

^^