The movie and sound recording industry has enjoyed special sales tax breaks for many years. With regard to sound recording, the measure of sales tax on original recordings sold as records, tapes, CD’s, etc is limited to the sale price of the unprocessed recording media. Likewise, the recording of sound on recording media used to produce the master tapes or records is included within this exemption.
Movie producers and those engaged in the business of certain production services are liable for tax only on the cost of the tangible items they purchase. No tax applies to the sale of a motion picture if it occurs prior to the date it is exhibited to or broadcast to its general audience.
Also, rental receipts from any motion picture are not subject to tax. Tax does apply to leases of videocassettes, videotapes, and videodiscs for private use under which the lessee or renter does not obtain or acquire the right to license, broadcast, exhibit, or reproduce the videocassette, videotape, or videodisc.
A qualified motion picture is any motion picture or portion thereof, whether finished or not, which is produced, adapted, or altered for exploitation in, on, or through any medium or by any device for any purpose, including, but not limited to, any entertainment, commercial, advertising, promotional, industrial, or educational purpose.
A qualified motion picture includes, but is not limited to: (1) Motion pictures produced for display at theaters, amusement parks or on commercial carriers; television shows; commercials; corporate training and sales presentations; video press kits; music videos; and special effects, titles, and credits which are embodied on film, tape, or other motion picture media. (2) Original and adapted versions including, but not limited to, adaptation to another language or another medium. (3) Motion pictures produced for the federal government or its instrumentalities, foreign governments, state and local governments, or political subdivisions thereof.
Qualified motion picture does not include motion pictures produced for private noncommercial use, such as motion pictures of weddings or graduations to be used as family mementos, accident reconstruction videotapes to be used for legal analysis, or student films to be used for class projects.
In the production of a motion picture, various production services are exempt from tax. These include sales of animated drawings, developing or processing of negatives and positives, medium transfers, film to tape, tape to tape, etc, paintings, creation of special effects on film, etc.
This area of the tax law is highly technical and if you or your clients (even your graphic artist clients) are involved with this type of industry, a careful review of Regulation 1529 and 1527 is advised.
