The motion picture industry has always enjoyed special sales/use tax considerations and new Code Section 6378 adds even more presents to their bag of goodies. The sales of qualified motion pictures by producers and qualified production services (including photography and film fabrication) were (and still are) exempt from sales tax.

The new law, effective 1-1-99, exempts other tangible personal property including (machinery and equipment) used by people engaged in the business of teleproduction or other post production services. These teleproduction and postproduction services are services for film or video including editing, film and video transfers, transcoding, dubbing, etc. The definition of teleproduction and post production services is similar to the existing definition for qualified production services in Reg 1529.

The exemption does not extend to furniture, inventory or equipment used to store products or to tangible personal property used primarily in administration, management, or marketing. Also, it is an exemption from sales tax only (6%) not from local (1%), county (.25%) or transit tax.

The purchaser must issue an exemption certificate to the seller and the seller must furnish a copy of the certificate to the board. If the purchaser, within one year after the purchase either (1) removes the property from California, (2) converts the property in a manner not qualifying for the exemption or (3) uses the property in a manner not qualifying for the exemption, the purchaser will be liable for the sales tax.

Example:

Video experts is engaged in the business of transferring film to VHS format. A film transfer machine and a computer to operate it are purchased. These items are exempt under the new law.

A computer purchased for accounting purposes is not exempt as it is used for administration purposes.

Nine months later video experts decides to move their business to Arizona. They owe sales tax on all previously exempt machinery and equipment since they removed the property within one year.