(a) Partial Exemption for Property Purchased
for Use in Teleproduction or Other Postproduction Services. Commencing on
January 1, 1999, section
6378
of the Revenue and Taxation Code provides a partial exemption from sales and
use tax for certain properties described in this regulation.
For the period commencing on January 1, 1999, and ending on
December 31, 2000, the partial exemption applies to the taxes imposed by
sections
6051,
6051.3,
6201,
and
6201.3
of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed
pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on January 1, 2001, and ending on
December 31, 2001, the partial exemption applies to the taxes imposed by
sections
6051
and
6201
of the Revenue and Taxation Code (4.75%), but does not apply to the taxes
imposed pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on January 1, 2002, and ending on
June 30, 2004, the partial exemption applies to the taxes imposed by sections
6051,
6051.3,
6201,
and
6201.3
of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed
pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on July 1, 2004, and ending on
March 31, 2009, the partial exemption applies to the taxes imposed by sections
6051,
6051.3,
6051.5,
6201,
6201.3,
and
6201.5
of the Revenue and Taxation Code (5.25%), but does not apply to the taxes
imposed or administered pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on April 1, 2009, and ending on
June 30, 2011, the partial exemption applies to the taxes imposed by sections
6051,
6051.3,
6051.5,
6051.7,
6201,
6201.3,
6201.5,
and
6201.7
of the Revenue and Taxation Code (6.25%) but does not apply to the taxes
imposed or administered pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on July 1, 2011, and ending on
December 31, 2012, the partial exemption applies to the taxes imposed by
sections
6051,
6051.3,
6051.5,
6201,
6201.3,
and
6201.5
of the Revenue and Taxation Code (5.25%), but does not apply to the taxes
imposed or administered pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on January 1, 2013, and ending on
December 31, 2015, the partial exemption applies to the taxes imposed by
section 36 of article XIII of the California Constitution and sections
6051,
6051.3,
6051.5,
6201,
6201.3,
and
6201.5
of the Revenue and Taxation Code (5.50%), but does not apply to the taxes
imposed or administered pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on January 1, 2016, and ending on
December 31, 2016, the partial exemption applies to the taxes imposed by
section 36 of article XIII of the California Constitution and sections
6051,
6051.3,
6201,
and
6201.3
of the Revenue and Taxation Code (5.25%), but does not apply to the taxes
imposed or administered pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
For the period commencing on January 1, 2017, the partial
exemption applies to the taxes imposed by sections
6051,
6051.3,
6201,
and
6201.3
of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed
or administered pursuant to sections
6051.2
and
6201.2
of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use
Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the
California Constitution.
Subject to the limitations set forth above, this partial
exemption applies to sales or use taxes imposed on the gross receipts from the
sale of, and the storage, use, or other consumption in this state of, any of
the following items:
(1) Tangible
personal property as defined in subdivision (c)(5) purchased for use by a
qualified person to be used primarily in teleproduction or other postproduction
services.
(2) Tangible personal
property as defined in subdivision (c)(5) purchased for use by a qualified
person to be used primarily to maintain, repair, measure, or test any property
described in subdivision (a)(1).
(b) Property Used Primarily in
Administration, General Management, or Marketing. Notwithstanding any other
provision of this regulation, this partial exemption shall not apply to any
tangible personal property that is used primarily in administration, general
management, or marketing. For purposes of this subdivision, tangible personal
property is used primarily in administration, general management, or marketing
when it is used 50 percent or more of the time in one or more of those
activities for the one year period following the date of purchase of the
property.
(c) Definitions. For
purposes of this regulation:
(1) "Primarily"
means tangible personal property as defined in subdivision (c)(5) of this
regulation used 50 percent or more of the time in an activity described in
subdivision (a) for the one-year period following the date of purchase of the
property. Tangible personal property shall not be considered used in such
activities for any period of time that the property is located outside the
state, regardless of how the property is used while outside the
state.
(2) "Qualified person" means
any person whose line of business is primarily engaged in teleproduction or
other postproduction activities, including postproduction audio services for
film, television, and video productions, described in Code 512191 of the North
American Industry Classification System (NAICS) Manual published by the United
States Office of Management and Budget, 1997 edition, and as further defined in
(c)(4) of this regulation. The term "qualified person" does not include persons
whose line of business is primarily engaged in portrait studios providing
still, video, or digital portrait photography services (NAICS Code 541921,
incorporated herein by reference), or commercial photography services (NAICS
Code 541922, incorporated herein by reference). For the purposes of this
subdivision:
(A) "Primarily engaged" means 50
percent or more of gross revenues, including intra-company charges, are derived
from teleproduction or other postproduction activities for the financial year
of the purchaser preceding the purchase of the property. In cases where the
purchaser was not primarily engaged in "teleproduction or other postproduction
services" for the financial year preceding the purchase of the property, the
one year period following the date of purchase of the property will be used. In
the case of a nonprofit teleproduction or other postproduction establishment,
"primarily engaged" means 50 percent or more of the funds allocated to the
establishment are attributable to teleproduction or other postproduction
services.
(B) For purposes of
classifying a line of business, the economic unit shall be the "establishment"
and the classification of the line or lines of business will be based on the
establishment's primary activity based upon gross revenues.
(C) "Establishment" is defined as the
smallest operating unit for which records provide information on the revenues
and cost of operations incurred to perform the teleproduction or postproduction
services.
1. The services may be provided to
other divisions within the same entity or to related parties with or without
direct compensation.
2.
Establishments may include, but are not limited to, departments, divisions,
subdivisions and product lines.
(3) "Sale" includes the producing,
fabricating or processing of tangible personal property for a consideration for
consumers who furnish either directly or indirectly the materials used in the
producing, fabricating or processing. When performed outside this state or when
the customer issues a resale certificate, a "purchase" includes the producing,
fabricating or processing of tangible personal property for a consideration for
consumers who furnish either directly or indirectly the materials used in the
producing, fabricating or processing. If such producing, fabricating or
processing is performed on property described in subdivision (a)(1) or (a)(2)
of this regulation for a qualified person and the other requirements for the
partial exemption in this regulation are met, the partial exemption applies to
the gross receipts or sales price for such producing, fabricating, or
processing.
(4) "Teleproduction or
other postproduction services" means services for film, video, or digital
multimedia formats (audio or visual) that include editing, film and video
transfers, transcoding, dubbing, subtitling, credits, close captioning, audio
production, special effects (visual or sound), graphics, or animation. For the
purposes of this regulation, "teleproduction or other postproduction services"
includes postproduction services and does not include production services or
activities. "Teleproduction or other postproduction services" include the
duplicating of film for postproduction purposes. However, the duplication of
film to make release prints does not qualify as a "teleproduction or other
postproduction service."
The term "teleproduction or other postproduction services"
also includes, but is not limited to:
(A) Services performed to transform,
manipulate, assemble, and duplicate visual moving images and synchronous sound
previously captured on film, video, or digital formats (audio or visual) or as
data during principal photography.
(B) Services to create digital images,
models, miniatures or sounds that may be, but are not required to be combined
with live action images. Teleproduction or other postproduction services does
not include the recording of music except music recorded with synchronous
visual images.
(C) Film processing;
film to tape transfers; tape to tape transfers; DVD or digital audiovisual
multimedia format authoring and encoding; color correction; digitizing; on-line
and off-line editing; negative cutting; assembling; animation, creating 2d
images, creating 3d images (CGI), visual effects; compositing; digital video
image manipulation; dirt fixes; motion control visual effects capture; scanning
and recording to or from film, video or data; transform; standards or format
conversion; transcoding; duplication (except as provided); titles; subtitling;
credits; closed captioning; creating graphics; audio scoring; automated
dialogue replacement; foley; audio mixing; audio editing; audio laybacks; audio
laydowns; audio special effects; management of visual or audio assets and
related files stored as data; film, video or audio (dialogue, music and
effects) restoration and preservation; archiving, format transfer utilizing
compression standards; film cleaning; quality control processes performed in
conjunction with any other postproduction process; and creation of data files
related to a service defined above.
Definitions of the terms used in this subdivision are
provided in Appendix C.
(D)
The providing of postproduction facilities, such as personnel and scoring
stages or equipment where the provider is deemed to be providing a qualified
teleproduction or other postproduction service, is not a lease of tangible
personal property.
The providing of special configured equipment to be used in
(A) through (D) above with 24 hour a day, 7-day a week available on site
technical support where the provider is deemed to be providing a qualified
teleproduction or other postproduction service, is not a lease of tangible
personal property.
(5) "Tangible personal property" includes,
but is not limited to, all of the following:
(A) Machinery and equipment, including
component parts. Machinery and equipment includes, but is not limited to,
duplication equipment used for postproduction purposes and any property used to
provide teleproduction or other postproduction services that is mounted or
installed in a vehicle.
(B) All
equipment or devices used or required to operate, control, regulate, or
maintain the machinery, including, without limitation, audio and visual
monitoring equipment, scopes, computers, data processing equipment, electronic
data storage equipment, including both internal and external devices, consoles
which are custom built, which have open compartments in which tangible personal
property described in subdivisions (a)(1) and (a)(2) is placed and which are
not suitable for use for other purposes, equipment racks and computer software,
including both operating programs and application programs. This also includes
all repair and replacement parts with a useful life of one or more years
whether purchased separately or in conjunction with a complete machine and
regardless of whether the machine or component parts are assembled by the
taxpayer or another party. Repair and replacement parts that are treated as a
depreciable asset for financial purposes will be treated as having a useful
life of more than one year for the purposes of this regulation, even when such
items are expensed for income tax purposes under the special provisions of
Internal Revenue Code Section 179.
(C) Materials (as defined in Regulation
1521), only when purchased by a qualified person as tangible personal property
and not pursuant to a construction contract, unless the construction contractor
is the retailer of materials under Regulation 1521(b)(2)(A)(2); fixtures; or
other tangible personal property used to operate, control, regulate, or
maintain the property described in subdivisions (a)(1) and (a)(2) which may
subsequently be incorporated into real property, including but not limited to
items such as air conditioning units dedicated to cooling equipment, electrical
UPS (uninterrupted power source) units, sub-flooring, specialized lighting,
sound insulation, hydraulics, cabling, routers, patch bays, hubs, robotic
storage and retrieval equipment, switchers, satellite and/or other
telecommunications equipment used to facilitate the distribution or movement of
elements (in either video or data form) between all the various parties
collaborating in the completion of a film or video project as part of the
postproduction process.
(6) "Tangible personal property" does not
include any of the following:
(A) Furniture,
inventory, meals, vehicles (including those in or on which qualifying property
is mounted or installed,) or equipment used to store products. The term
"furniture" includes, but is not limited to, tables, chairs, desks or consoles
other than those described in subdivision (c)(5)(B).
(B) Real
property.
(d)
Taxes as to Which the Partial Exemption Does Not Apply. This partial exemption
does not apply to any tax levied by a county, city, or district pursuant to, or
in accordance with, either the Bradley-Burns Uniform Local Sales and Use Tax
Law (Rev. & Tax. Code §§ 7200 et seq.) or the Transactions and
Use Tax Law (Rev. & Tax Code §§ 7251 et seq.).
This partial exemption also does not apply to any tax
levied pursuant to section
6051.2
and
6201.2
of the Revenue and Taxation Code, or pursuant to section 35 of article XIII of
the California Constitution.
(e) Section
6378
Exemption Certificate.
(1) Qualified persons
who purchase or lease tangible personal property from an in-state seller, or an
out-of-state seller obligated to collect use tax, must provide the seller with
a section 6378 exemption certificate in order for the seller to claim the
partial exemption. If the seller takes a complete section 6378 exemption
certificate timely and in good faith, the certificate relieves the seller from
the liability for the sales tax subject to exemption under this regulation or
the duty of collecting the use tax subject to exemption under this regulation.
A certificate will be considered timely if it is taken any time before the
seller bills the purchaser for the property, any time within the seller's
normal billing or payment cycle, or any time at or prior to delivery of the
property to the purchaser.
A section 6378 exemption certificate which is not taken
timely will not relieve the seller of the liability for tax excluded by the
partial exemption unless the seller presents satisfactory evidence to the Board
that the specific property was sold to a qualified person and primarily used in
a qualifying manner.
The exemption certificate form set forth in Appendix A may
be used as an exemption certificate.
(2) Blanket Certificates. In lieu of
requiring an exemption certificate for each transaction, a qualified person may
issue a blanket exemption certificate. The blanket exemption certificate form
set forth in Appendix B may be used as an exemption certificate. Qualified
persons claiming the partial exemption through a blanket exemption certificate
must make a clear reference to the blanket exemption certificate in documents
such as their written purchase orders, sales agreements, leases, or contracts.
Qualified persons claiming the partial exemption must also include in the
document referencing the blanket exemption certificate a description of the
property.
(3) Form of Certificate.
Any document, such as a letter or purchase order, timely provided by the
purchaser to the seller will be regarded as an exemption certificate with
respect to the sale of the property described in the document if it contains
all of the following essential elements:
(A)
The signature of the purchaser or an agent or employee of the
purchaser.
(B) The name and address
of the purchaser
(C) The seller's
permit number held by the purchaser, or a notation to the effect that the
purchaser is not required to hold a permit.
(D) A statement that the property acquired is
to be used primarily in teleproduction or other postproduction services or to
be used primarily to maintain, repair, measure, or test any such
property.
(E) A statement that the
purchaser is a qualified person primarily engaged in teleproduction or other
postproduction services as described in Regulation 1532.
(F) Description of property purchased,
including sales price or rentals payable.
(G) Date executed.
(4) Retention and Availability of
Certificates. A seller must retain each exemption certificate, including a
blanket exemption certificate, received from a qualified person for a period of
not less than four years from the date on which the seller claims a partial
exemption based on the exemption certificate. If a qualified person issues a
blanket exemption certificate, the seller must also retain all documents, such
as purchase orders, sales agreements, lease agreements, or contracts
referencing the blanket exemption certificate and all invoices containing the
sales price of the property that the qualified person claims is partially
exempt by reference to the blanket exemption certificate. Such documents shall
be retained for a period of not less than four years from the date on which the
seller claims a partial exemption based on the reference to the blanket
exemption certificate.
While the Board will not normally require the filing of the
Section 6378 exemption certificate with a sales and use tax return, when
necessary for the efficient administration of the Sales and Use Tax Laws, the
Board may, on 30 days' written notice, require a seller to commence filing with
its sales and use tax returns copies of all certificates. The Board may also
require that, within 45 days of the Board's request, sellers furnish to the
Board any and all exemption certificates, or copies thereof, accepted for the
purpose of supporting the partial exemption.
(5) If a purchaser who issues a section 6378
exemption certificate pursuant to subdivision (e)(1), (2), or (3) subsequently
does not meet the requirements of a qualified person as set forth in
subdivision (c)(2) or does not use the property in a manner or for the purpose
which entitles the purchaser to the partial exemption, or if a purchaser issues
a section 6378 exemption certificate pursuant to subdivision (e)(1), (2), or
(3) for property that does not qualify for the partial exemption, the purchaser
shall be liable for payment of the sales tax excluded by the partial exemption,
with applicable interest, to the same extent as if the purchaser were a seller
making a retail sale of the property at the time of conversion. The sales price
of the property to the purchaser shall be deemed to be the gross receipts from
that retail sale.
(f) Use
Tax. With respect to tangible personal property the use of which is subject to
use tax, any purchaser claiming the partial exemption pursuant to Section 6378
of the Revenue and Taxation Code must file a sales and use tax return or
consumer use tax return for the period in which the property is first stored,
used, or consumed in California unless the seller holds a valid California
seller's permit or a Certificate of Registration -- Use Tax and collects the
use tax. The purchaser will not be relieved of his or her liability to pay any
applicable use tax that is excluded from the partial exemption as provided in
subdivision (d) of this regulation until such tax is remitted either to a
vendor who issues a receipt which meets the requirements of Regulation 1686 or
directly to the Board.
(g)
Conversion of Property to a Use Not Qualifying for the Partial Exemption.
Property that, within one year from the date of purchase, is removed from
California, converted from an exempt use under this regulation to some other
use not qualifying for the partial exemption, or used in a manner not
qualifying for the partial exemption under this regulation, such as a lease to
a non-qualified person, is used in a non-qualifying manner. If, as a result of
the total non-qualifying use, the property is not primarily used, as defined in
subdivision (c)(1), in a qualifying activity, the partial exemption shall not
apply. In determining the non-qualifying use, two or more non-qualifying uses
that occur at the same time shall be counted as one. For example, a lease to a
non-qualified person of property that is removed from California shall be
considered as one non-qualifying use for the period it was removed from
California and leased to a non-qualified person.
The property shall not, however, be regarded as converted
to a use not qualifying for the partial exemption if the qualified person sells
or leases the property to a qualified person for qualified use in
California.
For purposes of this subdivision, tangible personal
property shall not be regarded as being converted to a non-qualifying use if
such property is used for teleproduction or other postproduction services in
this state for more than one half of the one year period from the date of
purchase of the property.
(h) Purchaser's Liability for the Payment of
Sales Tax. If a purchaser submits a Section 6378 exemption certificate to the
seller, and then within one year of the date of purchase of the property
converts that property as described in subdivision (g) from an exempt use
pursuant to this regulation to some other use not qualifying for the partial
exemption, the purchaser shall be liable for payment of sales tax excluded by
the partial exemption, with applicable interest, to the same extent as if the
purchaser were a seller making a retail sale of the property at the time the
property was so removed, converted, or used; and the sales price of the
property to the purchaser shall be deemed to be the gross receipts from that
retail sale. In the case of a non-qualifying lease, the payment of sales tax by
a purchaser when included on the return for the period covering the date of
conversion shall be deemed to be a timely election to pay tax based on the
purchase price.
(i) Leases.
(1) Leases -- In General. Leases of tangible
personal property which are classified as "continuing sales" and "continuing
purchases" of tangible personal property, in accordance with Regulation 1660,
"Leases of Tangible Personal Property -- In General," may qualify for the
partial exemption subject to all the limitations and conditions set forth in
this regulation. This partial exemption may apply to rental receipts paid by a
qualified person with respect to a lease of tangible personal property to the
qualified person, which tangible personal property is used as set forth in
subdivisions (a)(1) and (a)(2) of this regulation, notwithstanding the fact
that the lease was entered into prior to the operative date of this regulation.
For purposes of this subdivision, a non-qualified person may purchase property
for resale and subsequently lease the property to a qualified person subject to
the partial exemption.
A lessee is a qualified person if the lessee is "primarily
engaged" in teleproduction or other postproduction activities and meets the
requirements of a qualified person set forth in subdivision
(c)(2).
(2) Leases of
Tax-Paid Property. The partial exemption does not apply to the sale of property
to, or the storage, use, or other consumption of property by, a person who is
not a qualified person even if that person subsequently leases the property to
a qualified person.
(3) Lease of
Property By a Qualified Person. If a qualified person has acquired property
subject to the partial exemption provided by this regulation, the subsequent
lease of that property will not be subject to tax measured by rental receipts.
A lease of property to a qualified person for use in a qualified manner
constitutes a qualifying use of the property by the lessor. If, however, the
property is used in a manner not qualifying for the exemption, such as being
leased to a non-qualified person in the aggregate for more than one half of the
one year period following the date of purchase by the qualified person, such
property is not considered to be primarily used in "teleproduction or other
postproduction services." Therefore, the lessor will be liable for tax in
accordance with subdivision (e)(5).
For example, if a qualified person purchases property under
the partial exemption, and then leases the property to a non-qualified person,
the lease receipts will not be subject to tax as the purchaser has elected to
pay tax on their cost. However, if the qualified person who purchases the
property leases the property to a non-qualified person for more than one half
of the one year period following the date of purchase, the lessor is not using
the property in a qualifying manner and is responsible for the tax excluded by
the partial exemption based upon the purchase price of the
property.
(4) Leases --
Recharacterization. With respect to transactions which the parties denominate
as a "lease," but which are recharacterized for sales and use tax purposes
either as sales at their inception, pursuant to Regulation 1641, "Credit Sales
and Repossessions," subdivision (b), or as sales under a security agreement,
Regulation 1660, "Leases of Tangible Personal Property -- In General,"
subdivision (a)(2), the transactions may qualify for the partial exemption, in
accordance with this regulation.
(5) Leases -- Acquisition Sale and Leaseback.
A qualified person will be regarded as having paid sales tax reimbursement or
use tax with respect to that person's purchase of property, within the meaning
of those words as they are used in section
6010.65
of the Revenue and Taxation Code, if the qualified person has paid all
applicable taxes with respect to the acquisition of the property,
notwithstanding the fact that the sale and purchase of the property may have
been subject to the partial exemption from tax provided by this
regulation.
(j) Records.
Adequate and complete records must be maintained by the purchaser to support
that the property purchased was used primarily in the performance of
teleproduction or other postproduction services for a period of no less than
one year prior to conversion of the property to a non-qualifying use or use by
a non qualifying party.
(k)
Operative Date. This regulation is operative as of January 1, 1999. The partial
exemption under section
6378
of the Revenue and Taxation Code only applies to qualifying tangible personal
property that is sold or first stored, used, or consumed in California on or
after the operative date.
