Cal. Code Regs. Tit. 18, §§ 25137-8.1 - Motion Picture and Television Film Producers and Television Networks - Apportionment of Income
(a) This regulation applies to motion picture
and television film producers, producers of television commercials, and to
television networks. The provisions of this regulation shall also apply to
independent television stations to the extent they are members of a chain of
commonly owned stations all of which operate as network affiliates or all of
which are unaffiliated with a network but which operate collectively in
purchasing properties for telecast or in marketing air time, or which operate
as a producer. This regulation applies to taxable years beginning on and after
January 1, 1982, and before January 1, 2011.
(b) Definitions.
(1) "Film" means the physical embodiment of a
play, story or other literary, commercial, education or artistic work; as a
motion picture, video tape, disc or other similar medium, except that it does
not include news or sports films produced for telecast.
"Film" does not include video cassettes or discs intended for home viewing.
(2) Each
episode of a series of films produced for television shall constitute a
separate film notwithstanding that the series relates to the same principal
subject and is produced during one or more television seasons.
(3) "Release date" means the date on which a
film is placed in service. A film is placed in service when it is first
telecast or exhibited to the primary audience for which the film was created.
Thus, a motion picture theater film is placed in service when it is first
publicly exhibited for entertainment purposes and an educational film is placed
in service when it is first exhibited for instructional purposes. Each episode
of a television series is placed in service when it is first telecast. A film
is not placed in service merely because it is completed and therefore in a
condition or state of readiness and availability for telecast or exhibition, or
merely because it is telecast or exhibited to prospective exhibitors, sponsors,
or purchasers, or it is shown in a "sneak preview" before a select
audience.
(4) A "film" is deemed to
be tangible personal property.
(5)
"Rent" shall include license fees for the exhibition or telecast of
films.
(6) "Tangible personal
property" used in the business whether owned or rented, shall include but is
not limited to sets, props, wardrobes, and other similar equipment.
(7) A "subscriber" to a subscription
television telecaster is the individual residence or other outlet that is the
ultimate recipient of the transmission.
(8) "Telecast" means the transmission of an
electronic signal by radiowaves or microwaves or by wires, lines, coaxial
cables, wave guides or other tangible conduits of
communication.
(c)
Apportionment of Business Income.
The property, payroll and sales factor of the apportionment formula for Motion Picture and Television Film Producers and Television Networks shall be computed pursuant to Sections 25128 through 25137 of the Revenue and Taxation Code and the regulation adopted pursuant thereto except as provided in this regulation.
(1) Property Factor.
(A) In General.
(i) In the case of rented studios, the net
annual rental rate shall include only the amount of the basic or flat rental
charge by the studio for the use of a stage and other permanent equipment such
as sound recording equipment rented from other sources or from the studio not
covered in the basic or flat rental charge and used for one week or longer
(Even though rented on a day-to-day basis) shall be included. Lump-sum net
rental payments for a period which encompasses more than a single income year
shall be assigned ratably over the rental period.
(ii) The value of the films shall:
(I) be the original cost of producing the
film as determined for federal income tax purposes, before any adjustment for
federal credits which have not been claimed for state purposes, and
(II) include talent
salaries.
(iii) The value
of a film shall not be included in the property factor until its release
date.
(iv) Video cassettes and
discs shall be included in the property factor at their inventory cost as shown
in the taxpayer's books and records.
(B) Denominator.
(i) All real property and tangible property
(other than films) whether owned or rented, which is used in the business,
shall be included in the denominator.
(ii) Films, other than films the cost of
which is expensed for California tax purpose at the time or production, shall
be included in the property factor at original cost for twelve years beginning
with the release date.
(iii) Films
for a topical nature including news or current event programs, sporting events
or interview shows, the cost of which is expensed for California tax purposes
at the time of production, shall be included in the property factor at original
cost for one year beginning with the release date.
(iv) All other films, other than those
included in the denominator under clause (ii) or (iii) of this subparagraph,
shall be aggregated and treated as a single film property which shall be
included in the property factor. Such property shall be valued at eight times
the gross receipts generated during the income year from the theater
distribution, network television, television syndication, cable television,
subscription and the marketing of video cassettes and discs through licensing
or direct selling, or similar receipts, but in no event in an amount greater
than the total original cost of such aggregated film
property.
(C) Numerator.
(i) If tangible personal property (other than
films) is located or used in this state for part of the income year, its value
shall be determined by applying the ratio which the number of days the property
is located or used in this state bears to the total number of days such
property was owned or rented during the income year.
(ii) The total value of films that are
included in the property factor under subparagraph (B) of paragraph (1) of this
subsection shall be attributed to this state in the same ratio in which the
total California receipts from such films as determined in subparagraphs (A),
(B) and (C) of paragraph (3) of this subsection pertaining to the sales factor
bears to the total of such receipts everywhere.
(2) Payroll Factor.
(A) In General.
(i) The denominator shall include all
compensation paid to employees during the income years, including talent
salaries. Residual and profit participation payments constitute compensation
paid to employees.
(ii) The amount
paid to a corporation for providing the services of an actor or director who is
an employee of such corporation or for loaning the services of an actor or
director who is under contract with such corporation shall, if substantial, be
included in the producer's payroll factor as if the amount paid was
compensation paid to an employee of the producer.
(B) Numerator. Compensation of employees in
the production of a film on location shall be attributed to the state where the
services are or were performed. Compensation of all other employees shall be
governed by Regulations 25132 and 25133.
(3) Sales Factor Numerator. The numerator
shall include all gross receipts for the taxpayer from sources within this
state including the following:
(A) Gross
receipts from films in release to theaters and television stations located in
this state.
(B) Gross receipts from
films in release to or by a television network for network telecast shall be
attributed to this state in the ratio that the audience for such network
stations (owned and affiliated) located in California bears to the total
audience for all such network stations (owned and affiliated) everywhere. The
audience shall be determined by rate card values published annually in the
Television & Cable Factbook, Vol. I, "Stations Volume," Television Digest,
Inc., Washington, D.C., if available, or by other published market surveys, or
if none is available, by population data published by the U.S. Bureau of
Census.
(C) Gross receipts from
films in release to subscription television telecasters shall be attributed to
this state in the ratio that the subscribers for such telecaster location in
California bears to the total subscribers of such telecaster everywhere. If the
number of subscribers cannot be determined accurately from records maintained
by the taxpayer, the ratio shall be determined on the basis of the applicable
year's statistics on subscribers published in Cable Vision, International
Thompson Communication Inc., Denver, Colorado, if available, or by other
published market surveys, or, if none is available, by population data
published by the U.S. Bureau of the Census for all states in which the
telecaster has subscribers.
(D)
Receipts from sales and rentals of video cassettes and discs shall be included
in the sales factor as provided in Regulations 25135 and
25136.
Notes
Note: Authority cited: Section 19503, Revenue and Taxation Code. Reference: Section 25137, Revenue and Taxation Code.
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