Update on Sales Tax Exemptions & Refunds

September 28, 2017

(Continued from the September 2017 TFC Newsletter)

IMPORTANT: For general Texas tax information, contact the Texas Comptroller’s website or call them at 800-252-5555. This update is not a complete text of the law. These updates are covered in the Texas Tax Code, Sections 151.3185 & 151.3415, and the Comptroller of Public Accounts Administrative Code Rules 3.300 & 3.350, and Texas Sales Tax Publication 94-104. Productions should also consult their tax specialist regarding this exemption.

Many professionals in the television, commercial, and film industries utilize a sales tax exemption when purchasing items needed or used in production. Additionally, some companies are exploring the Media Production Development Zone program, which allows sales tax exemptions on construction and renovation expenses. The Texas Comptroller’s Office recently enacted a new rule that provides more guidance on these sales tax issues and more.

Sales Tax Exemption Code Section 3.350

The new rule is Texas Administrative Code Section (§) 3.350, which became effective February 1, 2017. Rule 3.350 was adopted to provide definitions for production related terminology as well as complement and implement two different sections of the Texas Tax Code.

Industry Definitions & Production Items Exempt

The definitions were written to match pre-existing legal words and phrases. For instance, the definition of a “motion picture recording” comes directly from the United States Copyright Act, and the definition of a “qualified media production location” has the same meaning as in the Texas Government Code.

The next part of the new rule describes items used in production that are exempt from sales tax under Texas Tax Code §151.3185. The new rule again lists some of the common exempt items such as cameras, lights, and props, but it also brings up previously unmentioned issues like licensing rights, copies of master recordings, and pre-production expenses. It also provides additional examples of items that are not tax exempt, such as flowers for dressing rooms, and director’s chairs.

Repair and Maintenance / Utilities in Production

Another subsection of note deals with repair and maintenance. If an item is exempt from sales and use tax under this rule, then the repair and maintenance of that item is also tax exempt, as long as the item is not installed as part of a building, land, or real estate.

Natural gas and electricity used in production may also be exempt, but utilities for an administrative office or warehouse are not included.

Sales and Use Tax Exemption for Media Production Facilities. 

The last few subsections of the new rule expand on the Tax Code § 151.3415 and the Texas Government Code sections covering the sales and use tax exemption for media production facilities. This includes items and services used to construct, maintain, expand, improve, equip, or renovate a facility used for media production. This is part of the Media Production Development Zone program, which was designed to encourage the development of more permanent moving image production sites in Texas. The new rule explains what items and services may be exempt based on their purpose and use. It also goes into detail about the annual reports due to the Comptroller’s office each year by September 30. It explains that taxes will be owed to the state when items purchased tax-free are not used for media production, and how the exemption is temporary, as it is valid for a maximum of two years.

Texas Comptroller's Office and Texas Film Commission Resources

We have information on our Texas Film Commission website about all of these sales tax rules. The exemptions allowed under Tax Code §151.3185 are administered by the Comptroller’s Office, so they are the proper authority to consult with any questions you may have. The Media Production Development Zone program is administered within our office, so feel free to browse the relevant code sections and give us a call if you want more information about that program.

Learn more about Sales Tax Exmptions & Refunds