Sales and Use Tax Exemptions Available for Producers of Audio Master Tapes
Many items purchased, used, rented or repaired during the studio master recording process are exempt from the 6.25 percent state sales and use tax, as well as local sales and use taxes. These exemptions are included in the Texas Tax Code Section 151.318, and the Comptroller of Public Accounts Administrative Rule 3.300.
A producer may claim 100 percent exemption from state and local sales and use taxes on qualifying machinery and equipment purchased, repaired, leased or rented and used directly in the production of audio recording masters. If the equipment is exempt, any parts, repair or maintenance labor is also exempt.
The exemption can also be used by live music venues who make master recordings for sale or distribution. For more information on how live music venues can be exempt from Texas sales tax for some of their sound reinforcement purchases, please see "Sales Tax Exemptions Available to Live Music Venues Used as Recording Studios."
Qualifying Machinery, Equipment and Supplies
Acoustic guitars, amplifiers, analog multitrack recorders, analog 2-channel recorders, cassette decks, CD recorders and players, compressors, computers, cue systems, DAT recorders, DI boxes, digital converters, digital delays, digital multitrack recorders, digital 2-track recorders, drums, effects, electronic drums, electric guitars, electric keyboards, equalizers, exciters, headphones, interface harnesses, keyboards, limiters, microphones, microphone pre-amps, mixing consoles, multi-effects units, noise fighters, noise reduction equipment, percussion, pianos, power conditioners, pre-amps, reverbs, sampling equipment, synthesizers and sound modules, sequencers, sound effects, sound reinforcement, spatial processors, stereo panners, studio monitors, synchronizers, transformers, turntables, video studio monitors and violins. This group also includes items such as sheet music, batteries, track sheets and all formats of recording tape used in the recording process.
151.3185. Property Used in the Production of Motion Pictures or Video or Audio Recordings and Broadcasts, states that:
(a) The sale, lease, or rental or storage, use, or other consumption of the following items are exempted from the taxes imposed by this chapter:
(1) tangible personal property that will become an ingredient or component part of: (A) a motion picture or video or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited; or (B) a broadcast by a producer of cable programs or by a radio or television station licensed by the Federal Communications Commission;
(2) tangible personal property that is necessary or essential to and used or consumed in or during: (A) the production of a motion picture or video or audio recording, a copy of which is sold or offered for ultimate sale, licensed, distributed, broadcast, or otherwise exhibited; or (B) the production of a broadcast by or for a cable program producer or by or for a radio or television station licensed by the Federal Communications Commission; and
(3) except as provided by Subsection (c), services that are necessary and essential to and used directly in a production described by Subdivision (2)(A) or (B).
(b) The exemption includes:
(1) cameras, film, and film developing chemicals that are necessary and essential to and used or consumed in a production described by Subsection (a)(2)(A) or (B);
(2) lights, props, sets, teleprompters, microphones, digital equipment, special effects equipment and supplies, and other equipment that is necessary and essential to and used or consumed directly in a production described by Subsection (a)(2)(A) or (B);
(3) audio or video routing switchers located in a studio that are necessary and essential to and used or consumed directly in a production described by Subsection (a)(2)(A) or (B).
(c) The exemption does not include:
(1) office equipment or supplies; (2) maintenance or janitorial equipment or supplies; (3) machinery, equipment, or supplies used in sales, transmission, or transportation activities; (4) machinery, equipment, or supplies used in distribution activities, unless otherwise exempted by this section; (5) taxable items that are used incidentally in a production described by Subsection (a)(2)(A) or (B); or (6) the following taxable items, regardless of whether they are used incidentally in a production described by Subsection (a)(2)(A) or (B): (A) telecommunications equipment and services; (B) transmission equipment; (C) security services; (D) motor vehicle parking services; and (E) food ready for immediate consumption.
(d) A production described by Subsection (a)(2)(A) or (B) does not include a production for broadcast that is not intended to be broadcast to either the general public or to cable television service subscribers or paying customers. Added by Acts 1999, 76th Leg., ch. 1467, § 2.20, eff. Oct. 1, 1999.
Producers may receive a refund of tax paid on fuel used in a generator to power a mobile recording studio. Original invoices must be presented when claiming fuel tax refunds.
The 6 percent state hotel occupancy tax is waived if the producer stays for 30 consecutive days or longer. Producers must claim this exemption upon arrival at hotel.
Sales Tax Exemption For Out of State Purchases
If the taxpayer purchased musical equipment from an out of state vendor that has no physical presence in Texas and does not accept a Texas exemption certificate as a form of tax exemption from the state, they may request a refund from the Comptroller's office for sales tax paid in error.
First, however, the taxpayer must ask the seller for a refund of any tax paid in error. The seller can either grant or deny the taxpayer their refund claim.
If the seller does not grant them their refund, they must:
identify the date the tax overpayment was made; and
submit the claim within the limitations period (generally four years from the date the tax was paid).
See Rule 3.287 (b), (e) and (f), Exemption Certificates, for more information.
Texas law allows a sales tax exemption on the purchase of equipment necessary for the production of master recordings for sale or distribution.
Purchases of new sound reinforcement equipment, or upgrades to existing equipment, are eligible if the venue makes master recordings during each show, then makes copies that are sold or offered for ultimate sale to the public.
Recordings can be made from the mixing board very inexpensively - usually with a laptop, or even an iPad or iPhone.
The recordings would be offered for sale via the venue's website, Facebook or YouTube page, or ideally to the artist free of charge with an unlimited license to sale.
While it benefits the venue to have high quality recordings for promotion or licensing, a low quality master from which copies reproduced and sold would still be in compliance with the rules for exemption.
A live music venue that does not record a master of every performance and sell the reproduction of the performance would be liable for divergent use of the qualifying equipment purchased tax free. "Divergent use" means the use of property in a manner or for a purpose other than the purpose that qualified the sale of the items for exemption. Sales tax is due on the value of the item for any period the item is used in the divergent manner (i.e., creating master recordings that will be sold). The value of a qualifying exempt item is the fair market rental value of the exempt item, which would be the amount the purchaser would pay on the open market to rent or lease the item for his use.
Thanks to Houston producer Dan Workman and to Jo Anne Meyerson of the Comptroller of Public Accounts' Tax Policy Division for their help with sales tax exemptions for producers working at live music venues.
A producer is the person who maintains creative control over the production of an audio master tape for retail or broadcast purposes (includes advertising agencies, recording studios, record labels, bands, individuals, etc.). This excludes people who buy equipment and supplies for personal use, such as tapes to give to friends, and one-time projects such as Recording Studios of America.
Both the retailer and the producer must keep on file for four years a copy of the tax exemption certificate. Retailers may advertise exemptions.
Studios need to provide a supplier with either an exemption or resale certificate on qualifying purchases. Resale requires a Comptroller Tax ID number; exemption certificates do not.
If a studio uses the tape for producing a master and then sells that tape (and the services provided to make the master tape), the tape is still tax exempt. One scenario: studio buys blank tape from supplier; band then buys this blank tape from the studio; this purchase is still tax exempt.
Copies of master tapes used to supply radio stations with jingles are taxable.
If the band itself directly buys tape, they need to provide tape supplier with an exemption certificate stating its use is for master recording.
If a studio has been exempting clients but has no paperwork to document those exemptions, they need to go back to October 1, 1993 and secure completed exemption certificates for those clients.
Sales tax is not due on the charge made by a recording studio/company to a producer for the rental or procurement of a studio, facilities and personnel when an electrical transcription is produced by the production studio/company under the supervision or direction of the producer. Under these circumstances, the recording studio/company is not renting the equipment but is providing services, the charge for which includes facilities, personnel, accounting, budgeting, janitorial services, etc. If the recording studio/company does not furnish the personnel to operate the equipment and relinquishes total operational control of the equipment to the producer, then a taxable rental occurs. A taxable rental also occurs if studio personnel merely render incidental services such as maintenance and repair or if equipment is rented to the producer for use at a location other than the studio. A separately stated charge for an operator is not taxable. See Rule 3.294 concerning Rentals and Leases of Taxable Items. That said, a studio may accept exemption certificates from its customers instead of collecting tax when the equipment is rented to record a master a copy of which will be distributed, sold, licensed, or broadcast.
Recording studios, cassette duplicators, CD manufacturers and most other manufacturing businesses in Texas may qualify for an exemption from sales tax on electricity. Electricity directly used in manufacturing a product for eventual retail sale (such as the manufacturing of a sound recording master tape) is exempt. Taxable uses of electricity include rehearsals, day-to-day office functions, marketing, etc. Also taxable is electricity used by someone who rents a recording studio. In order to determine eligibility for exemption, a recording studio or other manufacturer must contract with an engineer -- usually for a flat fee -- who performs a "predominant usage" study. If that engineer determines that more than 50 percent of the electricity is used in the recording of an audio master tape or other manufacturing process, then that electricity is exempt from state sales tax. Once a manufacturer has a completed a predominant usage study, they present their utility company with an exemption certificate to document their business's exemption claim. Comptroller of Public Account Rule 3.295 governs how to conduct a study.
Texas Comptroller of Public Accounts,
Tax Administration Division
111 East 17th Street, Austin, TX 78774
(800) 252-5555 (for Sales Tax Exemptions)
(512) 463-4600 (if calling from Austin)
(800) 252-1383 (for Motor Fuel Tax Rebates)
Texas Music Office
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