Sales Tax Exemptions and More

This summary is intended as an informal educational tool. It is not a complete text of the law covering sales tax exemptions for filmmakers, nor is it written in the exact language of the law. These exemptions are covered in the Texas Tax Code, Section 151.3185, and the Comptroller of Public Accounts Administrative Code Rule 3.300.

Under Texas law, motion picture producers (or their representatives) are recognized as manufacturers. As a filmmaker, you may claim sales tax exemptions on many of the items and services used in the manufacture of your final product, (i.e. a film or video master). Exemptions apply to the entire amount of state sales tax (6.25 percent) and local sales taxes (usually 0.25-2 percent). You may claim exemptions on purchases, rentals or leases of qualifying machinery, equipment and supplies, and on many services performed during production or postproduction. Eligible projects include features, television projects, commercials, corporate films, infomercials or other projects for which the producer or production company will be compensated and that are intended for commercial distribution (even if distribution is very limited, as in the cases of training or industrial films). Student films and films or videos not intended for distribution (such as wedding videos) are not eligible for these exemptions.

Still photography is not included in these exemptions, even when associated with motion picture production, unless the still photograph is incorporated into the motion picture (i.e., set dressing or props, or stop motion photography). Location stills, casting photos, continuity Polaroids and other still photographs are not exempt.

To qualify for an exemption, an item or service must be necessary and essential to the making of the master film or tape, and it must be used directly and exclusively in production or postproduction. Items used indirectly in production (such as office supplies, film for still photography, and soft drinks) are not exempt. Items are tax-exempt only if they are used exclusively in production and not retained for other use.

Similar exemptions are also available to producers of audio master tapes. For details, contact the Texas Music Office at (512) 463-6666 or www.governor.state.tx.us/divisions/music.

"Use tax," at the same rates as sales tax, is due on items purchased outside the state and used in Texas, but the State of Texas may allow credit for any sales or use tax that has been paid in another state. Items exempt from Texas sales tax are also exempt from Texas use tax.

Examples of Qualifying Items and Services
Items: cameras and camera accessories; film stock; lights and lighting control systems; sound equipment; grip equipment; video assist systems; props; costumes; makeup; fog machines; wind machines; generators used to operate exempt equipment; dollies and cranes used to support exempt equipment; terminating boxes and extension cables used with exempt equipment; time code equipment; VTR editing equipment; switchers; character generators.
Services: editing; film processing; film-to-tape transfers; Foley services; multi-image services; sound mixing; voice-overs; ADR/looping; audio sweetening. Repairs to qualifying machinery, equipment or supplies are also exempt. (Also see "Exceptions," below).

Examples of Non-Qualifying (i.e., Taxable) Items and Services
Items: tents for catering or staging areas, office furniture, crew jackets, and flowers for actors' dressing rooms. Services: catering, bodyguard services, script typing and landscape maintenance.

These goods and services are not exempt because they are not used directly in production or postproduction. (Also see "Exceptions," below).
Duplication of a master tape is taxable unless the copies are being made for resale. For information on resale tax exemptions, contact the Comptroller of Public Accounts, (800) 252-5555.

Exceptions
Under Texas law, certain items do not qualify for these tax exemptions, regardless of their use in motion picture production. These include, but are not limited to: motor vehicles and trailers, whether rented or purchased; director's chairs; hand tools; gas cans; ladders; shipping cases; and battery chargers.

How To Claim Sales Tax Exemptions
You do not need a sales and use tax ID number to claim these exemptions. Just fill out the one-page Texas Sales and Use Tax Exemption Certification (Form 01-339) and give it to the vendor who's providing the goods or services. The vendor keeps the certificate on file to document why sales taxes weren't collected on that transaction. If you have multiple purchases of exempt items with a single vendor, the vendor may keep one completed form describing the general nature of the taxable items on file for you, so you don't have to fill out a new form for each transaction.

You may make copies of the form as needed. It's also available on our Web site. Incomplete forms are invalid, so be sure to fill out each section. In the section marked "Purchaser claims this exemption for the following reason," an appropriate entry would be, "These items are to be used directly in production of [name of project], [a feature film/commercial/music video, etc.]."

Provide a completed certificate to each vendor from which you're buying or renting qualifying goods or services. Even on exempt purchases, the vendor may include sales tax on your invoice; just deduct the sales tax from the total, pay the balance and include a completed certificate with your payment.

Most vendors, especially those that regularly deal with filmmakers, will accept the certificates in lieu of sales taxes, but they're not required to do so. If the vendor refuses the certificate, your choices are to use another vendor or to pay the tax and get it refunded afterward.

Refunds on Taxes Already Paid
If you've already paid tax on items that should have been exempt, you may go back to the vendor and give them a completed exemption certificate. It's a good idea to take a blank Assignment of Right to Refund form (www.window.state.tx.us/taxinfo/taxforms/00-985.pdf) with you, because it may be needed.

The vendor may refund the tax to you on the spot and claim a credit on their next sales tax return. In that case, you're done; no further action is needed. But the vendor may also choose to assign their right to refund to you. In that case, and assuming the exemption is valid, your refund will be mailed from the Comptroller.

To start the process of obtaining a refund from the Comptroller, the vendor should fill out the Assignment of Right to Refund form and give it to you. Assemble the completed Assignment of Right to Refund form; photocopies of each receipt for which you're requesting a refund, showing the amount of tax paid; and a cover letter, which must include the following:

1. the reason for your request, for example, "Items were used in the production of the feature film THE XYZ STORY;"
   
2. your company's Federal Employers Identification Number (FEI), or your Social Security number;
   
3. the name, address and phone number of the person to be contacted if there are questions about processing the refund; and
   
4. the name of the person to whom or business to which the refund should be made, and the appropriate mailing address.

It's wise to include details on the use of items that might not be immediately understood to be "necessary or essential" to production. There's usually no question about sound equipment or film stock, but if you bought fabric to construct costumes, label the receipt as such. If those cans of paint were used for set construction, say so. By answering questions before they're asked, you're giving the Comptroller every reason to quickly approve your request. Your refund request to the Comptroller must be made within four years from the date on which the tax that you paid was due to the State; that's usually the 20th day of the month following the month in which the item was purchased. After four years, refunds are not available.

Send the assignment form, letter and receipts to:

Comptroller of Public Accounts
ATTN: Sales Tax Refunds Verification Section
111 East 17th Street
Austin, TX 78774

OTHER TAX EXEMPTIONS/REFUNDS

State Income Tax and Franchise Tax
Texas does not impose a personal income tax. However, if your operation is organized as a corporation or a limited liability company, it will have Texas Franchise Tax responsibilities. You may complete and submit a Texas Nexus Questionnaire (Form AP-114) to establish a franchise tax responsibility with the Comptroller. The form is available on the Web at www.window.state.tx.us/taxinfo/franchise/index.html. You may also need to obtain a Certificate of Authority from the Texas Secretary of State. You may reach the Secretary of State at (512) 463-5555.

Hotel Occupancy Tax
In Texas, if you notify a hotel upon check-in that you will occupy the room for at least 30 consecutive days, the state and local occupancy taxes will be waived after the 30th day, retroactive to the first day; the total amount will be credited to your bill. (Any interruption in the term of occupancy will void the exemption.) If you stay in the hotel for more than 30 consecutive days without notifying the hotel of your intention, occupancy taxes will be waived for the 31st day and all consecutive days, but will not be waived retroactively. If you learn after check-in that you will be staying for 30+ consecutive days, notify the hotel immediately; after the 30th day, occupancy taxes will be waived retroactively to the date of notification.

Fuel Used Off the Road
You may receive a refund of taxes paid on fuel used in generators, boats, or in unlicensed vehicles such as tractors. Original invoices must be presented when claiming fuel tax refunds. Taxpayers have one year from the date of use to claim a refund of tax paid on fuel used prior to January 1, 2004. Refund claims for undyed (clear) diesel fuel used on or after January 1, 2004, must be postmarked by December 31, 2004. The Comptroller cannot approve tax refunds for claims postmarked after December 31, 2004.

Effective January 1, 2005, undyed diesel fuel used in off-highway equipment, stationary engines and used for other non-highway purposes will no longer be eligible for refund if you use such fuels.

Details about fuels taxes are available from the Comptroller of Public Accounts, (800) 252-1383.

Selling Items
Production companies often sell props, costumes and other items no longer needed after a project wraps. However you sell these items, even by auction or rummage sale, you must collect state and local sales taxes on all sales. You'll need a sales tax ID number, and you'll need to report the amount collected on a Sales and Use Tax Return. For details, contact the Comptroller of Public Accounts, (800) 252-5555.

ADDITIONAL SALES TAX INFORMATION CONTACTS

For more information on Texas' sales tax exemptions for the film and television industry, please contact:

Carol Pirie
Texas Film Commission
(512) 463-9200
cpirie@governor.state.tx.us

or

David Somerville
Tax Policy Division
Comptroller of Public Accounts
(800) 531-5441 (ext. 5-0030)
(512) 475-0030
david.somerville@cpa.state.tx.us

For information on sales tax exemptions (other than those applicable to filmmakers) please contact:

Texas Comptroller of Public Accounts
(800) 252-5555
taxhelp@cpa.state.tx.us
www.window.state.tx.us