Sales Tax Exemptions
Download: Sales Tax Exemption Certificate [PDF - 146KB]
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IMPORTANT: The information below refers only to Texas sales tax exemptions as applicable to filmmakers and computer and video game developers. For general Texas tax information, visit the Texas Comptroller's Web site or call them at (800) 252-5555. This summary is intended as an informal educational tool. It is not a complete text of the law covering sales tax exemptions for filmmakers and game developers, nor is it written in the exact language of the law. These exemptions are covered in the Texas Tax Code, Sections 151.318 & 151.3185, and the Comptroller of Public Accounts Administrative Code Rule 3.300.
Under Texas law, motion picture producers (or their representatives) and game (software) developers are recognized as manufacturers. As a producer of these products, 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 / gold master). Exemptions apply to the entire amount of state sales tax (6.25 percent) and local sales taxes (usually 0.25-2 percent).
Eligible Projects - Film & Television
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.
Eligible Projects - Games
Eligible projects include computer games, console games, online games, handheld games, mobile games or other software for which the company will be compensated and that is intended for commercial publication (even if publication is very limited, as in the case of serious games for training purposes). Games not intended for publication (such as those made by hobbyists or students) are not eligible for these exemptions.
Qualifying Tax Exempt Items and Services for Film and Game Producers
You may claim exemptions on:
- qualified purchases;
- rentals or leases of qualifying equipment and machinery;
- and qualified services performed during development.
To qualify for an exemption, an item or service must be necessary and essential to the making of the master film or tape or gold master, and it must be used directly and exclusively in production and postproduction. Items used indirectly in production (such as office supplies, accounting software, 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.gov.texas.gov/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
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; computers used solely for game production; software (i.e. Photoshop, 3D Studio MAX, Maya, etc.); monitors; Wacom tablets.
editing; film processing; film-to-tape transfers; Foley services; multi-image services; sound mixing; voice-overs; ADR/looping; audio sweetening; motion capture. Repairs to qualifying machinery, equipment or supplies are also exempt. (Also see "Exceptions," below).
Still photography is not included in these exemptions, even when associated with production, unless the still photograph is incorporated into the film or game(i.e., set dressing or props, stop motion photography, or used in a game cinematic). Location stills, casting photos, continuity Polaroids and other still photographs are not exempt.
Server equipment can be sales tax exempt as long as it is solely used for game development. By claiming the exemption, you are stating that you will only use the equipment directly in production. Using the equipment for other uses, such as for general office use and word processing, may result in back taxes and penalties.
Under Texas law, certain items do not qualify for these tax exemptions, regardless of their use in motion picture production and game development. 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.
For more information on exempt and non-exempt items, please read the Texas Comptroller's tax publication for Film, Video and Audio Production Companies and Broadcasting Companies.
Examples of Non-Qualifying (i.e., Taxable) Items and Services
tents for catering or staging areas; office furniture; janitorial supplies; computers used in HR department; word-processing software; crew jackets; t-shirts and other gifts for employees; and flowers for actors' dressing rooms.
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 or DVD 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.
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. 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 the production of [name of project], [a feature film/commercial/music video, etc.]." OR "These items are to be used directly in the development of [name of project], [a computer game/video game, etc.] for sale." If the project has not yet been named, you may call it "Untitled".
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 (http://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, you will request the refund directly from the Comptroller.
To start the process of obtaining a refund from the Comptroller, the vendor needs to 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 or video game XYZ;"
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. 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 your letter, refund form, and receipts to:
Comptroller of Public Accounts
ATTN: Sales Tax Refunds Verification Section
111 East 17th Street
Austin, TX 78774