New York Tax Dept: Movies Received by Satellite Not Subject to Sales Tax, But Movies in a Tangible Format Are Taxable

The issue in this advisory issued by the New York Department of Taxation and Finance (“Department”) is whether movies received by Petitioner from film studios and distributors by satellite or other electronic means are subject to State and local sales tax.

By way of background, Petitioner is an operator of movie theaters in New York State.  It receives movies from film studios in one of two ways. The first is by receipt of a hard drive that is loaded into a server.  The hard drive contains digital information.  This digital information is converted into a viewable movie only after the theater receives an electronic key from the film studio that enables the movie to be shown for a designated period of time.  The hard drive is then returned to the studio.

The second form by which Petitioner would receive movies is by satellite transmission from the film studio.  In this case, no tangible personal property of any kind will be received by Petitioner.

In its advisory opinion, the Department held that Petitioner’s rentals of movies delivered to it by satellite transmission or otherwise delivered electronically are not subject to sales tax because they are considered to be sales of intangible property.

On the other hand, the Department held that Petitioner’s rentals of movies delivered to it in a tangible format such as on a tape or disk are subject to sales tax as sales of tangible personal property, unless otherwise exempt.

“When Petitioner rents a movie from a film studio and the studio delivers the movie to Petitioner on a hard drive, Petitioner is purchasing the movie in a tangible format.  The hard drive is tangible personal property regardless of the fact that Petitioner must receive an electronic key to convert the digital information on the hard drive into a viewable movie,” the Department explained.

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