Laws, Regulations & Annotations

B

205.0000 BUSINESS INVENTORY EXEMPTION

Annotation 205.0085

205.0085 Music Compilation Compact Discs. The taxpayer is a producer and distributor of music compilation compact discs (CDs). The taxpayer uses the CDs as storage media to digitally store a large customized collection of songs and jingles. When a client places an order, the taxpayer signs a licensing agreement for the selected CDs. The licensing agreement states a specified period of use and requires certain monthly payments. The taxpayer retains ownership of the CDs while they are in the hands of the client. As required by the licensing agreement, at the end of the specified period of use, the client must return the CDs to the taxpayer.

Since the CDs leased and delivered to the lessees constitute tangible personal property owned by the taxpayer, they are a part of the taxpayer's business inventory while in the hands of the taxpayer. Thus, they are eligible for the exemption. Those CDs that are in the hands of clients on the lien date, however, are subject to property taxation. C 9/11/2000.