The Department of Taxation and Finance has issued an Advisory Opinion finding that a live family-oriented production constituted a “live dramatic or musical arts performance” for sales tax purposes, but declined to rule on whether tangible personal property qualified as exempt property when used directly in the production and staging of those performances. Advisory Opinion, TSB-A-11(18)S (N.Y.S. Dep’t of Taxation & Fin., May 23, 2011).

Tangible personal property used or consumed directly and predominantly in the production of a live dramatic or musical arts performance, in a theater or similar place of assembly, is exempt from New York State (and City) sales tax. Tax Law § 1115(x)(1). Among the conditions for exemption are that the production must run for at least five performances per week for a period of at least two consecutive weeks, with no change in content, and there must be an admission charge for the performance.

Between 2007 and 2010, the taxpayer produced and presented a live show at Madison Square Garden’s 5,600-seat WaMu Theatre in New York City. The performance was a winter-themed family production built around a child’s journey in search of snow. It included 16 musical numbers and a host of live and puppet characters. Although some of the scenes featured juggling and acrobatics, which are often found in traditional circus performances, in nearly every case they were woven into the musical choreography and story line.

The Department first addressed whether the performance itself qualified as a “dramatic or musical arts performance.” The taxpayer’s previous productions had been found to be predominantly “circuses,” such as in Advisory Opinion, TSB-A-98(1)S, (N.Y.S. Dep’t of Taxation & Fin., Jan. 30, 1998), which would not qualify under the dramatic or musical arts performance exemption. The Department concluded that the production in question was significantly different than the earlier circus-type productions, and qualified as a live musical arts performance. The Department found that the acrobatic and gymnastics elements were not inconsistent with this conclusion since they furthered the continuing story line and choreography of the production.

However, the Department declined to rule on whether the tangible personal property, or services rendered with respect to that property, actually qualified for the exemption. The Department did not have sufficient facts regarding the specific property and how that property was used, or what services were being rendered with respect to that property.

Additional Insights. The Department’s conclusion that the performance qualified as a dramatic or musical arts performance seems correct, and the described performances certainly are different from such non-qualifying productions as ice shows, aquatic shows, and circuses, notwithstanding that there were certain circus-like elements to the performances.

It is not surprising that the Department declined to rule on whether the specific property qualified for exemption, since that is an inherently factual determination that Advisory Opinions typically do not address. It appears from the facts that the Advisory Opinion may have been requested in connection with an ongoing sales tax audit — the Advisory Opinion describes performances that have already taken place — and in that case a determination regarding the taxability of specific property would presumably be addressed on audit.

The Advisory Opinion did not address the taxability of admission charges for the performances. Presumably that is because admission charges not only to dramatic and musical arts performances, but also to circus performances, are exempt from sales tax, so the admission charges would have clearly been exempt even if the production was found to be a “circus.”