United States

Texas: Broadcaster Not Entitled to Deduct Costs Associated With Distribution Equipment

Feb 06, 2017
From KPMG TaxWatch

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A Texas Administrative Law Judge or ALJ recently addressed whether a Spanish-language television and radio broadcaster was entitled to deduct, as cost of goods sold (COGS), costs associated with depreciation and amortization of transmitters, antennas and towers. The taxpayer filed amended returns electing to deduct COGS. The Comptroller’s office allowed certain of the costs, such as depreciation of the taxpayer’s FCC license and costs associated with equipment used to produce television and radio programs. However, the Comptroller concluded that the costs related to transmitters, antennas and towers were “distribution costs” that could not be included in COGS.

Under Texas law, the COGS deduction includes all direct costs of acquiring or producing goods. “Goods” is defined as tangible personal property, which includes live and prerecorded television and radio programs, sold in the regular course of business. If a broadcaster of radio and television content elects to deduct COGS, it is entitled to subtract expenses related to the acquisition, production, or use of the live or prerecorded television and radio programming, including expenses for the right to broadcast or use the programming. Before the ALJ, the taxpayer argued that, by characterizing the costs related to the transmission of programming content as distribution costs, the Comptroller was negating the Legislature’s specific intent to allow broadcasters a COGS deduction. The ALJ disagreed with the taxpayer’s position that denying the COGS deduction for the distribution expenses negated the deduction for broadcasters. Furthermore, in the ALJ’s view, the taxpayer failed to demonstrate that the costs it incurred in purchasing, renting, and acquiring transmitters, antennas, and towers were expenses related to the acquisition, production, or use of radio and television programs. Please contact Doug Maziur at 713-319-3866 with questions. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.