Columbia Pictures Industries, Inc. v. Tax Com'r

CourtSupreme Court of Connecticut
Writing for the CourtBefore COTTER; LOISELLE
Citation176 Conn. 604,410 A.2d 457
Parties, 10 A.L.R.4th 1201 COLUMBIA PICTURES INDUSTRIES, INC., et al. v. TAX COMMISSIONER of the State of Connecticut.
Decision Date13 February 1979

Richard K. Greenberg, Asst. Atty. Gen., with whom were Robert Klein, Asst. Atty. Gen., and, on the brief, Carl R. Ajello, Atty. Gen., and Ralph G. Murphy, Asst. Atty. Gen., for appellant (defendant).

John H. Weir, New Haven, with whom were Robert N. Schmalz and Herman M. Levy, New Haven, for appellees (plaintiffs).


LOISELLE, Associate Justice.

The plaintiffs appealed from the payment under protest of a sales tax imposed on the rental of a film from the plaintiff distributor to the plaintiff motion picture exhibitor. The trial court sustained the appeal and from the judgment the defendant state tax commissioner has appealed.

The parties are in accord on the facts and have stipulated substantially as follows: The plaintiff Columbia Pictures Industries, Inc., hereinafter designated as Columbia, distributes motion pictures owned by producers whose ownership and benefit to be thereby derived are protected by copyright. On or about January 14, 1976, the plaintiff Columbia licensed a motion picture entitled "Hard Times" to the plaintiff Samuel R. Hadelman, doing business as Cheshire Cinema in the town of Cheshire. The producer of "Hard Times" had licensed Columbia to grant to exhibitors the right to possess and exhibit it. In the ordinary transaction, the distributor grants such rights in a motion picture to the exhibitor for a definite time and for a definite number of showings, after which the film print is returned to the distributor. In the present case, the film was shown at Cheshire Cinema from January 14, 1976, through January 20, 1976.

To make a movie, images are imprinted on the film print which is a roll of acetate or polyester material. Through the use of moving picture machinery, this print projects or reproduces the picture, together with sound effects, upon a screen. The actual cost of the film print material for one print of "Hard Times" was $595. The production cost for the film was approximately $3,500,000, which consisted primarily of payment for the personal services of actors, directors, composers, musicians, authors, cameramen and other technicians. The value or cost of the actual film bears little or no relation at all to the payments contracted for pursuant to the agreement between the exhibitor and the distributor. The payments are based upon the number of persons expected to view the motion picture.

Pursuant to General Statutes § 12-407(2) " 'Sale' and 'selling' mean and include . . . (k) the leasing or rental of tangible personal property of any kind whatsoever, including but not limited to motor vehicles, linen or towels, machinery or apparatus, office equipment and data processing equipment." The term "tangible personal property" is defined in § 12-407(13) as "personal property which may be seen, weighed, measured, felt or touched or which is in any other manner perceptible to the senses." By virtue of these statutes, the defendant imposed a sales and use tax on the rental of films.

Hadelman paid the tax imposed by virtue of General Statutes § 12-408 to Columbia under protest. Columbia in turn filed its Sales and Use Tax Return for the quarter ended March 31, 1976, and paid under protest the tax collected from Hadelman. Later a claim was filed for a refund of this tax. After a hearing before the deputy tax commissioner, the request for the refund was denied. The trial court sustained the appeal and the defendant has appealed to this court.

The plaintiffs claim that their agreement is a license. The defendant, however, claims the agreement is a lease or rental. The issues presented by this appeal are: (1) does the license agreement 1 constitute a "leasing or rental of tangible personal property" within the statute and, (2) if the transaction does constitute a leasing or rental of tangible personal property within the statute, is the transaction exempt under General Statutes § 12-412(k) which exempts from the sales and use tax "professional . . . or personal service transactions . . . which involve sales as inconsequential elements for which no separate charges are made."

The plaintiffs' argument is that the ownership of the copyright of the film is distinct and separate from the ownership of the film and that the license agreement is a license to exhibit publicly what is on the film and, therefore, is the transfer of an intangible right for a limited period of time and not a leasing or rental of tangible personal property under the provisions of General Statutes § 12-407(2)(k).

The agreement between the two plaintiffs is entitled "License Agreement" and is in the form of a license. In determining what the transaction is, the character of the agreement rather than the phrasing of the contract involved is examined. Community Telecasting Service v. Johnson, 220 A.2d 500 (Me.1966); Kistner v. Iowa State Board of Assessment & Review, 225 Iowa 404, 280 N.W. 587 (1938); 68 Am.Jur., Sales and Use Taxes, § 76. It is true, as claimed by the plaintiffs, that a copyright may be an incorporeal right to publish and does exist detached from the personal property out of which it arises. 18 Am.Jur.2d, Copyright and Literary Property, § 18. The agreement in the present case does not involve a transfer of the copyright itself unrelated to the film but is the leasing of the film in its finished state. Boswell v. Paramount Television Sales, Inc., 291 Ala. 490, 493-94, 282 So.2d 892 (1973). The plaintiffs agree that the possession of the film was transferred to the exhibitor but contend that the agreement was for a limited license to reproduce the performance of the actors. They claim that possession was transferred so that the exhibitor could exercise that right and that without the right to reproduce the value of the film was inconsequential. See Washington Times- Herald, Inc. v. District of Columbia, 94 U.S.App.D.C. 154, 213 F.2d 23 (1954); Watson Industries, Inc. v. Shaw, 235 N.C. 203, 69 S.E.2d 505 (1952).

Further, the plaintiffs urge that the licensing of "Hard Times" by Columbia to Hadelman was exempt under General Statutes § 12-412(k) because the agreement was a service contract and the film was at most only incidental to the service rendered. See the transactions discussed in International Business Machines Corporation v Brown, 167 Conn. 123, 355 A.2d 236 (1974), United Aircraft Corporation v. Connelly, 145 Conn. 176, 140 A.2d 486 (1958), and United Aircraft Corporation v. O'Connor, 141 Conn. 530, 107 A.2d 398 (1954). Therefore, the transfer of possession of the film itself to the exhibitor was inconsequential and not taxable as a lease of tangible property.

In contrast, the defendant commissioner argues that even if a copyright does exist in this case, it is the film, that is, the finished product, which was leased and not the copyright itself. As was stated in one of the early cases involving this issue, "(t)he license to exhibit without the transfer of possession would be valueless. Together they are one transaction and constitute a sale." United Artists Corporation v. Taylor, 273 N.Y. 334, 341, 7 N.E.2d 254, 256 (1937). See also Boswell v. Paramount Television Sales, Inc., supra, 291 Ala. 493, 282 So.2d 892; American Television Co. v. Hervey, 253 Ark. 1010, 490 S.W.2d 796 (1973); Mt. Mansfield Television, Inc. v. Vermont Commissioner of Taxes, 133 Vt. 284, 336 A.2d 193 (1975).

The plaintiffs' reliance on such cases as Dun & Bradstreet, Inc. v. City of New York, 276 N.Y. 198, 11 N.E.2d 728 (1937), to support their argument that the transfer of the film was not a transfer of tangible personal property is misplaced. In Dun & Bradstreet, Inc., an information service was sold to its subscriber. Books were furnished to the subscribers with title retained by Dun & Bradstreet. No charge was made for the use of these books. In that case it was concluded that the books that were given to subscribers were only incidental to providing information and hence were not taxable. In a later case, Moody's Investors Service v. Taylor, 254 App.Div. 726, 5 N.Y.S.2d 765 (1938), it was held that if the information furnished was not...

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