Community Telecasting Service v. Johnson

Decision Date13 June 1966
Citation220 A.2d 500
PartiesCOMMUNITY TELECASTING SERVICE d/b/a W A B I Television v. Ernest H. JOHNSON, State Tax Assessor.
CourtMaine Supreme Court

Eaton, Peabody, Bradford & Veague, by Malcolm E. Morrell, Jr., Bangor, for plaintiff.

Jon R. Doyle, Asst. Atty. Gen., Augusta, for defendant.



MARDEN, Justice.

On report, including pleadings, exhibits, statement of facts and deposition, following a complaint seeking review of the administrative action of the State Tax Assessor assessing sales and use taxes under the provisions of Chapter 17, R.S.1954, as amended.

Plaintiff was engaged in the television broadcasting business. In connection with that business and by contract with customers, it prepared art work and slides to be televised for the purpose of advertising customer's business. These contracts with the customers provided that for consideration plaintiff would furnish services of its staff to create advertising material at cost which upon being photographed became films or slides designed for telecasting, and, for additional consideration, to display the same by its television facilities at stated frequencies. The customer agreed 'that advertising copy material and program material both audio and video created by WABI-TV for us remains the property of WABI-TV for five years beginning with the date of first use on WABI-TV' and that the customer should not use such WABI-TV created material in any other advertising program without consent of WABI-TV.

By notice dated January 17, 1963 defendant deficiency-assessed the plaintiff a sales tax for the period November 1, 1960 to October 31, 1962, based upon charges made by plaintiff to its customers in the preparation of this advertising material,-excluding the charge for air time. Plaintiff contends that such transactions were nontaxable.

Also as part of plaintiff's operation it contracted in August of 1960 with American Research Bureau, Inc., (ARB), and in May of 1961 with Neilsen Station Index Services (Neilsen), to survey its market area and to analyze its television audience for the purpose of shaping its advertising program to the most profitable use of its air time. These contracts between WABI-TV and the market analysts provided that for a stated consideration each analyst would make such survey and report its findings in written form with a certain number of copies of the report included in the contract price and additional copies available at stated prices.

Neilsen furnished one master copy of its report issued in March and November annually to the general Manager of WABI-TV with additional copies available at a net charge of $1.00 each. WABI-TV purchased thirty extra copies of the March, 1961 report and twenty-seven extra copies of the November, 1961 report. These reports were for the confidential use of WABI-TV and its sales representatives, and to others having a 'legitimate business interest in the subject of the report' and were not to be loaned to nonsubscribers. WABI-TV agreed to return all extra copies of the reports more than two years old to Neilsen on demand, or to certify destruction of copies not returned. The contract price for a survey over a period of two years was $165.75 per month.

The contract with ARB was similar in nature. The contract price for the annual market survey was $3,181.60 and entitled WABI-TV to thirty copies of each issue of the market report (March and November) with additional copies available at $2.00 each. WABI-TV purchased twenty-three extra copies of each of the November, 1960, March, 1961, November, 1961, and March, 1962, reports. These reports also were for the 'exclusive and confidential use of ARB subscribers' and might 'be disclosed only to Advertisers and/or their agencies who have a bona fide business iterest in the data therein contained' and to divulge the contents of these reports or to lend or give a copy to a nonsubscriber constituted a breach of the agreement. Defendant on January 17, 1963 deficiency-assessed plaintiff a use tax based upon the charge paid by plaintiff to the two rating services. Plaintiff contends that this charge is nontaxable.

The issues in the case involved the taxability of the art work as a 'sale' and the market reports as a 'use' by the plaintiff, based upon their respective 'prices.' Plaintiff urges that it was selling service as to the art work and slides and buying service as to the market survey, no tangible personal property being involved.

The taxability in each case depends first upon whether the matter involved was tangible personal property sold at retail within the meaning of the tax law. The burden of establishing tax exemption is on the plaintiff. Section 9, Chapter 17 R.S.1954; W. S. Libbey Company v. Johnson, 148 Me. 410, 420, 94 A.2d 907.

The following citations refer to the statutes then in effect. Chapter 17 R.S.1954, as amended, contained the following provisions:

'Sec. 3. Sales tax.-A tax is imposed * * * on the value of all tangible personal property, sold at retail, * * *, measured by the sale price, except as in this chapter provided. * * *.'

'Sec. 4. Use tax.-A tax is imposed on the * * * use * * * of tangible personal property, purchased at retail sale * * *.'

'Sec. 2. Definitions.

'* * *

"Business' includes any activity engaged in by any person or caused to be engaged in by him with the object of gain, benefit or advantage, either direct or indirect.'

"Retail sale' or 'sale at retail' means any sale of tangible personal property, in the ordinary course of business, for consumption or use, or for any purpose other than for resale, except * * *. The term * * * includes conditional sales, * * * and any other transfer of tangible personal property when the title is retained as security for the payment of the purchase price and is intended to be transferred later. * * *.'

"Sale' means any transfer, exchange or barter, in any manner or by any means whatsoever, for a consideration in the regular course of business * * *.'

"Sale price' means the total amount of the sale * * * including any services that are a part of such sale, * * *, the cost of the materials used, labor or service cost, * * *.'

"Tangible personal property' means personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses, * * *.'

"Use' includes the exercise in this state of any right or power over tangible personal property incident to its ownership when purchased by the user at retail sale.'

Sales Tax

Preliminarily we inquire whether the transaction involving the art work and slides was a sale of 'service' or tangible personal property. Based upon cases discussing this aspect of the problem, certain factual features assume importance. It has been held that where the creation of property to be transferred requires high skill and the materials involved are of relatively little value and the principal value of the finished product lies in the services to be rendered, and the product is of little value to anyone other than the buyer, the transaction may be deemed a sale of service rather than goods. The relative dollar value of the service as against that of the product, sometimes expressed in percentages, has been held significant. J. A. Burgess Co. et al. v. Ames (1935) 359 Ill. 427, 194 N.E. 565 (blue printing, photography); Mahon v. Nudelman (1941) 377 Ill. 331, 36 N.E.2d 550 (fur repair); Berry-Kofron Dental Laboratory Co. v. Smith (1940) 345 Mo. 922, 137 S.W.2d 452 (dentures, etc., for dentists); and Washington Printing & Binding Co. v. State (1937) 192 Wash. 448, 73 P.2d 1326 (printing, materials 14% of total charge) all non-taxable.

The fact that property the subject of a sale is custom made and that labor is the principal cost factor does not establish the contract as one for rendition of services rather than sale. Bigsby v. Johnson (Cal. 1940) 99 P.2d 268 (printer's mats and composition); Voss v. Gray (1941) 70 N.D. 727, 298 N.W. 1 (photographs); and Warshawsky & Co. v. Department of Finance (1941) 377 Ill. 165, 36 N.E.2d 233 (sale of rebuilt motors); all taxable.

The cost price of any commodity includes skill of manufacture and within our statute 'services that are a part of such sale' are within our definition of 'sale price.' Same also in Wray's Pharmacy, Inc., et al. v. Lee (1941) 145 Fla. 435, 199 So. 767 (filling of drug prescriptions, taxable).

And the transaction is to be determined by its character under the statute rather than the phrasing of the contract involved. Kistner v. Iowa State Board of Assessment and Review (1938) 225 Iowa 404, 280 N.W. 587 (mortician's sale of funeral supplies, taxable).

The facts of the present case do not yield the criteria discussed above and the transaction is not established as a 'service' transaction.

Removing the 'service' contention of plaintiff, that the art work and slides prepared by plaintiff fall within the definition of tangible personal property, supra, that the transaction between plaintiff and its customer was in the ordinary course of plaintiff's operations, and that the tangible personal property was not for resale, is not in issue. The controversial question is whether the transaction between plaintiff and its customers was a sale in the ordinary course of business within the meaning of the statute.

'Sale' within the statute covers a broad range of dealings involving the transfer of personal property in the regular course of business. Basically it is the passage of title from seller to buyer for a price. Section 1, Chapter 185 R.S.1954, then applicable.

It was determined in Bonnar-Vawter, Inc., v. Johnson 157 Me. 380, 385, 173 A.2d 141, 144, that the fact that the transfer of personal property was profitless is not determinative of 'business' within the statute, and while plaintiff urges that the consideration paid for the art work and...

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