Consolidated Freightways Corp. of Delaware v. State, Dept. of Revenue and Taxation

• Decision Date: 19 February 1987
• Docket Number: No. 16198,16198
• Citation: 112 Idaho 652,735 P.2d 963
• Parties: CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE, Plaintiff-Appellant, v. STATE of Idaho, DEPARTMENT OF REVENUE AND TAXATION, Defendant-Respondent.
• Court: Idaho Supreme Court

Page 963

735 P.2d 963

112 Idaho 652

CONSOLIDATED FREIGHTWAYS CORPORATION OF DELAWARE, Plaintiff-Appellant, v. STATE of Idaho, DEPARTMENT OF REVENUE AND TAXATION, Defendant-Respondent.

No. 16198.

Supreme Court of Idaho.

Feb. 19, 1987.

Rehearing Denied April 16, 1987.

Jeffrey A. Strother, Boise, for plaintiff-appellant.

Jim Jones, Atty. Gen., Theodore V. Spangler (argued), Deputy Atty. Gen., for defendant-respondent.

HUNTLEY, Justice.

Consolidated Freightways Corporation (Consolidated) is a Delaware corporation which performs intrastate and interstate transportation services within the continental United States and Alaska. Consolidated operates a Boise rate center which computes charges for the transportation services that it performs, both on its own and in conjunction with other common carriers with which it interlines its customers' shipments. These charges for transportation and related services are found in tariff schedules which are required to be filed with various regulatory agencies. In order to conduct its business, Consolidated acquires tariff schedules from various companies throughout the country. These schedules are mass-produced by tariff bureaus which specialize in compiling and preparing tariff schedules. In addition, compiled tariff schedules are provided to carriers who subscribe to the service. The printed tariff schedules are published in bound and loose-leaf form, and they may be updated daily. The information acquired from the tariff schedules is entered into computers. Consolidated also acquires computer tapes which contain rate information.

Consolidated received periodic billings from the tariff bureaus. Upon paying the itemized amounts due, Consolidated charged the payment to two different Consolidated expense accounts. A portion of the amount paid was charged to account number 4627-10, entitled Tariffs and Schedules, which was intended to include charges made for the publications and supplements. A larger portion of the billing was charged to account number 4627-20, which was an account to which payments were charged for services that were in addition to providing the rate and tariff schedules. This later account included such charges as participation, dues and monthly general services provided by the tariff bureaus. These monthly services include rate sampling, costing, and revenue analysis services to be used in justifying general rate increases and restructures before the ICC.

The tax commission held the charges made to account number 4627-10 subject to use tax, because the account reflected the amount paid for printed publications shipped to and used in the Boise rate center. The amounts charged to account number 4627-20 were treated as excluded from tax, because the charges were for services that were distinct and separate from providing the tariff schedules.

The first question we address is whether the use tax under I.C. § 63-3621 is applicable to Consolidated's acquisition of the tariff rate schedules. The use tax statute provides:

63-3621. Imposition and rate of the use tax.--An excise tax is hereby imposed on the storage, use, or other consumption in this state of tangible personal property acquired on or after July 1, 1965, for storage, use, or other consumption in this state at the rate of four per cent (4%) of the value of the property, and a recent sales price shall be presumptive evidence of the value of the property.

"Storage" and "use" are defined in I.C. § 63-3615(a) and (b):

63-3615. Storage--Use.--(a) The term "storage" includes any keeping or retention in this state for any purpose except sale in the regular course of business or subsequent use solely outside this state of tangible personal property purchased from a retailer.

(b) The term "use" includes the exercise of any right or power over tangible personal property incident to the ownership or the leasing of that property or the exercise of any right or power over tangible personal property by any person in the performance of a contract, or to fulfill contract or subcontract obligations, whether the title of such property be in the subcontractor, contractor, contractee, subcontractee, or any other person, or whether the titleholder of such property would be subject to the sales or use tax, unless such property would be exempt to the titleholder under section 63-3622(d), Idaho Code, except that the term "use" does not include the sale of that property in the regular course of business.

In interpreting the language of a use tax statute, the court should use legislative intent as a primary guide. Morrison-Knudson Company, Inc. v. State Board of Equalization, 58 Wyo. 500, 135 P.2d 927, 931 (1943). Further, legislative intent is evident by the language of the statute. General Trading Co. v. State Tax Com., 322 U.S. 335, 64 S.Ct. 1028, 88 L.Ed. 1309 (1944).

The Sales Tax Act imposes an excise tax on the "sale price" of every "sale at retail" of tangible personal property. I.C. § 63-3621. Tangible personal property is defined as "personal property which may be seen, weighed, measured, felt or touched, or which is in any manner perceptible to the senses. The term "tangible personal property" includes any computer software which is not a custom computer program." I.C. § 63-3616(a), (b).

Although the statutory definition of "tangible personal property" does not include services, services are not in all aspects exempt from taxation, as is evidenced by the definition of "sales price":

63-3613. Sales price.--(a) The term "sales price" means the total amount for which tangible personal property, including services agreed to be rendered as a part of the sale, is sold, rented or leased, valued in money whether paid in money or otherwise, without any deduction on account of any of the following:

....

2. The cost of materials used, labor or service cost, losses, or any other expense.

To appropriately apply the use tax statutes to the sale of the subject tariff schedules, three requirements must be fulfilled: First, it must be established that the printed tariff schedules are tangible personal property; second, the tariff schedules must have been obtained through a retail sale; and third, it must be shown that the printed tariffs were under the control and ownership of Consolidated Freightways in Idaho. Old West Realty, Inc. v. Idaho State Tax Com., 110 Idaho 546, 548, 716 P.2d 1318, 1320 (1986).

The first requirement is met in that the tariffs easily fit within the statute's definition of tangible personal property "which may be seen, weighed, measured, felt or touched, or which is in any other manner perceptible to the senses." The printed tariffs are a physical product. In fact, the record provides a detailed description of the tariff schedule's physical characteristics:

The printed tariff schedules are published in bound and in loose-leaf form and may be updated as frequently as daily. After receiving the tariff schedules, some of the information is entered into computers, and thereafter Consolidated may not have to refer to the printed, published schedules. Consolidated also acquires computer tapes which contain rate information and uses the tapes to store information for future reference.

The pivotal issue in this controversy is whether the tariff schedules were purchased as part of a retail sale of tangible personal property. The sales tax does not apply to transactions where the rendering of a service is the object of the transaction, even though tangible personal property is exchanged incidentally; but to state that truism does not shed light on the proper resolution of this case. ¹ Hence, the issue is further defined as to whether the object of the transaction is a purchase of services or the purchase of tariff schedules. To reach a conclusion as to whether this is a sale of services or a retail sale of tangible personal property, the balancing test established in the Idaho Sales and Use Tax Regulations, Reg. 9, 1.b.i, should be applied.

The test to determine whether the purchase of the tariff schedules was a retail sale is to establish the real object of the transaction. This approach to judicial interpretation of use taxation was used in Lindner Bros., Inc. v. Kosydar, 46 Ohio St.2d 162, 346 N.E.2d 690 (1976), where the court viewed the sale of cards and printouts of data processing results as a transfer of tangible property and the real object of the transaction. In Miami Citizens Natl. Bank & Trust Co. v. Lindley, 50 Ohio St.2d 249, 364 N.E.2d 25 (1977), the court viewed the providing of printouts of bank transactions as a transfer of tangible property and the real object of the transaction. In Citizens Financial Corp. v. Kosydar, 43 Ohio St.2d 148, 331 N.E.2d 435 (1975), the court viewed the providing of printouts of daily banking transactions as the transfer of tangible property and the real object of the transaction. In other Ohio State Supreme Court cases, the court held that the transfer of tangible personal property was an inconsequential element of the underlying transaction and that the true object sought was a service.

In Accountants Computer Services, Inc. v. Kosydar, 35 Ohio St.2d 120, 298 N.E.2d 519, 523 (1973), the court gave an example of an indicator that the tangible personal property which was transferred was an inconsequential element of the transaction. There, the fact that no separate charge was made for the tangible property obtained was held to be an indication that the transfer was incidental to the service obtained. In the instant case, Consolidated Freightways was charged in a separate account for a variety of services. In another separate account, Consolidated Freightways was charged for the printed tariff schedules. Therefore, the separate charge for the printed tariff schedules is clear evidence that the tangible personal property was not incidental to the service, but was the real object of the transaction.

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