Crescent Amusement Co. v. Carson

• Decision Date: 17 July 1948
• Citation: 213 S.W.2d 27,187 Tenn. 112
• Parties: CRESCENT AMUSEMENT CO. v. CARSON, Commissioner of Finance and Taxation.
• Court: Tennessee Supreme Court

213 S.W.2d 27

187 Tenn. 112

CRESCENT AMUSEMENT CO. v. CARSON, Commissioner of Finance and Taxation.

Supreme Court of Tennessee.

July 17, 1948

Appeal from Chancery Court, Davidson County; Thos. A. Shriver Chancellor.

Suit by Crescent Amusement Company against Sam K. Carson Commissioner of Finance and Taxation of the State of Tennessee, to recover privilege tax collected for rental of tangible personal property. From a decree for the defendant the complainant appeals.

Decree affirmed.

Charles L. Cornelius, W. Ovid Collins, Jr., and C Weber Tuley, all of Nashville, W. W. Goodman, of Memphis, and J. L. Levine and M. B. Finkelstein, both of Chattanooga, for appellant.

William F. Barry, Sol. Gen., of Nashville, and Allison B. Humphreys, Jr., and Harry Phillips, Asst. Attys. Gen., for appellee.

TOMLINSON Justice.

The Tennessee Sales Tax Law (Chapter 3, Public Acts of 1947) levies a privilege tax of 2% on the gross amount paid for the rental of tangible personal property. The appellants are the operators in Tennessee of moving picture theatres. The pictures which they show are procured by renting film print from the producers of moving pictures. The picture is imprinted on this film print which is a roll of celluloid consisting on an average of about 10,000 feet. This print, through the use of moving picture machinery, projects or reproduces the picture, together with sound effects, upon the screen of the theatre. The actual cost of the film print material is between $175 and $1050, dependent upon the amount and character of material. The production of the picture imprinted thereon costs large sums, said sometimes to be as much as a million dollars, the cost being dependent upon the identity and skill of the artists who portray the characters in the picture, upon the elaborateness of the scenery in which the play is set, upon the cost of the plot or story which the picture depicts, and upon the services of many persons and technicians skilled in the art of producing the moving pictures imprinted on the film. This picture is owned by the producer, whose ownership and the benefit to be thereby derived is protected by copyright laws. In order to fully protect this right and preserve the benefit thereof, the owner rents the film print to the operator of the picture show for a definite time and for a specified number of shows. The print is then to be returned to its owner. The rent paid is usually a specified percent of the gross receipts realized from the exhibition of the picture, but this is not always the case.

Tangible personal property is defined by the Tennessee Sales Tax Law as that 'which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses.'

The question for decision in this case is whether the transaction above described is, within the meaning of the Sales Tax Law, a rental of tangible personal property. If it is, then are the gross proceeds paid to the producer for the rental of the film print the measure of the tax, or is that tax to be measured by the cost of the physical material in the film print?

The Chancellor in ruling upon a demurrer sustained the contention of the Tennessee Commissioner of Finance and Taxation by holding that the transaction is taxable under the Sales Tax Law and that the correct measure of the tax is the gross amount paid to the producer for the rental of the film print.

The lessees of the film print (picture theatre operators) have appealed. They insist that the transaction described is merely the granting to them of the privilege of using and exhibiting a copyrighted production, and that this amounts only to the exercise of an intangible property right; hence, not within the meaning or intent of the Sales Tax Law, levying tax on the amount paid for the rental of tangible personal property.

It has never been determined by this Court whether or how this exact transaction is taxable under the Sales Tax Law. Appellees refer us to the New York case of United Artists Corp. v. Taylor, 273 N.Y. 334, 7 N.E.2d 254, 256. New York City had a sales tax law similar to ours. The exact question here arose in the administration of that New York 'Local Law,' and was presented for decision in the Appellate Court of New York in the case just mentioned. In holding that the tax applied to the lease of a movie film print, that Court said:

'The transaction which is the subject of the tax under review consists of the transfer by the distributor to the exhibitor of the possession of corporeal property in the form of positive and negative prints of photoplays with the license to use or exhibit them for a specified time. The license to exhibit without the transfer of possession would be valueless. Together they are one transaction and constitute a sale within the definition of Local Law No. 24.'

The Louisiana Sales Tax Law contains the same provisions as the Tennessee law with reference to imposing a tax upon the rent paid for the leasing of tangible personal property. In the case of Saenger Realty Corp. v. Grosjean, 194 La. 470, 193 So. 710, the Louisiana Supreme Court held that the operator of a moving picture theatre was subjected under the Louisiana act to payment of the tax on the amount paid the producer for the lease of the film print.

We are not referred to any cases where the holding is contrary to the decisions in the New York and Louisiana cases, supra unless it be the Illinois cases cited by appellant. The Supreme Court of that State held in the case of Burgess Co. v. Ames, 359 Ill. 427, 194 N.E. 565, that the right to reproduce a musical composition is a license rather than a transfer of tangible personal property, and in the cases of A. B. C. Electrotype Co. v. Ames, 364 Ill. 360, 4 N.E.2d 476, and Adair v. Ames, 364 Ill. 342, 4 N.E.2d 481, respectively, that Co...