Federated Dept. Stores, Inc., F & R Lazarus Co. Div. v. Lindley

• Decision Date: 14 December 1983
• Docket Number: No. 83-147,83-147
• Citation: Federated Dept. Stores, Inc., F & R Lazarus Co. Div. v. Lindley, 456 N.E.2d 1209, 8 Ohio St.3d 35, 8 OBR 344 (Ohio 1983)
• Court: Ohio Supreme Court
• Parties: , 55 Rad. Reg. 2d (P & F) 41, 8 O.B.R. 344 FEDERATED DEPARTMENT STORES, INC., F & R LAZARUS CO. DIVISION, Appellee, v. LINDLEY, Tax Commr., Appellant.

Page 35

8 Ohio St.3d 35

456 N.E.2d 1209, 55 Rad. Reg. 2d (P & F) 41, 8 O.B.R. 344

FEDERATED DEPARTMENT STORES, INC., F & R LAZARUS CO. DIVISION, Appellee, v. LINDLEY, Tax Commr., Appellant.

No. 83-147.

Supreme Court of Ohio.

Dec. 14, 1983.

Syllabus by the Court

Where there is sufficient probative evidence in the record that the taxpayer's real object in the transaction was the production and broadcasting of radio and television advertisements, which of necessity include personal service as an inconsequential element, the transfer of the advertisement tapes is subject to Ohio sales and use taxes pursuant to R.C. Chapter 5739. (Federated Department Stores v. Kosydar, 45 Ohio St.2d 1, 340 N.E.2d 840 [74 O.O.2d 1], followed.)

Appellee, Federated Department Stores, Inc., F & R Lazarus Co. Division ("Federated"), a large retailer in central Ohio, was assessed sales and use taxes on purchase transactions for the tax period from January 1, 1974 through December 31, 1976. Federated filed a petition for reassessment with appellant, Tax Commissioner ("commissioner"), who allowed some of the objections but affirmed the balance of the assessment. Subsequently, Federated appealed to the Board of Tax Appeals, which affirmed the commissioner's assessment.

On appeal to the Court of Appeals for Franklin County, the court affirmed the assessment in part, and reversed it in part. It held that the purchases of radio and television taped advertisements were professional and personal service transactions and, thus, excepted from the sales and use taxes. The transactions, at issue, were based upon arrangements Federated made with Byer & Bowman Advertising Agency, Inc., for preparing and broadcasting advertisements. The advertising agency produced the audio and video tapes of advertisements and purchased radio and television time to broadcast the advertisements. The agency's bills did not itemize separate charges for production and broadcasting. The commissioner is appealing that portion of the decision of the court of appeals allowing a tax exemption for the transactions with the advertising agency.

The cause is now before this court upon the allowance of a motion to certify the record.

Maryann B. Gall and Matthew T. Fitzsimmons, Columbus, for appellee.

Anthony J. Celebrezze, Jr., Atty. Gen., and James C. Sauer, Asst. Atty. Gen., for appellant.

JAMES P. CELEBREZZE, Chief Justice.

The issue presented is whether the transactions with the advertising agency for the production of taped advertisements and the purchase of radio and television broadcasting time for airing them are exempt from the sales and use taxes.

Federated maintains that the transfer of tangible personal property from the advertising agency is an inconsequential element of the personal service performed and is not taxable under R.C. 5739.01(B). We disagree.

R.C. 5739.01(B) provides in pertinent part that:

" * * * Other than as provided in this section, 'sale' or 'selling' do not include professional, insurance, or personal service transactions which involve the transfer of tangible personal property as an inconsequential element, for which no separate charges are made."

Thus, the term "sale" for purposes of the sales tax excludes professional and personal services. In Accountant's Computer Services v. Kosydar (1973), 35 Ohio St.2d 120, 298 N.E.2d 519 [64 O.O.2d 72], a test was announced for determining whether a transaction may be excepted in these circumstances. The syllabus states in part that:

"1. In determining whether a 'sale' of tangible personal property may be excepted from the sales tax by the last sentence of R.C. 5739.01(B), the proper test is to determine whether the transaction involves a consequential or inconsequential professional, insurance, or personal service. If the service rendered is inconsequential, the exception is not available and the entire transaction is taxable. If a consequential service is rendered, then it must be ascertained whether the transfer of the tangible personal property was an inconsequential element of the transaction. If so, then none of the consideration paid is taxable.

"2. In determining whether a mixed transaction constitutes a consequential personal service transaction, a distinction must be made as to the true object of the transaction contract; that is, is the real object sought by the buyer the service per se or the property produced by the service.

"3. Where a transaction is mixed in such a manner that the tangible personal property transferred and the service rendered are distinct consequential elements having a fixed and ascertainable relationship between the value of the property and the value of the service rendered so that both may be separately stated, there exist two separate transactions, and the one attributable to the sale of the tangible personal property is subject to taxation under R.C. 5739.01(B) while the other is not." (Emphasis sic.)

Many cases of this court have applied this test:

Statistical Tabulating Corp. v. Lindley (1983), 3 Ohio St.3d 23, 445 N.E.2d 1104; May Company v. Lindley (1982), 1 Ohio St.3d 6, 437 N.E.2d 295; Financial Computer Services v. Lindley (1982), 70 Ohio St.2d 243, 436 N.E.2d 1025 [24 O.O.3d 336]; Dun & Bradstreet v. Lindley (1981), 66 Ohio St.2d 295, 421 N.E.2d 525 [20 O.O.3d 280]; Fliteways v. Lindley (1981), 65 Ohio St.2d 21, 417 N.E.2d 1371 [19 O.O.3d 219]; Avco Broadcasting Corp. v. Lindley (1978), 53 Ohio St.2d 64, 372 N.E.2d 350 [7 O.O.3d 145]; White Motor Corp. v. Kosydar (1977), 50 Ohio St.2d 290, 364 N.E.2d 252 [4 O.O.3d 451]; Credit Bureau v. Collins (1977), 50 Ohio St.2d 270, 364 N.E.2d 27 [4 O.O.3d 439]; Miami Citizens National Bank v. Lindley (1977), 50 Ohio St.2d 249, 364 N.E.2d 25 [4 O.O.3d 427]; Servi Clean Industries v. Collins (1977), 50 Ohio St.2d 80, 362 N.E.2d 648 [4 O.O.3d 199]; Spray Wax Car Wash v. Collins (1976), 46 Ohio St.2d 164, 346 N.E.2d 696 [75 O.O.2d 205]; Federated Department Stores v. Kosydar (1976), 45 Ohio St.2d 1, 340 N.E.2d 840 [74 O.O.2d 1]; Citizens Financial Corp. v. Kosydar (1975), 43 Ohio St.2d 148, 331 N.E.2d 435 [72 O.O.2d 83]; United States Shoe Corp. v. Kosydar (1975), 41 Ohio St.2d 68, 322 N.E.2d 668 [70 O.O.2d 159].

The test has been applied to transactions involving the production of radio and television...