Gross Income Tax Division v. Warner Bros. Pictures Distributing Corp.

• Decision Date: 17 March 1954
• Docket Number: No. 29045,29045
• Citation: 118 N.E.2d 117,233 Ind. 345
• Parties: GROSS INCOME TAX DIVISION et al. v. WARNER BROS. PICTURES DISTRIBUTING CORP.
• Court: Indiana Supreme Court

Page 117

118 N.E.2d 117

233 Ind. 345

GROSS INCOME TAX DIVISION et al. v. WARNER BROS. PICTURES DISTRIBUTING CORP.

No. 29045.

Supreme Court of Indiana.

March 17, 1954.

Edwin K. Steers, Atty. Gen., John J. McShane, Lloyd C. Hutchinson, Earl E. Schmadel, and George B. Hall, Deputies Atty. Gen., for appellant.

Joseph J. Daniels and Paul N. Rowe, Indianapolis (Baker & Daniels, Indianapolis, and Friedman & Bareford, New York City, of counsel), for appellee.

FLANAGAN, Judge.

The question presented is whether appellee is engaged in interstate commerce. If so engaged, and the tax sought to be imposed is a direct burden upon that commerce, its receipts are not subject to the Indiana Gross Income Tax.

Appellee is a New York corporation licensed to do business in the State of Indiana. It maintains branch offices, called film exchanges, in the principal cities throughout the country, for the purpose of distributing its motion picture films to exhibitors who sign license agreements with the corporation. One such office is located in Indianapolis and serves those licensees of the appellee in the central and southern counties of Indiana. Another such office is located in Chicago and serves licensees in Illinois, part of Iowa, and the northern counties of Indiana. The right of the State to impose a tax on the gross receipts of the Indianapolis office is not here in issue. It is a tax on the gross receipts from Indiana licensees of the Chicago office with which we are concerned.

The business of the Chicago office is carried on by traveling salesmen who call upon the Indiana exhibitors and receive from them applications for licenses to show certain films. These salesmen submit the applications to their Chicago office, which, in turn, forwards them to the New York office of appellee for acceptance or rejection. Notification of acceptance or rejection is sent to the Chicago office and from there relayed to the exhibitor. In cases of acceptance the film contracted for is shipped to the Chicago office and then to the exhibitor. The exhibitor, after showing the film, in most cases, sends it back to the Chicago office. In all cases the exhibitor assumes the cost of the transportation as well as the risk of damage to the film in transit. All payments under the license agreements are received by the appellee at its Chicago office.

As we understand it, the State relies for reversal on the contention that appellee's film has reached its final destination at the exhibitor's place of business; that appellee is there engaged in a local Indiana business; that at this place the film of the appellee loses its interstate character and acquires a purely local one. With this contention we cannot agree.

In the case of Paramount Pictures Distributing Co. v. Henneford, 1935, 184 Wash. 376, 51 P.2d 385, it was held, under circumstances more favorable to appellant than in the instant case, that similar transactions in the rental of films do constitute interstate commerce. See, also, State v. Paramount Publix Corporation, 1934, 178 La. 818, 152 So. 534.

In the case of Gross Income Tax Division v. Surface Combustion Corp., 1953, 232 Ind. 100, 111 N.E.2d 50, 66, this court said:

'The United States Supreme Court has consistently held that a tax on gross income from transactions in interstate commerce is an unconstitutional burden upon, or interference with, commerce among the states.'

We cannot see that appellee in the instant case, by reserving to itself the right of visitation on the exhibitor for purposes of determining its rightful license fee, has thus become engaged in the local exhibition of the film which it has licensed to the exhibitor. Nor can we see that the license agreement, providing for a percentage of the exhibitor's admission price as the license fee, changes the character of the transaction.

Judgment affirmed.

DRAPER, C. J., and EMMERT and GILKISON, JJ., concur.

BOBBITT, J., dissents with opinion.

BOBBITT, Judge.

I cannot agree with the majority opinion for the following reasons:

First: Appellee is duly qualified to do business in Indiana and maintains a place of business designated as a film exchange in the city of Indianapolis. During the years here in question appellee, a New York corporation with its executive offices and principal place of business in the city of New York, was engaged in the business of licensing exhibitions of motion picture films under written agreements with motion picture exhibitors in Indiana. Branch offices designated as film exchanges are maintained in various trade areas for the purpose of serving the exhibitors in that territory. Appellee maintains such a branch office--film exchange--in the city of Indianapolis from which it serves threatre exhibitors in all of Indiana except certain counties in the extreme northern part of the state. Appellee also maintains a film exchange in the city of Chicago which serves that trade area, the northern half of Illinois, certain parts of Iowa, Wisconsin, Michigan and certain counties in northern Indiana which are not served by the Indianapolis branch office--exchange.

No question is here presented as to tax assessed and paid upon the receipts from the business conducted through and from the Indianapolis exchange.

From the facts as presented by the record it conclusively appears that appellee has subjected itself to local jurisdiction and is engaged in a local business or activity consisting of leasing and distributing motion picture films for exhibition in Indiana; controlling and regulating the time and manner of their exhibition; and the rendering of service in connection therewith. Appellee's activities in that part of Indiana which is served by the Chicago exchange are essentially and in fact no different from those conducted from its Indianapolis exchange and are, therefore, in fact, an integral part of appellee's Indiana business.

I do not concur in appellant's contention that the provision of the lease which retained to appellee the right to fix the provision for auditing exhibitor's books has the legal effect of making appellee a participant in the local enterprise of exhibiting films in theatres in Indiana. Nor do I believe the provision for film rental based upon a percentage of the gross receipts has such an effect. This provision in the lease is only the measuring stick for determining the rental fee to be charged. However, we are here concerned with the source of appellee's income derived from its lease contracts with Indiana exhibitors, and the fact that appellee may not be engaged in a joint enterprise with its exhibitors in a local exhibition of motion picture film in Indiana does not, under the circumstances in this case, determine the source of its income.

It seems clear to me that appellee's income here in question is derived from the leasing or rental and distribution of moving picture films to local exhibitors for exhibition in their theatres and from services and functions rendered and connected therewith, and not from the actual exhibition of the films.

The cases of Tad Screen Advertising v. Oklahoma Tax Comm., 10 Cir., 1942, 126 F.2d 544, and Ligon v. Alexander Film Co., Tex.Com.App., 1932, 55 S.W.2d 1030, certiorari denied 289 U.S. 760, 53 S.Ct. 793, 77 L.Ed. 1503, are clearly distinguishable from the case at bar and lend no support to appellant's position. In those cases no leasing of films to the local exhibitors was involved but the advertising films shown were, under the distributor's contract, exhibited by it, the local exhibitor being paid a fee for the use of his theatre in showing the film. That is not the situation in this case.

Second: The majority opinion is grounded upon Paramount Pictures Distributing Co. v. Henneford, 1935, 184 Wash. 376, 51 P.2d 385, which case was decided upon the authority of Binderup v. Pathe Exchange, 1923, 263 U.S. 291, 44 S.Ct. 96, 68 L.Ed. 308. The latter case involved a violation of the Sherman Act, 15 U.S.C.A. § 1 et seq. In that case the film contracts were between residents of different states, and the activities were between residents of different states. The activities consisted of manufacturing the films in one state, finding customers for them in others, making contracts of lease with them and transporting the film leased from the state of manufacture into the state of the lessees. In some instances the films were consigned to a local agency of the distributor to be by that agency held until delivery to the lessee in the same state. At page 312 of 263 U.S., at page 100 of 44 S.Ct., at page 317, 68 L.Ed., it is said:

'The contracts with these distributors contemplated and provided for transactions in interstate commerce. The business which was done under them--leasing, transportation, and delivery of films--was interstate commerce.'

This the shipment of motion picture films by a producer or manufacturer from one state to exhibitors in another state to be exhibited by the latter is a transaction in interstate commerce is well settled. Tad Screen Advertising v. Oklahoma Tax Comm., 10 Cir., 1942, 126 F.2d 544, 548, supra; Fox Film Corporation v. Trumbull, 1925, D.C., 7 F.2d 715, 721; Fox Film Corporation v. Federal Trade Commission, 2 Cir., 1924, 296 F. 353; Binderup v. Pathe Exchange, 1923, 263 U.S. 291, 44 S.Ct. 96, 68 L.Ed. 308, supra.

No question concerning the power to tax the receipts derived from the contracts involved was present in the Binderup case. It concerned only the question whether the transactions there present were in interstate commerce so as to bring them within the provisions of the Sherman Act. While this case is authority upon the question of the interstate nature of the shipment of motion picture films across state lines, it lends no support to the determination of the validity of the tax here in question--it does not establish the source of appellee's income under the facts in the case at bar. It does not follow that because a transaction is...