Honeywell Information Systems, Inc. v. King
| Citation | 640 S.W.2d 553 |
| Parties | HONEYWELL INFORMATION SYSTEMS, INC., Plaintiff-Appellee, v. John K. KING, Commissioner of Revenue, State of Tennessee, Defendant-Appellant. 640 S.W.2d 553 |
| Decision Date | 25 October 1982 |
| Court | Tennessee Supreme Court |
Joe C. Peel, Asst. Atty. Gen., Nashville (William M. Leech, Jr., Atty. Gen., Nashville, of counsel), for defendant-appellant.
Robert L. Crossley, Knoxville, for plaintiff-appellee.
This case presents two issues under the local option sales tax, T.C.A. Secs. 67-3049 to -3056. The first question is factual: whether rent on each component of a computer system leased to others by the taxpayer is subject to the local sales tax or whether the tax should be applied to the entire system. The second question is one of law: whether monthly rental payments on leased computer systems are each taxable up to the limits of the local option tax provisions (five dollars or seven dollars and fifty cents, as the case may be), or whether this limit applies to the entire term of each lease.
The Chancellor held that under the taxpayer's method of leasing and invoicing, rent on each of the components was subject to the local tax. He held, however, that the maximum tax was to be collected only once for the entire term of each lease, and not on each monthly installment of rent. We are of the opinion that the Chancellor's decision was correct on both issues, and his judgment is affirmed.
As stated, the first question is one of fact only. It is the insistence of the taxpayer that each computer system which it leases to its customers is a single entity, or unitary system, and that the local option tax is applicable only to the entire system. By its terms, no local tax can exceed seven dollars, fifty cents on the sale or use of any single article of personal property (or five dollars under certain circumstances). T.C.A. Sec. 67-3050.
The taxpayer's own method of marketing, invoicing and record-keeping clearly demonstrates that it did not lease the component units of its computer systems as one single entity. It invoiced its customer for each of the components, each bearing its own serial number, and a specific monthly rental being charged for each component. Since the taxpayer did not treat these components as "a single article of personal property" for purposes of its own leasing, invoicing and collections, in our opinion the Commissioner was likewise justified in treating them separately.
It may be that at some other time, or during some other audit period, this taxpayer, or other computer purveyors, may lease or sell computer systems as single entities. This taxpayer did not do so. As the state of the technology changes and progresses, it may be that smaller and more compact equipment may be marketed as a single machine or item of property. This was not the case, however, during the period of the audit involved here, 1976-78. The evidence supports the finding of the Chancellor that the separate components should be treated as separate pieces of leased property for purposes of the local sales tax.
as the state tax authorized in other sections, provided that the rates levied by the local government may not exceed a specified percentage of the rates for the state tax. The statute, however, contains the following limitation:
"... provided that the tax so levied shall not exceed five dollars ($5.00) on the sale or use of any single article of personal property whenever the rate of the tax does not exceed one percent (1%) of the rates levied therein, nor more than seven and one half dollars ($7.50) whenever the rate of the tax exceeds one percent (1%) of the rates levied therein ...." 1
The taxpayer in this case leased large quantities of computer equipment to customers in Tennessee. The leases were for definite terms, usually three years or five years, with specified monthly rentals being charged for each item of equipment so rented.
For purposes of the state sales tax, the method of taxing rental payments is specified at T.C.A. Sec. 67-3003(c) and (d). Neither of these provisions, however, has any limitation such as that contained in the local sales tax...
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Executone of Memphis, Inc. v. Garner
...and since the parties were not in agreement, summary judgment was improper. The commissioner and the trustee cite Honeywell Inf. Sys. v. John King, 640 S.W.2d 553 (Tenn.1982), as authority for their position. The chancellor in that case found that each component of a computer system was tax......