Indiana Dept. of State Revenue, Sales Tax Division v. Cable Brazil, Inc.

• Decision Date: 07 September 1978
• Docket Number: No. 2-1076A382,2-1076A382
• Citation: 177 Ind.App. 450,380 N.E.2d 555
• Parties: , 5 A.L.R.4th 744 INDIANA DEPARTMENT OF STATE REVENUE, SALES TAX DIVISION, Appellant (Defendant below), v. CABLE BRAZIL, INC., Individually and on behalf of all others similarly situated, Appellees (Plaintiffs below).
• Court: Indiana Appellate Court

Page 555

380 N.E.2d 555

177 Ind.App. 450, 5 A.L.R.4th 744

INDIANA DEPARTMENT OF STATE REVENUE, SALES TAX DIVISION Appellant (Defendant below), v. CABLE BRAZIL, INC., Individually and on behalf of all others similarly situated, Appellees (Plaintiffs below).

No. 2-1076A382.

Court of Appeals of Indiana, Second District.

Sept. 7, 1978.

Theo. L. Sendak, Atty. Gen., Alembert W. Brayton, Deputy Atty. Gen., Indianapolis, for appellant.

Michael S. Maurer, Robert A. Garelick, of Maurer, Garelick, Cohen & Frank, Indianapolis, for appellees.

BUCHANAN, Chief Judge.

ON PETITION FOR REHEARING

In a memorandum opinion handed down March 6, 1978, this court determined sua sponte that Indiana Department of State Revenue, Sales Tax Division (Department) had failed to timely file its Motion to Correct Errors. The record showed the judgment was entered March 29, 1976, but the Motion to Correct Errors was not filed until June 1, 1976, sixty-four (64) days after judgment.

On remand, the trial court corrected the record indicating that the Motion to Correct Errors was filed on May 28, 1976, the sixtieth (60th) day after judgment. In light of the corrected record, we grant the Department's petition for rehearing and address the merits of the case.

CASE SUMMARY

The Department appeals from the trial court's judgment that Cable Brazil, Inc. (Cable Brazil), and other similarly situated cable television systems in Indiana, may claim a refund under Ind. Code 6-2-1-39(b)(6) for sales tax paid on the purchase of equipment used in producing and transmitting cable television signals. The trial court found that a television signal is tangible personal property, and that the antenna, cables, amplifiers and other related equipment were used in the processing and refining of tangible personal property.

The Department challenges this judgment claiming a television signal is not tangible personal property and that the equipment involved is not used in the direct production, manufacture, processing and refining of the television signal.

We reverse.

FACTS

The facts are undisputed:

This action was brought by Cable Brazil on behalf of itself and other cable television systems in the State, to recover sales tax paid on certain materials and equipment used to gather and transmit TV signals to cable television customers.

Cable Brazil relies on Ind. Code 6-2-1-39(b)(6):

(b) Nor shall the state gross retail tax apply to any of the following transactions:

(6) Sales of manufacturing machinery, tools and Equipment to be directly used by the purchaser in the direct production, manufacture, fabrication, assembly, extraction, mining, Processing, refining or finishing of tangible personal property; sales of agricultural machinery, tools and equipment to be directly used by the purchaser in the direct production, extraction, harvesting or processing of agricultural commodities; and sales of tangible personal property to be directly used by the purchaser in the direct production or manufacture of any such manufacturing or agricultural machinery, tools and equipment. (emphasis added) (the exemption statute herein)

Evidence presented to the trial court related to the nature and method of operation of a cable television system. After hearing the evidence, the trial court made the following pertinent findings of fact and conclusions of law:

FINDINGS OF FACT

1. The Plaintiff, Cable Brazil, Inc., is a corporation organized and existing under Indiana law, with its principal office located at 108 East Washington Street, Indianapolis, Indiana. The Plaintiff is engaged in the cable television business in Clay County, Indiana.

2. Cable television is a process, the end product of which is a refined and processed electronic signal viewed in a television set.

3. Cable television, as the Plaintiff operates, is substantially identical to all other cable television systems operating within the State of Indiana.

4. The cable television process begins at the tower where an electronic television signal is received by various antennae located on the tower, generally several hundred feet in the air. The signal is then transported from the antennae to devices generally referred to as head-end processors. After the electronic signal has passed through the head-end processor, it is distributed over coaxial cable held in place by strand to its ultimate destination, a customers home television receiver. Approximately every 1500 to 2000 feet as the electronic signal travels along the coaxial cable, it passes through amplifiers. Finally, as the signal enters the home television receiver it passes through a transformer that has a material effect on the electronic television signal.

5. The electronic signal is materially changed through the process described in Findings of Fact No. 4. The frequency of the signal is changed, the ohms or impedence of the signal is changed, the signal is purified in that unwanted interference is removed and it is strengthened so that a signal that is not usable is converted into a marketable product.

6. The electronic television signal processed in the cable television system can be felt, touched, measured and seen Making the product of cable television tangible personal property.

7. The basic element of the electronic signal processed in cable television is the electron. An electron is a negatively charged particle that has a recognizable mass, weight and substance.

20. The items of machinery, tools and equipment listed . . . are directly used in the direct production, manufacture, processing and refining of the cable television signal.

21. During the years 1972, 1973 and 1974 Plaintiff purchased the various items of machinery, tools and equipment . . . and paid state gross retail tax on these purchases.

22. Plaintiff filed a claim for refund in the amount of One Thousand Eighty Six and 54/100 ($1,086.54), which was denied by Defendant on June 5, 1974.

23. Plaintiff was improperly charged for the state gross retail tax.

24. The within action involves multiple claims and multiple parties and that there is no just reason for delay in entering a judgment on behalf of the Plaintiff, Cable Brazil, Inc., against the Indiana Department of State Revenue, Sales Tax Division, the Defendant herein, for the sum of $1,086.54 along with Plaintiff's costs and interest from the date of judgment herein.

CONCLUSIONS OF LAW

1. The law is with the Plaintiff.

2. The purchases during the years 1972, 1973 and 1974 of various items of machinery, tools and equipment . . . used in the direct manufacture, processing, or refining of tangible personal property are exempt from tax under Reg. 39-620 promulgated by the Indiana Department of Revenue pursuant to the Gross Retail Sales Act.

3. The purchases during the years 1972, 1973 and 1974 of various items of machinery, tools and equipment, . . . used in the direct manufacture, processing or refining of tangible personal property are exempt from tax pursuant to IC 6-2-1-39(b)(6) of the Indiana Gross Retail Sales Act.

4. Plaintiff is entitled to a refund of all state gross retail tax paid by it on the purchase during the years 1972, 1973 and 1974 of various items of machinery, tools and equipment, . . . plus interest and costs of this action and all other just and proper relief in the premises.

5. The within action involves multiple claims and multiple parties and that there is no just reason for delay in entering a judgment on behalf of the Plaintiff, Cable Brazil, Inc., against the Indiana Department of State Revenue, Sales Tax Division, the Defendant herein, for the sum of $1,086.54 along with Plaintiff's costs and interest from the date of judgment herein.

6. That the Court's first amended order establishing the class and the conduct of the proceedings is included herein by reference as if set out fully. (emphasis added)

ISSUE

Only one question is before us:

Is a television signal tangible personal property ¹ within the meaning of Ind. Code 6-2-1-39(b)(6) (the exemption statute) which exempts sales of equipment used in the processing of tangible personal property?

The Department maintains that a television signal is not tangible, personal property, asserting (1) that Ind. Code 6-2-1-38(n) providing for sales tax on cable television service would have been a needless act had the Legislature considered cable television as tangible personal property; (2) that the use of the phrase "cable television service" in Ind. Code 6-2-1-38(n) indicates the Legislature considered cable television a service and not tangible personal property; (3) that a cable television signal is not tangible personal property within the common meaning of that phrase.

Cable Brazil contends that there is evidence to support the trial court's finding that a cable television signal is tangible personal property, and that this court cannot reweigh the evidence or retry the issue, and can only reverse when the evidence is uncontradicted.

DECISION

CONCLUSION A cable television signal is not tangible personal property as that term is used in Ind. Code 6-2-1-39(b)(6).

The phrase "tangible personal property" is composed of words of art and is not interchangeable with the scientific definition of "matter". No case, in Indiana or elsewhere, identifies a television signal, which is a stream of electronic impulses, with tangible personal property for the purpose of taxation merely because it has basic properties of matter. The handful of cases in other jurisdictions that have considered the subject rely on meaning given their particular statute by their legislature.

In Curry v. Alabama Power Company (1942), 243 Ala. 53, 8 So.2d 521, ² the Alabama Supreme Court found electricity was tangible personal property relying on a specific Alabama statute which listed electricity as a type of tangible personal property. In dicta that Court commented that scientific facts showed that electricity has mass or weight, can be tasted, touched and smelled, and therefore was...