Midcontinent Broadcasting Co. v. State, Dept. of Revenue, 15965

• Decision Date: 01 June 1988
• Docket Number: No. 15965,15965
• Citation: 424 N.W.2d 153
• Parties: MIDCONTINENT BROADCASTING CO. and South Dakota Broadcasters Association, Plaintiffs and Appellants, v. STATE of South Dakota, DEPARTMENT OF REVENUE, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 153

424 N.W.2d 153

MIDCONTINENT BROADCASTING CO. and South Dakota Broadcasters

Association, Plaintiffs and Appellants, v. STATE of South Dakota, DEPARTMENT OF REVENUE, Defendant and Appellee.

No. 15965.

Supreme Court of South Dakota.

Argued March 21, 1988.

Decided June 1, 1988.

David L. Knudson of Davenport, Evans, Hurwitz & Smith, Sioux Falls, and Charles P. Schroyer of Schmidt, Schroyer, Colwill & Barnett, Pierre, for plaintiffs and appellants.

Timothy T. Weber, Asst. Atty. Gen., Pierre, for defendant and appellee; Roger A. Tellinghuisen, Atty. Gen., Pierre, on brief.

MILLER, Justice.

Midcontinent Broadcasting and the South Dakota Broadcasters Association (hereinafter referred to collectively as Midcontinent) appeal from a circuit court decision which affirmed a declaratory ruling of the South Dakota Department of Revenue (Department). Generally, the ruling provided that radio and television stations were obligated to pay a use tax on the amount paid for certain syndicated programming. We reverse.

FACTS

In 1985, Department conducted sales and use tax audits of Midcontinent. The reoccurring issue in these audits related to the taxability of payments made to third party suppliers for syndicated programming material. (Examples of the syndicated programming involved include the "Paul Harvey" news broadcast for radio and re-runs of "M*A*S*H" for television.) The syndicated program material involved is protected by copyright and is subject to use limitation by the radio or television station as to the: (1) number of uses; (2) time period within which the material must be utilized; (3) market area within which the materials may be used; and (4) transfer to third parties. The syndicated programming contracts also provide for exclusivity within a particular market area. Finally, some of the syndicated programming materials are provided and produced directly by radio and television stations while others are produced by independent programming production companies.

After unsuccessful attempts to informally negotiate this issue, Midcontinent filed a petition for a declaratory ruling. Department ruled that South Dakota radio and television stations are obligated to pay use tax on syndicated programming payments made to third parties.

Midcontinent appealed Department's declaratory ruling to the circuit court, which affirmed Department. Midcontinent appeals to this court.

ISSUES

Midcontinent has raised several issues in this appeal. They argue that (1) the payments for syndicated programming are in essence copyright payments and thus not taxable; (2) the First Amendment prohibits the singling out of the media for special tax treatment; (3) syndicated programming and columns are not retail transactions but rather are wholesale transactions; (4) the syndicated programming use tax unfairly discriminates among various broadcast and media institutions; and (5) if taxable, a reduction in amount assessed is appropriate as a portion of the syndicated programming is used out of state.

Since we conclude that the transactions here are not taxable because they are wholesale rather than retail transactions, we need not address the other issues raised.

DECISION

Whether a statute imposes a tax under a given factual situation is a question of law and thus no deference is given to any conclusion reached by Department or the circuit court. In the Matter of the State Sales & Use Tax Liability of Sioux Falls Newspapers, Inc., 423 N.W.2d 806 (S.D.1988) (citations omitted).

Department argues that the syndicated programs are delivered to broadcasters in some type of media form (film or tape), which form is tangible personal property. Thus, Department asserts that a showing or broadcast of this film or tape is the use of tangible personal property subject to the use tax imposed by SDCL 10-46-2. ¹

a. Whether syndicated materials are tangible personal property.

Recently, in Sioux Falls Newspapers, supra, we held that syndicated materials are tangible personal property. In that case, the Argus Leader claimed that the syndicated materials were intangible information placed on pieces of paper which were merely transferred by a tangible medium. We specifically stated:

It is not necessary for us to determine whether intangible information may be severed from the tangible medium of transmission. The items involved in this assessment are not raw information, but the tangible end product of an individual's skills. See Columbia Pictures Industries, Inc. v. Tax Commissioner, , 410 A.2d 457, 461 (Conn.1979). Columns, features, and editorials such as those written by Art Buchwald, Ann Landers, Erma Bombeck, Sylvia Porter, George Will, and Ellen Goodman, are not just rote reporting of current news events; they are the finished product of a writer's skills. Likewise, the comics are the finished product of an artist's or writer's skills. Therefore, we hold that these syndicated materials are tangible personal property. (Emphasis in original.)

423 N.W.2d at 810. Just as the syndicated materials in Sioux Falls Newspapers were deemed to be tangible personal property, so are the syndicated materials presented in this case.

b. Whether the payments for syndicated programming are wholesale, rather than retail transactions.

Midcontinent argues that the gathering of information, which provides the content of broadcast programming, is a wholesale...