University Computing Co. v. Olsen

• Decision Date: 01 October 1984
• Parties: UNIVERSITY COMPUTING COMPANY, Plaintiff-Appellant, v. Hon. Martha OLSEN, Commissioner of Revenue For the State of Tennessee, Defendant-Appellee.
• Court: Tennessee Supreme Court

Page 445

677 S.W.2d 445

UNIVERSITY COMPUTING COMPANY, Plaintiff-Appellant, v. Hon. Martha OLSEN, Commissioner of Revenue For the State of Tennessee, Defendant-Appellee.

Supreme Court of Tennessee at Nashville.

Oct. 1, 1984.

Gary M. Brown, Nashville, for plaintiff-appellant.

Gregory Nelson, Asst. Atty. Gen., Nashville, for defendant-appellee.

OPINION

ALLISON B. HUMPHREYS, Special Justice.

This is a suit for refund of Tennessee Use Taxes levied on computer software and paid under protest.

The issue presented is whether the Tennessee Retail Sales Tax Act, T.C.A. Sec. 67-6-101, et seq., which imposes a tax on the sale and use of tangible personal property, as amended by Chapter 789 of the 1978 Tennessee Public Acts, applies to computer software. In the proceedings below, taxpayer paid under protest a use tax on the licensing and sale of computer software and sued for a refund. On motion by taxpayer for judgment on the pleadings and by the Commissioner for summary judgment on the agreement of the parties that the tax was a use tax, the Chancellor overruled taxpayer's motion, sustained Commissioner's motion, and affirmed the assessment. The summary judgment was made final and taxpayer has appealed.

The Retail Sales Tax Act is a comprehensive taxing statute, levying a sales tax for the privilege of selling tangible personal property in Tennessee and, as a supplement thereto, the act levies a tax on the use of tangible personal property in Tennessee. The scheme of taxation is to tax equally all sales of tangible personal property in Tennessee and all those who import and use it. That is, each class to have the same tax liability. In construing the act this primary intent must be respected and carried out if there is any language in the act that warrants this. Broadacre Dairies v. Evan, 193 Tenn. 441, 246 S.W.2d 78 (1952).

In Commerce Union Bank v. Tidwell, 538 S.W.2d 405 (Tenn.1976) this Court held that the sale of computer software does not constitute the sale of tangible personal property so as to permit its taxation under the act.

Following the Commerce Union decision the General Assembly by Chapter 42, Tennessee Public Acts of 1977, amended the definition of tangible personal property found in T.C.A. Sec. 67-6-102(17) to include computer software. It did this by adding the following to the definition:

"Tangible personal property specifically includes customized or packaged computer software, which is defined to mean information and directions loaded into a computer which dictate different functions to be performed by the computer, whether contained on tapes, discs, cards or other device or material."

It is agreed that this amendment made both the sales and use taxes applicable to computer software.

Within a year of this amendment, the General Assembly again amended the Sales Tax Act by enacting Chapter 789 of the Public Acts of 1978, repealing Chapter 42 of the Public Acts of 1977, thereby removing computer software from the definition of tangible personal property. The act, however, amended the definition of "sales," T.C.A. Sec. 67-6-102(14)(B), by providing

" 'Sale' shall also mean such transfer of customized or packaged computer software, which is defined to mean, information and directions loaded into a computer which dictate different functions to be performed by the computer, whether contained on tapes, discs, cards or other device or material. For such purpose, computer software shall be considered tangible personal property, however the fabrication of software by a person for his own use or consumption shall not be considered a taxable use under Sec. 67-2003(h) or any other section of this chapter.

This Act of the General Assembly raises the question whether it was intended that the use tax on computer software be done away with.

It is evident from the fact that the amendment was made, that the General Assembly did not intend to do away with the use tax on computer software.

Had there been any such intent, the definition of sales would not have been amended. This is the only conclusion that can be reached in consideration of the primary objective of the act to tax both sales and use equally. So even though on its face the appearance may be given of such a result, it is the duty of the Court to look further to see whether the General Assembly has truly done such an irrational thing as to tax sales but to exempt use of computer software or whether, in the light of other provisions of the act, it has kept to the primary intent of the act: to tax both sales and use equally.

In deciding whether it was the intention to abandon use taxation of computer software, the legislative history may be considered. This may be done when it is not clear just what the General Assembly had in mind in what it did. And in this instance it is not clear.

The Legislative history discloses that the purpose behind the enactment of Chapter 789, Public Acts of 1978, was the elimination of a problem created by the 1977 act. Under the 197...