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Keywords

tax law
statutetax lawsustainedappellant

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Crescent Amusement Co. v. Carson, 23 Beeler 112, 187 Tenn. 112, 213 S.W.2d 27

Facts

Crescent Amusement Company operates moving picture theaters in Tennessee and rents film prints from producers for exhibition. The rental agreement typically involves a percentage of the gross receipts from the shows. The Tennessee Sales Tax Law imposes a 2% privilege tax on the gross amount paid for such rentals. The case arose when the company contested the tax, arguing that the transaction was merely a licensing of an intangible property right rather than a rental of tangible personal property.

The appellants are the operators in Tennessee of moving picture theatres. The pictures which they show are procured by renting film print from the producers of moving pictures.

Issue

The main legal issue is whether the rental of film prints for exhibition in theaters constitutes a rental of tangible personal property under the Tennessee Sales Tax Law, and if so, whether the tax should be based on the gross rental amount or the cost of the physical film material.

The question for decision in this case is whether the transaction above described is, within the meaning of the Sales Tax Law, a rental of tangible personal property.

Rule

The Tennessee Sales Tax Law defines tangible personal property as that which is perceptible to the senses, and the court has previously ruled that the measure of the tax is the gross proceeds of the rental paid by the lessee to the lessor without any deductions for service charges.

Tangible personal property is defined by the Tennessee Sales Tax Law as that ‘which may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses.’

Analysis

The court applied the rule by examining the nature of the transaction between the film producers and the theater operators. It concluded that the rental of film prints is indeed a rental of tangible personal property, as the transaction involves the transfer of possession of physical film prints along with the right to exhibit them. The court referenced previous cases that supported the notion that the tax should be based on the gross rental amount, reinforcing the idea that the value of the service provided does not negate the tangible nature of the property rented.

It seems to us that a destruction of the statute would have been effected had we reached the opposite conclusion in Saverio v. Carson, supra. There is scarcely to be found any article susceptible to sale or rent that is not the result of an idea, genius, skill and labor applied to a physical substance.

Conclusion

The court affirmed the Chancellor's decree, ruling that the rental of film prints is taxable under the Sales Tax Law and that the tax is based on the gross amount paid for the rental. The decision upheld the interpretation that the transaction involves tangible personal property.

The decree of the Chancellor is affirmed with costs adjudged against the appellants.

Who won?

The prevailing party is Sam K. Carson, the Commissioner of Finance and Taxation, as the court upheld the tax assessment against Crescent Amusement Company, affirming that the rental of film prints is subject to the privilege tax.

The Chancellor in ruling upon a demurrer sustained the contention of the Tennessee Commissioner of Finance and Taxation by holding that the transaction is taxable under the Sales Tax Law and that the correct measure of the tax is the gross amount paid to the producer for the rental of the film print.

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