Court Opinion

ID: 9774789
Source: CourtListenerOpinion
Date Created: 2023-08-29 18:33:38.246061+00
Date Added: 2024-06-11T07:32:15.821001
License: Public Domain

HOLSTEIN, Judge,
dissenting.
I respectfully dissent.
This case is part of what has become a continuing litany of cases attempting to draw a line between transfers of tangible property *350and the performance of intangible services.1 The former are subject to sales tax; the latter are not.
Contrary to Judge Robertson’s concurring opinion, I believe James v. TRES Computers Sys., Inc., 642 S.W.2d 347 (Mo. banc 1982), and K & A Litho Process, Inc. v. Director of Revenue, 653 S.W.2d 195 (Mo. banc 1983), were valiant efforts to establish the line of demarkation between the sale of tangible goods and performance of services. They adopted the “essence of the transaction” or “true object of the sale” standard for making the distinction. If the tangible personal property involved is merely the medium for transmission of intangible services, and the tangible component is of little utility to the purchaser, the intangible object of the sale does not assume the taxable character of the tangible medium. 642 S.W.2d at 389; 653 S.W.2d at 197.
I believe the decision of the majority here is mistaken in its reliance on the billings as evidence of the object of the transaction. Relying on the words of a bill generated by one of the parties to the transaction to determine whether it is taxable can only promote continued litigation where the taxpayer attempts to manipulate the billing to attain a favorable result while the tax collector attempts to pierce through real or perceived manipulations. The Court should keep its focus pinpointed on the actual transaction, not how the parties choose to characterize the transaction.
Indeed, this case presents the Court with an opportunity to clarify what has heretofore been imprecision in the “essence of the transaction” test regarding the applicability of sales tax. The cases in which the test has been applied favorably to the taxpayer suggest two general principles. Invariably, the item in question is some sort of original intellectual or original artistic composition commissioned by the purchaser. A second aspect of the transactions is that the medium by which the intellectual or artistic composition is transferred has inconsequential utility. These two common threads suggest a clear two-part test which is not so easily manipulated.
Looking at this transaction under the two-part test, it appears to meet both parts. First of all, Sneary’s drawings were commissioned by the purchaser as original, intellectual or artistic compositions. Second, the paper, ink and paint, the elements of the medium by which the compositions are transferred, are of inconsequential utility.
To illustrate how this test would apply, consider the purchaser who commissions the composition of a song as compared with the purchaser who commissions a skilled craftsman to hand carve a desk. In both eases, substantial technical and artistic skills are involved. However, the desk has utility inde*351pendent of the artistic work. The desk is subject to tax. The song is not. Similarly, custom made automobiles, windows, doors, clothing or furnishings for homes or businesses may all involve great skill to create, but because each has a utility independent of the special skills involved, their sale is taxable. In addition, under the test I would adopt, sellers other than the person or entity commissioned to do the work would not be entitled to the benefit of the “essence of the transaction” test, only the initial seller who provides the original creative talent. Also, the original author, artist or composer would only be entitled to exemption from sales tax if the work involved was commissioned in advance by the particular purchaser involved in the transaction. Finally, the sale of forms, copies or reproductions of original work, no matter how well done, or, even if an improvement upon the original, would not qualify as intangible personal services; only original, intellectual or artistic compositions. Photographs would be exempt from sales tax only to the extent they otherwise meet the two-pronged test.
The two-faceted analysis I propose is consistent with the result in all of the eases in which the “true object of the sale” or the “essence of the transaction” tests have been applied, whether the result in the case was favorable to the taxpayer or to the director of revenue. The only course correction would be to make clear that disposition or retention of the item by the purchaser is relevant only to the extent that it is probative as to whether the medium has a utility independent of its intellectual or artistic content. This Court suggested in dicta in Travelhost v. Director of Revenue, 785 S.W.2d 541, 545 (Mo. banc 1990), that the critical question in determining whether there was a sale of goods or intangible property was whether the item transferred is retained by the purchaser or is of no continuing use after employed as part of a process for which it was created. Retention and use or disposal of an item by the purchaser after the completion of the process for which it was purchased cannot be the lynch pin. Architects’ plans, accountants’ audits and tax returns, lawyers’ wills, deeds and contracts, and a myriad of other documents are retained indefinitely by purchasers of the services those documents represent, even though the initial process relating to their creation is complete. These items are often retained indefinitely because they contain important legal, financial, technical, promotional or historical information that is quite useful to the purchaser. Thus, I would conclude that long-term retention versus disposition after completion of a process cannot be the critical test.
Whenever possible, this Court should base its decision on neutral principles that are easily understood and applied. I suggest that reliance on the billing procedures of the parties and the vague “essence of the transaction” test as developed to date are bound to lead to repetitive litigation and potentially inconsistent and subjective results. In this particular case, I believe that applying the standards suggested above, the taxpayer should prevail. I therefore dissent.

. Gammaitoni v. Director of Revenue, 786 S.W.2d 126 (Mo. banc 1990) (instructional videotapes and videos of various events produced by taxpayer seller were object of the transaction because the seller made tapes from original ideas and information provided by the buyer, and services rendered were merely incidental to putting the buyer’s ideas and information on tape); Travelhost v. Director of Revenue, 785 S.W.2d 541 (Mo. banc 1990) (purchase of magazines by salespeople for advertising distribution taxable as tangible personal property with Court establishing whether property is object of sale depends on whether property is retained or of no continuing use after employing for original purpose); GTE Automatic v. Director of Revenue, 780 S.W.2d 49 (Mo. banc 1989) (telephonic signals were incidental result of communication and once message conveyed, signal served no further purpose so telecommunications held service); Int'l Business Machs. Corp. v. Director of Revenue, 765 S.W.2d 611 (Mo. banc 1989) (IBM’s software was held tangible property because it contained canned programs which required only minor modification to suit the customer and no programs were delivered by telephone, as in TRES, infra); K & A Litho Process v. Director of Revenue, 653 S.W.2d 195 (Mo. banc 1983) (color key produced by technical lithographic process using color separation of transparency held incidental to service because film purpose is only to convey transparency colors and has no further value); James v. TRES Computers Sys., Inc., 642 S.W.2d 347 (Mo. banc 1982) (customized computer programs made by TRES on magnetic tapes were held to be intangible personal property because the tapes were merely incidental to the transaction as the medium by which services were transferred); Universal Images v. Missouri Dept. of Revenue, 608 S.W.2d 417 (Mo.1980) (filmed commercials purchased by Missouri business were held subject to use tax where the original film and script were provided by the purchaser, and the seller enlarged the film and mixed the sound track and film).