Summary
In Federated Dept. Stores, the assessed items were essential to the creation of printed advertising matter that priced and described items for retail sale, thus fulfilling the purpose of the printed matter exception provided by R.C. 5739.01(O).
Summary of this case from Loctite Corp. v. TracyOpinion
No. 87-2110
Submitted January 18, 1989 —
Decided April 12, 1989.
Taxation — Sales and use taxes — Camera-ready advertising copy sent to newspaper and subsequently printed and distributed — Materials used to produce camera-ready copy exempt from taxation, when.
APPEAL from the Board of Tax Appeals, No. 85-F-218.
Federated Department Stores, Inc., appellee, owns and operates F R Lazarus Co. department stores ("Lazarus"). During the audit period, January 1, 1977 through December 31, 1979, Lazarus advertised its merchandise by printed advertisements and tabloids in newspapers, billing inserts, catalogues, and other advertising media. These printed materials depicted and priced merchandise offered for sale.
In creating this material, Lazarus hired free-lance artists, paste-up people, layout people, models, photographers, photography coordinators, copy work people, and typographers. The artists and photography people drew or photographed the merchandise and models, typographers set type, and layout people, copy work people and paste-up people assembled the purchased materials into camera-ready copy. These individuals transferred their work product to Lazarus. Lazarus then sent the camera-ready copy to the newspaper which made a proof and submitted it to Lazarus. After Lazarus approved the proof, the newspaper printed the advertising material from the proof and distributed it.
The Tax Commissioner, appellant, assessed sales and use taxes on the purchased materials Lazarus used to produce the camera-ready copy. On appeal, the Board of Tax Appeals ("BTA") found that these items were so closely related to the distributed advertising material that they constituted an integral part of such material and reversed the assessment.
Since R.C. 5741.02(C)(2) renders sales tax exceptions applicable to the use tax, we will only discuss the sales tax.
The cause is now before this court upon an appeal as of right.
Jones, Day, Reavis Pogue, Maryann B. Gall, Michael C. Tomkies and Michael J. Rosner, for appellee.
Anthony J. Celebrezze, Jr., attorney general, and James C. Sauer, for appellant.
R.C. 5739.01(E)(2) excepts from the sales tax purchases "* * * in which the purpose of the consumer is * * * to use or consume the thing transferred * * * directly in making retail sales * * *." R.C. 5739.01(P) (now [O]) defined "making retail sales" as:
"* * * [T]he effecting of transactions wherein one party is obligated to pay the price and the other party is obligated to transfer title to or possession of the item sold, but it does not include the delivery of items thereafter nor the preliminary acts of promoting or soliciting the retail sales, other than the distribution of printed matter which displays or describes and prices the item offered for sale." (Emphasis added.)
Thus, purchases where the purpose of the purchaser is to distribute printed matter which displays or describes and prices the item offered for sale are excepted from tax as being used directly in making retail sales. Since we agree that the contested items were part of the advertising materials that were distributed, we affirm the BTA's decision.
In Giant Tiger Drugs, Inc. v. Kosydar (1975), 43 Ohio St.2d 103, 72 O.O. 2d 58, 330 N.E.2d 917, we suggested that had the emphasized language of R.C. 5739.01(P) been in effect at the time in question and had it been applied to the newspaper advertising supplements in that case, then, unquestionably, they would not have been taxable. In Giant Tiger Drugs, the taxpayer purchased the supplements. Undoubtedly, the purchase price covered the costs of the art work, typesetting, and composition work that were obtained to produce the supplements. We would be making an unwarranted distinction if we refused exemption to Lazarus because it purchased only the ingredients of similar products to compose its advertising material, but not the entire products themselves. The instant purchases became the printed advertising matter that was distributed and, thus, were used directly in the distribution of printed matter displaying or describing and pricing the item offered for sale.
Accordingly, the decision of the BTA is reasonable and lawful, and it is affirmed.
Decision affirmed.
MOYER, C.J., SWEENEY, HOLMES, WRIGHT, H. BROWN and RESNICK, JJ., concur.
DOUGLAS, J., dissents.