Am. Multi-Cinema, Inc. v. City of Aurora , 2020 COA 4 ( 2020 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
January 2, 2020
2020COA4
No. 18CA2165, Am. Multi-Cinema, Inc. v. City of Aurora —
Taxation — Municipalities — Sales and Use Tax
A division of the court of appeals considers whether the City of
Aurora properly levied a use tax on American Multi-Cinema, Inc.’s
(AMC’s) master licensing agreements (MLAs) with motion picture
distributors. The division follows Cinemark USA, Inc. v. Seest, 190
P.3d 793 (Colo. App. 2008), applying its analysis to new technology.
Because (1) the true object of the MLAs is to obtain tangible
personal property (the data files), and (2) AMC’s exhibition of motion
pictures is not a resale exempt from the City’s use tax, the division
affirms the district court’s judgment upholding the City’s use tax
levied on the MLAs.
COLORADO COURT OF APPEALS 2020COA4
Court of Appeals No. 18CA2165
Arapahoe County District Court No. 14CV30822
Honorable Kurt A. Horton, Judge
American Multi-Cinema, Inc., as successor-in-interest to AMC Showplace
Theatres, Inc., d/b/a Arapahoe Crossing 16 and Southland Stadium 16,
Plaintiff-Appellant,
v.
City of Aurora,
Defendant-Appellee.
JUDGMENT AFFIRMED
Division VII
Opinion by JUDGE FOX
Tow and Casebolt*, JJ., concur
Announced January 2, 2020
Holland & Hart LLP, Christina F. Gomez, Jonathan S. Bender, Kyriaki Council,
Denver, Colorado, for Plaintiff-Appellant
Kissinger & Fellman, P.C., Paul D. Godec, Denver, Colorado; Timothy Joyce,
Assistant City Attorney, Aurora, Colorado, for Defendant-Appellee
Bryan Cave Leighton Paisner LLP, Stephen D. Rynerson, Denver, Colorado;
Jacqueline E. Brenneman, North Hollywood, California, for Amicus Curiae
National Association of Theatre Owners
Michael J. Axelrad, Senior Assistant City Attorney, Greeley, Colorado, for
Amicus Curiae Colorado Municipal League, City of Fort Collins, City of
Littleton, City of Longmont, City of Montrose, and City of Westminster
Philip J. Weiser, Attorney General, Noah C. Patterson, Assistant Solicitor
General, Anne Mangiardi, Assistant Attorney General, Annie Lawson, Assistant
Attorney General, Denver, Colorado, for Amicus Curiae Colorado Department of
Revenue
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2019.
¶1 Plaintiff, American Multi-Cinema, Inc. (AMC), appeals the
district court’s judgment finding that defendant, City of Aurora,
properly levied a use tax on AMC’s master licensing agreements
(MLAs) with motion picture distributors. We affirm.
I. Background
¶2 AMC generates revenue by exhibiting motion pictures and
selling admission tickets to the public. AMC’s MLAs authorize it to
exhibit motion pictures for a licensing fee, and AMC then pays
distributors a percentage of its admission sales. AMC has paid the
City a use tax — levied on tangible property used, stored,
distributed, or consumed in the City — on its MLA fees since it
began operation. AMC previously received motion pictures from
distributors in the form of 35-millimeter film reels but later replaced
the celluloid film technology with digital equipment and now
receives motion pictures via digital files on portable hard drives.
1
Portable Hard Drives
¶3 On November 1, 2012, AMC filed two refund claims with the
City, seeking a $191,634.06 refund from use taxes paid on licensing
fees from May 27, 2010, through September 27, 2012. During this
timeframe, AMC used digital files to exhibit motion pictures at its
two Aurora theatres. Arguing that the digital files were not tangible
personal property in the district court — on appeal, AMC no longer
disputes that the digital files are tangible personal property — AMC
claimed that its MLA fees could no longer be subjected to the City’s
use tax. The City denied AMC’s refund claims in full, and AMC
appealed to the City’s Finance Director, who also rejected AMC’s
claims.
2
¶4 On March 26, 2014, AMC appealed to the district court. After
a bench trial, the district court upheld the City’s use tax, finding
that (1) the data files were tangible personal property under the
City’s code; (2) the true object of the MLAs was to acquire the data
files rather than to obtain the intangible right to exhibit; and (3) the
MLAs were not exempt from the use tax as a purchase for resale.
AMC appealed.
II. Use Tax
¶5 AMC argues that the district court erred by concluding that (1)
the “true object” of the MLAs was to obtain tangible personal
property and (2) AMC was not exempt from the use tax because the
MLAs were not a wholesale transaction. We disagree.
A. Preservation, Standard of Review, and Statutory Construction
¶6 The parties generally agree that AMC preserved its arguments
for appeal. However, the City contends that AMC did not previously
argue that its licensing agreements were exempt from the use tax as
“an ingredient of a manufactured or compounded product, in the
regular course of a business.” Aurora Mun. Code § 130-198(2).
Because AMC argued that it was exempt from the use tax under
section 130-198(2) before the district court, we consider its
3
argument sufficiently preserved for appeal. See Berra v. Springer &
Steinberg, P.C., 251 P.3d 567, 570 (Colo. App. 2010) (“[T]o preserve
the issue for appeal all that was needed was that the issue be
brought to the attention of the trial court and that the court be
given an opportunity to rule on it.”).
¶7 Pursuant to section 39-21-105(2)(b), C.R.S. 2019, a taxpayer
may appeal its local government’s final taxing determination to the
district court, and the district court shall try the case de novo. See
also Noble Energy, Inc. v. Colo. Dep’t of Revenue, 232 P.3d 293, 295-
96 (Colo. App. 2010). On appeal, we defer to the district court’s
factual findings and disturb them only if they are clearly erroneous
and lack any support in the record. Id. at 296. But, we review the
district court’s application of the law and a governmental body’s
interpretation of the law de novo. Treece, Alfrey, Musat & Bosworth,
PC v. Dep’t of Fin., 298 P.3d 993, 996 (Colo. App. 2011); Noble
Energy, Inc., 232 P.3d at 296.
¶8 To the extent our analysis requires application of the City’s tax
laws, we construe a municipal code using the same rules that we
use in interpreting statutes. Waste Mgmt. of Colo., Inc. v. City of
4
Commerce City, 250 P.3d 722, 725 (Colo. App. 2010). In construing
legislation, we look first to the plain language, reading the statutory
provision as a whole and in such a way as to give effect to every
word. Id. We reject interpretations that will render words or
phrases superfluous and avoid interpretations that produce illogical
or absurd results. Id. When “the body enacting particular
legislation has not expressly defined a term,” we give that term “its
ordinary meaning.” City & Cty. of Denver v. Expedia, Inc., 2017 CO
32, ¶ 18. If a tax code’s language is clear, we need not resort to
other rules of statutory interpretation. Waste Mgmt. of Colo., Inc.,
250 P.3d at 725.
¶9 We defer to the interpretation provided by the agency charged
with the administration of the tax code unless that interpretation is
inconsistent with the legislative intent. Id. But statutory provisions
establishing and defining the scope of a tax “will not be extended
beyond the clear import of the language used, nor will their
operation be enlarged by analogy.” Noble Energy, Inc., 232 P.3d at
296 (citation omitted). Thus, we resolve all doubts against the
government and in favor of the taxpayer. Id.
5
¶ 10 However, this principle is inapplicable when a taxpayer claims
a statutory exemption from taxation. Id. In such cases the
presumption is reversed, and the taxpayer has the burden of
proving entitlement to the exemption claimed. Id.
B. Applicable Law
¶ 11 The City levies a use tax on
every person in the city . . . for the privilege of
using, storing, distributing, or consuming in
the city any tangible personal property . . . or
taxable service purchased, leased or rented
and not subjected to the city sales tax, without
regard to whether the property is purchased
from sources within or without the city.
Aurora Mun. Code § 130-196(a). The City defines “use tax” as a tax
paid “by a consumer for using, storing, distributing or otherwise
consuming tangible personal property or taxable services inside the
city.” Aurora Mun. Code § 130-31. The code defines “tangible
personal property” as “personal property that can be one or more of
the following: seen, weighed, measured, felt, touched, stored,
transported, exchanged, or that is in any other manner perceptible
to the senses.” Id. The stated intent of the City’s use tax is to
ensure that “every person who stores, uses, distributes, or
consumes in the city any tangible personal property or taxable
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services purchased, leased or rented at retail” is taxed because they
are “exercising a taxable privilege.” Aurora Mun. Code § 130-33(b).
¶ 12 The City’s tax code exempts from use tax the “storage, use or
consumption of any tangible personal property purchased for resale
in this city, either in its original form or as an ingredient of a
manufactured or compounded product, in the regular course of a
business.” Aurora Mun. Code § 130-198(2). To determine whether
a company’s purchase of tangible personal property is for resale, we
ask “whether the primary purpose of the purchase was the
acquisition of the item for resale in an unaltered condition and
basically unused by the purchaser.” Coors Brewing Co. v. City of
Golden, 2013 COA 92, ¶ 32 (quoting Conoco, Inc. v. Tinklenberg, 121
P.3d 893, 896 (Colo. App. 2005)).
¶ 13 In American Multi-Cinema, Inc. v. City of Westminster, 910 P.2d
64, 66 (Colo. App. 1995), a division of this court held that a movie
theater’s use of film reels received from distributors to exhibit
motion pictures to the public constituted “use” of “tangible personal
property” for use tax purposes. Because the theater obtained a
finished product in the form of tangible film reels, the division held
7
it was “impossible to separate the lease of the tangible object, the
film, from the intangible license to use it.” Id.
¶ 14 In determining whether a use tax may be applied to
transactions with tangible and intangible aspects, our supreme
court held in City of Boulder v. Leanin’ Tree, Inc., 72 P.3d 361, 366
(Colo. 2003), that courts must “identify characteristics of the
transaction at issue that make it either more analogous to what is
reasonably and commonly understood to be a sale of goods, or more
analogous to what is generally understood to be the purchase of a
service or intangible right.” This “true object” test “requires a court
to analyze the ‘totality of the circumstances’ to determine whether
the true object . . . of the transaction is the acquisition of tangible
personal property or the acquisition of intangible services.” Treece,
Alfrey, Musat & Bosworth, PC, 298 P.3d at 998 (quoting Leanin’
Tree, 72 P.3d at 365-66). If the true object is for tangible personal
property, then the use tax applies; but, if the true object is for
intangible property or services, then it does not. Id.
¶ 15 Examining whether the true object of a transaction is a
tangible good or an intangible right, the Leanin’ Tree court noted
8
that a variety of factors aid this analysis, including (1) the value of
the tangible property compared to that of the intangible property or
service; (2) whether there was an alternative method of transfer; (3)
the length of time the information provided retains its value; (4)
whether there were constraints on the buyer’s ability to use the
tangible property; (5) what was done with the tangible property after
it yielded the intangible component; (6) whether the tangible
property represented the finished product sought by the buyer; and
(7) the skill and expertise used to create the tangible and intangible
aspects of the transaction. Leanin’ Tree, 72 P.3d at 365-66. The
Leanin’ Tree court acknowledged that while “some multi-factor or
totality of circumstances test” is unavoidable to determine the true
object of a transaction, the “flexibility of such an analysis will
inevitably leave the characterization of some transactions in doubt.”
Id. at 366-67. Thus, the circumstances of each case require
individualized scrutiny.
¶ 16 Years later, in Cinemark USA, Inc. v. Seest, 190 P.3d 793 (Colo.
App. 2008), a division of this court applied the Leanin’ Tree factors
to determine whether a movie theater’s use of motion picture film
9
reels to display films to the public for profit was properly subjected
to a local use tax. The division recognized that the theater’s
contracts “require it to use the films precisely in the form in which
they are distributed” and were not “an option to use an idea of the
film distributors,” but rather were contracts to obtain “a physical
object embodying the idea in its final form.” Id. at 797-98.
Accordingly, the division concluded that the true object of the
theater’s contracts with distributors was to obtain and use motion
picture film reels — tangible final products — for exhibition;
therefore, the transactions were properly subject to a use tax under
the city’s code. Id. at 799.
¶ 17 In reaching this conclusion, the division noted that, unlike the
transaction in Leanin’ Tree, Cinemark’s exhibition of motion
pictures via the tangible film reels more closely resembled “the
method of payment for the use or exhibition of a finished piece of
art, which the court in Leanin’ Tree acknowledged was a taxable
event.” Id. at 798. While the division recognized that the
transaction involved intangible copyrights, it noted that the theater
was not “purchasing the copyright detached from the film” because
10
without “the transfer of the actual film, the license to exhibit it
would be valueless.” Id. at 798.
C. “True Object” Analysis
¶ 18 On appeal, AMC does not dispute that the data files are
tangible personal property. However, it argues that the true object
of the MLAs is to obtain nontaxable intangible rights: the right to
exhibit motion pictures. AMC contends that the Leanin’ Tree
factors support its assertion because (1) the intangible right to
exhibit is more valuable than the tangible good — the data file —
which is provided at no cost; (2) AMC can obtain the tangible data
files by alternative means, and the transfer method used to obtain
the motion pictures has no bearing on the licensing fee paid; (3) the
information transmitted through the data files loses its value
quickly because motion pictures generally achieve the highest value
in the first two weeks after their release; (4) the MLAs significantly
constrain AMC’s use of the data files; (5) AMC does not retain the
tangible property, as it must return the portable hard drives and
delete the data files from its servers; (6) the data files are not a
finished product because AMC must use special hardware and
11
software to translate the data files into the visual and sound
elements required to show a motion picture; and (7) only a
negligible degree of skill is needed to copy the data files onto hard
drives but the intangible value of the motion picture requires
expertise and artistic skill to create.
¶ 19 Neither party disputes that that the percentage of admission
sales that the distributors receive is based on the intangible aspects
of the motion pictures, derived from the films’ intellectual and
artistic content, rather than the value of a data file. Accordingly,
AMC contends that under Waste Management the true object of the
MLAs must be to obtain the intangible right to exhibit. We
disagree.
¶ 20 In Waste Management, a division of this court concluded that
the tangible aspects of the transaction “were merely aids” to the
true object of providing a trash removal service. Waste Mgmt. of
Colo., Inc., 250 P.3d at 729-30. We disagree with AMC’s explicit
assertion that the intangible right to exhibit is more valuable than
the tangible data file — and its implicit assertion that the intangible
right is separable — because, as the Cinemark division recognized,
12
without “the transfer of the actual film, the license to exhibit it
would be valueless.” Cinemark USA, Inc., 190 P.3d at 798. Thus,
the data files are not “merely incidental” to the licensing
agreements. Cf. Noble Energy, Inc., 232 P.3d at 299 (holding that
the true object of hiring the oil and gas well fracturing companies
was to receive an intangible service because the tangible aspects of
the service that involved the use of fracturing fluids and sands were
merely incidental). The artistic skill needed to create a motion
picture is admittedly greater than the skill needed to translate a
motion picture into a data file. But, because the data file is an
essential and necessary component to AMC’s right to exhibit, we
cannot conclude that the MLAs here more closely resemble the
purchase of a service rather than a sale (or lease) of goods. See
Leanin’ Tree, Inc., 72 P.3d at 366. Like in Cinemark, the true object
of the licensing agreements here is to obtain, for the designated
timeframe, tangible personal property that is inseparable from its
intangible attributes. See Malco Theaters, Inc. v. Roberts, No.
W2010-00464-COA-R3CV, 2011 WL 1598884, at *16 (Tenn. Ct.
App. Apr. 26, 2011) (unpublished opinion) (holding that rented films
13
were tangible property because their physical aspects were
“inseparable from their intangible intellectual property
components”).
¶ 21 The record supports AMC’s assertions that the MLAs
significantly constrain its use of the data files and that the
transmitted motion pictures quickly lose their value after their
initial exhibition. And while the fee agreement in the MLAs is based
on the underlying value of the motion pictures rather than the
value of a data file, the tangible aspect of the mixed transaction
retains value. Indeed, the data files contain copyrighted material
protected by extensive security measures and, while later returned
by AMC, they are not discarded as waste. Cf. Treece, Alfrey, Musat
& Bosworth, PC, 298 P.3d at 999 (holding that, under the Leanin’
Tree factors, the true object of the transaction was to obtain
intangible information because “after the documents have yielded
their intangible component, the paper may be . . . discarded”); Noble
Energy, Inc., 232 P.3d at 298 (holding that the tangible materials
were not the true object of the transaction but merely incidental
because, once consumed, the tangible aspects were “disposed of as
14
waste by the taxpayer immediately following the service”). It is
widely known that after films cease being exhibited in theaters,
there are secondary markets where additional value is realized.
See, e.g., United States v. Syufy Enters., 903 F.2d 659, 665 n.9 (9th
Cir. 1990) (considering whether a movie theater’s distribution of
motion pictures to ancillary markets for home viewing violated
antitrust laws and recognizing that a “first-run theatrical exhibition
enhances a film’s performance in auxiliary markets”).
¶ 22 AMC also argues that its ability to obtain motion pictures by
alternative means, like the film reels, shows that the true object of
the MLAs is intangible. We disagree. As AMC points out, it spent
around $325 million nationwide and $1 million per theatre to
convert its theaters from using the 35-millimeter film reels to digital
equipment. Thus, returning to the film reels seems unlikely. See
Leanin’ Tree, Inc., 72 P.3d at 365; cf. Treece, Alfrey, Musat &
Bosworth, PC, 298 P.3d at 998 (concluding that the focus of the
transaction was the “provision of a service” because there was an
alternative means of transfer).
15
¶ 23 We similarly reject AMC’s assertion that the data files it
receives are not the finished product because it uses digital
equipment to translate the data files into a motion picture. In
Leanin’ Tree, the court recognized that the purchased art was not a
finished product but rather was a “right to edit and publish”
because the company used the artists’ images to create “a new
tangible object” that would be “sold as a new product.” Leanin’
Tree, Inc., 72 P.3d at 366. Conversely, as AMC notes, it is
significantly constrained in its ability to use the data files. AMC is
prohibited from using the data files other than to exhibit the motion
pictures to its patrons — without alteration — for the agreed-upon
exhibition period. See Treece, Alfrey, Musat & Bosworth, 298 P.3d
at 1000 (concluding that Cinemark was distinguishable because the
transaction was not for the “use of the physical product itself,” but
was to obtain information and “the tangible component of the
transaction [was] not necessarily a final product”). Although AMC
returns the portable hard drives and deletes the data files from its
servers, returning the tangible property here is largely immaterial.
See Cinemark USA, Inc., 190 P.3d at 797. While the Leanin’ Tree
16
court concluded that the return of the original artwork was
material, such a fact was important only because, as the Cinemark
division noted, “it showed that the artwork was not being used as a
final product.” Id. Here, while the data files are returned (or
deleted), they retain value because they contain copyrighted
material. Cf. Treece, Alfrey, Musat & Bosworth, PC, 298 P.3d at
998-99 (holding that the transaction’s focus was for the purchase of
a service rather than on the tangible provision of paper because the
value of the physical paper was “minimal compared to the value of
the services and labor” and “after the documents have yielded their
intangible component, the paper may be . . . discarded”). Applying
the relevant Leanin’ Tree factors, we conclude that access to the
tangible data files was the true object of the MLAs because the
value of the inseparable intangible copyright was dependent upon
the data files being transmitted to AMC for use within the City. See
Cinemark USA, Inc., 190 P.3d at 798.
¶ 24 Lastly, we reject AMC’s contention that Cinemark is
inapplicable here because it involved a theater’s use of film reels
rather than the new digital equipment and digital data files that
17
AMC now uses. AMC has historically paid a use tax on its licensing
agreements, and we perceive no basis to abandon the Cinemark
analysis because of a technological change. AMC does not deny
that the MLAs involve the use of tangible personal property: the
data files. And whether the motion pictures are transmitted via film
reels or data films is of no moment; the underlying transaction
remains the same. See Leanin’ Tree, Inc., 72 P.3d at 366; Cinemark
USA, Inc., 190 P.3d at 798; see also Malco Theaters, Inc., 2011 WL
1598884, at *16 (holding that the “fact that Malco may now receive
the motion pictures via electronic transmission is irrelevant”).
D. Use Tax Exemption
¶ 25 AMC next contends that it is exempt from the City’s use tax
because, even assuming that the true object of the MLAs is to
obtain the tangible data files, the purpose of the MLAs is to acquire
the data files for resale to its movie patrons. AMC argues that
because it cannot alter the data files, but rather may only use its
unaltered version to exhibit to its patrons, the final consumers of
the motion pictures are its patrons. AMC also asserts that the
exemption’s purpose is to avoid double taxation of the same item,
18
and because AMC pays a sales tax on its admission fees, the City’s
use tax on AMC’s MLA fees constitutes a double tax on its
admission sales.
¶ 26 We agree with previous divisions of this court, which have held
that a theater’s exhibition of motion pictures is not a resale. See
Cinemark USA, 190 P.3d at 799 (“Unlike in Leanin’ Tree, where the
ultimate consumers were the purchasers of the greeting cards[,] . . .
Cinemark purchases the right to show copyrighted film reels and
uses them as finished products . . . . Movie viewers are no more
consumers of film reels than they are of seats, screens, or
projectors used in movie theaters. Thus, because it acquires and
displays a final product, we conclude Cinemark is the end user or
consumer of the film reels.”); Am. Multi-Cinema, Inc., 910 P.2d at 67
(“The customers who pay a fee to watch the running of a motion
picture are not given possession of the tangible film, nor do they
seek to obtain such possession or any other right thereto. The fee
they pay is simply to be able to view images from the film as they
are projected onto the screen. Hence, the charge made by plaintiff
for the privilege of viewing such images does not constitute a re-sale
19
of the film; it is plaintiff, not its customers, who is the ultimate
‘user’ of such tangible personal property.”); see also Expedia, Inc.,
¶ 18; Waste Mgmt. of Colo., Inc., 250 P.3d at 725. Because AMC
does not resell the digital files but rather exhibits motion pictures
for profit, it is the final consumer and is not exempt from the use
tax under section 130-198(2) of the City’s tax code. See A.B.
Hirschfeld Press, Inc. v. City & Cty. of Denver, 806 P.2d 917, 923-24
(Colo. 1991) (holding that a commercial printing company’s
purchase of “pre-press materials” was not exempt from a use tax as
a resale because it “could not perform the services it was
contractually obligated to perform for its customers without [using]
the pre-press materials. . . . Hirschfeld made substantial use of the
pre-press materials for its own direct and indirect benefit”); Coors
Brewing Co., ¶ 39 (“[I]f a purchaser permanently diverts materials
or items to its own use, the purchase of the materials or items is
subject to [a] use tax because it is a retail purchase.”).
¶ 27 Nor can we conclude that a double taxation has occurred. See
Am. Multi-Cinema, 910 P.2d at 67 (“The use tax is levied upon
plaintiff for the privilege of using the film by exhibiting it. The
20
admissions fee is levied upon its customers for the privilege of
viewing the screen where the moving images are projected. Hence,
not only is each tax levied upon different persons, but it is levied
upon the exercise of different privileges arising out of separate
transactions.”). While the sales tax on AMC’s admission revenues
may impact its bottom line, AMC’s inability to retain the entirety of
its gross admission sales does not mean that double taxation has
occurred. Rather, the use tax is “complimentary to sales tax, but is
paid directly to the city rather than to a vendor collecting on behalf
of the city” and “is simply ‘sales tax that wasn’t paid to the vendor.’”
City of Aurora, General Use Tax, https://perma.cc/V5Y9-UNNW.
The purpose of the City’s use tax is to ensure that every person
using, distributing, or consuming tangible personal property within
the city’s limits pay a use tax because it is “exercising a taxable
privilege.” Aurora Mun. Code § 130-33. Because AMC is using
data files within the City’s limits and is not reselling them — and its
licensing agreements with distributors are not taxed elsewhere —
AMC is not subjected to double taxation under the City’s tax code.
See Noble Energy, Inc., 232 P.3d at 296 (recognizing that the party
21
claiming a tax exemption bears the burden of proving that such an
exemption applies).
¶ 28 Alternatively, AMC contends that it uses the data files as “an
ingredient of a manufactured or compounded product” for resale
because the data files are transformed, using projectors, a screen,
sound systems, and other equipment to become a new product for
AMC’s patrons. We disagree.
¶ 29 The data files are not “an ingredient of a manufactured or
compounded product” because AMC receives a final, finished
product that it exhibits to its patrons unaltered. See Coors Brewing
Co., ¶ 35 (“[I]tems or materials that are incorporated into a
company’s product and then sold to a consumer are not purchased
for resale.”). Indeed, the MLAs expressly prohibit AMC from altering
the films. And, as AMC acknowledges, minimal expertise is needed
to transmit the motion pictures onto data files and then project the
movies on to a screen for patrons to view. Because AMC exhibits
the digital files for profit and is unable to alter or transform the
motion pictures contained on the digital files, its MLA fees are not
22
exempt from the City’s use tax as “an ingredient of a manufactured
or compounded product” under section 130-198(2).
III. Conclusion
¶ 30 We affirm the judgment.
JUDGE TOW and JUDGE CASEBOLT concur.
23