Voss v. Gray

The plaintiff is a photographer, licensed pursuant to the provisions of chapter 188, Session Laws 1939. He carries on his business in the city of Fargo. He held a sales permit issued by the state tax commissioner but refused to collect and pay sales tax upon photographs made by himself for patrons who sat for photographs to be made on their order.

The tax commissioner ruled that when these photographs were thus made and delivered there was a sale of tangible personal property within the meaning of the Sales Tax Act, chapter 249, Session Laws 1937. Accordingly, upon the plaintiff's failure to collect and pay the tax pursuant to the statute, the tax commissioner notified him to appear and show cause why his sales tax permit should not be revoked and why he should not pay the tax assessed. The plaintiff protested and demanded a hearing. A hearing was had and the commissioner then made his order, denying plaintiff's protest and affirming the assessment. Thereupon the plaintiff, pursuant to § 13 of the Sales Tax Act, perfected an appeal to the district court. Testimony was taken on the issues made, the cause was submitted, and the court found for the plaintiff and ordered judgment accordingly. Judgment was entered and the tax commissioner perfected the instant appeal.

The Sales Tax Act, chapter 249, Session Laws 1937, provides:

"Sec. 1. (b) ``Sale' means any transfer, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, for a consideration.

"(c) ``Retail Sale' or ``Sale at Retail' means the sale to a consumer or to any person for any purpose, other than for processing or for resale, of tangible personal property and the sale of steam, gas, electricity, water, and communication service to retail consumers or users, and shall include the ordering, selecting or aiding a customer to select any goods, wares, or merchandise from any price list, or catalogue, which said customer might order, or be ordered for such customer to be shipped directly to such customer. By the term ``processing' as used in this act is meant tangible personal property that is used in manufacturing, producing or processing and which becomes an ingredient or component part of other tangible personal property and which latter tangible personal property becomes subject to the retail sales tax. The sale of an item of tangible personal property for the purpose of incorporating it in or attaching it to other real or personal property otherwise exempt from the sales tax shall for the purposes of this act be considered as a sale of tangible personal property for a purpose other than for processing.

"(d) ``Business' includes any activity engaged in by any person or caused to be engaged in by him with the object of gain, benefit, or advantage, either direct or indirect.

"(e) ``Retailer' includes every person engaged in the business of selling tangible goods, wares, or merchandise at retail. . ..

"Section 2. There is hereby imposed . . . a tax of two per cent (2%) upon the gross receipts from all sales of tangible personal property, consisting of goods, wares or merchandise except as otherwise provided in this act, sold at retail in the state of North Dakota to consumers or users; . . .

"Section 3. There are hereby specifically exempted from the provisions of this Act and from computation of the amount of tax imposed by it, the following:

"(a) The gross receipts from sales of tangible personal property which this State is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this state.

"(b) The gross receipts from the sales, furnishing or service of transportation service.

"(c) The gross receipts from sales of tangible personal property used for the performance of a contract on public works executed prior to May 1st, 1935.

"(d) The gross receipts from sales of tickets or admissions to state, county, district and local fairs, and the gross receipts from educational, religious, or charitable activities where the entire amount of such receipts is expended for educational, religious, or charitable purposes.

"(e) The gross receipts from the sale by any school board of this State of books and school supplies to regularly enrolled students at cost."

Without further reciting the provisions of the act it is enough now to say that the tax thus imposed is a tax on the consumer. Jewel Tea Co. v. State Tax Comr. ante, 229, 293 N.W. 386.

The tax commissioner contends that when photographs are made and delivered to order for a money consideration, the transaction results in a sale of tangible personal property and accordingly the tax prescribed in § 2 of the act, quoted above, must be paid to the photographer by the person whose photograph is thus taken and, by the former, accounted for to the state. On the other hand, the respondent insists that there is no sale of tangible personal property; that the contract is, in fact, a contract for personal service; that the property in the photographs, the product of the transaction, is at all times in the person whose photograph is taken, and so no tax is payable.

The plaintiff testified as to the manner of the carrying on of his business, as to the cost of the material used — cards, paper, chemicals etc., and as to the manner in which he makes his charges. His testimony is that the cost of the various materials used amounts to only from 1 1/2 to 2 1/2 per cent of the charge that is made for the finished photograph, paid by the person procuring it. The remainder of his charge is made for his services in the use of the requisite appliances and in the retouching and finishing of the negatives from which the likenesses are reproduced. He makes no charge for the folders provided to protect the photographs, though the cost of these is much greater than that of the paper and chemicals used in making the photographs. Nor does it appear that any charge is made for the studio and its appurtenances, or for the camera and other appliances. Plaintiff's testimony is that it is his practice when a customer appears and desires to have his photograph taken, to give the customer a sitting at which several exposures are taken. He advises the customer that there is a fixed charge for this service. Proofs are then made from the negatives which are developed and the customer indicates whether he desires photographs finished from these or any of them. If he does, a further charge is made for the photographs thus finished. Accordingly, there are two charges made. One for the sitting, and if the proofs developed are satisfactory, a further charge for the finished photograph.

Though the plaintiff testified at length touching the above matters, the record is silent as to what becomes of the negatives — whether he retains them or turns them over to his customers with the finished photographs. These negatives are the essential objects in the process of making the photographs. On them is expended the greater part of the service required of the photographer. To perfect them it is necessary that he possess and exercise artistic skill and technique. When perfected a great number of reproductions may be made from each negative.

Plaintiff's chief contention is that under the plan and system in effect in carrying on his business he never at any time has any property in the finished photographs which he delivers to his customers. Accordingly he contends that there is no sale within the definition of sale contained in the statute and that any consideration he may receive is in return for his services and the exercise in the performance of those services of his artistic ability and skill.

We are, however, unable to agree with these contentions. When an individual desiring photographs goes to a studio and arranges to have his likeness taken and reproduced, the ultimate result of the transaction is the sale of the photographs. Until they are delivered or paid for they belong to the photographer. The relation between the photographer and his customer, who contracts to have his photograph taken and finished is a confidential one and there is implied in the contract of employment an agreement that no photographs thus taken and finished may be sold or delivered for any purpose to any other person than the one who makes the contract without the latter's consent. See Moore v. Rugg, 44 Minn. 28, 46 N.W. 141, 9 L.R.A. 58, 20 Am. St. Rep. 539; Corliss v. E.W. Walker Co. (C.C.) 57 F. 434, 64 F. 280, 31 L.R.A. 283; Pollard v. Photographic Co. L.R. 40 Ch. Div. (Eng.) 345; Melville v. "Mirror of Life" Co. [1895] 2 Ch. 531; Murray v. Heath, 1 Barn. Ad. 804, 109 Eng. Reprint, 985. We need not here determine to whom in the ordinary case the negative belongs after the photographs contracted for are delivered and paid for — whether it belongs to the photographer, or the one who contracted for the finished photographs. But see Corliss v. E.W. Walker Co. (C.C.) 57 F. 434, 64 F. 280, 31 L.R.A. 283, supra. The case of Pollard v. Photographic Co. L.R. 40 Ch. Div. 345, supra, is cited as an authority in Moore v. Rugg, 44 Minn. 28, 46 N.W. 141, 9 L.R.A. 58, 20 Am. St. Rep. 539, supra, and in numerous of the other cases touching the questions as to the rights and obligations of a photographer. And the Pollard Case in turn is predicated largely on the case of Murray v. Heath, 1 Barn. Ad. 804, 109 Eng. Reprint 985, supra. In Murray v. Heath, Murray employed Heath to engrave plates from drawings belonging to the former. Heath took off from the plates so engraved a number of proof impressions which he retained for his own use. Afterwards he became bankrupt and his assignees attempted to sell the prints. Murray sued in trover to recover them. The court held that the action could not be maintained unless the prints were the property of Murray; that they were the property of Heath since the plates were the property of Heath they not having been delivered to or accepted by Murray, though Heath might be liable to an action for breach of contract in making the prints and not delivering them over.

There is no question but that a successful photographer must, in the carrying on of his business, possess and exercise artistic talent and skill. But the fact that he does is not the determining factor. Through the employment of that talent and skill photographic likenesses are produced and, when produced, are tangible property. Until they are delivered or paid for they are no more the property of the person who contracts for them than is the suit of clothes made to order by his tailor the property of the customer who orders and is measured for it until it is delivered or paid for; or than is the bookcase, designed and made for the householder by the cabinet-maker, the property of the former until it is delivered or paid for. And innumerable other parallel instances might be cited. In all of such cases there is a contract for the employment of the skill and ability of the maker of the articles contracted for. The product resulting is tangible personal property but it remains the property of the maker until it is paid for or delivered to the person for whom it is made. There is no article, fabricated by a machine or fashioned by the human hand, that is not the fruit of the exercise and application of individual ability and skill. And few, indeed, are the instances where the greater part of the cost thereof is not chargeable to personal service directly or remotely applied. The fact that an article is made to order and is of particular value to one individual and of little or no value to anyone else, does not bring about the legal result that the property in it is at all times in him who contracts to have it made and never at any time in the maker. Nor can we discover any reason why the peculiar confidential relation that exists between the photographer and his customer should be held to bring about such a result.

Plaintiff also urges that when the Sales Tax Act, supra, was first enacted in 1935, the tax commissioner who was charged with its enforcement, ruled that no tax charge should be made on account of the sale of photographs; that this ruling was in effect in 1937 when the Sales Tax Act was re-enacted; that the legislature is presumed to have known of the ruling and accordingly the act was re-enacted with that ruling in mind. So plaintiff contends it must be held that this construction of the 1935 Act was adopted by the re-enactment of the Act in 1937.

It is true that in construing a statute of doubtful meaning a court will give weight to the practical construction placed thereon by the officers charged with the duty of executing and applying the statute, especially where the construction has been in effect for a considerable time and acquiesced in by those affected by it. State v. Equitable Life Assur. Soc. 68 N.D. 641,282 N.W. 411. And it is likewise true that the legislature is presumed to know the construction of its statutes by the executive departments of the state. John Hancock Mut. L. Ins. Co. v. Lookingbill, 218 Iowa 373, 253 N.W. 604. And where a statute which has been given a particular practical construction by the officers charged with its application and enforcement is re-enacted, this fact is pertinent in determining the legislative intent, and the presumption is that the legislative intent was that the re-enacted statute should be thus construed. But this is, after all, only a presumption and may be overborne when all the circumstances in connection with the matter are taken into consideration. In the instant case it appears that when the Sales Tax Act was first put into effect in 1935, the tax commissioner's office did rule that no sales tax should be charged and collected by photographers for photographs made and sold. The Sales Tax Act, chapter 276, Session Laws 1935, imposed the tax only for the period "beginning the first day of May, 1935 and ending May 1, 1937." In 1937 this act was re-enacted with but slight changes and the tax was reimposed for the period "beginning the first day of May, 1937 and ending June 30, 1939." Immediately after its re-enactment the tax commissioner amended his prior ruling as to the effect of the tax with respect to photographers, and ruled that they should collect a charge in the amount of the tax on photographs made and delivered to their customers for a consideration by them. This ruling has continued in effect since that time. While it was so in effect in 1939, the legislative assembly again re-enacted the Sales Tax Act without change and provided that the tax should be imposed for the period "beginning the first day of July, 1939, and ending June 30, 1941." And again in 1941 the tax was reimposed for the period "beginning the first day of July, 1941, and ending June 30, 1943." We think that under these circumstances it cannot be said that the legislative intention was that no tax should be charged on account of the sale of photographs to their customers by photographers.

The Sales Tax Act contemplates that whenever a sale at retail of tangible personal property not specifically exempted is made, the prescribed tax shall be paid. Photographers carrying on enterprises, as was the plaintiff, are engaged in business. Photographs are tangible personal property. They are transferred and title to them passes for a consideration. Thus sales are made. They are not procured for processing or resale. Such sales are not within the statutory exemptions. Accordingly they are subject to the tax. As supporting our conclusions, see Bigsby v. Johnson, ___ Cal. 2d ___, 99 P.2d 268, and cases cited therein; Kamp v. Johnson, 15 Cal. 2d 187, 99 P.2d 274; Cusick v. Com. 260 Ky. 204, 84 S.W.2d 14 (a case almost identical with the instant case). It is true that some courts have held contrary to the views expressed above. We believe, however, that the construction we have given it is wholly consistent with the purpose as well as with the general practical application of the Sales Tax Act and in line with the departmental construction adopted in a considerable majority of the jurisdictions having statutes identical with or similar to the act here under consideration.

We have referred to the testimony of the plaintiff as to the practice followed by him in the making of charges for the taking and finishing of photographs. He makes two charges, one for the sitting, which must be paid whether the photographs are finished and delivered or not, and a further charge if and when the photographs are finished and delivered to the customer. Where, as in the instant case, such a practice is followed in good faith and not for the purpose of evading the tax, we are of the opinion that the tax is not collectible on account of the charge for the sitting, but it should be imposed and collected on account of the charge made for the finished photographs.

The judgment of the district court is reversed and the case is remanded for further proceedings in accordance with this opinion.

BURR, Ch. J., and BURKE and MORRIS, JJ., concur.