SALES AND COMPENSATING (USE) TAX - LICENSING
AGREEMENTS WHICH GIVE RADIO AND TELEVISION
STATIONS THE RIGHT TO BROADCAST FILMS, TAPES,
RECORDS AND TRANSCRIPTIONS.
Advice has been requested as to the applicability of Kansas compensating tax to licensing agreements by which radio and television stations obtain the right to broadcast films, tapes, records and transcriptions in light of the rejection by the Kansas Legislature of an amendment to K.S.A. 1980 Supp. 79-3603 specifically imposing sales tax thereon.
Of paramount concern to the resolution of this inquiry is whether the subject of the licensing agreement is tangible or intangible personal property. Language of the existing Kansas statutes gives little guidance. K.S.A. 1980 Supp. 79-3603(a) imposes a tax "_ upon the gross receipts received from the sale of tangible personal property at retail within this state". K.S.A. 79-3703 provides a tax for the "privilege of using _ within this state any article of tangible personal property". K.S.A. 79-3702(c ) defines "use" as the exercise "_of any right or power over tangible personal property incident to the ownership of that property". K.S.A. 1980 Supp. 79-3602(f) defines "tangible personal property" as "corporal personal property".
Construction of a statute and its application to a given situation are matters of law for judicial determination. (Brookover Feed yards, Inc. v. Carlton, 213 Kan. 684, 518 P.2d 470). The first rule of statutory construction is to ascertain, if possible, the intent of the legislature. (Nordstrom v. City of Topeka, 228 Kan. 336, 613 P.2d 1371.) (State ex rel. Sanborn v. Unified School Dist. 359, 218 Kan. 47, 542 p.2d 664.) Historical background, legislative proceedings and changes made in a proposed law during the course of its enactment may properly be considered _ in determining legislative intent (City of Manhattan v. Ericksen, 204 Kan. 150, 460 P.2d 622.) The rejection by the legislature of a specific provision contained in a proposed enactment is persuasive to the conclusion that the act should not be so construed as in effect to include that provision, at least where there is not basis for the assumption that the words omitted were surplusage. (City of Manhattan v. Ericksen, supra.)
In Revenue Ruling 19-79-12, the Secretary of Revenue ruled that payments made under such licensing agreements give the license both the right to broadcast copyrighted material and the right to temporarily use the tangible personal property, and that the tax should be imposed only upon that portion of the total charge or value attributable to the use of the tangible personal property, notwithstanding a substantial body of case law from other jurisdictions indicating a marked trend for the proposition that such films and other articles are finished products which are the subject of the leasing transaction and which are subject to sales and use taxation. After consideration of these case authorities Department of Revenue officials testified before the 1980 Special Committee on Assessment and Taxation of their decision to revoke Revenue Ruling 19-78-12 and impose the tax on the entire receipts from such licensing agreements. In response the Special Committee recommended that House Bill No. 2008 be introduced in the 1981 Session of the Kansas Legislature specifically imposing the tax on the total gross receipts from such transactions along with other amendments not pertinent here.
As originally introduced section 1 of House Bill No. 2008 amended K.S.A. 1980 Supp. 79-3603 by adding a new subsection (t) to provide for the levy and collection of "_a tax at the rate of 3% upon the gross receipts received from the sale, lease or licensing agreement by which a radio or television station obtains the right to broadcast films, tapes, records or transcriptions." The bill was referred to the House Committee on Assessment and Taxation which, after hearing numerous arguments against imposing the tax, recommended that the bill be amended by deleting the new subsection (t) and that the bill be passed as so amended. Deliberations by the committee gave no notion whatsoever that it considered the omitted subsection (t) as surplusage. The committee's report was adopted, and thereafter, the bill passed through the remaining channels in the legislative process with the printed bill containing the proposed subsection (t) in stricken print. Consequently the Kansas Legislature was fully aware of the proposed amendment to the statute specifically providing for the taxation of these licensing agreements and rejected the same.
If the subject of the sale, lease or licensing agreement was to be regarded as tangible personal property, the transaction would be subject to sales tax under the existing K.S.A. 79-3703. Such a proposition would totally ignore the recent legislative proceedings in the enactment of 1981 House Bill No. 2008. Thus, as a result of the Legislature's rejection of the proposed amendment, it must follow that its intent was to follow the minority view in regarding the subject of the sale, lease or licensing agreement as intangible personal property, and the entire gross receipts therefrom are therefore exempt from the Kansas retailers sales and compensating taxes. This exemption shall be strictly limited to transactions involving the specific property addressed herein.
Revenue Ruling 19-78-12 is hereby revoked and shall no longer be of any force and effect.
Michael Lennen 7/21/81
Secretary of Revenue