{ "id": 4166036, "name": "CAROLINA PHOTOGRAPHY, INC., A North Carolina Corporation, Plaintiff v. REGINALD S. HINTON, Secretary of Revenue of the State of North Carolina, Defendant", "name_abbreviation": "Carolina Photography, Inc. v. Hinton", "decision_date": "2009-04-07", "docket_number": "No. COA08-609", "first_page": "337", "last_page": "342", "citations": [ { "type": "official", "cite": "196 N.C. App. 337" } ], "court": { "name_abbreviation": "N.C. Ct. App.", "id": 14983, "name": "North Carolina Court of Appeals" }, "jurisdiction": { "id": 5, "name_long": "North Carolina", "name": "N.C." }, "cites_to": [ { "cite": "395 S.E.2d 685", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1990, "opinion_index": 0 }, { "cite": "327 N.C. 431", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 2494531, 2495910, 2493800, 2493228, 2496926 ], "year": 1990, "opinion_index": 0, "case_paths": [ "/nc/327/0431-02", "/nc/327/0431-03", "/nc/327/0431-04", "/nc/327/0431-05", "/nc/327/0431-01" ] }, { "cite": "391 S.E.2d 509", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1990, "pin_cites": [ { "page": "511" } ], "opinion_index": 0 }, { "cite": "98 N.C. App. 504", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8525191 ], "year": 1990, "pin_cites": [ { "page": "507" } ], "opinion_index": 0, "case_paths": [ "/nc-app/98/0504-01" ] }, { "cite": "111 S.E.2d 319", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1959, "pin_cites": [ { "page": "322-23" } ], "opinion_index": 0 }, { "cite": "251 N.C. 329", "category": "reporters:state", "reporter": "N.C.", "case_ids": [ 8625410 ], "year": 1959, "pin_cites": [ { "page": "333" } ], "opinion_index": 0, "case_paths": [ "/nc/251/0329-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 105-264", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 4, "year": 1999, "pin_cites": [ { "page": "*5-6" } ], "opinion_index": 0 }, { "cite": "256 S.E.2d 306", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 3, "year": 1979, "pin_cites": [ { "page": "307" }, { "page": "307" } ], "opinion_index": 0 }, { "cite": "42 N.C. App. 248", "category": "reporters:state", "reporter": "N.C. App.", "case_ids": [ 8553760 ], "weight": 2, "year": 1979, "pin_cites": [ { "page": "249" } ], "opinion_index": 0, "case_paths": [ "/nc-app/42/0248-01" ] }, { "cite": "N.C. Gen. Stat. \u00a7 105-164.3", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "weight": 12, "year": 1999, "pin_cites": [ { "page": "(16)" }, { "page": "(16)" }, { "page": "(16)" }, { "page": "*9" }, { "page": "*9-10" }, { "page": "*10" }, { "page": "*12" }, { "page": "*12-13" }, { "page": "(16)" }, { "page": "(16)" } ], "opinion_index": 0 }, { "cite": "N.C. Gen. Stat. \u00a7 105-267", "category": "laws:leg_statute", "reporter": "N.C. Gen. Stat.", "year": 1999, "opinion_index": 0 } ], "analysis": { "cardinality": 529, "char_count": 12398, "ocr_confidence": 0.744, "pagerank": { "raw": 4.03580807328026e-08, "percentile": 0.1361131479093955 }, "sha256": "9ec15904cc9d30b10c994e9280db07bc262744513eb6c8bc99aa125a2b8e936e", "simhash": "1:9bbba51af9300e44", "word_count": 1915 }, "last_updated": "2023-07-14T15:08:58.268450+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Judges STEPHENS and JOHNSON concur." ], "parties": [ "CAROLINA PHOTOGRAPHY, INC., A North Carolina Corporation, Plaintiff v. REGINALD S. HINTON, Secretary of Revenue of the State of North Carolina, Defendant" ], "opinions": [ { "text": "WYNN, Judge.\nUnder the Sales and Use Tax Act, revenue derived from the \u201csales price\u201d of tangible personal property is taxable income. In this matter, the Secretary of Revenue argues that the trial court erred by ruling that \u201csitting fees\u201d charged by Carolina Photography on photographs ultimately sold to high school seniors did not constitute taxable income. Because Carolina Photography\u2019s \u201csitting fees\u201d are charges for fabrication labor of printed photographs, we hold that the \u201csitting fees\u201d constitute taxable income and therefore reverse the trial court\u2019s ruling.\nCarolina Photography engaged in the business of photographing underclass and senior students at various North Carolina high schools. Carolina Photography arranged a variety of poses, backgrounds, and lighting for senior students, for which they were charged a \u201csitting fee,\u201d regardless of whether the students ultimately purchased printed photographs. The \u201csitting fee\u201d was charged at the time the photographs were taken. If a senior student ultimately ordered printed photographs, Carolina Photography charged additional fees to cover the cost of production. Approximately 30% of students that paid a \u201csitting fee\u201d did not purchase any finished prints.\nOn 10 June 2002, the Secretary of Revenue audited Carolina Photography\u2019s records for the period between 1 March 1999 to 31 January 2002. As a result of the audit, the Secretary of Revenue assessed additional sales tax on Carolina Photography for its collection of \u201cretouching fees,\u201d \u201ccopyright fees,\u201d and \u201csitting fees\u201d from senior students. However, the Secretary of Revenue did not assess sales tax on \u201csitting fees\u201d that did not precede an order for printed photographs. Thus, the Secretary of Revenue\u2019s audit resulted in additional tax only on those \u201csitting fees\u201d that were ultimately followed by an order for printed photographs.\nFollowing the audit, Carolina Photography paid all additional sales tax, but filed suit under N.C. Gen. Stat. \u00a7 105-267 (1999) for a refund of all additional amounts paid. On cross-motions for summary judgment, the trial court entered an order on 12 February 2008 that, in relevant part: (1) granted Carolina Photography a refund for additional tax paid for its \u201csitting fees;\u201d and (2) reserved judgment on the amounts Carolina Photography actually paid. On 25 February 2008, the trial court entered a consent judgment allocating the amounts to be refunded or paid.\nOn appeal, the Secretary of Revenue argues that the \u201csitting fees\u201d fall within the plain language of N.C. Gen. Stat. \u00a7 105-164.3(16) (1999), which defines \u201csales price\u201d as:\nthe total amount for which tangible personal property is sold including charges for any services that go into the fabrication, manufacture or delivery of such tangible personal property and that are a part of the sale valued in money whether paid in money or otherwise and includes any amount for which credit is given to the purchaser by the seller without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, interest charged, losses or any other expenses whatsoever.\nN.C. Gen. Stat. \u00a7 105-164.3(16) (1999). As support for its position, the Secretary of Revenue also cites Young Roofing Co. v. Dep\u2019t of Revenue, 42 N.C. App. 248, 256 S.E.2d 306 (1979), Department of Revenue Sales and Use Tax Technical Bulletin \u00a7 32-2(B), and several Department of Revenue administrative decisions. We consider these authorities in turn.\nIn Young Roofing, this Court considered whether \u201cfabrication labor, of sheet metal articles made to order for taxpayer\u2019s customers\u201d was within the taxable sales price of the sheet metal products ultimately sold. Young Roofing, 42 N.C. App. at 249, 256 S.E.2d at 307. The Court held that the fabrication labor was within the taxable sales price because the statute \u201cexpressly provid[ed] the cost of labor shall not be deducted in the calculation of the sales price.\u201d Id. at 250, 256 S.E.2d at 307.\nThe Sales and Use Tax Technical Bulletin and administrative interpretations the Secretary of Revenue cites are consistent with the reasoning in. Young Roofing. A rule, bulletin, or directive promulgated by the Secretary of Revenue which interprets a law under the Sales and Use Tax Act is prima facie correct, N.C. Gen. Stat. \u00a7 105-264 (1999); however, the construction given a law in an administrative decision by the Secretary of Revenue is not deemed prima facie correct, although it is entitled to due consideration by the courts. Campbell v. Currie, 251 N.C. 329, 333, 111 S.E.2d 319, 322-23 (1959); Nat\u2019l Serv. Indus., Inc. v. Powers, 98 N.C. App. 504, 507, 391 S.E.2d 509, 511, disc. review denied, 327 N.C. 431, 395 S.E.2d 685 (1990).\nNorth Carolina Sales and Use Tax Technical Bulletin \u00a7 32-2 (issued 1 June 1996) was issued in part under the authority of N.C. Gen. Stat. \u00a7 105-264, and the Bulletin addresses the taxability of \u201cphoto supplies, photographs and materials.\u201d Subsection (B) provides, in pertinent part:\nGross receipts from sales of photographs including all charges for developing or printing by commercial or portrait photographers or others are subject to the general rate of State tax and any applicable local sales or use tax.\nN.C. Sales and Use Tax Technical Bulletin \u00a7 32-2(B) (1996), available at http://www.dor.state.nc.us/practitioner/sales/bulletins/toc.html (emphasis added) (last visited 21 November 2008).\nThe Department of Revenue decided several refund actions after the Bulletin was issued, each of which are consistent with the reasoning in Young Roofing that charges for the fabrication of tangible personal property are taxable. In Docket No. 99-187, 1999 N.C. Tax LEXIS 27 (Dec. 20, 1999), for example, the taxpayer was engaged in the business of advertising and design, in which it performed certain \u201ccreative services\u201d in association with the sale of tangible personal property. Id. at *5-6. The taxpayer collected sales tax on the tangible personal property it sold, but did not collect sales tax on the \u201ccreative services,\u201d although it invoiced those separately. Id. As Carolina Photography does in this case, the taxpayer in Docket No. 99-187 argued that the \u201ccreative services\u201d were rendered separately from the transaction for the sale of the tangible personal property, and thus not a part of the \u201csales price\u201d of that property. The Assistant Secretary of Revenue rejected this interpretation of N.C. Gen. Stat. \u00a7 105-164.3(16) and its accompanying regulation, 17 N.C. Admin. Code 7B.0901(c) (1999), because the \u201csales and use tax is a transaction oriented tax and the application of the tax is dependent upon the nature of the transaction entered into between the parties.\u201d Id. at *9. Because the \u201ctrue nature of the transactions in question . . . involved the acquisition of tangible personal property,\u201d the Assistant Secretary of Revenue declined to view the transaction for \u201ccreative services\u201d as distinct from the taxable transaction for tangible personal property. Id. The \u201ccreative services\u201d \u201cwere an inseparable function of the fabrication process that produced the tangible personal property sold.\u201d Id.\nIn Docket No. 2004-348, 2005 N.C. Tax LEXIS 2 (May 18, 2005), the Assistant Secretary of Revenue reached the same conclusion regarding a photographer\u2019s \u201csitting fees\u201d and \u201covertime charges.\u201d The photographer was a retailer of wedding photographs and videos. To compensate for the extended time and editing work that sometimes accompanied production of the photographs and videos, the photographer occasionally charged \u201csitting fees\u201d and \u201covertime charges.\u201d Id. at *9-10. The photographer argued that the \u201csitting fees\u201d and \u201covertime charges\u201d should be excluded from the sales price of the printed photographs and videos as a nontaxable service. Id. at *10. The Assistant Secretary of Revenue again rejected the argument, finding that the term \u201cgross receipts\u201d in Sales and Use Tax Technical Bulletin \u00a7 32-2(B) \u201cincludes overtime charges and sitting fees.\u201d Id. at *12. The Assistant Secretary of Revenue concluded that the \u201csitting fees\u201d and \u201covertime charges\u201d were services necessary to complete the sale of the tangible personal property that was the ultimate object of the transaction. Id. at *12-13. Thus, in its interpretations before and after the audit period in this case, the Department of Revenue has interpreted the meaning of \u201csales price\u201d in N.C. Gen. Stat. \u00a7 105-164.3(16) to include charges for fabrication labor preceding a sale of tangible personal property.\nNonetheless, Carolina Photography seeks to distinguish Young Roofing and the Department of Revenue\u2019s administrative decisions by arguing that its \u201csitting fees\u201d are unique because they were charged and billed separately, regardless of whether the student ultimately purchased printed photographs. Furthermore, Carolina Photography argues that the Bulletin and the administrative decisions should not be applicable because there is no evidence that they were published by the Department of Revenue. This distinction is without merit.\nIndeed, Carolina Photography was assessed additional sales tax only for \u201csitting fee\u201d charges that preceded a sale of printed photographs. Therefore, following the reasoning in Young Roofing, the Bulletin, and the Department of Revenue\u2019s administrative decisions, the \u201csitting fee\u201d charges preceding the sale of printed photographs must be considered charges for labor to fabricate the printed photographs. Stated another way, Carolina Photography could not produce, or ultimately sell, a printed photograph if it did not first arrange the \u201csitting\u201d to take the picture. Accordingly, we hold that the \u201csitting fees\u201d Carolina Photography charged each senior student before the student ordered printed photographs, are part of the sales price of those printed photographs.\nFinally, we are not persuaded by Carolina Photography\u2019s argument that Sales and Use Tax Technical Bulletin \u00a7 32-2 and the Department of Revenue\u2019s administrative decisions should not apply because they were not published. First, the Department of Revenue maintains a website where the Sales and Use Tax Technical Bulletins are available. ' See http://www.dor.state.nc.us/practitioner/sales/ bulletins. Also, the Department of Revenue\u2019s administrative decisions are published on the Lexis database. Finally, Carolina Photography had the option, which it did not exercise, to contact the Department of Revenue to inquire about its liability to collect tax on its \u201csitting fees.\u201d\nIn sum, we reverse the trial court\u2019s order granting a refund to Carolina Photography for the tax assessed on its \u201csitting fee\u201d charges.\nReversed.\nJudges STEPHENS and JOHNSON concur.\n. N.C. Gen. Stat. \u00a7 105-164.3(16) (1999).\n. The trial court\u2019s order also adjudicated Carolina Photography\u2019s liability for additional tax on \u201ccopyright fees\u201d and \u201cretouching fees,\u201d but the parties agree that those charges are not in dispute before this Court.", "type": "majority", "author": "WYNN, Judge." } ], "attorneys": [ "Philip M. Moilanen, P.C., by Philip M. Moilanen, and Pendleton, Pendleton & Deaton, PA, by Wesley L. Deaton, for plaintiffappellee.", "Attorney General Roy Cooper, by Assistant Attorney General David D. Lennon, for defendant-appellant." ], "corrections": "", "head_matter": "CAROLINA PHOTOGRAPHY, INC., A North Carolina Corporation, Plaintiff v. REGINALD S. HINTON, Secretary of Revenue of the State of North Carolina, Defendant\nNo. COA08-609\n(Filed 7 April 2009)\n1. Taxation\u2014 sales and use \u2014 photography sitting fees \u2014 taxable income\nSitting fees charged each student before the student ordered printed photographs are part of the sales price of those printed photographs and constituted taxable income under the Sales and Use Tax Act. Carolina Photography could not produce or sell a printed photograph if it did not first arrange the sitting to take the picture. N.C.G.S. \u00a7 105-164.3(16).\n2. Taxation\u2014 bulletin and administrative decision\u2014 publication\nThe argument that a Department of Revenue Sales and Use Tax Technical Bulletin and an administrative decision were not applicable because they were not published was rejected where the bulletin was available on a website, the administrative decision in a Lexis database, and plaintiff had the option of contacting the Department of Revenue to inquire about its liability\nAppeal by defendant from order entered 12 February 2008 by Judge John B. Lewis, Jr. in Superior Court, Lincoln County. Heard in the Court of Appeals 17 November 2008.\nPhilip M. Moilanen, P.C., by Philip M. Moilanen, and Pendleton, Pendleton & Deaton, PA, by Wesley L. Deaton, for plaintiffappellee.\nAttorney General Roy Cooper, by Assistant Attorney General David D. Lennon, for defendant-appellant." }, "file_name": "0337-01", "first_page_order": 365, "last_page_order": 370 }