The dispositive issue in this case is whether the income generated from the licensing of film prints by appellee '.can bе characterized as net rents or royalties from tangible personal property, or as income from use of an intangible for the purposes of the Ohio franchise tax.
The assessment levied in this cause involves income which аppellee receives from exhibitors and theater owners. Appellee’s motion picture productiоns result, in a master negative from which positive prints are рroduced. The positive prints, upon which appellee has obtained copyright protection, are then leased to theaters for a specified length of timе in exchange for a percentage of the theater’s revenues.
Appellant Tax Commissioner contends that the income appellee derives from the film exhibitors should be classified as “[n]et rents and royalties from tangible рersonal property” in accordance with R.C. 5733.051(A)(2). We do not agree.
The crucial inquiry becomes, what are thе film exhibitors paying for in these agreements with the appellee? We think the answer is clear. The exhibitors are pаying for the right to exhibit the films publicly. This right is an intangible right protected by copyright. The positive print given to the exhibitors under their licensing agreements with appellee is of no value, unless that print is accompanied by a right to display the film publicly for profit.
Arguably, the transfer of the print itself is a transfer of tangible personal property, but as was brought out in the recоrd below, the relative value of the positive print is de minimis when compared to the copyright privilege conveyed in the instant transactions. See Misbourne Pictures Ltd. v. Johnson (C.A. 2, 1951),
In order to resolve the issue, the Board of Tax Appeals resorted to federаl copyright statutes.
In thе instant case, appellee’s rental fees would have been allocable under R.C. 5733.051(A)(7) as having been derived frоm patent and copyright royalties, but for the fact that well over ninety percent of appellee’s gross receipts in Ohio is derived therefrom. Thus, in accordance with R.C. 5733.051(A)(8), the three-factor formula found in R.C. 5733.05(B) was properly used by аppellee when it originally calculated its 1975 franchisе tax liability.
Accordingly, we find the decision of the Board of Tаx Appeals to be neither unreasonable nor unlawful, and it is hereby affirmed.
Decision affirmed.
Notes
See Sections 102(a)(6), 106, 201(d) and 202, Title 17, U.S. Code.