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District Court of Appeal, Second District, Division 2, California.

MICHAEL TODD COMPANY, Inc., Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, the Board of Supervisors of the County of Los Angeles, Herbert C. Legg, Kenneth Hahn, John Anson Ford, Burton W. Chace and Warren M. Dorn, As Members of the Board of Supervisors of the County of Los Angeles, The Tax Collector of the County of Los Angeles, The County Assessor of the County of Los Angeles, Defendants and Respondents.*

Civ. 24907.

Decided: November 17, 1961

Shearer & Fields, Jacob Shearer, Bertram Fields, Beverly Hills, for appellant. Harold W. Kennedy, County Counsel, Alfred Charles De Flon, Deputy County Counsel, Los Angeles, for respondents.

Plaintiff brought this action to recover certain personal property taxes for the year 1957 which it paid under protest. The trial court held that the taxes in question were properly levied upon a valid assessment and accordingly entered its judgment that plaintiff take nothing. From this judgment plaintiff appeals.

Plaintiff is a Delaware corporation engaged in the business of producing motion pictures. On the first Monday in March, 1957, plaintiff was the owner of certain film negatives pertaining to the copyrighted motion picture entitled ‘Around the World in Eighty Days'. This film consisted of the original negative, a duplicate of the original negative and the unassembled components of a second original negative and of a duplicate of the second original negative. On the tax lien date said negatives were located at the Technicolor Laboratories, 6311 Romaine Street, Hollywood, California.

The form of the 1957 assessment here involved indicates that plaintiff's personal property located at the above address was assessed at a valuation of $1,526,900. The trial court found that the property so assessed consisted of the film negatives above mentioned. It was stipulated at the trial that plaintiff's interest in the property ‘acquired by copyright’ was considered by the assessor in making the assessment and that if the taxpayer had no copyright, the film itself would be worth no more than $1,000 obtainable by way of salvage. It was stipulated that the assessor ‘valued the negative on the basis that it could be put to very profitable commercial use by making the prints therefrom and distributing those prints * * * which [right of reproduction] the owner would not have but for his copyright.’

Plaintiffs main contentions are as follows: (1) that copyrights are a species of intangible property not subject to the personal property tax under the law of this state; (2) that a copyright is an item of property separate and distinct from the physical object by which the copyrighted material is recorded, such as a motion picture negative; (3) that to include the value of the copyright in an assessment of the negative is equivalent to a direct assessment of the copyright itself so that such assessment is void to the extent that it exceeds the value of the negative without the copyright; (4) that a motion picture negative must be classified as an intangible for tax purposes because its essential value lies, not in its physical substance, but in the intangible right to use it in making copies; (5) that the assessment here involved is grossly excessive, since market value is the proper basis of valuation for tax purposes and since a buyer of plaintiff's negatives would not acquire the right to make prints or any other right of substantial value.

Although, as we shall point out hereinafter, some of the legal propositions advanced by plaintiff are valid, we have concluded that plaintiff's position is untenable because the assessment here challenged did not assess plaintiff copyright, either separately or as such, but assessed only the described negatives of which plaintiff was the owner. We have concluded, further, that the trial court was correct in its finding that these negatives were tangible personal property.1 From our review of the record, we are satisfied that the evidence fully supports the following significant findings of fact made by the trial court:

‘Said Los Angeles County Assessment No. 108599 was assessment only of the interests in the tangible negatives and their duplicates which were owned by plaintiff as of noon of the first Monday of March, 1957. Said assessment did not include as such any of the intangible copyright interests which plaintiff had with respect to said motion picture, although the possession by plaintiff of its intangible property interests will respect to the subject motion picture which were created by copyright did cause plaintiff's interests in said negatives and their duplicates to be more valuable than if plaintiff did not own and possess said intangible copyright interests.’

‘Said action by said County Board of Equalization in denying all relief to plaintiff under its said application was based upon substantial evidence adduced before said Board, and said action by said Board with respect to plaintiff's said application was proper in light of said evidence, and did not constitute fraud upon plaintiff, actual or constructive. On the basis of the substantial evidence adduced before said Board, the assessed value of $1,526,900.00 placed upon plaintiff's said negatives and said duplicate negatives by the Los Angeles County Assessor was fair, equitable and nondiscriminatory as compared to assessments by said Assessor of all other motion picture negatives and of motion picture prints, and said assessed value did not exceed the full cash value of said negatives and their said duplicates as of noon of the first Monday of March, 1957.

‘In computing the assessment valuation for said Los Angeles County 1957 Assessment No. 108599 the Los Angeles County Assessor used two different methods: Using the first method the Assessor subtracted from the production cost of the negatives and their duplicates a fraction thereof equal to the number of distribution prints manufactured as of the first Monday of March, 1957, divided by the Assessor's estimate of the total number of distribution prints to be made from the negatives. The resulting difference was then reduced 30 per cent and the remaining balance then multiplied by 50 per cent to produce the assessed value. The second method used by the Assessor, to check upon and substantiate the assessed value computed by the first method, was to subtract from the production cost of the negatives and their duplicates, a fraction of such cost equal to actual monetary distribution returns as of the first Monday of March, 1957, divided by the Assessor's estimate of total expected monetary distribution returns. This difference was then successively reduced by 30 and then 50 per cent with the final result being the assessed value computed according to the second method.

‘Said methods of computing the full cash value of plaintiff's said negatives and duplicate negatives are the same methods which were generally used by the Assessor in 1957 in assessing all other motion picture negatives.’

It was only realistic for the assessor to recognize that the value of these negatives lay in the fact that they were the indispensable means of producing the positive prints from whose distribution plaintiff derived its income. In evaluating plaintiff's interests in these negatives, it was only a matter of being realistic for the assessor to take into consideration the fact that plaintiff possessed the exclusive right to use them and that no one else possessed the right to duplicate them.

Having reviewed the essential factual aspects of the case, we shall proceed to a consideration of the legal principles which we deem controlling.

Unquestionably, a copyright, considered alone, is an intangible. But there is nothing in federal law or in constitutional principles that renders it immune from state taxation. (Fox Film Corp. v. Doyal, 286 U.S. 123, 52 S.Ct. 546, 76 L.Ed. 1010; Stone v. Stapling Machines Co., 221 Miss. 555, 73 So.2d 123, 126, 51 Am.Jur. § 248, p. 303; 84 C.J.S. Taxation § 210b, p. 405.) The Fox Film decision overruled Long v. Rockwood, 277 U.S. 142, 48 S.Ct. 463, 72 L.Ed. 824, which had held that a tax upon royalties received from a patent would amount to a tax upon the patent itself and was prohibited by the federal constitution.

Our problem, then, is one of interpreting and applying state law. The California Constitution, Article XIII, sec. 1, provides that ‘All property in the State except as otherwise in this Constitution provided * * * shall be taxed in proportion to its value * * *.’ Article XIII, sec. 14, paragraph 4, provides in pertinent part: ‘The Legislature shall have the power to provide for the assessment, levy and collection of taxes upon all forms of tangible personal property, all notes, debentures, shares of capital stock, bonds, solvent credits, deeds of trust, mortgages, and any legal or equitable interest therein * * *.’ The California Supreme Court in Roehm v. County of Orange, 32 Cal.2d 280, 196 P.2d 550, held that it is to be inferred from the foregoing constitutional provisions that the only intangible subject to taxation in California are those enumerated in Article XIII, section 14, paragraph 4.

Concerning the taxation of tangible personal property, the court said in General Dynamics Corp. v. County of L. A., 51 Cal.2d 59, 64, 330 P.2d 794, 797: ‘Under these [constitutional] provisions the Legislature may provide for the taxation of ‘all forms of tangible personal property’ and ‘any P.2d 550, 554: ‘Intangible values, however, have concluded, however, that the Legislature has not provided for the taxation of limited interests in tangible personal property. It has not defined personal property as including a right to its possession as it has real property (see Rev. & Tax.Code, §§ 104, 107), and this omission reflects not merely a lack of detail, but a consistent pattern of taxing tangible personal property as an entity or not at all.’

There is no inhibition in the state constitution or in the statutes upon inclusion of the value of any and all intangible rights and privileges owned by the taxpayer in the assessment of a taxable tangible to which the pertinent intangibles lend a peculiar value. This is pointed out by Mr. Justice Traynor in Roehm v. County of Orange, supra, 32 Cal.2d 280, 285, 196 P.2d 550, 554: ‘Intangible taxed as property that cannot be separately taxed as property may be reflected in the valuation of taxable property. Thus, in determining the value of property, assessing authorities may take into consideration earnings derived therefrom, which may depend upon the possession of intangible rights and privileges that are not themselves regarded as a separate class of taxable property. Los Angeles, etc., Co. v. Los Angeles County, 162 Cal. 164, 121 P. 384, 9 A.L.R. 1277; Eastern-Columbia, Inc. v. County of Los Angeles, 61 Cal.App.2d 734, 745, 143 P.2d 992; Birch v. County of Orange, 59 Cal.App. 133, 136, 138, 210 P. 57; Ewert v. Taylor, 38 S.D. 124, 160 N.W. 797; South Utah Mines & Smelters v. Beaver County, 262 U.S. 325, 330, 43 S.Ct. 577, 67 L.Ed. 1004; Stein v. Mayor, etc, of City of Mobile, 17 Ala. 234; see 3 Cooley, Taxation, 4th ed., § 1145; 51 Am.Jur. 649.’

Again at page 289 of the Roehm decision, at page 555 of 196 P.2d it is said: ‘The only intangibles (except franchises, which are in a class by themselves) subject to taxation under the present system of property taxation in this state are solvent credits, * * *. All other types of intangible assets specified in section 14 of article XIII of the Constitution, as amended, and section 111 of the Revenue and Taxation Code are exempted from taxation by section 212 of that code and are therefore not part of the taxable personal property in this state. This system of taxation is supplemented, however, by taxes imposed upon or measured by net income including income derived from all kinds of intangible rights and privileges.’

Both quoted passages from Roehm clearly recognize the propriety of indirect taxation of all types of intangibles. The first sentence quoted from page 285, from page 554 of 196 P.2d—‘Intangible values, however, that cannot be separately taxed as property may be reflected in the valuation of taxable property’—pertinently applies to the problem at bar. The stipulation made by counsel at the trial, as defined by the judge and acquiesced in by them, was: ‘[T]hat the interest [of plaintiff] in the property by reason of having the copyright was considered in determining the value of the property that was assessed.’

Counsel seem to agree that the statement first quoted by us from the Roehm case is dictum, but we think not, for it was a qualification of the ruling deemed necessary to avoid misunderstanding or universal application. However, if it be deemed dictum, it nevertheless appeals to us an an eminently sound and sensible statement of the law. Of the cases cited in its support, Stein v. Mayor, etc., of City of Mobile, 17 Ala. 234, most clearly expounds the reasoning.

Stein had an exclusive contract to supply the City of Mobile with water for a specified period. In response to his claim that the water works were exempt from taxation the Alabama court said, in part: ‘It is again contended, that if the water-works can be taxed, the property used in their construction, together with the lot of land on which the reservoir is situated, alone should be valued, and the tax should be assessed on that value, irrespective of the value arising from the right or privilege to charge for the use of the water. To this argument we cannot assent. The value of property must be estimated by the advantages or profits that are or may be derived from it; and if one own tangible property, with which is connected an intangible right or privilege, in forming a just estimate of the value we must consider the tangible property in connection with the intangible right or privilege. By any other rule than this, we would often estimate property of great value as worth but very little. For instance, if a charter is granted to erect a rail-road, and the company go on to complete the work, and it yields large profits, in forming an idea of value, if we separate all the component parts of value and estimate each separately, we should fall far short of the intrinsic worth. The right to charge toll, disconnected from the road, would be worth nothing; and the land over which the road may run and materials employed in its construction are of but little value when disconnected from each other. But when we consider all the component parts of value in connection with each other, and thus connected yielding profits, we then can fix a just estimate of value. * * * It is true that the right to supply the city with water, disconnected from those works necessary to render it profitable, would be a barren right, and probably of no value; for instance, had the works never been completed, the mere privilege of supplying the city with water could have yielded nothing. But still it would have been a right, and when that right is connected with corporeal objects of property, and becomes valuable, the whole should be estimated in the connection in which they stand in order to arrive at a proper estimate of their value. * * * But it is contended that the charter only authorizes the corporate authorities to tax real and personal property, and that this privilege is neither. In answer to this, we will only say that it cannot be considered as a right of action merely, but it is property in possession, and being property, it must be embraced within the one or the other of those terms, for we know of no species of property that cannot be said to be either real or personal, whether it be corporeal or incorporeal. We come therefore to the conclusion, that in estimating the value of the property the city assessors correctly considered the land on which is situated the reservoir, the pipes through which the water is conducted into the city, and the privilege of charging all who might use it, in connection with each other, and the value of the whole thus estimated is liable to taxation.’ (17 Ala. pp. 240–242.)

The same essential principle is stated as follows in 3 Cooley on Taxation, Fourth Edition, § 1145, page 2308: ‘There should be taken into consideration, when assessing property, not only the tangible thing, but also any and all intangible elements affecting its value.’

As stated in Railway Express Agency, Inc. v. Com. of Virginia, 347 U.S. 359, 364, 74 S.Ct. 558, 561, 98 L.Ed. 757, 98 L.Ed. 758, 762: ‘No one denies the right of the State, when assessing tangible property, to use any fair formula which will give effect to the intangible factors which influence real values. Adams Express Co. v. Ohio State Auditor, 166 U.S. 185, 17 S.Ct. 604, 41 L.Ed. 965.’

It seems to us that the instant case does not actually turn upon the question of whether a copyright is per se an intangible or whether the right to make copies of the film is essentially intangible. Basically, ownership of anything is a bundle of intangible rights with respect to use, disposition, sale, or other exercise of dominion over it. The Restatement defines ‘Complete property’ as follows:

‘The totality of these rights, privileges, powers and immunities which it is legally possible for a person to have with regard to a given piece of land, or with regard to a thing other than land, that are other than those which all other members of society have as such, constitutes complete property in such land or thing other than land. This totality varies from time to time, and from place to place, either because of changes in the common law, or because of alterations by statute. Thus if the law should come to be that no person could build a five-story building on his land the totality of privileges that every person has who owns land would be correspondingly diminished. So if a zoning ordinance were passed, the totality of interests would be affected, to the extent of the ordinance, for persons owning land within the district to which the ordinance applied. At any one time and place, however, there is a maximum combination of rights, privileges, powers and immunities in the land that is legally possible, and which constitutes complete property in the land, or thing other than land.’ (Rest. of Property, Vol. 1, § 5e, p. 11.)

In People v. Walker, 33 Cal.App.2d 18, 20, 90 P.2d 854, 855, we find the meaning of the term ‘property’ expressed as follows: ‘There are no property rights innate in objects themselves. Such rights as there are are in certain persons as against others with respect to the particular objects in question. Since property or title is a complex bundle of rights, duties, powers and immunities, the pruning away of some or a great many of these elements does not entirely destory the title as pointed out by Professor Hohfeld in ‘Fundamental Legal Conceptions', 23 Yale Law Journal, 16; 11 Cal.Law Review, 369.’

That bundle of rights, each an intangible in itself, takes on the status of the property to which it relates, whether it be realty or personalty, and supplies the elements of value upon which the tax must be predicated. The true value of any taxable property is dependent upon its individual characteristics; if land, whether situated at Seventh and Broadway in Los Angeles or in the Antelope Valley, and whether it can be used for manufacturing or only residential purposes. If it be a literary property, such as a motion picture film, its value to its owner is affected by his possession or lack of the exclusive right to copy or sell or lease. There seems to be no reasonable or practical basis for dissecting it into the tangible and intangible elements that make up the whole of its value and assessing only that which separately can be designated as tangible,—the mere film which carries the story, the film without any right to use it.

All that we have said herein is entirely consistent with the recognized requirement that all taxable property be assessed by the same standard of valuation, namely, ‘at its full cash value’. (Rev. & Tax.Code, § 401.) This value, as the Supreme Court stated in De Luz Homes, Inc. v. County of San Deigo, 45 Cal.2d 546, 561–562, 290 P.2d 544, is ‘market value’ or the amount that the property would bring to its owner if it were offered for sale on an open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other.

We reject plaintiff's assertion that in determining the value of a motion picture film, it would have to be assumed that a buyer thereof would not acquire the seller's right to make copies. Plaintiff, of course, does not question the fact that copyrights are transferrable, subject only to compliance with the procedural requirements of the copyright act. The existing positive films are not sold but merely leased, as was conceded on oral argument. It is but fair to assume that no purchaser would be interested in buying these negatives unless he also obtained the right to reproduce. If that flows from the existence of the copyright, the fact is legally inconsequential; the tax is on the negative possessing all this peculiar value, not upon the mere copyright which without a negative on which to operate would have little if any value.

If it were assumed that the property in question had no market value, it would afford the plaintiff no comfort, because, as stated in the De Luz decision (45 Cal.2d at page 563, 290 P.2d at page 555), ‘It is well settled that ‘the absence of an ‘actual market’ for a particular type of property does not mean that it has no value or that it may escape from the constitutional mandate that ‘all property * * * shall be taxed in proportion to its value’ (Art. XIII, sec. 1) but only that the assessor must then use such pertinent factors as replacement costs and income analyses for determining ‘valuation.” Kaiser Co. v. Reid, 30 Cal.2d 610, 623, 184 P.2d 879, 887.’

Since the property here involved was correctly classified as tangible personal property, and since the trial court found upon sufficient substantial evidence that said property was fairly assessed in full conformity with the standards of valuation established by the laws of this state, it follows that the taxes in question were levied upon a valid assessment and were lawfully collected.

The judgment is affirmed.


1.  The evidence indicates that the negatives in question weighed about two tons.

HERNDON, Justice.

FOX, P. J., and ASHBURN, J., concur.