American Multi-Cinema, Inc. v. City of Aurora

          Arapahoe County District Court No. 14CV30822 Honorable Kurt A. Horton, Judge.

          Holland & Hart LLP, Christina F. Gomez, Jonathan S. Bender, Kyriaki Council, Denver, Colorado, for Plaintiff-Appellant

          Kissinger & Fellman, P.C., Paul D. Godec, Denver, Colorado; Timothy Joyce, Assistant City Attorney, Aurora, Colorado, for Defendant-Appellee

          Bryan Cave Leighton Paisner LLP, Stephen D. Rynerson, Denver, Colorado; Jacqueline E. Brenneman, North Hollywood, California, for Amicus Curiae National Association of Theatre Owners

          Michael J. Axelrad, Senior Assistant City Attorney, Greeley, Colorado, for Amicus Curiae Colorado Municipal League, City of Fort Collins, City of Littleton, City of Longmont, City of Montrose, and City of Westminster

          Philip J. Weiser, Attorney General, Noah C. Patterson, Assistant Solicitor General, Anne Mangiardi, Assistant Attorney General, Annie Lawson, Assistant Attorney General, Denver, Colorado, for Amicus Curiae Colorado Department of Revenue.

          OPINION

          FOX JUDGE.

         ¶ 1 Plaintiff, American Multi-Cinema, Inc. (AMC), appeals the district court's judgment finding that defendant, City of Aurora, properly levied a use tax on AMC's master licensing agreements (MLAs) with motion picture distributors. We affirm.

         I. Background

         ¶ 2 AMC generates revenue by exhibiting motion pictures and selling admission tickets to the public. AMC's MLAs authorize it to exhibit motion pictures for a licensing fee, and AMC then pays distributors a percentage of its admission sales. AMC has paid the City a use tax - levied on tangible property used, stored, distributed, or consumed in the City - on its MLA fees since it began operation. AMC previously received motion pictures from distributors in the form of 35-millimeter film reels but later replaced the celluloid film technology with digital equipment and now receives motion pictures via digital files on portable hard drives.

         (Image Omitted.)

         ¶ 3 On November 1, 2012, AMC filed two refund claims with the City, seeking a $191, 634.06 refund from use taxes paid on licensing fees from May 27, 2010, through September 27, 2012. During this timeframe, AMC used digital files to exhibit motion pictures at its two Aurora theatres. Arguing that the digital files were not tangible personal property in the district court - on appeal, AMC no longer disputes that the digital files are tangible personal property - AMC claimed that its MLA fees could no longer be subjected to the City's use tax. The City denied AMC's refund claims in full, and AMC appealed to the City's Finance Director, who also rejected AMC's claims.

         ¶ 4 On March 26, 2014, AMC appealed to the district court. After a bench trial, the district court upheld the City's use tax, finding that (1) the data files were tangible personal property under the City's code; (2) the true object of the MLAs was to acquire the data files rather than to obtain the intangible right to exhibit; and (3) the MLAs were not exempt from the use tax as a purchase for resale. AMC appealed.

         II. Use Tax

         ¶ 5 AMC argues that the district court erred by concluding that (1) the "true object" of the MLAs was to obtain tangible personal property and (2) AMC was not exempt from the use tax because the MLAs were not a wholesale transaction. We ...