Alabama Supreme Court 1950553.
The Alabama Department of Revenue (the "department") assessed state, city, and county sales taxes against Mrs. Dale Kennington (the "taxpayer"), in connection with the sales of commissioned portraits painted by the taxpayer. The taxpayer paid the tax under protest and applied for a refund. The department denied the petitions for refunds,
The trial court entered an order, finding that the personal family or individual portraits painted by the taxpayer were not a sale at retail of tangible personal property as set out in § 40-23-2(1), Ala.Code 1975, and were not subject to state, county, or municipal sales taxes. Section 40-23-2(1) levies a sales tax on persons "engaged or continuing within this state, in the business of selling at retail any tangible personal property whatsoever, including merchandise and commodities of every kind and character."
The department contends that the portraits sold by the taxpayer are tangible personal property, and, therefore, are subject to the Alabama sales tax levied in § 40-23-2(1), Ala.Code 1975.
The taxpayer contends that the gross receipts derived from the sale of the portraits are not taxable because, she argues, she is providing a professional service and the transfer of tangible personal property, the portrait itself, is only incidental to that service. The taxpayer contends that she must create the product that she eventually presents to a client and that the product is the result of her talent and skill and has no value except to those for whom the portrait is painted.
The issue before this court, as stated by the hearing officer, is: "whether or not the sale by [the taxpayer] of commissioned portraits is a sale of tangible personal property or is that sale a service which is not taxable?"
State Dep't of Revenue v. Acker, 636 So.2d 470, 473 (Ala.Civ.App.1994) (citations omitted).
The facts are undisputed. The parties stipulated that the taxpayer is a professional artist who contracts with individuals to paint their portraits or portraits of their family members. Before painting the portraits, the taxpayer visits in the home of the subjects for a sufficient time to acquaint herself with their personalities and characteristics. Attached to the stipulation of facts was an article from The Southern Artists, which discussed the taxpayer's style of operation and which stated in part:
The facts in the instant case are similar to those in State v. Harrison, 386 So.2d 460 (Ala.Civ.App.), cert. denied, 386 So.2d 461 (Ala.1980). In Harrison, the taxpayer was engaged in the business of rendering public relations services through an advertising agency. As needed, he prepared catalogs or brochures for use by the clients in displaying products. He arranged with a printing company for the company to complete the items and to deliver them to his clients. The total amount due from the client included payment for the printed materials, as well as for the advertiser's services. This court held:
Harrison, 386 So.2d at 461 (citation omitted).
Although the department is correct in asserting that the painted canvas delivered by the taxpayer to her patron is tangible personal property, it is mistaken in its argument that such transfer is not "a mere incident to the professional [service] rendered by [artists]." Haden v. McCarty, 275 Ala. 76, 78, 152 So.2d 141, 142 (1963). See also, Crutcher Dental Supply Co. v. Rabren, 286 Ala. 686, 246 So.2d 415 (1971).
The department contends that its Sales Tax Regulation 810-6-1-.91, relating to the manufacture of tangible personal property by special order, applies.
The department next contends that its Sales Tax Regulation 810-6-1-.114 applies. Paragraph 1 of that regulation states:
Paragraph 2 states:
The department attempts to distinguish paragraphs 1 and 2. The department argues that paragraph 1 applies most commonly to house painters because they are primarily rendering a service and not making a retail sale. Therefore, the department contends paragraph 2 applies to the portraits painted by the taxpayer because the regulation states that painted objects are subject to sales tax. We disagree.
These portraits are not "signs," or "furniture," or articles which the taxpayer has
As discussed above, the transfer of the painted canvas is a mere incident to the professional service rendered by the taxpayer. Except for the canvas used as a foundation for the paint, paragraph 1 would apply. In case of doubt, a tax law should be liberally construed in favor of the taxpayer. Montgomery Aviation Corp. v. State, 275 Ala. 266, 154 So.2d 24 (1963).
Therefore, we hold that the taxpayer was not engaged in selling tangible personal property and that the compensation received is not subject to sales tax levied by § 40-23-2(1). The judgment of the trial court is due to be affirmed.
ROBERTSON, P.J., and THIGPEN, YATES, and MONROE, JJ., concur.