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

2020 COA 4, 471 P.3d 1139

• Court: Colorado Court of Appeals
• Decided: January 2, 2020
• Docket: 18CA2165
• Status: Published

Opinion

The summaries of the Colorado Court of Appeals published opinions constitute no part of the opinion of the division but have been prepared by the division for the convenience of the reader. The summaries may not be cited or relied upon as they are not the official language of the division. Any discrepancy between the language in the summary and in the opinion should be resolved in favor of the language in the opinion.

SUMMARY January 2, 2020

2020COA4

No. 18CA2165, Am. Multi-Cinema, Inc. v. City of Aurora — Taxation — Municipalities — Sales and Use Tax

A division of the court of appeals considers whether the City of

Aurora properly levied a use tax on American Multi-Cinema, Inc.’s

(AMC’s) master licensing agreements (MLAs) with motion picture

distributors. The division follows Cinemark USA, Inc. v. Seest, 190

P.3d 793 (Colo. App. 2008), applying its analysis to new technology.

Because (1) the true object of the MLAs is to obtain tangible

personal property (the data files), and (2) AMC’s exhibition of motion

pictures is not a resale exempt from the City’s use tax, the division

affirms the district court’s judgment upholding the City’s use tax

levied on the MLAs. COLORADO COURT OF APPEALS 2020COA4

Court of Appeals No. 18CA2165 Arapahoe County District Court No. 14CV30822 Honorable Kurt A. Horton, Judge

American Multi-Cinema, Inc., as successor-in-interest to AMC Showplace Theatres, Inc., d/b/a Arapahoe Crossing 16 and Southland Stadium 16,

Plaintiff-Appellant,

v.

City of Aurora,

Defendant-Appellee.

JUDGMENT AFFIRMED

Division VII Opinion by JUDGE FOX Tow and Casebolt*, JJ., concur

Announced January 2, 2020

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

*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art. VI, § 5(3), and § 24-51-1105, C.R.S. 2019. ¶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.

1 Portable Hard Drives

¶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.

2 ¶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 disagree.

A. Preservation, Standard of Review, and Statutory Construction

¶6 The parties generally agree that AMC preserved its arguments

for appeal. However, the City contends that AMC did not previously

argue that its licensing agreements were exempt from the use tax as

“an ingredient of a manufactured or compounded product, in the

regular course of a business.” Aurora Mun. Code § 130-198(2).

Because AMC argued that it was exempt from the use tax under

section 130-198(2) before the district court, we consider its 3 argument sufficiently preserved for appeal. See Berra v. Springer &

Steinberg, P.C., 251 P.3d 567, 570 (Colo. App. 2010) (“[T]o preserve

the issue for appeal all that was needed was that the issue be

brought to the attention of the trial court and that the court be

given an opportunity to rule on it.”).

¶7 Pursuant to section 39-21-105(2)(b), C.R.S. 2019, a taxpayer

may appeal its local government’s final taxing determination to the

district court, and the district court shall try the case de novo. See

also Noble Energy, Inc. v. Colo. Dep’t of Revenue, 232 P.3d 293, 295-

96 (Colo. App. 2010). On appeal, we defer to the district court’s

factual findings and disturb them only if they are clearly erroneous

and lack any support in the record. Id. at 296. But, we review the

district court’s application of the law and a governmental body’s

interpretation of the law de novo. Treece, Alfrey, Musat & Bosworth,

PC v. Dep’t of Fin., 298 P.3d 993, 996 (Colo. App. 2011); Noble

Energy, Inc., 232 P.3d at 296.

¶8 To the extent our analysis requires application of the City’s tax

laws, we construe a municipal code using the same rules that we

use in interpreting statutes. Waste Mgmt. of Colo., Inc. v. City of

4 Commerce City, 250 P.3d 722, 725 (Colo. App. 2010). In construing

legislation, we look first to the plain language, reading the statutory

provision as a whole and in such a way as to give effect to every

word. Id. We reject interpretations that will render words or

phrases superfluous and avoid interpretations that produce illogical

or absurd results. Id. When “the body enacting particular

legislation has not expressly defined a term,” we give that term “its

ordinary meaning.” City & Cty. of Denver v. Expedia, Inc., 2017 CO

32, ¶ 18. If a tax code’s language is clear, we need not resort to

other rules of statutory interpretation. Waste Mgmt. of Colo., Inc.,

250 P.3d at 725.

¶9 We defer to the interpretation provided by the agency charged

with the administration of the tax code unless that interpretation is

inconsistent with the legislative intent. Id. But statutory provisions

establishing and defining the scope of a tax “will not be extended

beyond the clear import of the language used, nor will their

operation be enlarged by analogy.” Noble Energy, Inc., 232 P.3d at

296 (citation omitted). Thus, we resolve all doubts against the

government and in favor of the taxpayer. Id.

5 ¶ 10 However, this principle is inapplicable when a taxpayer claims

a statutory exemption from taxation. Id. In such cases the

presumption is reversed, and the taxpayer has the burden of

proving entitlement to the exemption claimed. Id.

B. Applicable Law

¶ 11 The City levies a use tax on

every person in the city . . . for the privilege of using, storing, distributing, or consuming in the city any tangible personal property . . . or taxable service purchased, leased or rented and not subjected to the city sales tax, without regard to whether the property is purchased from sources within or without the city.

Aurora Mun. Code § 130-196(a). The City defines “use tax” as a tax

paid “by a consumer for using, storing, distributing or otherwise

consuming tangible personal property or taxable services inside the

city.” Aurora Mun. Code § 130-31. The code defines “tangible

personal property” as “personal property that can be one or more of

the following: seen, weighed, measured, felt, touched, stored,

transported, exchanged, or that is in any other manner perceptible

to the senses.” Id. The stated intent of the City’s use tax is to

ensure that “every person who stores, uses, distributes, or

consumes in the city any tangible personal property or taxable 6 services purchased, leased or rented at retail” is taxed because they

are “exercising a taxable privilege.” Aurora Mun. Code § 130-33(b).

¶ 12 The City’s tax code exempts from use tax the “storage, use or

consumption of any tangible personal property purchased for resale

in this city, either in its original form or as an ingredient of a

manufactured or compounded product, in the regular course of a

business.” Aurora Mun. Code § 130-198(2). To determine whether

a company’s purchase of tangible personal property is for resale, we

ask “whether the primary purpose of the purchase was the

acquisition of the item for resale in an unaltered condition and

basically unused by the purchaser.” Coors Brewing Co. v. City of

Golden, 2013 COA 92, ¶ 32 (quoting Conoco, Inc. v. Tinklenberg, 121

P.3d 893, 896 (Colo. App. 2005)).

¶ 13 In American Multi-Cinema, Inc. v. City of Westminster, 910 P.2d

64, 66 (Colo. App. 1995), a division of this court held that a movie

theater’s use of film reels received from distributors to exhibit

motion pictures to the public constituted “use” of “tangible personal

property” for use tax purposes. Because the theater obtained a

finished product in the form of tangible film reels, the division held

7 it was “impossible to separate the lease of the tangible object, the

film, from the intangible license to use it.” Id.

¶ 14 In determining whether a use tax may be applied to

transactions with tangible and intangible aspects, our supreme

court held in City of Boulder v. Leanin’ Tree, Inc., 72 P.3d 361, 366

(Colo. 2003), that courts must “identify characteristics of the

transaction at issue that make it either more analogous to what is

reasonably and commonly understood to be a sale of goods, or more

analogous to what is generally understood to be the purchase of a

service or intangible right.” This “true object” test “requires a court

to analyze the ‘totality of the circumstances’ to determine whether

the true object . . . of the transaction is the acquisition of tangible

personal property or the acquisition of intangible services.” Treece,

Alfrey, Musat & Bosworth, PC, 298 P.3d at 998 (quoting Leanin’

Tree, 72 P.3d at 365-66). If the true object is for tangible personal

property, then the use tax applies; but, if the true object is for

intangible property or services, then it does not. Id.

¶ 15 Examining whether the true object of a transaction is a

tangible good or an intangible right, the Leanin’ Tree court noted

8 that a variety of factors aid this analysis, including (1) the value of

the tangible property compared to that of the intangible property or

service; (2) whether there was an alternative method of transfer; (3)

the length of time the information provided retains its value; (4)

whether there were constraints on the buyer’s ability to use the

tangible property; (5) what was done with the tangible property after

it yielded the intangible component; (6) whether the tangible

property represented the finished product sought by the buyer; and

(7) the skill and expertise used to create the tangible and intangible

aspects of the transaction. Leanin’ Tree, 72 P.3d at 365-66. The

Leanin’ Tree court acknowledged that while “some multi-factor or

totality of circumstances test” is unavoidable to determine the true

object of a transaction, the “flexibility of such an analysis will

inevitably leave the characterization of some transactions in doubt.”

Id. at 366-67. Thus, the circumstances of each case require

individualized scrutiny.

¶ 16 Years later, in Cinemark USA, Inc. v. Seest, 190 P.3d 793 (Colo.

App. 2008), a division of this court applied the Leanin’ Tree factors

to determine whether a movie theater’s use of motion picture film

9 reels to display films to the public for profit was properly subjected

to a local use tax. The division recognized that the theater’s

contracts “require it to use the films precisely in the form in which

they are distributed” and were not “an option to use an idea of the

film distributors,” but rather were contracts to obtain “a physical

object embodying the idea in its final form.” Id. at 797-98.

Accordingly, the division concluded that the true object of the

theater’s contracts with distributors was to obtain and use motion

picture film reels — tangible final products — for exhibition;

therefore, the transactions were properly subject to a use tax under

the city’s code. Id. at 799.

¶ 17 In reaching this conclusion, the division noted that, unlike the

transaction in Leanin’ Tree, Cinemark’s exhibition of motion

pictures via the tangible film reels more closely resembled “the

method of payment for the use or exhibition of a finished piece of

art, which the court in Leanin’ Tree acknowledged was a taxable

event.” Id. at 798. While the division recognized that the

transaction involved intangible copyrights, it noted that the theater

was not “purchasing the copyright detached from the film” because

10 without “the transfer of the actual film, the license to exhibit it

would be valueless.” Id. at 798.

C. “True Object” Analysis

¶ 18 On appeal, AMC does not dispute that the data files are

tangible personal property. However, it argues that the true object

of the MLAs is to obtain nontaxable intangible rights: the right to

exhibit motion pictures. AMC contends that the Leanin’ Tree

factors support its assertion because (1) the intangible right to

exhibit is more valuable than the tangible good — the data file —

which is provided at no cost; (2) AMC can obtain the tangible data

files by alternative means, and the transfer method used to obtain

the motion pictures has no bearing on the licensing fee paid; (3) the

information transmitted through the data files loses its value

quickly because motion pictures generally achieve the highest value

in the first two weeks after their release; (4) the MLAs significantly

constrain AMC’s use of the data files; (5) AMC does not retain the

tangible property, as it must return the portable hard drives and

delete the data files from its servers; (6) the data files are not a

finished product because AMC must use special hardware and

11 software to translate the data files into the visual and sound

elements required to show a motion picture; and (7) only a

negligible degree of skill is needed to copy the data files onto hard

drives but the intangible value of the motion picture requires

expertise and artistic skill to create.

¶ 19 Neither party disputes that that the percentage of admission

sales that the distributors receive is based on the intangible aspects

of the motion pictures, derived from the films’ intellectual and

artistic content, rather than the value of a data file. Accordingly,

AMC contends that under Waste Management the true object of the

MLAs must be to obtain the intangible right to exhibit. We

disagree.

¶ 20 In Waste Management, a division of this court concluded that

the tangible aspects of the transaction “were merely aids” to the

true object of providing a trash removal service. Waste Mgmt. of

Colo., Inc., 250 P.3d at 729-30. We disagree with AMC’s explicit

assertion that the intangible right to exhibit is more valuable than

the tangible data file — and its implicit assertion that the intangible

right is separable — because, as the Cinemark division recognized,

12 without “the transfer of the actual film, the license to exhibit it

would be valueless.” Cinemark USA, Inc., 190 P.3d at 798. Thus,

the data files are not “merely incidental” to the licensing

agreements. Cf. Noble Energy, Inc., 232 P.3d at 299 (holding that

the true object of hiring the oil and gas well fracturing companies

was to receive an intangible service because the tangible aspects of

the service that involved the use of fracturing fluids and sands were

merely incidental). The artistic skill needed to create a motion

picture is admittedly greater than the skill needed to translate a

motion picture into a data file. But, because the data file is an

essential and necessary component to AMC’s right to exhibit, we

cannot conclude that the MLAs here more closely resemble the

purchase of a service rather than a sale (or lease) of goods. See

Leanin’ Tree, Inc., 72 P.3d at 366. Like in Cinemark, the true object

of the licensing agreements here is to obtain, for the designated

timeframe, tangible personal property that is inseparable from its

intangible attributes. See Malco Theaters, Inc. v. Roberts, No.

W2010-00464-COA-R3CV, 2011 WL 1598884, at *16 (Tenn. Ct.

App. Apr. 26, 2011) (unpublished opinion) (holding that rented films

13 were tangible property because their physical aspects were

“inseparable from their intangible intellectual property

components”).

¶ 21 The record supports AMC’s assertions that the MLAs

significantly constrain its use of the data files and that the

transmitted motion pictures quickly lose their value after their

initial exhibition. And while the fee agreement in the MLAs is based

on the underlying value of the motion pictures rather than the

value of a data file, the tangible aspect of the mixed transaction

retains value. Indeed, the data files contain copyrighted material

protected by extensive security measures and, while later returned

by AMC, they are not discarded as waste. Cf. Treece, Alfrey, Musat

& Bosworth, PC, 298 P.3d at 999 (holding that, under the Leanin’

Tree factors, the true object of the transaction was to obtain

intangible information because “after the documents have yielded

their intangible component, the paper may be . . . discarded”); Noble

Energy, Inc., 232 P.3d at 298 (holding that the tangible materials

were not the true object of the transaction but merely incidental

because, once consumed, the tangible aspects were “disposed of as

14 waste by the taxpayer immediately following the service”). It is

widely known that after films cease being exhibited in theaters,

there are secondary markets where additional value is realized.

See, e.g., United States v. Syufy Enters., 903 F.2d 659, 665 n.9 (9th

Cir. 1990) (considering whether a movie theater’s distribution of

motion pictures to ancillary markets for home viewing violated

antitrust laws and recognizing that a “first-run theatrical exhibition

enhances a film’s performance in auxiliary markets”).

¶ 22 AMC also argues that its ability to obtain motion pictures by

alternative means, like the film reels, shows that the true object of

the MLAs is intangible. We disagree. As AMC points out, it spent

around $325 million nationwide and $1 million per theatre to

convert its theaters from using the 35-millimeter film reels to digital

equipment. Thus, returning to the film reels seems unlikely. See

Leanin’ Tree, Inc., 72 P.3d at 365; cf. Treece, Alfrey, Musat &

Bosworth, PC, 298 P.3d at 998 (concluding that the focus of the

transaction was the “provision of a service” because there was an

alternative means of transfer).

15 ¶ 23 We similarly reject AMC’s assertion that the data files it

receives are not the finished product because it uses digital

equipment to translate the data files into a motion picture. In

Leanin’ Tree, the court recognized that the purchased art was not a

finished product but rather was a “right to edit and publish”

because the company used the artists’ images to create “a new

tangible object” that would be “sold as a new product.” Leanin’

Tree, Inc., 72 P.3d at 366. Conversely, as AMC notes, it is

significantly constrained in its ability to use the data files. AMC is

prohibited from using the data files other than to exhibit the motion

pictures to its patrons — without alteration — for the agreed-upon

exhibition period. See Treece, Alfrey, Musat & Bosworth, 298 P.3d

at 1000 (concluding that Cinemark was distinguishable because the

transaction was not for the “use of the physical product itself,” but

was to obtain information and “the tangible component of the

transaction [was] not necessarily a final product”). Although AMC

returns the portable hard drives and deletes the data files from its

servers, returning the tangible property here is largely immaterial.

See Cinemark USA, Inc., 190 P.3d at 797. While the Leanin’ Tree

16 court concluded that the return of the original artwork was

material, such a fact was important only because, as the Cinemark

division noted, “it showed that the artwork was not being used as a

final product.” Id. Here, while the data files are returned (or

deleted), they retain value because they contain copyrighted

material. Cf. Treece, Alfrey, Musat & Bosworth, PC, 298 P.3d at

998-99 (holding that the transaction’s focus was for the purchase of

a service rather than on the tangible provision of paper because the

value of the physical paper was “minimal compared to the value of

the services and labor” and “after the documents have yielded their

intangible component, the paper may be . . . discarded”). Applying

the relevant Leanin’ Tree factors, we conclude that access to the

tangible data files was the true object of the MLAs because the

value of the inseparable intangible copyright was dependent upon

the data files being transmitted to AMC for use within the City. See

Cinemark USA, Inc., 190 P.3d at 798.

¶ 24 Lastly, we reject AMC’s contention that Cinemark is

inapplicable here because it involved a theater’s use of film reels

rather than the new digital equipment and digital data files that

17 AMC now uses. AMC has historically paid a use tax on its licensing

agreements, and we perceive no basis to abandon the Cinemark

analysis because of a technological change. AMC does not deny

that the MLAs involve the use of tangible personal property: the

data files. And whether the motion pictures are transmitted via film

reels or data films is of no moment; the underlying transaction

remains the same. See Leanin’ Tree, Inc., 72 P.3d at 366; Cinemark

USA, Inc., 190 P.3d at 798; see also Malco Theaters, Inc., 2011 WL

1598884, at *16 (holding that the “fact that Malco may now receive

the motion pictures via electronic transmission is irrelevant”).

D. Use Tax Exemption

¶ 25 AMC next contends that it is exempt from the City’s use tax

because, even assuming that the true object of the MLAs is to

obtain the tangible data files, the purpose of the MLAs is to acquire

the data files for resale to its movie patrons. AMC argues that

because it cannot alter the data files, but rather may only use its

unaltered version to exhibit to its patrons, the final consumers of

the motion pictures are its patrons. AMC also asserts that the

exemption’s purpose is to avoid double taxation of the same item,

18 and because AMC pays a sales tax on its admission fees, the City’s

use tax on AMC’s MLA fees constitutes a double tax on its

admission sales.

¶ 26 We agree with previous divisions of this court, which have held

that a theater’s exhibition of motion pictures is not a resale. See

Cinemark USA, 190 P.3d at 799 (“Unlike in Leanin’ Tree, where the

ultimate consumers were the purchasers of the greeting cards[,] . . .

Cinemark purchases the right to show copyrighted film reels and

uses them as finished products . . . . Movie viewers are no more

consumers of film reels than they are of seats, screens, or

projectors used in movie theaters. Thus, because it acquires and

displays a final product, we conclude Cinemark is the end user or

consumer of the film reels.”); Am. Multi-Cinema, Inc., 910 P.2d at 67

(“The customers who pay a fee to watch the running of a motion

picture are not given possession of the tangible film, nor do they

seek to obtain such possession or any other right thereto. The fee

they pay is simply to be able to view images from the film as they

are projected onto the screen. Hence, the charge made by plaintiff

for the privilege of viewing such images does not constitute a re-sale

19 of the film; it is plaintiff, not its customers, who is the ultimate

‘user’ of such tangible personal property.”); see also Expedia, Inc.,

¶ 18; Waste Mgmt. of Colo., Inc., 250 P.3d at 725. Because AMC

does not resell the digital files but rather exhibits motion pictures

for profit, it is the final consumer and is not exempt from the use

tax under section 130-198(2) of the City’s tax code. See A.B.

Hirschfeld Press, Inc. v. City & Cty. of Denver, 806 P.2d 917, 923-24

(Colo. 1991) (holding that a commercial printing company’s

purchase of “pre-press materials” was not exempt from a use tax as

a resale because it “could not perform the services it was

contractually obligated to perform for its customers without [using]

the pre-press materials. . . . Hirschfeld made substantial use of the

pre-press materials for its own direct and indirect benefit”); Coors

Brewing Co., ¶ 39 (“[I]f a purchaser permanently diverts materials

or items to its own use, the purchase of the materials or items is

subject to [a] use tax because it is a retail purchase.”).

¶ 27 Nor can we conclude that a double taxation has occurred. See

Am. Multi-Cinema, 910 P.2d at 67 (“The use tax is levied upon

plaintiff for the privilege of using the film by exhibiting it. The

20 admissions fee is levied upon its customers for the privilege of

viewing the screen where the moving images are projected. Hence,

not only is each tax levied upon different persons, but it is levied

upon the exercise of different privileges arising out of separate

transactions.”). While the sales tax on AMC’s admission revenues

may impact its bottom line, AMC’s inability to retain the entirety of

its gross admission sales does not mean that double taxation has

occurred. Rather, the use tax is “complimentary to sales tax, but is

paid directly to the city rather than to a vendor collecting on behalf

of the city” and “is simply ‘sales tax that wasn’t paid to the vendor.’”

City of Aurora, General Use Tax, https://perma.cc/V5Y9-UNNW.

The purpose of the City’s use tax is to ensure that every person

using, distributing, or consuming tangible personal property within

the city’s limits pay a use tax because it is “exercising a taxable

privilege.” Aurora Mun. Code § 130-33. Because AMC is using

data files within the City’s limits and is not reselling them — and its

licensing agreements with distributors are not taxed elsewhere —

AMC is not subjected to double taxation under the City’s tax code.

See Noble Energy, Inc., 232 P.3d at 296 (recognizing that the party

21 claiming a tax exemption bears the burden of proving that such an

exemption applies).

¶ 28 Alternatively, AMC contends that it uses the data files as “an

ingredient of a manufactured or compounded product” for resale

because the data files are transformed, using projectors, a screen,

sound systems, and other equipment to become a new product for

AMC’s patrons. We disagree.

¶ 29 The data files are not “an ingredient of a manufactured or

compounded product” because AMC receives a final, finished

product that it exhibits to its patrons unaltered. See Coors Brewing

Co., ¶ 35 (“[I]tems or materials that are incorporated into a

company’s product and then sold to a consumer are not purchased

for resale.”). Indeed, the MLAs expressly prohibit AMC from altering

the films. And, as AMC acknowledges, minimal expertise is needed

to transmit the motion pictures onto data files and then project the

movies on to a screen for patrons to view. Because AMC exhibits

the digital files for profit and is unable to alter or transform the

motion pictures contained on the digital files, its MLA fees are not

22 exempt from the City’s use tax as “an ingredient of a manufactured

or compounded product” under section 130-198(2).

III. Conclusion

¶ 30 We affirm the judgment.

JUDGE TOW and JUDGE CASEBOLT concur.