concurring in part and dissenting in part:
I agree with the majority that we should apply a multi-factor or totality-of-the-cireum-stances test to determine whether the transaction involved here is the sale or use of tangible personal property under the Boulder ordinance. I also agree that in applying the test, we should apply a practical, common sense understanding to determine the nature of the transaction. This is the approach advocated by 2 Jerome R. Hellerstein & Walter Hellerstein, State Taxation, I 12.08[2] (3d ed.2002). As the authors point out, courts will have to untangle transactions that have both tangible and intangible qualities as long as legislative bodies continue to make artificial distinctions between tangible property that is taxed and services that are not taxed. Id.
However, I disagree with the majority's application of the test. Leanin' Tree purchases finished paintings from freelance artists. These are tangible, touchable objects that Boulder can tax under its ordinance. I respectfully concur in part and dissent in part from the majority opinion.
The State Taxation treatise cited above makes it clear that most states distinguish between written works which are not taxed, and photographs and artwork which are taxed. Id. The reason for the distinction is simple enough. Unless the writing involves a rare manuscript or something similar, the form of the writing has no significance. A publisher is purchasing the contents of the writing, that is, the purchaser buys the abstract ideas expressed in the writing.
A piece of visual art is treated quite differently. The purchaser buys a photograph or an artwork as a physical object that embodies the artist's ideas. The form is the substance of the work.
Although we have no relevant cases in Colorado, the regulations construing the state sales and use tax are helpful by analogy. Under these regulations, the services of photographers and photofinishers are taxable where the primary purpose of the transaction is the resulting physical photograph. 1 C.C.R. 201-5, Special Regulations, SR-84 "Photofinishers"; 1 C.C.R. 201-5, Special Regulations, SR-84.5 "Photographers". The regulation concerning photofinishers specifically states that "[plbotofinishers are engaged in the business of selling tangible personal property to their customers and such sales are taxable." 1 C.C.R. 201-5, Special Regulations, SR-84 "Photofinishers". Under the regulation governing photographers, their services are likewise taxable unless the services are specifically bargained for and the tangible personal property is irrelevant in the transaction. 1 C.C.R. 201-5, Special Regulations, SR-84.5 "Photographers".
With respect to transactions for the use of photography and art in a commercial setting, many states treat the transaction as a sale of taxable tangible personal property rather than a sale of nontaxable services. Preston *368v. State Bd. Of Equalization, 25 Cal.4th 197, 105 Cal.Rptr.2d 407, 19 P.3d 1148 (2001); State Taxation, at ¶ 13.05(2] (citing Federated Dep't Stores v. Kosydar, 45 Ohio St.2d 1, 340 N.E.2d 840 (1976); Southern Bell Tel. & Tel. Co. v. Dep't of Revenue, 366 So.2d 830 (Fla.Dist.Ct.App.1978); Hillman Periodicals, Inc. v. Gerosa, 285 AD. 441, 137 N.Y.S.2d 863 (1955); Voss v. Gray, 70 N.D. 727, 298 N.W. 1 (1941)).
Helpful in understanding the taxation distinction between written works and visual arts is the California Supreme Court's decision in Preston which found the taxation of an artist's work permissible in cireumstances very similar to the case at hand. In Preston, an artist appealed taxes assessed against her, arguing that her agreements with publishers and a manufacturer for the right to reproduce her artwork were not taxable under a state regulation that exempted taxation on intangible personal property. Preston v. State Bd. Of Equalization, 105 Cal.Rptr.2d 407, 19 P.3d at 1158-54. This regulation gave the publishing of a manuscript as an example for when the exemption would apply. Id. The artist specifically argued that an exemption would be proper in her case because, although the right to reproduce the artwork had been transferred, the artwork remained with her and thus no sale of artwork had occurred. Id. Pursuant to these agreements, the artist would transfer her finished pieces to the respective clients who would copy and reproduce the pieces and use the images in their finished products as illustrations in books or on rubber stamps. The artwork would then be returned to the artist, who would receive royalties on sales of the products. Id. at 1153.
In rejecting the artist's contentions, the California court distinguished artwork from a manuscript, explaining that tangible artwork was physically useful and necessary to the production process while a manuscript simply provided verbal guidance and was not essential to the manufacturing process. Id. at 1158. Although focusing on physical usefulness, essentially, the court found artwork distinguishable from written work because of the greater physical value of artwork to a purchaser that is not present in a manu-seript.
Keeping in mind this distinction between a writing and an artwork, I now turn to the cireumstances of this case. As stipulated by both parties, Leanin' Tree manufactures and sells greeting cards and other gift products that contain images of original artwork produced independently by artists. Pursuant to license agreements, Leanin' Tree is given the exclusive right to reproduce that artwork and "may incorporate such reductions, enlargements or modifications to individual original Artworks as Leanin' Tree, in its business judgment, may determine." In compensation, the artists are paid a royalty dependent on the volume of sales of the products displaying their artwork. In order to incorporate the artwork into its products, Leanin' Tree must physically obtain the artwork in order to create a color separation necessary to reproduce the artwork on the greeting cards and other products.
Under the facts presented in this case, it is clear that the purpose of the transactions in question was the use of the artists' actual tangible personal property. Similar to the case in Preston, Leanin' Tree's possession and use of the physical artwork in the manufacturing of its products was a key element in its transactions and necessary for the creation of its products. Although the transactions engaged in by Leanin' Tree are not typical transactions for the purchase of artwork, the fact that Leanin' Tree returns the artwork to the artists and pays them royalties contingent on the sales of items bearing their artwork has no significance. The transaction that Boulder seeks to tax is the same regardless of the purpose or nature of the transfer of the artwork and regardless of the form of payment agreed upon. Id. at 1158.
In my view, the Colorado regulations and the Preston decision provide a practical, common sense result that is consistent with the test adopted by the majority. Therefore, I would hold that payments made by Leanin' Tree, Inc. to artists for the right to reproduce their finished, original works of art on greeting cards and related products are sub*369ject to the City of Boulder's sales and use tax on tangible, personal property.
I am authorized to say that Justice MARTINEZ and Justice BENDER join in this concurrence and dissent.