## Facts

- Washington Times-Herald, Inc. published a Washington, D.C. newspaper and contracted with comic-strip syndicates to obtain comic strips for publication.
- Syndicates periodically sent the newspaper fiber matrices (“mats”) bearing impressions of current comic-strip sequences, created from original drawings through a photo-engraving process.
- The newspaper used the mats as the first step in producing printing plates: metal casts were made from the mats, arranged into a page, rematted as a full page, transferred to a metal plate, and then printed.
- The amounts paid were far greater than the cost of blank mats, reflecting the value of the creative content and the right to publish each strip (e.g., about $30 for a mat containing multiple daily strips with one-time use rights versus about $0.22 for a blank mat).
- The District of Columbia Use Tax Act exempted “[p]rofessional, insurance, or personal service transactions” where any sale of tangible personal property was an “inconsequential element” and not separately charged.
- A District regulation treated tangible personal property as an “inconsequential element” when its price was less than 10% of the total amount charged for services.
- The D.C. Tax Court found as a fact that the mats’ value and sales price were less than 10% of the amounts charged under the syndicate contracts, but nevertheless upheld a use-tax assessment treating the transactions as taxable retail sales.

## Issues

1. Whether the newspaper’s payments to syndicates for comic-strip mats were taxable “sales at retail” of tangible personal property under the D.C. Use Tax Act.
2. Whether the transactions instead qualified as exempt professional or personal service transactions because the transfer of mats was an “inconsequential element” under the statute and the regulation’s 10% test.

## Decision

- The court reversed the Tax Court.
- The transactions were not taxable retail sales of tangible personal property.
- The contracts were predominantly for creative services and reproduction rights; the mats were merely the physical medium used to implement those rights.
- Given the Tax Court’s factual finding that the mats’ value was less than 10% of the service charge, the regulatory definition of “inconsequential element” was satisfied and the statutory service exemption applied.

## Legal Principles

- A tax characterization turns on the substance of the transaction; where the buyer primarily purchases creative work and reproduction rights, a minor transfer of physical media may be incidental.
- Under the D.C. Use Tax Act, professional or personal service transactions are exempt when any associated transfer of tangible personal property is an inconsequential element and not separately charged.
- Where a regulation supplies a quantitative standard for “inconsequential” (here, less than 10% of the service charge) and the factfinder determines the standard is met, the transaction falls within the service exemption rather than being taxed as a retail sale.

## Conclusion

The court held that payments for comic-strip mats were exempt service transactions because the economic value lay in artistic production and limited publication rights, and the tangible mats constituted an inconsequential element under the governing 10% rule; the use-tax assessment was therefore invalid.


Washington Times-Herald, Inc. v. District of Columbia, 213 F.2d 23 (D.C. Cir. 1954)