Enerquin Air, Inc. v. State Tax Assessor

• Decision Date: 01 February 1996
• Docket Number: Docket No. K,No. 7538,7538
• Citation: 670 A.2d 926
• Parties: ENERQUIN AIR, INC. v. STATE TAX ASSESSOR. DecisionLawen 95 151.
• Court: Maine Supreme Court

Page 926

670 A.2d 926

ENERQUIN AIR, INC. v. STATE TAX ASSESSOR.

Decision No. 7538.

Law Docket No. Ken 95 151.

Supreme Judicial Court of Maine.

Argued Nov. 1, 1995.

Decided Feb. 1, 1996.

Jonathan A. Block (orally), Pierce, Atwood, Scribner, Allen, Smith & Lancaster, Portland, for Plaintiff.

Andrew Ketterer, Attorney General, Dennis M. Doiron (orally), Assistant Attorney General, Augusta, for Defendant.

Before WATHEN, C.J., and ROBERTS, GLASSMAN, CLIFFORD, RUDMAN, DANA, and LIPEZ, JJ.

GLASSMAN, Justice.

Enerquin Air, Inc. appeals from the summary judgment entered in the Superior Court (Kennebec County, Alexander, J.) in favor of the State Tax Assessor on Enerquin's complaint seeking a review, pursuant to 36 M.R.S.A. § 151 (Supp.1995), of the Assessor's denial of its request for reconsideration of the assessment of a use tax imposed for the use of certain materials incorporated into an air process system installed in a building owned by S.D. Warren. Contrary to Enerquin's contentions, the trial court properly determined as a matter of law that the system was annexed to S.D. Warren's building and sold by Enerquin to S.D. Warren as realty and therefore subject to the use tax pursuant to 36 M.R.S.A. §§ 1752(11) (1990 & Supp.1995) and 1861 (Supp.1995). Accordingly, we affirm the judgment.

This dispute arose from S.D. Warren's expansion of its paper making operations at Skowhegan where, over a period of time, it was constructing new buildings to house new paper machines. During this expansion, Enerquin entered into an agreement with S.D. Warren for the off-site fabrication and assembly of an air process system to be installed in building number 3, which was being constructed to house a new paper machine. The sale and transfer of title of the system from Enerquin to S.D. Warren occurred after its installation. By a notice to Enerquin in November 1992, the Assessor imposed on Enerquin a use tax, plus interest and penalties, for the use of certain materials incorporated in that part of the air process system attached to the building. ¹ In response to Enerquin's petition for reconsideration of the assessment pursuant to 36 M.R.S.A. § 151, the Assessor removed the penalties, reduced the assessment by a small amount, but upheld the assessment of a use tax.

Enerquin filed the present action alleging that the assessed items were purchased and resold by Enerquin as tangible personal property and were not subject to a use tax. Following completion of discovery procedures, both parties filed a motion for a summary judgment. The parties agreed that it was not the facts but the interpretation of those facts that was in dispute. The court had before it extensive documentation, including, inter alia, extensive statements of material facts; S.D. Warren's instruction to bidders; the agreement between Enerquin and S.D. Warren; and drawings, photographs and affidavits focusing on many of the components of the system, its installation and function with relation to building number 3, and the effect of its removal. After a hearing, the court, in reliance on Bangor-Hydro Electric Co. v. Johnson, 226 A.2d 371 (Me.1967), determined as a matter of law that the property at issue was sold as real property and is subject to the use tax, and accordingly, granted the Assessor's motion. From the judgment entered in favor of the Assessor, Enerquin appeals.

I

"In reviewing the grant of a motion for a summary judgment, we examine the evidence in the light most favorable to the nonprevailing party to determine whether the trial court committed an error of law." Dubois v. City of Saco, 645 A.2d 1125, 1127 (Me.1994). A use tax is imposed on the storage, use or other consumption in this state of tangible personal property the sale of which would be subject to a sales tax. 36 M.R.S.A. § 1861 (Supp.1995). A sales tax is imposed on the value of all tangible personal property "sold at retail" in this state. 36 M.R.S.A. § 1811 (Supp.1995). A "retail sale" is "any sale of tangible personal property in the ordinary course of business for any purpose other than for resale, except resale as a casual sale, in the form of tangible personal property." 36 M.R.S.A. § 1752(11) (Supp.1995). Accordingly, sales of tangible personal property which are later resold as tangible personal property are exempt from a sales tax. Id. Sales of tangible personal property incorporated into and sold as real property, however, are subject to a use tax. Katz v. State Tax Assessor, 472 A.2d 428, 430-31 (Me.1984).

Although 36 M.R.S.A. § 1752(17) (1990) defines "tangible personal property" as "personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses, ..." the tax statute affords no definition of "real property" or "realty." There is nothing in the statute, however, either limiting or expanding the definition of "real property" or "realty" established by the general principles of property law or preventing the application of those principles in determining whether tangible personal property has become a part of real estate by accession. In the seminal case of Bangor-Hydro Electric, 226 A.2d at 371, we set forth the three-part test applicable to that determination. Pursuant to 36 M.R.S.A. § 151, Enerquin had the burden of proof on all issues presented to the trial court.

II

In the first instance, we address Enerquin's contention that although the 1991 amendment to 36 M.R.S.A. § 151 effected a change in the role of the Superior Court with regard to questions of fact, the amendment did not affect the court's role as to questions of law. Enerquin argues that by reason of the court's misinterpretation of the effect of the amendment, the court erred by not giving significant weight to the Assessor's previous decisions involving the application of 36 M.R.S.A. § 1861. We disagree.

In pertinent part, section 151 provides:

The State Tax Assessor's decision on reconsideration constitutes final agency action that is subject to review by the Superior Court in accordance with the Maine Administrative Procedure Act, except that Title 5, sections 11006 and 11007 do not apply. The Superior Court shall conduct a de novo hearing and make a de novo determination of the merits of the case. It shall make its own determination as to all questions of fact or law. The Superior Court shall enter such orders and decrees as the case may require. The burden of proof is on the taxpayer.

36 M.R.S.A. § 151 (emphasis added to depict the language of the amendment by P.L.1991, ch. 873, § 3, effective June 30, 1992).

Enerquin misconceives the effect of the language of the present statute. Following the 1991 amendment, the Superior Court no longer functions in an appellate capacity for the purpose of reviewing the decision of the Assessor. Rather, the court functions as the forum of origin for a determination of both facts and law. In that capacity it would be inappropriate for the court to defer to previous decisions of one of the litigants or to give deference to one of the litigant's interpretations of the law applicable to the facts as determined by the court or agreed to by the parties. See L.L. Bean, Inc. v. State Tax Assessor, 649 A.2d 331, 332 (Me.1994) (because of requirements of section 151, Superior Court did not...