Minot Federal Savings & Loan Assn. v. United States

Citation435 F.2d 1368
Decision Date28 December 1970
Docket NumberNo. 20408.,20408.
PartiesMINOT FEDERAL SAVINGS & LOAN ASSN., Appellee, v. UNITED STATES of America, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Johnnie M. Walters, Asst. Atty. Gen., Dept. of Justice, Meyer Rothwacks, Grant W. Wiprud and William K. Hogan, Attys., Washington, D. C., and Harold O. Bullis, U. S. Atty., Fargo, N.D., on brief for appellant.

John C. Johanneson and Michael D. Sommerville, St. Paul, Minn., and Robert W. Palda, Minot, N.D., on brief for appellee; Maun, Hazel, Green, Hayes, Simon & Aretz, St. Paul, Minn., Palda, Palda, Peterson, Anderson & Tossett, Minot, N. D., of counsel.

Before MEHAFFY and HEANEY, Circuit Judges, and MEREDITH, District Judge.

MEHAFFY, Circuit Judge.

This appeal is from a judgment in favor of the taxpayer awarding a refund of federal income taxes paid erroneously in the amount of $2943.50 plus interest for the calendar year 1963. Taxpayer contended that the movable partitions to be used in an office building, for which it expended the sum of $84,100.00 in 1963, are "tangible personal property" and not a "structural component" of a building and thus subject to investment credit under the provisions of the Internal Revenue Code of 1954 as amended. The district court, The Honorable George Register, held that taxpayer's movable partitions constituted "tangible personal property" under 26 U.S.C. § 48(a) (1) which is qualified for the investment credit allowance. We affirm the judgment of the district court.

Taxpayer had a building designed to house its own offices and to include several floors for rental purposes. Since it had no tenants at the time the building was designed and constructed, the floors above the first floor were laid out for movable partitions in order to accommodate the desires of any tenants it might obtain. The movable partitions do not bear any structural load and can be arranged as room dividers and easily removed from floor to floor or from building to building, and when not in use can be stored. These partitions are made on an assembly line and are stock or catalog items. Their installation is a simple process consisting of fastening a channel to the floor and the ceiling, putting the partitions in place and fastening them. The channels are attached with a No. 8 sheet metal screw at the ceiling and a small masonry nail in the floor at approximately three feet intervals. The small nail and screw holes are virtually invisible within a short time after their removal. This is particularly true to one who does not know that the space was originally divided by channels and also to one not specifically looking for the minute damage done by the screws and nails. It is even possible in some situations to install the partitions free standing. The partitions are moved about to suit the tenant, or stored, and they have a ready market if the owner wants to dispose of them after use. Many national firms use them and when an office is moved from one city to another the partitions are transferred along with the desks, typewriters and other office equipment. Some major concerns with a number of buildings in a complex keep a store of movable partitions to divide the rooms of their buildings to meet their needs.

Our sole question is whether such movable partitions as described above are tangible personal property and thus "section 38 property" affording qualified investment credit under the Internal Revenue Code of 1954 as amended, or "structural components" of the building not entitled to the credit.

The government contends in brief that a functional use or equivalency concept should be adopted in determining the intent of Congress, and the taxpayer counters with the argument that Congress adopted a test of permanency in determining whether an item is "tangible personal property" or a "structural component" of a building.

No meaningful analogous precedent has been cited us and our research disclosing none, we look to the language of the Congressional Act, the legislative history and the Treasury Regulations for our answer to the question.

The statute in pertinent part, 26 U.S. C. § 48(a) (1) (A) and (B), provides:

"(a) Section 38 property.
(1) In general. — Except as provided in this subsection, the term `section 38 property\' means —
(A) tangible personal property, or
(B) other tangible property (not including a building and its structural components) but only if such property —
(i) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services, or
(ii) constitutes a research or storage facility used in connection with any of the activities referred to in clause (i), or * * *."

It will be noted that subparagraph (A) includes as "section 38 property" tangible personal property. The meaning of the term "tangible personal property" is found in the Technical Explanation of the Bill, S. Rep. No. 1881, 87th Cong. 2d Sess., 1962-3 Cum. Bull. 858, as follows:

"Tangible personal property may qualify as section 38 property irrespective of whether it is used as an integral part of manufacturing, production, or extraction or of the furnishing of transportation, communications, electrical energy, gas, water, or sewage disposal services. Local law definitions will not be controlling for purposes of determining the meaning of the term `tangible personal property.\' For purposes of section 48, the term `tangible personal property\' includes any tangible property except land, and improvements thereto, such as buildings or other inherently permanent structures thereon (including items which are structural components of such buildings or structures). Assets accessory to the operation of a business, such as machinery, printing presses, transportation or office equipment, refrigerators, individual air-conditioning units, grocery counters, testing equipment, display racks and shelves, etc., generally constitute tangible personal property for purposes of section 48, even though such assets may be termed fixtures under local law." U.S.Code Cong. and Admin.News, p. 3455.

It is noted here that the above includes items such as buildings or other inherently permanent structures thereon (including items which are structural components of such buildings or structures). It is also noted from the above that office equipment, refrigerators, individual air-conditioning units, grocery counters, display racks and shelves, etc. generally constitute tangible personal property for the purposes of section 48 even though at least some such assets may be termed fixtures under local law. Treas. Reg. found in 26 CFR 1.48-1(c) defines tangible personal property as follows:

"(c) Definition of tangible personal property. If property is tangible personal property it may qualify as section 38 property irrespective of whether it is used as an integral part of an activity (or constitutes a research or storage facility used in connection with such activity) specified in paragraph (a) of this section. Local law shall not be controlling for purposes of determining whether property is or is not `tangible\' or `personal.\' Thus, the fact that under local law property is held to be personal property or tangible property shall not be controlling. Conversely, property may be personal property for purposes of the investment credit even though under local law the property is considered to be a fixture and therefore real property. For purposes of this section, the term `tangible personal property\' means any tangible property except land and improvements thereto, such as
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