Avco Mfg. Corp. v. Connelly

• Decision Date: 25 March 1958
• Citation: 140 A.2d 479,145 Conn. 161
• Court: Connecticut Supreme Court
• Parties: AVCO MANUFACTURING CORPORATION v. William F. CONNELLY, Tax Commissioner. 1 Supreme Court of Errors of Connecticut

Page 479

140 A.2d 479

145 Conn. 161

AVCO MANUFACTURING CORPORATION v. William F. CONNELLY, Tax Commissioner. ¹

Supreme Court of Errors of Connecticut.

March 25, 1958.

John S. Barton, Bridgeport, with whom, on the brief, was Gordon M. Tuttle, New York City, of the New York bar, for the appellant (plaintiff).

Walter T. Faulkner, Asst. Atty. Gen., with whom were F. Michael Ahern, Asst. Atty. Gen., and, on the brief, John J. Bracken, Atty. Gen., for the appellee (defendant).

H. Eugene Heine, Jr., Washington, D. C., of the Pennsylvania bar, with whom, on the brief, were John N. Stull, Washington D. C., of the New York and Pennsylvania bars, acting Asst. Atty. Gen., of the United States, Simon S. Cohen, U. S. Atty., Henry C. Stone, Asst. U. S. Atty., Hartford, and A. F. Prescott, Washington, D.C., of the Maryland bar, as amicus curiae.

Before WYNNE, C. J., DALY and MURPHY, JJ., and COTTER and MacDONALD, Superior Court Judges.

MacDONALD, Justice.

In 1953, the defendant levied against the plaintiff a sales and use tax deficiency assessment which, with statutory interest, totaled $76,954.29. This assessment was imposed, under the provisions of the Sales and Use Tax Act (General Statutes, c. 104, §§ 2090-2115, as amended), with respect to the purchases of certain so-called facilities, consisting principally of machinery, for a large aircraft engine manufacturing plant located in Stratford and owned by the United States of America. The plaintiff appealed under § 2106 to the Superior Court, which affirmed the tax deficiency assessment and dismissed the appeal, and from that judgment the plaintiff has appealed to this court.

The facts found by the court may be stated in summary as follows: In 1951 the United States, as the owner of the large manufacturing plant in Stratford formerly occupied by the Chance-Vought Division of United Aircraft Corporation, awarded to the plaintiff certain supply contracts for the production by the plaintiff, at this plant, of aircraft engines and parts for the air force of the United States. At about the same time, the government awarded to the plaintiff facilities contracts, so-called, providing for the use by the plaintiff of the government-owned plant and facilities and, further, for the purchase and installation of certain new facilities. Following approval by a government contracting officer assigned to the plant, certain new facilities, principally machinery, were purchased, installed and used for the production of the engines and parts. The plaintiff received no profit on the purchase and installation of the facilities, all of which were purchased, used and maintained under the constant supervision of government employees.

The basic authority under which the government entered into the facilities contracts with the plaintiff was contained in the Armed Services Procurement Act of 1947 (62 Stat. 21, 41 U.S.C.A. §§ 151-161 ²) and the regulations issued and published thereunder, which defined the term 'facilities contract' as 'a contract under which industrial facilities are provided by the Government for use in connection with the performance of a separate contract or contracts for supplies or services' (32 C.F.R. § 412.101-8 [1951]), and the term 'property provided by the Government' as including both facilities actually furnished by the government and those acquired by a contractor under a contract (id. § 412.101-2 [b]), and provided that title to all facilities furnished to a contractor should remain in the government and that title to facilities acquired by a contractor the cost of which is reimbursable should vest in the government at the earliest practicable time. Id. § 412.405. In accordance with the policy and requirements of these regulations, the plaintiff's facilities contracts with the government expressly provided, in clause 4(A), for vesting of title in the government immediately upon delivery by the vendor. ³

When the plaintiff acquired facilities, the purchase orders specified that shipment was to be f. o. b. the vendor's plant, and each purchase order stated '[t]his equipment is purchased on behalf of the United States Government and will be Government owned.' Applications for bills of lading for transporting the facilities specified that '[t]itle to property during transportation is vested in the United States Government.' The plaintiff paid each vendor for the facilities, some of which were acquired in interstate commerce from vendors outside of Connecticut and some from vendors within the state, and after arrival of the facilities at the plant and inspection by air force employees the government reimbursed the plaintiff for the cost of the facilities.

Under the relevant provisions of the facilities contracts and the armed services procurement regulations, the schedules of equipment to be acquired by the plaintiff had to be approved by the government; the government reserved the right to furnish any or all of the facilities directly; the acquisition of any facilities by the plaintiff from third parties was subject to the prior approval of the government; the use of all facilities was specifically controlled by the government; the government reserved the right to divert any or all facilities acquired by or furnished to the plaintiff; substantially all risk of loss or damage to the facilities was assumed by the government; the government retained the right at all times to terminate or limit the plaintiff's right to use any or all of the facilities; and all shipments of facilities title to which was vested in the government were, subject to the approval of the government contracting officer, to be made on government bills of lading.

The plaintiff issued purchase orders to vendors on forms containing the plaintiff's name in prominent printing at the head, but the terms were as revised and approved by the contracting officer. Each order stated: 'This equipment is purchased on behalf of the United States Government and will be Government owned.' Each order instructed the vendor to make shipment by a government bill of lading, made reference to 'attached instructions for obtaining' such a bill and was accompanied by a form of application for one. The application form contained, over the signature of a government contracting officer, the statement: 'Title to property during transportation is vested in the United States Government and transportation charges are properly payable from public funds.' In some instances, vendors made shipments on commercial bills of lading instead of on government bills, as instructed, and in such cases the plaintiff paid the shipping charges and was reimbursed by the carrier after the government, upon investigation and certification by the contracting officer, had paid the carrier at the lower rates applicable to government bills. Where government bills were used originally, the shipping charges were paid directly by the government at the outset. On all bills of lading, the plaintiff was named as the consignee, and the vendor's invoices were made out to the plaintiff, which paid the invoices with its own funds and processed the documents relating to the purchases through the resident government auditor in order to obtain reimbursement from the government in accordance with the terms of the facilities contracts. The plaintiff was, in fact, reimbursed by the government for all facilities thus purchased during 1951.

Shortly after a facilities item arrived at the plant, a government employee and an employee of the plaintiff made a preliminary inspection to confirm its arrival in good condition, and it was tagged or marked as government property, as required by the facilities contract. At some later time, often several weeks after delivery and after the equipment was installed and in operation, a final inspection was made by the government representatives, this further inspection being a condition of reimbursement of the plaintiff for its expense in acquiring the facility. At no time did the plaintiff record any of the facilities thus purchased as its own property or make any claim of ownership of them, and it used them solely for the production of engines and engine parts under its supply contract with the government.

Upon the above facts, and upon several additional findings which have been attacked by the plaintiff, the trial court reached the conclusion that the plaintiff, and not the government, as claimed by the plaintiff, was the purchaser of, and took title to, the facilities in question; that the transactions which occurred within Connecticut were subject to the sales tax and those which were consummated outside Connecticut were subject to the use tax; and that the assessment made by the defendant was valid and should stand.

In twenty-seven assignments of error, the plaintiff seeks extensive corrections in the finding of subordinate facts, but comparatively few of the corrections sought would affect the disposition we make of this appeal. Those which are vital to the plaintiff's appeal and which, accordingly, require determination involve the findings that title to the facilities 'vested in the Government after final inspection and acceptance by the Government'; that 'title to the facilities passed from the vendors to the plaintiff as purchaser'; that the final inspection of facilities was provided for in the facilities contracts 'as a condition of acceptance of title by the Government'; and that 'acceptance of title' was 'accomplished customarily many weeks after the facilities were received, installed and operated by the plaintiff.'

The fundamental questions at issue in this appeal are When did the United States acquire title? and Did title pass from the vendors to the plaintiff or directly to the United States? The inclusion by the trial court of its conclusions on these ultimate questions of title in its findings of subordinate facts made inevitable the conclusions attacked by further assignments of error as...