Ball Corp. v. Fisher

• Decision Date: 20 December 2001
• Docket Number: No. 01CA0246.,01CA0246.
• Citation: 51 P.3d 1053
• Parties: BALL CORPORATION, an Indiana corporation, Plaintiff-Appellee, v. Frederick C. FISHER, in his official capacity as Executive Director of the Colorado Department of Revenue, and the Colorado Department of Revenue, Defendants-Appellants.
• Court: Colorado Court of Appeals

51 P.3d 1053

BALL CORPORATION, an Indiana corporation, Plaintiff-Appellee, v. Frederick C. FISHER, in his official capacity as Executive Director of the Colorado Department of Revenue, and the Colorado Department of Revenue, Defendants-Appellants.

No. 01CA0246.

Colorado Court of Appeals, Div. IV.

December 20, 2001.

Certiorari Denied July 22, 2002.

Lentz, Evans and King, P.C., Robert A. Wherry, Jr., Denver, CO, for Plaintiff-Appellee.

Ken Salazar, Attorney General, Carolyn Lievers, Assistant Attorney General, Denver, CO, for Defendants-Appellants.

Opinion by Judge DAVIDSON.

Defendants, the Colorado Department of Revenue and Frederick C. Fisher, in his official capacity as executive director of the Department (collectively Department), appeal from the judgment of the trial court reversing the Department's final determination that plaintiff, Ball Corporation (taxpayer), was not exempt from certain use taxes. We affirm.

According to the stipulated facts, after an audit, the Department issued a notice of deficiency to taxpayer for failure to pay use taxes levied by the state and by three special districts, namely, the Regional Transportation District, Scientific and Cultural Facilities District, and Baseball District. The use taxes were assessed on machinery at taxpayer's plant in Golden for the period of September 1, 1990 to September 30, 1993.

The alleged deficiencies fell into two categories. The first category involved machinery with less than a three-year useful life that taxpayer expensed for tax purposes after January 1, 1993, the effective date that taxpayer's plant was included within the Wheat Ridge Enterprise Zone Expansion Area. For that equipment, the Department alleged that both state and special district use taxes were due. The second category involved equipment with greater than a three-year useful life that taxpayer capitalized for tax purposes. For that equipment, the Department conceded that taxpayer was exempt from state use taxes but alleged that there was no exemption from the special district use taxes.

Taxpayer asserted that it was exempt from all of the assessed taxes, but, after an evidentiary hearing, the Department found that taxpayer did not qualify for an exemption. Specifically, the Department determined, pursuant to the statutes in effect during the audit period, that general state sales tax exemption criteria for certain machinery, contained in § 39-26-114(11)(d), C.R.S.2001, were incorporated into the general use tax exemption for such machinery, § 39-26-203(1)(y), C.R.S.2001, and into the Urban and Rural Enterprise Zone Act, § 39-30-101, et seq., C.R.S.2001. To qualify for the § 39-26-114(11)(d) exemption, property must also qualify for the federal investment tax credit (ITC) as described in "section 38 of the `Internal Revenue Code of 1954', as amended." The Department determined that expensed equipment does not qualify for the ITC and, thus, a state or special district use tax exemption, even if located within an enterprise zone. The Department further determined, based on § 29-2-105, C.R.S.2001, that while machinery qualifying for the ITC is exempt from state use taxes, it is not exempt from the special district use taxes, even within an enterprise zone.

Taxpayer appealed the Department's final determination pursuant to § 39-21-105, C.R.S.2001. The trial court granted summary judgment in favor of taxpayer, reversing the Department's finding that taxpayer was not exempt from the use taxes. The trial court found that § 39-26-114(11)(d) included amendments to the federal tax code that eliminated a three-year useful life requirement, and, in any event, a useful life requirement conflicts with the exemption for expensed property contained in § 39-30-106, C.R.S.2001, and, therefore, is not required for the latter exemption. The trial court also determined that § 29-2-105 does not grant the special districts authority to assess a use tax on machinery that is exempt from state use tax.

In this appeal by the Department, the parties agree that there are no facts in dispute and that the issues to be resolved are ones of statutory construction and interpretation. The statutes in effect during the audit period have subsequently been amended but do not differ in relevant part from the current statutes, except where indicated.

The interpretation of a statute is a question of law and review is de novo. United Airlines, Inc. v. Indus. Claim Appeals Office, 993 P.2d 1152 (Colo.2000).

A court's primary goal in interpreting a statute is to determine and give effect to the intent of the legislature, and a court should first look to the plain and ordinary meaning of the statutory language. Farmers Group, Inc. v. Williams, 805 P.2d 419 (Colo. 1991). If the language is unambiguous, resort to other interpretive rules of statutory construction, such as legislative history, is unnecessary. Town of Telluride v. Lot Thirty-Four Venture, L.L.C., 3 P.3d 30 (Colo. 2000). Statutory provisions should be construed as a whole, giving effect to each word and, where possible, harmonizing potentially conflicting provisions. Farmers Reservoir & Irrigation Co. v. Consol. Mut. Water Co., 33 P.3d 799 (Colo.2001).

When interpreting tax statutes, a court should not view the power to impose taxes expansively, and should resolve doubts in favor of the taxpayer. Transponder Corp. of Denver, Inc. v. Prop. Tax Adm'r, 681 P.2d 499 (Colo.1984). However, when construing a tax exemption statute, a court should view exemption as the exception and taxation as the rule. Colorado Dep't of Revenue v. Woodmen of the World, 919 P.2d 806 (Colo. 1996). In any case, the court may not amend the statute by construction. State Dep't of Revenue v. Adolph Coors Co., 724 P.2d 1341 (Colo.1986).

The interpretation of a statute by the agency charged with its enforcement is entitled to deference, but the court is not bound by such interpretation, especially in cases where the law has been misapplied or misconstrued. Huddleston v. Bd. of Equalization, 31 P.3d 155 (Colo.2001). Such deference is not required when the construction of the statute by the agency has not been uniform or the statutory language clearly compels a contrary result. Three Bells Ranch Assocs. v. Cache La Poudre Water Users Ass'n, 758 P.2d 164 (Colo.1988).

I.

The Department contends that § 39-26-114(11)(d) incorporates amendments to the federal ITC only to the date of the Colorado statute's enactment in 1979 and, thus, includes an absolute three-year useful life requirement. It argues that this prevents taxpayer's expensed machinery from qualifying for an exemption. Alternatively, the Department contends that even under the later versions of the ITC, taxpayer is not entitled to an exemption. Specifically, it argues that post-1979 versions of the ITC contain a depreciability requirement, which implies a one-year useful life requirement, that prevents expensed machinery from qualifying for exemption. The Department contends that the requirements of neither version conflict with the exemption for expensed property in § 39-30-106. We disagree with each contention.

Section 39-30-106 exempts certain machinery purchases made for use in enterprise zones from the state sales and use taxes imposed by article 26 of title 39, C.R.S.2001. In 1989, the section was amended to provide exemption "whether or not such purchases are capitalized or expensed." See 1989 Colo. Sess. Laws, ch. 341, § 39-30-106 at 1523. The section provides that administration of the enterprise zone sales and use tax exemption shall be pursuant to § 39-26-114(11), "except to the extent that such section and this section are inconsistent."

Section 39-26-114(11), in turn, is the general state sales tax exemption for certain machinery and includes the requirement that exempt equipment qualify for the former federal ITC. The requirements of § 39-26-114(11) are also incorporated by reference into the general state use tax exemption for such machinery, § 39-26-203(1)(y). Section 39-26-114(11)(a)(II), as it existed during the audit period, was prefaced by the phrase "[E]xcept as allowed in section 39-30-106." 1988 Colo. Sess. Laws, ch. 273 at 1317.

Thus, the two statutes each contain a provision for resolving conflicts between them, and the parties do not dispute that, when there is an inconsistency, § 39-30-106 will control.

The question to be answered, then, is whether an inconsistency exists between the applicable versions of § 39-26-114(11)(d), including incorporated federal requirements, and § 39-30-106. While both parties contend that there is no such conflict, they do so based on different reasoning, and they reach different results. On the one hand, the Department argues that there is either a one-year or three-year useful life requirement contained in the ITC and incorporated into § 39-26-114(11), but that neither conflicts with the "capitalized or expensed" language in § 39-30-106. On the other hand, taxpayer argues that there is no inconsistency because, under later versions of the ITC, exemption for "recovery property" is allowed regardless of useful life. Taxpayer further argues that, even if there were any useful life requirement, it would conflict with the provision in § 39-30-106 that allows an exemption for expensed purchases. We agree with taxpayer's second argument for several reasons.

A.

The Department argues first that a three-year useful life requirement must be read into § 39-26-114(11)(d) because the reference to "section 38 of the `Internal Revenue Code of 1954', as amended" means the version of that section as it appeared in 1979, when § 39-26-114(11)(d) was enacted, and not to subsequent amendments. We disagree.

Section 39-26-114(11)(d), providing an exemption from sales tax for certain machinery purchases, provides that "in order to qualify for the exemption provided in this subsection (11), a purchase must be of such nature that it would have qualified for the investment...