Ballstadt v. Iowa Dept. of Revenue

• Decision Date: 22 May 1985
• Docket Number: No. 84-1089,84-1089
• Parties: Lynn C. BALLSTADT, Appellee, v. IOWA DEPARTMENT OF REVENUE, Appellant.
• Court: Iowa Supreme Court

Page 147

368 N.W.2d 147

Lynn C. BALLSTADT, Appellee, v. IOWA DEPARTMENT OF REVENUE, Appellant.

No. 84-1089.

Supreme Court of Iowa.

May 22, 1985.

Thomas J. Miller, Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., and Elizabeth A. Nelson, Asst. Atty. Gen., for appellant.

William L. Fairbank of Whitfield, Musgrave, Selvy, Kelly & Eddy, Des Moines, for appellee.

Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, LARSON, and CARTER, JJ.

LARSON, Justice.

In 1981, the plaintiff, Lynn C. Ballstadt, purchased a new Peterbilt truck-tractor from a Sioux City, Iowa, dealer. He immediately signed an "Independent Contractor Agreement" with BN Transport, Inc., Denver, Colorado, which provided in part that BN Transport "shall have the right to exercise exclusive possession and control over the leased [tractor] during the term of this lease."

The Iowa Department of Revenue attempted to impose a use tax on Ballstadt's purchase of the tractor under Iowa Code section 423.2 (1981). Ballstadt claimed the purchase was exempt under Iowa Code section 423.4(7) (1981), which covers purchases of vehicles which are leased for purposes of interstate transportation.

The issue was submitted to a revenue department hearing officer, who ruled against Ballstadt, concluding that he had retained so many incidents of control of the tractor that the agreement with BN did not actually constitute a lease within the meaning of the exemption statute. Ballstadt appealed to the director of the department of revenue who adopted the fact-findings and legal conclusions of the hearing officer and affirmed his proposed ruling.

Ballstadt then petitioned for judicial review, and the district court reversed, concluding that Ballstadt's agreement with BN did constitute a lease under section 423.4(7), and that the purchase of the tractor was therefore exempt. The department of revenue appealed. We reverse.

Iowa Code section 423.2 (1981), which was in effect at the time of this assessment, provided:

Imposition of tax. An excise tax is imposed on the use in this state of tangible personal property purchased for use in this state, at the rate of three percent of the purchase price of the property. The excise tax is imposed upon every person using the property within this state until the tax has been paid directly to the county treasurer or the state department of transportation, to a retailer, or to the department as hereinafter provided. An excise tax is imposed on the use in this state of services enumerated in section 422.43 at the rate of three percent. This tax is applicable where services are rendered, furnished, or performed in this state or where the product or result of the service is used in this state. This tax is imposed on every person using the services or the product of the services in this state until the user has paid the tax either to an Iowa use tax permit holder or has paid the tax to the department of revenue.

(Except that the rate of tax has been raised from three percent to four percent, this section is virtually identical to its successor in the 1985 Code.)

Ballstadt's claim to an exemption is based on section 423.4(7), which exempts

[v]ehicles, as defined in subsections 4, 6, 8, 9 and 10 of [Iowa Code] section 321.1 ... when purchased for lease and actually leased to a lessee for use outside the state of Iowa and the subsequent sole use in Iowa is in interstate commerce or interstate transportation.

Although the tractor in question was purchased for use in interstate commerce, no constitutional arguments have been raised. Moreover, the tractor involved is conceded to be a "vehicle" under the exemption statute. The sole issue on appeal, therefore, is simply whether the tractor was "leased" under the meaning of Iowa Code section 423.4(7), and thus exempt from the use tax.

In reviewing an administrative agency's interpretation of statutory provisions, we give deference to, but are not bound by the agency's determination. American Home Products v. Iowa State Board of Tax Review, 302 N.W.2d 140, 142 (Iowa 1981). A taxpayer seeking to come under a tax exemption statute has the burden of proving an entitlement to the exemption. Kartridg Pak Co. v. Department of Revenue, 362 N.W.2d 557, 561 (Iowa 1985); Merged Area (Education) VII v. Board of Review, 326 N.W.2d 310, 311 (Iowa 1982); Iowa Methodist Hospital v. Board of Review, 252 N.W.2d 390, 391 (Iowa 1977). In addition, tax exemption statutes are to be strictly construed Merged Area, 326 N.W.2d at 312, and all doubts concerning the right to the exemption are resolved in favor of taxation. Id. at 311.

With these principles in mind, we look to the issue raised here. The department of revenue contends the district court erred in: (1) construing the word "lease" in pari materia with several federal regulations; (2) failing to give effect to the word "actually" in the phrase "purchased for lease and actually leased"; (3) failing to give weight to the administrative interpretation of section 423.4(7); and (4) failing to construe the exemption statute strictly against the taxpayer.

The provision of the Ballstadt-BN agreement relied upon most heavily to establish the tax exemption is found at paragraph seven, which provides:

Carrier [BN] shall have the right to exercise exclusive possession and control over the leased equipment during the term of this lease and said leased equipment shall not be used in revenue service except as carrier shall direct. Carrier shall assume complete responsibility for the operation of the equipment for the duration of the lease according to the terms and conditions as herein provided. Carrier shall have the right to sublease the leased equipment.

Ballstadt argues, and the district court agreed, that the words "actually leased" contained in section 423.4(7) must be construed in pari materia with interstate commerce commission regulations as to what constitutes a lease.

49 C.F.R. section 1057.2(e) provides the definition of a "lease" for interstate commerce purposes:

Lease --A contract or arrangement in which the owner grants the use of equipment, with or without driver, for a specified period to an authorized carrier for use in the regulated transportation of property, in exchange for compensation.

Interstate Commerce Commission regulations further provide:

Exclusive possession and responsibilities --(1) The lease shall provide that the authorized carrier lessee shall have exclusive possession, control, and use of the equipment for the duration of the lease. The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.

49 C.F.R. § 1057.12(d).

The district court concluded that a "lease" for purposes of section 423.4(7) should be the same as the one adopted by the Interstate Commerce Commission for transportation purposes, applying the principle of pari materia. Without agreeing that that principle is applicable at all when agency regulations, or even federal legislation, rather than another Iowa statute, are compared to the Iowa act being interpreted, the principle of pari materia is inapplicable here.

This principle requires that the statutes under consideration must relate to the same person or thing, to the same class of persons or things, or have identical purposes or objects. 2A Sutherland Statutory Construction § 51.03, at 467 (Sands. 4th ed. 1984).

Here, the...