Bangor-Hydro Elec. Co. v. Johnson

Decision Date08 February 1967
Citation226 A.2d 371
PartiesELECTRIC COMPANY v. Ernest H. JOHNSON, State Tax Assessor.
CourtMaine Supreme Court

Blanchard & Blanchard, by Albert Cook Blanchard, Bangor, for complainant.

Jon R. Doyle, Asst. Atty. Gen., Augusta, for the State.


MARDEN, Justice.

On report.

Complainant (Bangor) is an electric light and power company engaged in selling electricity. In connection therewith it owns transmission lines consisting of wooden poles with wires attached, which poles are set into the ground within the limits of designated public highways and their locations in each instance authorized by written permits obtained from the public officials, authorized to act in that connection, in the municipalities in which the poles are located, under the provisions of 35 M.R.S.A. § 2482.

During the period September 1, 1962 to August 31, 1964 Bangor sold to the New England Telephone & Telegraph Company (Telephone) an undivided one-half interest in and to certain utility poles which immediately prior to such sale were owned wholly by Bangor.

During the same period Bangor purchased from Telephone an undivided one-half interest in and to certain utility poles which immediately prior to such sale were wholly owned by Telephone and lawfully set within the limits of public highways by virtue of the same provision of the statute. All of the poles involved were or became elements in the distribution system of Bangor by means of which electricity was delivered to its customers. Bangor held a certificate from the Bureau of Taxation (Regulation 8) permitting it, as a convenience, to pay both sales and use taxes on its purchases.

Upon the sales made by Bangor to Telephone, the respondent, State Tax Assessor, assessed a sales tax, and upon the sales in which Bangor was a vendee, the respondent assessed a use tax, both under the provisions of the sales and use tax law (Act) 36 M.R.S.A. § 1754 et seq.

Bangor challenged the assessment of these taxes, and by procedural steps which are not questioned, the case was reported.

The problem to be resolved is whether the utility poles subject of the sales are interests in real property, which interests are not subject to the Act, or are sales at retail of tangible personal property and subject to the Act.

A second point of attack is that if the property transferred is subject to sales and use tax, such assessment is unconstitutional as being without due process of law and a denial of equal protection of the law.

If it be determined that one or both of the transactions are taxable, the amount of tax is not in issue.

Bangor grounds its plea for tax exemption, apart from the constitutional question, upon two representations, (a) that the setting of the poles into the ground resulted in their losing their status as personal property and gaining their status as fixtures to real estate, and (b) a statutory provision in Section 4, Chapter 91-A, R.S. 1954 (now 36 M.R.S.A. § 551) which provides that:

'Real estate, for the purposes of taxation, shall include * * * lines of electric light and power companies.'

If the statute, defining lines of electric light and power companies as real estate for the purpose of taxation, applies, our issue is resolved and the reference sales were not taxable.

The statutory clause upon which Bangor relies has since 1917 (Chapter 52, P.L. 1917) been a part of the law dealing with taxation 'relating to towns.' Before 1917 the statute did not classify light and power company lines for purposes of taxation. By the 1917 Act 'transmission lines of electric light and power companies' were added to the definition of real estate for municipal tax purposes. This phrase remained unchanged until 1955 when by Chapter 399 of the Public Laws of that year the 'taxation laws relating to towns' were revised, a new chapter was added entitled 'Property Tax Laws' (Chapter 91-A, R.S. 1954) and the provisions of Chapter 92 R.S. 1954 dealing with the same subject was repealed. In the 1955 revision the phrase 'transmission lines of electric light and power companies' was changed to read 'lines of electric light and power companies.'

Bangor urges that since this revision of 1955 occurred after the effective date of the sales and use tax law (Chapter 250, P.L.1951), its effect was to classify electric light and power lines as real estate for all tax purposes and thereby remove them from the reach of the sales and use tax law, if indeed such property were ever within its reach.

The taxation to which the statute referred was the ad valorem tax, the assessment and collection of which was delegated to municipalities, and is of no significance with relation to taxation under the sales and use tax law. The sales and use tax is an excise tax. 47 Am.Jur., Sales and Use Texes § 2; Indian Motorcycle Co. v. United States, 238 U.S. 570, 573, 51 S.Ct. 601, 75 L.Ed. 1277; and Lane Construction Corporation v. Comptroller of Treasury, (1962) 228 Md. 90, 178 A.2d 904, (1) 906. The fact that the adjective 'transmission' modifying 'lines' was deleted in the 1955 revision is not significant.

We are left then with the question of whether the sale of utility poles is a sale of a property which falls within the purview of the sales and use tax law and, if so, does that property become exempt from the sales and use tax law by virtue of affixation to the land.

Logs are personal property, see Andrews v. Schoppe, 84 Me. 170, 172, 24 A. 805; United States v. Lamb, D.C., 150 F.Supp. 310, (1-9) 313, and being 'materially existent,' Webster's Third New International Dictionary, they are tangible personal property. When shaped they become poles and when treated chemically to deter rotting, they become poles which resist deterioration from exposure to the weather. They remain poles of a special wood and size until they are set into the ground and wires attached for the purpose of transmitting electrical energy. They then become elements in electric light and power company lines and are termed public utility poles or utility poles, but their nature as personal property does not necessarily change.

The Act (36 M.R.S.A. § 1811) imposes a tax 'on the value of all tangible personal property, * * * sold at retail in this State.'

"Retail sale' or 'sale at retail' means any sale of tangible personal property, in the ordinary course of business, for consumption or use, or for any purpose other than for resale, * * *.' 36 M.R.S.A. § 1752, subsection 11.

"Tangible personal property' means personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses, * * *.' 36 M.R.S.A. § 1752, subsection 17.

"Sale' means any transfer, * * * in any manner * * *, for a consideration in the regular course of business * * *.' 36 M.R.S.A. § 1752, subsection 13.

The sale of logs destined to be utility poles, unless excluded by other terms of the tax act, such as purchase for resale, or sale not in the regular course of business, are within the terms of the Act. See Libbey v. Johnson, 148 Me. 410, 94 A.2d 907. There is no contention that the sales involved were 'casual' sales.

Does the insertion of these poles upright in the ground, under the conditions here involved, cause them to lose their legal character as personal property?

'There is no universal test by which it can be determined whether a chattel has become so affixed to the realty as to become accessory to it and form a part and parcel of it. The manner and extent of physical annexation has been declared an uncertain and unsatisfactory criterion, and, while it would be impossible to reconcile all the cases upon this subject, yet the modern and most approved rule appears to be to give special prominence to the intention of the party making the annexation. * * * This rule does not apply to cases in which a party makes improvements and permanent erections without right as between him and the owner of the soil. In such case the intention to preserve the same as property separate and apart from the freehold cannot avail, no matter how plainly that intention may be manifested. Many other apparent exceptions will be found to involve no real conflict with the rule above stated, when we remember that the intention, which is material, is not the hidden, secret intention of the party making the annexation, but the intention which the law deduces from such external facts as the structure and mode of attachment, the purpose and use for which the annexation has been made, and the relation and situation of the party making it.' Readfield Telephone and Telegraph Company v. Cyr et al., 95 Me. 287, 289, 290, 49 A. 1047, 1048.

In Hayford v. Wentworth, 97 Me. 347, 349, 350, 54 A. 940, 941, the court in announcing the test to be applied to our problem said:

'Under what circumstances articles once chattels lose their character as chattels and become merged into realty, has been a somewhat troublesome question, decided differently by different courts, and differently by the same court at different periods. The trend of judicial opinion, however, has been away from a tendency toward merger, till now there is tendency toward non merger. Without taking space here to trace the steps in this development of the law in such cases (a task which has been well done in some of the opinions below cited) it is sufficient to say that courts now very generally discard the old test of the physical character of the annexation, and hold that a chattel is not merged in the realty, unless (1) it is physically annexed, at least by juxtaposition, to the realty, or some appurtenance thereof; (2) it is adapted to and usable with that part of the realty to which it is annexed; and (3) it was so annexed with the intention, on the part of the person making the annexation, to make it a permanent accession to the realty. (citations).'

The court then reiterated the method of...

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