Charnes v. Norwest Leasing, Inc.

• Decision Date: 12 February 1990
• Docket Number: No. 88SC524,88SC524
• Citation: 787 P.2d 145
• Parties: Alan CHARNES, Executive Director, Department of Revenue, State of Colorado, Petitioner, v. NORWEST LEASING, INC., Respondent.
• Court: Colorado Supreme Court

Page 145

787 P.2d 145

Alan CHARNES, Executive Director, Department of Revenue State of Colorado, Petitioner, v. NORWEST LEASING, INC., Respondent.

No. 88SC524.

Supreme Court of Colorado En Banc.

Feb. 12, 1990.

As Modified March 12, 1990.

Duane Woodard, Atty. Gen., Charles B. Howe, Deputy Atty. Gen., Richard H. Forman, Sol. Gen., and Steven M. Bush, Asst. Atty. Gen., Denver, for petitioner.

Faegre & Benson, John D. Shively, Jo Frances Walsh and Mary C. Kloepfer, Denver, for respondent.

Justice VOLLACK delivered the Opinion of the Court.

We granted certiorari to review the decision of the court of appeals in Norwest Leasing, Inc. v. Charnes, 767 P.2d 775 (Colo.App.1988). The court of appeals held that Norwest substantially complied with subsection 39-26-117(1)(b), 16B C.R.S. (1982), by filing with the Jefferson County Clerk and Recorder a document which described property leased by Norwest to F.H. Markets. Id. at 776. We reverse and remand with direction.

I.

In 1984 respondent Norwest Leasing, Inc. (Norwest) leased equipment to F.H. Markets, Inc., which did business under the name "Shoppin' Bag Warehouse Foods." The lease provided that title to the equipment would remain in the lessor at all times. On August 16, 1984, Norwest attempted to comply with subsection 39-26- 117(1)(b) by filing a document ¹ with the Jefferson County Clerk and Recorder describing the property which was the subject of the lease. The document stated that "[t]his transaction is intended to be a true lease and not a security transaction and the filing of this financing statement is not an admission that the transaction is other than a true lease." The Colorado Department of Revenue (the Department) seized Norwest's property in late November 1984 to satisfy a tax lien the Department claimed to have against F.H. Markets. Norwest brought this action for an injunction to prevent the Department from disposing of the property and for damages. On January 4, 1985, Norwest and the Department entered into a stipulation in which Norwest agreed to post a bond for $123,435.42, which is the maximum amount of the Department's claimed lien against the property. In return, the Department agreed to release its lien.

Both parties moved for summary judgment. The trial court concluded that Norwest's document substantially complied with subsection 39-26-117(1)(b), which identifies conditions a property owner must meet to exempt its property from the lien the Department sought to enforce in this case. ² The court of appeals affirmed the trial court's holding that Norwest's property was exempt from the tax lien because of Norwest's substantial compliance with subsection 39-26-117(1)(b).

II.

Subsection 39-26-117(1)(b) creates an exemption to the otherwise superior tax lien authorized by subsection 39-26-117(1)(a). The first sentence of subsection 39-26-117(1)(b) provides that:

The real or personal property of an owner who has made a bona fide lease to a retailer shall be exempt from the lien created in paragraph (a) of this subsection (1) if such property can be reasonably identified from the lease description and if the lessee is given no right to become the owner of the property leased.

The second sentence of subsection 39-26-117(1)(b) provides that:

This exemption shall be effective from the date of the execution of the lease if the lease is recorded with the county clerk and recorder of the county where the property is located or based or a memorandum of the lease is filed with the department of revenue on such forms as may be prescribed by said department within ten days after the execution of the lease at a cost for such filing of two dollars and fifty cents per document.

Norwest argues that its filing of the document substantially complied with the second sentence of subsection 39-26-117(1)(b), and therefore its property was exempt from the Department's tax lien. The Department argues that we must strictly construe the second sentence of subsection 39-26-117(1)(b) to require the property owner to file either the lease or the memorandum form prescribed by the Department. Norwest further argues that it is entitled to claim the exemption under the first sentence of subsection 39-26-117(1)(b), and therefore the only effect of its failure to comply with the second sentence of subsection 39-26-117(1)(b) would be to make the exemption prospective from the date Norwest filed its document. ³ The Department contends that Norwest is not entitled to claim the exemption under the first sentence of subsection 39-26-117(1)(b) because the document Norwest filed did not satisfy that subsection's requirements. ⁴

To decide these issues we must interpret subsection 39-26-117(1)(b) to give effect to the intent of the General Assembly. Kern v. Gebhardt, 746 P.2d 1340, 1344 (Colo.1987). "To discern legislative intent, we look primarily to the language of the statute itself and then give effect to these statutory terms in accordance with their commonly accepted meaning." Id.; see also State Dep't of Revenue v. Adolph Coors Co., 724 P.2d 1341, 1345 (Colo.1986). In ITT Diversified Credit Corp. v. Couch, 669 P.2d 1355, 1362 (Colo.1983), we relied on the language of the Sales Tax Act to hold that the legislature's omission of the words "in the ordinary course of business" from other provisions of the Act indicated that the exemption from the lien created in subsection 39-26-117(1)(a) "protects only the retail customers of the taxpayer who purchased the goods from the retailer's inventory in the ordinary course of business." In this case we must also determine the issues based on the language and the legislative purpose of subsection 39-26-117(1)(b).

A.

Norwest's first argument is that it is entitled to claim the exemption authorized by subsection 39-26-117(1)(b) from the date of the lease because Norwest substantially complied with the second sentence of that subsection by filing the document. We disagree.

We have approved of a rule of substantial compliance with a statute when such a rule serves the purposes of the statute. See People v. Trancoso, 776 P.2d 374, 379 (Colo.1989). In Trancoso we noted that we have liberally construed the Uniform Mandatory Disposition of Detainers Act, §§ 16-14-101 to 16-14-108, 8A C.R.S. (1986), to hold that in appropriate circumstances substantial compliance with the Act's requirements is sufficient to invoke a prisoner's rights. Id.; see also People v. Campbell, 742 P.2d 302, 306-08 (Colo.1987). In some instances, however, the legislative purpose of a statute requires that the parties strictly comply with its provisions. In Coors, 724 P.2d at 1345, we held that returnable beer kegs qualified as "containers" exempt from the sales and use tax under subsections 39-26-102(20)(a) and 39-26-203(1)(f)(I). We based our decision on the fact that the applicable statutory phrase "container, label, or the furnished shipping case" contained no resale restriction. Id. We stated that "one cannot restrict by judicial decision a provision that the General Assembly has left unrestricted," and that "we cannot by construction amend the statute." Id. The same principle guided our statement in ITT Diversified that "[b]efore a statute creating a lien in favor of the state for unpaid sales taxes will be construed as giving a lien priority over a mortgage, security interest, or other contractual lien which was perfected at the time the lien came into existence, the legislative intent that such priority be given must clearly appear from the language of the statute." 669 P.2d at 1361. We have required either substantial compliance or strict compliance with statutes in order to fulfill our "duty to ascertain the legislative intent and give effect to such intent wherever possible." Id.; see also Colorado Dep't. of Social Servs. v. Department of Health and Human Servs., 558 F.Supp. 337, 351 (D.Colo.1983) (recognizing the "maxim that statutes granting exceptions from clearly articulated public policy obligations should be construed narrowly").

The legislative purpose of subsection 39-26-117(1)(b) is to require property owners to reliably inform the Department of leased property which is exempt from the tax lien authorized by subsection 39-26-117(1)(a). We would frustrate that legislative purpose were we to hold that substantial compliance with the second sentence of subsection 39-26-117(1)(b) makes the exemption effective from the date of the lease. Strict compliance with the second sentence of subsection 39-26-117(1)(b) is necessary to ensure that the Department will be able to assess whether the lease meets the requirements for exemption outlined in the first sentence of subsection 39-26-117(1)(b).

Our conclusion on this point is supported by the legislature's 1977 amendment to the second sentence of subsection 39-26-117(1)(b). Prior to 1977 that sentence provided that "[t]his exemption shall be effective from the date of the execution of the lease provided the lease or a memorandum thereof is filed or recorded with the county clerk and recorder of the county where the property is located or based" (emphasis indicates language deleted by 1977 amendment). See § 39-26-117(1)(b), 16 C.R.S. (1974); 1977 Colo.Sess.Laws 1803. Had Norwest filed its document prior to the 1977 amendment it would have been in compliance with the second sentence of subsection 39-26-117(1)(b). In 1977 the legislature amended the sentence to provide: "This exemption shall be effective from the date of the execution of the lease provided the lease is recorded with the county clerk and recorder of the county where the property is located or based or a memorandum of the lease is filed with the Department of Revenue on such forms as may be prescribed by said department ..." (emphasis indicates added language). 1977 Colo.Sess.Laws 1803. Thus the legislature amended the subsection to require the property owner to file the lease itself, and not a memorandum of the lease, in order to make...