Edgerly v. Honeywell Information Systems, Inc.

• Decision Date: 24 August 1977
• Citation: 377 A.2d 104
• Court: Maine Supreme Court
• Parties: John EDGERLY, Tax Collector of City of Augusta v. HONEYWELL INFORMATION SYSTEMS, INC.

Page 104

377 A.2d 104

John EDGERLY, Tax Collector of City of Augusta v. HONEYWELL INFORMATION SYSTEMS, INC.

Supreme Judicial Court of Maine.

Aug. 24, 1977.

Sanborn, Moreshead, Schade & Dawson by Richard B. Sanborn, Augusta, for plaintiff.

Locke, Campbell & Chapman by Joseph B. Campbell, Augusta, for defendant.

Before DUFRESNE, C. J., and POMEROY, WERNICK, ARCHIBALD, DELAHANTY and GODFREY, JJ.

POMEROY, Justice.

"All real estate within the State, all personal property of residents of the State and all personal property within the State of persons not residents of the State is subject to taxation on the first day of each April as provided; and the status of all taxpayers and of such taxable property shall be fixed as of that date." 36 M.R.S.A. § 502.

The City of Augusta, acting agreeably to this statute it says, assessed taxes on what it claims was the personal property of Honeywell Information Systems, Inc. for the tax years 1973-1974.

That is the genesis of this controversy.

The computer equipment on which the personal property taxes were assessed against Honeywell was used by the State of Maine in the operation of state government. Honeywell denies liability for any part of the taxes so assessed.

The tax collector commenced a civil action against Honeywell pursuant to 36 M.R.S.A § 1031. Upon answer being filed and discovery completed, the cause was referred to a referee by agreement of the parties. The right to object to the referee's report was expressly reserved to both parties. The referee's report, recommending the entry of judgment for the defendant, was accepted by the justice of the Superior Court over objections of plaintiff. This seasonably filed appeal followed.

We deny the appeal.

At all times, the appellant has contended that Honeywell is barred from asserting the claim that it has no liability for the taxes assessed because it failed to proceed by petition for abatement under 36 M.R.S.A. § 841. Suffice it to say, in answer to this contention, it is not claimed by Honeywell there was overvaluation of the property. Rather, its position is that the assessment of the tax against it was completely void since the equipment taxed was the property of the State of Maine on April 1, 1973. That being so, abatement procedure is not available to it. Berry v. Daigle, Me., 322 A.2d 320 (1974); Talbot v. Inhabitants of Wesley, 116 Me. 208, 100 A. 937 (1917); Herriman v. Stowers, 43 Me. 497 (1857).

While at first blush the issue before us appears to be simple, its resolution requires an analysis of a contract between the State of Maine and Honeywell and action taken by the legislature with respect to the creation of data processing services for the state government.

Decisive is whether title to the computer equipment on which the personal property tax was assessed was lodged in the State of Maine prior to April 1, 1973 by reason of a contract between the state and Honeywell dated March 2, 1972, and happenings subsequent thereto.

In 1969 the legislature indicated its interest in computer services by directing that:

"The Commissioner of Finance and Administration, through the State Purchasing Agent or such other agent as he may choose, shall conduct a thorough review of all types of equipment owned, leased or otherwise available to the several departments and agencies of the State, regardless of the source of supporting funds, with the intention of combining their use, providing centralized facilities, or of eliminating existing equipment and facilities, as he believes to be in the most economical, most efficient and best interests of the State." P. & S.L.1969, c. 154 & c. 197.

In the same year the legislature established such a service by providing:

"Central data processing service. To establish and conduct central data processing and information services at the seat of government. Such services shall be available to all departments and agencies of government. The State Controller is empowered to make appropriate charges to those departments and agencies of government making use of the equipment, services, personnel and supplies of the central facility." P. & S.L.1969, c. 251, § C.

In 1941, by c. 76 of the Private & Special Laws, the legislature created the Maine State Office Building Authority. The need was felt to be great for the erection of a building, in addition to the State Capitol Building, from which the numerous departments of the state could operate. The cost of such building was to be several million dollars. The constitution of Maine, art. IX, § 14, contains a provision prohibiting the legislature from creating any debt or debts, liability or liabilities, on behalf of the state which, singly or in the aggregate with previous debts or liabilities, would exceed two million dollars. The proposal was, simply stated, that the Maine State Office Building Authority, an agency of the State of Maine, was to acquire the land and erect an office building or an addition to the State House. Section 9 of the act provided that the Building Authority should issue notes, bonds, or other evidences of indebtedness, for terms of not more than thirty years. Section 12 of the act provided that the Authority should execute a lease to the State of Maine "of the entire property for a rental so computed as shall provide for the payment of interest upon the bonds and notes or other evidences of indebtedness hereinbefore provided for and for their ultimate retirement."

The Senate, acting pursuant to art. VI, § 3 of the constitution, propounded questions to the justices of the Supreme Judicial Court. The answers of the justices established that

(1) "A contract which obligates the State to pay money over a period of years for the purchase of property, creates a liability. It makes no difference whether you call the payments the State is obligated to make rental or installments on the purchase price, the legal effect is the same."

and

(2) "One Legislature cannot obligate succeeding Legislatures to make appropriations. One Legislature may, within constitutional limitations, impose a contractual obligation upon the State which it is the duty of the State to discharge; but one Legislature cannot impose a legal obligation to appropriate money upon succeeding Legislatures."

Opinion of the Justices, 146 Me. 183, 189-90, 79 A.2d 753, 756 (1951).

Undoubtedly, the Commissioner of Finance and Administration and others acting on behalf of the state had these constitutional principles, so recently described by the court, in mind when they set out to negotiate with Honeywell for the computer services.

These policy decisions had been made and had legislative approval:

(1) A central computer service should be established.

(2) Such computer service should be under the operational control of the Bureau of Accounts and Control.

(3) The expense of the central computer service should be funded, not with money appropriated to the Bureau of Accounts and Control from the general fund, but from charges which the State Controller, as head of the Bureau of Accounts and Control, is empowered to exact from those state departments and agencies making use of the equipment, services, personnel, and supplies of the computer center.

(4) The central data processing center was to be self-supporting, i. e., capable of performing those functions with funds recovered in the form of service charges paid by the using departments and agencies, which funds were to go into a special revenue account set up for the funding of the activities of the center.

In pursuance of these policy decisions, the Central Computer Service was established and equipped with equipment acquired from Radio Corporation of America. There came a time when the RCA equipment became inadequate by reason of the increased demand for greater capacity. The Commissioner of Finance and Administration submitted invitations to bid and specifications prepared by Central Computer Services to obtain the necessary equipment. Although in the usual case, equipment is acquired by the Bureau of Purchases on requisitions submitted by the various agencies of the government, we find no violation of the purchasing statutes, 5 M.R.S.A. §§ 1811-20, in the procedure used in this case. Appellant's argument to the contrary fails for lack of merit.

The contract which was finally entered into on March 2, 1972 is replete...