First Data Corp. v. State Tax Commission

• Decision Date: 08 December 1976
• Citation: 357 N.E.2d 933,371 Mass. 444
• Parties: FIRST DATA CORPORATION v. STATE TAX COMMISSION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 933

357 N.E.2d 933

371 Mass. 444

FIRST DATA CORPORATION

v. STATE TAX COMMISSION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Oct. 6, 1976.

Decided Dec. 8, 1976.

Roy N. Freed, Waltham, for the taxpayer.

Steven A. Rusconi, Asst. Atty. Gen., for the State Tax Commission.

Before HENNESSEY, C.J., and REARDON, BRAUCHER, KAPLAN and WILKINS, JJ.

KAPLAN, Justice.

General Laws c. 63, § 38C, as appearing in St.1970, c. 634, § 4, defines a 'domestic manufacturing corporation,' rather uninformatively, as one which is 'engaged in manufacturing.' Such a corporation is entitled to exemption of its machinery from certain local taxes. G.L. c. 59, § 5, Sixteenth (3)(a). ¹ Classification of a corporation is first made by the Commissioner of Corporations and Taxation, with a ladder of review reaching to this court. G.L. c. 58, § 2. In the present case First Data Corporation (taxpayer), which operates an electronic digital computer system in Waltham, was refused the classification by the Commissioner. It had no better result from the State Tax Commission; appealed to the Appellate Tax Board (board) without success; and took its further appeal here.

The appeal to the board was under the formal procedure, and we have the board's findings of fact, report, and opinion. The type of business carried on by the taxpayer is now well known. It operates a 'commercial on-line, real-time computer time-sharing system,' and the exemption, if available, would comprise two computers and accessories of a value estimated (by the taxpayer) at $2,300,000. Typically, a customer from his 'terminal' transmits over telephone lines to the computer electrical impulses which, as 'stored' in the computer on magnetized cores, correspond to data and information supplied by the customer. A customer ordinarily will not want merely to retrieve from the computer the information stored, but to have the computer work with and manipulate the information to some purpose. The particular command to the computer is in the form of a program or algorithm which leads the mechanism to the desired results, also reflected on magnetized cores. Those results are usually transmitted by electrical impulses carried on telephone lines back to the customer's terminal for print-out (or may be delivered to the customer as print-out or in the form of magnetic tape).

A variety of purposes may be served by these processes: for example, they may produce payroll calculations, for which basic data have been earlier supplied; they may write specifications for steel girders in bridge construction, the conditions, desiderata, and other relevant matters having been furnished in effect as a statement of the problem to be solved according to programmed instructions.

What has just been described in abbreviated fashion represented the great bulk of the taxpayer's operations. (The taxpayer also used the computer on customers' orders to prepare and print library cards and horoscopes, but these were a negligible part of the business.) Reviewing and analyzing these operations, the board found, '(i)nsofar as it is a question of fact,' that the taxpayer 'is not entitled to be classified as a 'manufacturing corporation"; that it 'is essentially a nonmanufacturing corporation that renders a service to customers by supplying them with information or intelligence, for a charge.'

Decisions of the board are 'final as to findings of fact' (G.L. c. 58A, § 13), and thus the question on this appeal is whether a contrary conclusion--that the taxpayer is a manufacturing corporation--is required as matter of law (see Franki Foundation Co. v. State Tax Comm'n, 361 Mass. 614, 615, 281 N.E.2d 865 (1972)); otherwise stated, the question is whether a contrary conclusion is not merely a possible but a necessary inference from the findings. See Ultronic Syss. Corp. v. Assessors of Boston, 355 Mass. 284, 287, 244 N.E.2d 318 (1969). We answer the question in the negative and affirm the board's decision. Indeed, we need not so guard our judgment, for we consider the board's view to be quite reasonable.

The taxpayer invokes a standard or commonplace definition or description of 'manufacture' formulated under the statute and suggests that with some stretching here and there it may cover the computer operations. Thus in Commissioner of Corps. & Taxation v. Assessors of Boston, 321 Mass. 90, 94, 71 N.E.2d 874, 877 (1947), the court said: 'Manufacture ordinarily and commonly denotes the process of transforming raw or finished materials by hand or machinery, and through human skill and knowledge, into something possessing a new nature and name and adapted to a new use.' ² If the information fed into the computer is thought of as raw material which is transformed by machinery into information possessing a new nature, then the definition holds. The taxpayer also edges up to the definition by speaking of the flow of one stream of electrons into the computer, and the flow out of another. If it be objected that the definition contemplates corporeal or tangible input and output, the taxpayer can cite cases that may read to the contrary--those which consider the production of electricity to involve manufacture. See Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 565, 137 N.E.2d 462 (1956); Boston & Me. R.R. v. Billerica, 262 Mass. 439, 449, 160 N.E. 419 (1928); People ex rel. Brush Elec. Mfg. Co. v. Wemple, 129 N.Y. 543, 552--557, 29 N.E. 808 (1892). Finally, the taxpayer urges us to acknowledge the emergence of new industry which mechanizes the development of information as earlier industry mechanized operations with grosser stuff; and suggests that if it is the purpose of the exemption to encourage the growth of industry and spread of employment, then the computer industry is as proper a candidate for such a preference as any of the more conventional manufacturing establishments.

The argument makes some appeal, especially as we have said repeatedly that the statutory language is not to be read in a restrictive way. See Joseph T. Rossi Corp. v. State Tax Comm'n, --- Mass. ---, --- - ---,^a 338 N.E.2d 557 (1975); Commissioner of Corps. & Taxation v. Assessors of Boston, supra, 321 Mass. at 97, 71 N.E.2d 874. So also the taxpayer should not be thought foreclosed by a recent decision referring to the computer functions...