G. H. Waterman & Co., Inc. v. Norberg

• Decision Date: 21 March 1980
• Docket Number: No. 77-419-M,77-419-M
• Court: Rhode Island Supreme Court
• Parties: G. H. WATERMAN & CO., INC. v. John H. NORBERG. P.

Page 1132

412 A.2d 1132

122 R.I. 825

G. H. WATERMAN & CO., INC. v. John H. NORBERG.

No. 77-419-M.P.

Supreme Court of Rhode Island.

March 21, 1980.

[122 R.I. 834] Salter, McGowan, Arcaro & Swartz, Inc., James R. McGowan, Providence, for petitioner.

Dennis J. Roberts, II, Atty. Gen., Allen P. Rubine, Asst. Atty. Gen., Perry Shatkin, Chief Legal Officer (Taxation), Providence, for respondent.

OPINION

BEVILACQUA, Chief Justice.

This is a petition for certiorari to review a Superior Court judgment affirming a decision of the tax administrator assessing a use tax against the petitioner, G. H. Waterman & Co., Inc. (corporation), in the amount of $10,829.49 including interest and costs.

On August 24, 1971, the corporation was sent a notice of deficiency determination under the sales-and-use-tax law resulting primarily from its acquisition in 1965 and 1967 of eleven antique cars from its sole stockholder, George H. Waterman, Jr., in pro tanto satisfaction of Mr. Waterman's debt to the corporation. At the corporation's request, an administrative hearing on the deficiency determination was held on February 15, 1972. As a result of the evidence adduced at this hearing, the assessment against the corporation was upheld by the tax administrator in a final decision dated July 18, 1972. Thereupon petitioner filed a complaint in Superior Court pursuant to the Administrative Procedures Act G.L.1956 (1977 Reenactment) § 42-35-15(b), as amended by P.L.1979, ch. 340, § 1, seeking review of the tax administrator's decision. Prior to considering the matter, the Superior Court granted petitioner's motion for leave to present additional evidence before the tax administrator. A second and more extensive administrative hearing was then held on May 15, 1975. In a written decision the officer presiding at this hearing found that petitioner had acquired the antique cars for investment purposes and that use tax was properly imposed on the petitioner's acquisition of the cars. The tax administrator, after reading the record, affirmed and adopted this decision in his final decision dated March 11, 1976. After hearing argument and reviewing the record, a justice of the Superior Court affirmed the tax administrator's March 11, 1976 decision.

At the first administrative hearing, a revenue agent of the Rhode Island Division of Taxation testified that she audited petitioner's books on July 13, 1971, and found that between July 1, 1965, and July 31, 1969, there was an increase of $176,712.05 in the tangible personal assets owned by petitioner and listed in its corporate ledger under the investment account. The bulk of the increase, $157,790, was found to be derived from petitioner's purchases from its sole stockholder, Mr. Waterman, of eleven early-model cars, six of which were acquired on December 31, 1965, and five of which were treated as having been acquired on July 1, 1967. The revenue agent determined that use tax was due as a result of these purchases.

At the second hearing, Mr. Waterman testified that petitioner was incorporated in Rhode Island in 1940 and that the nature of its business was selling "cotton yarns and other type of yarns from mills in the South and in the North." He also stated that petitioner began to end that business "around 1970."

Mister Waterman further testified that in 1965 and 1967, upon the advice of his accountant, who also served as the corporation's (outside) accountant, he transferred the eleven cars to petitioner in partial satisfaction of a debt he owed to the corporation. Mister Waterman also explained that he had acquired the cars because of his interest in antique automobiles which began as a hobby in the late 1920s but later turned into "more of a business because the value of the cars changed so rapidly over the years." According to Mr. Waterman, petitioner acquired the cars from him because "they were an excellent investment" and petitioner intended "to either lease them or hold them until we could sell them for a price I thought was right."

According to Mr. Waterman's accountant, who also testified at the second hearing, both Mr. Waterman and petitioner had acquired the cars because of their appreciating value and then held them for sale or lease. The accountant testified also that it was at his suggestion that Mr. Waterman transferred the cars to the corporation.

I

Before this court, petitioner contends first that respondent tax administrator and the trial justice who affirmed respondent's March 11, 1976 final decision "misconceived the nature of Rhode Island 'use' tax as a tax on any 'transfer of property' located in Rhode Island." Specifically petitioner contends that the antique cars acquired by it were held for lease or sale to out-of-state lessees or buyers and that therefore it was not subject to use tax on their acquisition because (1) petitioner was not the ultimate user of the cars in this state and (2) G.L.1956 (1970 Reenactment) § 44-18-11, exempts from use tax the acquisition of property shipped or brought into this state for the purpose of subsequently being transported and used solely outside the state.

Initially we note that under § 42-35-16 of the Administrative Procedures Act our review of the Superior Court decision affirming the use-tax assessment is limited to a review of "any questions of law involved." We examine the record to determine whether any competent evidence exists to support the decision of the trial justice and whether his decision is affected by any errors of law. Herald Press, Inc. v Norberg, R.I., 405 A.2d 1171, 1177 (1979); Randall v. Norberg, R.I., 403 A.2d 240, 242 (1979).

General Laws 1956 (1970 Reenactment) § 44-18-20 as amended by P.L.1977, ch. 200, art. 4, § 1, imposes use tax on the "storage, use or other consumption in this state" of a motor vehicle purchased from any retailer or from other than a licensed motor-vehicle dealer. "Storage" is defined in § 44-18-9 as

"any keeping or retention in this state, except for sale in the regular course of business or for subsequent use solely outside this state, of tangible personal property purchased from a retailer."

"Use" is defined in § 44-18-10 as

"the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it does not include the sale of that property in the regular course of business."

The petitioner's argument that respondent and the trial justice misconceived the nature of the use tax because, arguably, petitioner was not the "ultimate user" of the subject property seems itself to be a misconception of the controlling issue under the statutes cited above. The issue under those statutes is whether petitioner purchased the cars "for sale in the regular course of business" or acquired and stored them "for subsequent use solely outside this state," not simply whether it held the cars for sale or lease.

We find that there is competent evidence in the record to support respondent's decision, which was not questioned by the trial justice, that petitioner purchased the cars for investment purposes, not for sale in the regular course of business or for subsequent use solely outside this state. The thrust of the testimony at the second administrative hearing was that petitioner acquired and held the cars because they were "increasing approximately 10 percent a year in value ¹." Indeed, although the record indicates that Mr. Waterman, during his ownership of the cars, leased several of them, there is no evidence that petitioner ever entered into any such leases. Moreover, at the time petitioner acquired the cars, the regular course of its business involved the brokerage of textile yarns and associated products. Mister Waterman testified that petitioner did not begin to terminate that business until 1970, some five years after its most costly and numerous car purchases. And petitioner's accountant, in a September 30, 1971 letter written to respondent, stated that "the vintage cars did not in any way participate in the principal business activity of the corporation which is selling textile yarns and associated products."

In addition we note that § 44-18-25 of the sales-and-use-tax law creates a statutory presumption in favor of respondent's position respecting petitioner's acquisition of the antique cars. Section 44-18-25 provides in pertinent part:

"It shall be presumed * * * that all tangible personal property sold or in processing or intended for delivery or delivered in this state is sold or delivered for storage, use, or other consumption in this state, until the contrary is established to the satisfaction of the tax administrator. The burden of proving the contrary is upon the person who makes the sale and the purchaser, unless the person who makes the sale takes from the purchaser a certificate to the effect that the purchase was for resale."

The petitioner does not dispute the applicability of this presumption to its purchases, nor does it contend that a resale certificate was issued with respect to any of its purchases.

The petitioner...