Great Lakes Dredge & Dock Co. v. Norberg

• Decision Date: 23 February 1977
• Docket Number: No. 75-86-M,75-86-M
• Citation: 369 A.2d 1101,117 R.I. 600
• Parties: , 2 A.L.R.4th 847 GREAT LAKES DREDGE AND DOCK COMPANY v. John H. NORBERG, Tax Administrator. P.
• Court: Rhode Island Supreme Court

Page 1101

369 A.2d 1101

117 R.I. 600, 2 A.L.R.4th 847

GREAT LAKES DREDGE AND DOCK COMPANY v. John H. NORBERG, Tax Administrator.

No. 75-86-M.P.

Supreme Court of Rhode Island.

Feb. 23, 1977.

[117 R.I. 613] Worrell & Hodge, Lee A. Worrell, Providence, for petitioner; McHugh, Heckman, Smith & Leonard, Martin J. McHugh, of the New York Bar, New York City, of counsel.

Julius C. Michaelson, Att. Gen., Allen P. Rubine, Asst. Atty. Gen., Perry Sharkin, Chief Legal Officer (Taxation), Providence, for respondent.

OPINION

DORIS, Justice.

This is a certiorari proceeding brought by Great Lakes Dredge and Dock Company (hereinafter 'petitioner') to contest the assessment of a use tax, pursuant to G.L.1956 (1970 Reenactment) chapters 18 and 19 of title 44, on certain property used by the petitioner in its dredging operations in this state. The respondent is John H. Norberg, in his capacity as tax administrator.

The record certified to us indicates that petitioner is a New Jersey corporation with offices in several states that has for some years been qualified to do business in Rhode Island. In July of 1967, petitioner was awarded a contract by the Army Corps of Engineers to deepen the navigable channel in the Providence River. Work commenced in August of 1967, and continued through October of 1970. The performance of the contract entailed the use of dredges, to scoop material from the river bottom, scows, to contain and transport the dredged material, and tugboats, to tow the loaded scows to a dumping ground at sea and back again.

In order to finish the project on time petitioner found it necessary during the last year of performance to augment its own fleet of tugs with four chartered tugs. One tug, under a so-called 'bareboat charter,' was leased without a master or crew. The petitioner operated that tug with its own personnel. The other three tugs were leased with masters and crews provided by the respective lessors. During the course of the dredging operation petitioner also took delivery of four newly constructed scows. These were immediately put to use on the Providence River project.

Following completion of the work the Division of Taxation conducted an audit of petitioner's records and, finding that taxable use had been made of the above property, issued a deficiency determination. After an administrative hearing thereon, respondent ruled that a use tax of $146,887.59 was due, along with interest in the amount of $22,299.17 and a 10 percent penalty of $14,688.76. The petitioner paid the tax under protest and then filed a complaint in Superior Court to obtain a refund pursuant to G.L. 1956 (1969 Reenactment) § 42-35-1 et seq. The Superior Court justice upheld respondent's decision in every respect, and petitioner sought review of that judgment by certiorari before us.

The petitioner's objections to respondent's determinations may be summarized as follows: that the rental of the three manned chartered tugs was not a taxable 'use' of the tugs; that the petitioner was a nonresident and therefore exempt from taxation on any of the subject property; that the tax statute places an unconstitutional burden on interstate commerce; and that the penalty was improperly assessed. For the reasons which follow, we find petitioner's objections to be without merit.

I

We first consider the tax on the three manned tugs. A use tax is imposed by § 44-18-20 on the 'storage, use, or other consumption in this state of tangible personal property * * * purchased from any retailer' at the rate of 5 percent of the purchase price. The use tax is complementary to the sales tax. It is intended to have application to transactions which, while susceptible to the imposition of a sales tax, would in fact otherwise not be subjected to such a tax because of exception and exemption provisions protecting against double taxation. Capitol Bldg. Co. v. Langton,101 R.I. 131, 221 A.2d 99 (1966). Liability for the payment of the use tax is imposed upon the purchaser of the property by § 44-18-21. A sale, and hence by implication a purchase, is defined by § 44-18-7 to include a lease or rental which has the economic effect of a transfer of title. See Sportfisherman Charter, Inc. v. Norberg, 115 R.I. 68, 340 A.2d 143 (1975).

The petitioner does not deny that a lease may be treated as a taxable sale. ¹ The basis of petitioner's objection is that under the terms of the charter it did not have sufficient control over the three manned tugs to constitute a taxable 'use' thereof within the meaning of the statute. The operative statutory provision is § 44-18-10, which defines 'use' as follows: "Use' includes the exercise of any right or power over tangible personal property incident to the ownership of that property * * *.'

As noted above, the dredges and scows were operated by petitioner's employees, whereas the masters and crews of the three tugs were employed by the lessors of the tugs. In the course of the work, the scows would be moored alongside the dredges and filled with dredged material. At that point, petitioner's employees would direct one of the tugs to pick up the scow. Sometimes petitioner's employees would first shuttle the loaded scow to a mooring buoy, and then direct the tug to pick it up there. The scow would then be towed to the dumping ground. The master of each tug had full navigational control during the towing; he determined the precise manner in which the scows would be transported. Upon return, petitioner's employees would tell the tug master where the empty scow was to be moored, and the entire process would then be repeated. Maintenance matters concerning the tugs such as the provision of fuel and supplies were under the control of the individual tug masters.

Given this set of facts we cannot agree with petitioner that it exercised insufficient control over the tugs to amount to a taxable 'use.' Here the primary function of the tugs, indeed their only function, was to tow the scows from the dredging area to sea and back again. The right to direct where and when the tugs should pick up and deposit the scows is thus not insignificant and of marginal relevance, as petitioner argues. We note that the statute does not require total or even substantial control; the exercise of any 'right or power' over tangible property constitutes a taxable 'use' of that property. The fact that the masters of the tugs concurrently exercised a substantial degree of control over the tugs does not change this result.

We have been unable to find any cases directly in point. However, the decisions of other courts do reflect the fact that little control over rented property is required to establish a taxable use thereof. See State Tax Comm'n v. Peck, 106 Ariz. 394, 476 P.2d 849 (1970) (patrons of laundromat have sufficient control of washing machines to constitute 'use'); Buckley Funeral Home, Inc. v. City of New York, 199 Misc. 195, 105 N.Y.S.2d 478 (Sup.Ct.1948) (funeral director's power to direct and control funeral procession sufficient to establish taxable use of rented, chauffered limousines therein).

The petitioner maintains that our interpretation of the term 'use' ought to be guided by the regulations issued by the tax administrator. ² It is argued that the towing here in question is analogous to the situation described in the regulation wherein a truck and driver are hired to haul a specific load. However, the regulations clearly distinguish between the nontaxable rental of a truck and driver for a specific load, and the taxable rental for a specific time period. Here, the rental was of the latter sort. Moreover, we see a significant difference between the one-time rental for a specific job contemplated by the regulation and the situation presented here where the charter extended over a considerable period of time and the details of its performance varied from day to day.

To further support its claim that the charters were nontaxable within the meaning of the regulations, petitioner calls to our attention cases decided under admiralty law holding that a lessee in petitioner's position does not have 'possession' of the leased vessels. The decisions in those cases, however, relate to the tort liability of the respective parties. The degree of control required to establish 'possession' for that purpose is not controlling as to the degree required to justify the imposition of a use tax.

Accordingly, we find no error in the Superior Court justice's affirmation of respondent's decision that petitioner made a taxable use of the three manned tugs within the meaning of § 44-18-10.

II

We next turn to petitioner's claim to an exemption as a nonresident. This claim, although also applicable to the three manned tugs discussed above, is particularly pressed with respect to the unmanned tug and the four scows. The scows constituted tangible personal property purchased from a retailer and used in this state by petitioner. Their use thus clearly comes within the plain meaning of the taxing statute. Similarly, since there is no question that petitioner had supervision and control over the unmanned chartered tug, the use of that tug in this state was subject to a use tax. Sportfisherman Charter, Inc. v. Norberg, supra.

The petitioner argues, however, that § 44-18-36 exempts its use of both the unmanned tug and the four scows from the tax. That section provides in part:

'The storage, use, or other consumption in this state of the following shall also be exempted from the use tax:

'B. Property purchased by the user while a non-resident of this state, and brought into the state by him for his own use.'

The petitioner maintains that it qualifies as a nonresident because it is incorporated in New Jersey, and it is 'will settled,' to use petitioner's phrase, that a corporation may be a resident only of its state of incorporation. Merely qualifying to do business and thereafter doing business in Rhode Island, it is argued, is not sufficient to elevate...