Katz v. State Tax Assessor

• Citation: 472 A.2d 428
• Parties: James KATZ d/b/a Portsmouth Lino-Mart v. STATE TAX ASSESSOR.
• Decision Date: 06 March 1984
• Court: Supreme Judicial Court of Maine (US)

Page 428

472 A.2d 428

James KATZ d/b/a Portsmouth Lino-Mart v. STATE TAX ASSESSOR.

Supreme Judicial Court of Maine.

Argued Nov. 10, 1983.

Decided March 6, 1984.

Strater, Hancock & Erwin, Frank E. Hancock (orally), York, for plaintiff.

James E. Tierney, Atty. Gen., Clifford B. Olson (orally), Asst. Atty. Gen., Augusta, for defendant.

Before McKUSICK, C.J., and NICHOLS, ROBERTS, WATHEN, GLASSMAN and SCOLNIK, JJ.

SCOLNIK, Justice.

The defendant, State Tax Assessor, appeals from a decision of the Superior Court, York County, overturning his assessment of a use tax, together with interest and penalties in the amount of $11,342.51 against the plaintiff, James Katz, covering the period from July 1, 1976 to September 30, 1979. We vacate the judgment and remand to the Superior Court for further findings of fact and conclusions of law.

The plaintiff is engaged in the business of selling floor and wall coverings from his Portsmouth, New Hampshire store, the Portsmouth Lino-Mart. A Maine contractor, Robert Levesque, who constructed homes and apartment buildings in the Kittery and Elliot areas, was a frequent customer. In their course of dealings, the plaintiff delivered to, and installed in, Levesque's buildings carpeting, linoleum, and other floor coverings. Levesque was later submitted an invoice which did not distinguish between labor and materials. Neither a sales tax nor a use tax was invoiced or paid on any of the transactions.

On October 27, 1980, the State Tax Assessor assessed a use tax, 36 M.R.S.A. §§ 141, 1861, on the plaintiff's transactions with Levesque for the period of July 1, 1976 to September 30, 1979. The assessment was subsequently confirmed in the Assessor's decision on the plaintiff's petition for reconsideration. 36 M.R.S.A. § 151. On July 2, 1981, a petition for review of the assessment was filed in Superior Court pursuant to 5 M.R.S.A. § 11002. After hearing, the court overturned the assessment on the ground that mere installation was not a taxable use. The Court denied the Assessor's motion for findings of fact and conclusions of law as to whether the sales of the floor coverings occurred in Maine or New Hampshire and whether, at the time of such sales, the floor coverings constituted real or personal property, and this appeal followed. Because we find that installation in certain circumstances constitutes a taxable use, we vacate the judgment and remand to the Superior Court.

The sales tax statute, 36 M.R.S.A. § 1811, imposes a 5% tax on the value of all tangible personal property sold at retail sale in Maine. Where no sales tax is collected and paid, 36 M.R.S.A. § 1861 imposes a use tax on the storage, use, or other consumption in Maine of tangible personal property purchased at retail sale at the same rate as the sales tax. The use tax is a necessary complement to the sales tax. Its purpose is aptly stated in Hanbro, Inc. v. Johnson, 158 Me. 180, 184, 181 A.2d 249, 251 (1962):

The necessity of a use tax is obvious. It is well known that much personal property is purchased outside the borders of the state and brought into the state for use here. This State is without authority to tax sales beyond its territorial limits. Without some tax to complement and supplement the sales tax, not only would a tax advantage be enjoyed by the buyer who purchases outside of the state and uses that property here, but also local merchants would be at a disadvantage against competition by out of state merchants who may be able to offer lower prices by reason of lower tax burdens .... Without a use tax the aggregate purchases of this character would result in a severe tax loss to the State, and present a serious handicap to Maine dealers.

See also Harold MacQuinn, Inc. v. Halperin, 415 A.2d 818, 821 (Me.1980); Bangor-Hydro Electric Co. v. Johnson, 226 A.2d 371, 379 (Me.1967).

It is undisputed that if the situs of the sales was New Hampshire, Levesque and not the plaintiff, is liable for a use tax in Maine. Nor would the plaintiff be liable for a Maine use tax if the sales took place in Maine, and at the time of the sales, the floor coverings were tangible personal property. In such circumstances, a sales tax is appropriate.

It is the Assessor's position that the sales did not occur until after the floor coverings were installed in Maine to Levesque's satisfaction. The sales tax is inapplicable, according to the Assessor, because at the time of the sales, they no longer retained the characteristics of personal property, but rather were transformed to real property upon the act of installation. Thus, he argues, the delivery and installation of the floor coverings must be deemed a use ¹ of tangible personal property.

We agree that whenever title passes after personal property becomes a part of the realty, ² the personal property is used and not sold by the person who furnishes and affixes it. In such circumstances, he is selling a completed improvement to the realty, an incorporated building material, and not items of personal property. He is providing a service as a home improvement contractor, and is not acting as a vendor of personal property. Indeed, when title passes after affixation, there remains no personal property to sell. Because the process of installation transformed the personal property to real...