Lowell Gas Co. v. Commissioner of Corporations and Taxation

• Decision Date: 06 February 1979
• Citation: 385 N.E.2d 991,377 Mass. 255
• Parties: LOWELL GAS COMPANY et al. v. COMMISSIONER OF CORPORATIONS AND TAXATION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 991

385 N.E.2d 991

377 Mass. 255

LOWELL GAS COMPANY et al. v. COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Dec. 7, 1978.

Decided Feb. 6, 1979.

Robert J. McGee, Boston, for plaintiffs.

E. Michael Sloman, Asst. Atty. Gen., Boston, for defendant.

Walter S. Robbins, Boston, for Haverhill Gas Co., amicus curiae, submitted a brief.

Before QUIRICO, BRAUCHER, KAPLAN, LIACOS and ABRAMS, JJ.

LIACOS, Justice.

Lowell Gas Company and Cape Cod Gas Company (plaintiffs) challenge the assessment by the Commissioner of Corporations and Taxation (defendant) of sales and use taxes on the purchase of gas mains, gas services, gas meters and meter installations installed by plaintiffs as components of their gas distribution systems. The plaintiffs filed a complaint in the county court under G.L. c. 231A seeking declaratory and injunctive relief. A single justice reserved and reported the matter on the pleadings and a statement of agreed facts. The single issue presented is whether the scope of G.L. c. 64H, § 6(S ) ¹ which, in pertinent part, exempts from the sales tax "sales of machinery, or replacement parts thereof, used directly and exclusively . . . in the furnishing of gas, water, steam or electricity when delivered to consumers through mains, lines or pipes," extends to the items in question here. ²

In 1966, following the original enactment of G.L. c. 64H, § 6(R ) ³ and § 6(S ) (enacted temporarily by St.1966, c. 14, § 1, continued by St.1967, c. 757, § 1, and subsequently amended by St.1971, c. 555, § 45), the then Commissioner of Corporations and Taxation issued a document ⁴ which specifically exempted the disputed items from the reach of sales or use taxation. ⁵ Under that ruling, the plaintiffs have not paid sales or use taxes with respect to these items. The defendant now takes the position that the 1966 ruling is incorrect under present law; accordingly, he has assessed sales or use tax on the items in question, and intends to assess such taxes in the future. The parties have agreed that "(l)iability for tax upon the disputed items will have a direct effect upon gas utility rates to be charged by the plaintiffs."

We hold that pipes and meters constitute "machinery . . . used directly and exclusively . . . in the furnishing of gas . . . when delivered to consumers through mains, lines or pipes," and, as such, are exempt from sales and use tax.

The defendant raises a number of arguments to support his view that pipes and meters are not "machinery" for the purposes of the G.L. c. 64H, § 6(S ) exemption. The defendant contends that under G.L. c. 64H, § 6(S ), components of gas distribution systems, such as the items in controversy, do not share the exemption from sales and use taxation accorded to production, storage and pressure regulating equipment for the reason that the former are not defined properly as "machinery" within the meaning of the statute. As part of his argument he cites cases which we consider inapposite. The cases cited interpret statutes which refer not to machinery used in the "furnishing" of various commodities (gas, water, electricity), but rather to the use of such equipment in "manufacturing" or "production." See, e. g., Coffin v. Artesian Water Co., 193 Mass. 274, 276, 79 N.E. 262 (1906) (distribution system of a water supply company is not "machinery employed in manufactures"); Niagara Mohawk Power Corp. v. Wanamaker, 286 App.Div. 446, 451, 144 N.Y.S.2d 458 (N.Y.1955), aff'd 2 N.Y.2d 764, 157 N.Y.S.2d 972, 139 N.E.2d 150 (1956) (transformers used in the distribution of electricity are not within the exemption for property used in "production"); Peoples Gas & Elec. Co. v. State Tax Comm'n, 238 Iowa 1369, 1385, 28 N.W.2d 799 (1947) (gas and electricity distribution systems are not "directly used in manufacturing" for the purpose of the sales tax exemption). While machinery employed in a gas distribution system reasonably may be excluded from the reach of a statute which provides tax exemption for gas production or manufacturing equipment only, the Legislature declined to use such limiting terms when it enacted the relevant portion of c. 64H, § 6(S ). ⁶

"We have recognized that the scope of these exemptions is somewhat uncertain. Wakefield Ready-Mixed Concrete Co. v. State Tax Comm'n, 356 Mass. 8, 10, 247 N.E.2d 869 (1969). There is no requirement that this type of exemption be interpreted narrowly. Id. at 12, 247 S.E.2d 869. Courier Citizen Co. v. Commissioner of Corps. & Taxation, 358 Mass. 563, 569, 266 N.E.2d 284 (1971)." Ace Heating Serv., Inc. v. State Tax Comm'n, 371 Mass. 254, --- ^A, 356 N.E.2d 698 (1976). No persuasive reason appears for narrowing the scope of the exemption in the manner suggested by the defendant.

We view the Legislature's use of the term "furnishing" ⁷ as denoting operations distinct from those delineated by the words "manufacturing" or "production," i. e., as including the distribution function. ⁸ In arriving at this conclusion, we adhere to the principle that "(a) taxing statute should receive a practical construction." Courier Citizen Co. v. Commissioner of Corps. & Taxation, supra, 358 Mass. at 571, 266 N.E.2d at 289, quoting from Niagara Mohawk Power Corp. v. Wanamaker, supra, 286 App.Div. at 449, 144 N.Y.S.2d 458. Just as we determined in Courier Citizen Co., supra, 358 Mass. at 572, 266 N.E.2d at 290, that "(t)he integrated process of modern printing cannot reasonably be reduced to fragments or segments" (adopting an expansive view of what printing equipment constitutes "machinery . . . used directly . . . in the manufacture . . . of tangible personal property to be sold" within the meaning of c. 64H, § 6(S )), so do we find that the process of "furnishing " gas does not terminate at the storage tank. Applying the functional approach set forth in Niagara Mohawk Corp., and embraced in Courier Citizen Co., ⁹ we view as particularly pertinent the following basic question: "Does the disputed item operate harmoniously with the admittedly exempt machinery to make an integrated and synchronized system?" Pipes and meters ¹⁰ function, along with production, storage, and pressure regulating equipment, as integral component parts required in the gas furnishing system. ¹¹

Finally, we adhere to the view that "where the language of a statute is vague or permits more than one reasonable interpretation, contemporary administrative construction, especially if long continued, is of significance. Assessors of Holyoke v. State Tax Comm'n, 355 Mass. 223, 243-244, 244 N.E.2d 287 (1969)." Ace Heating Serv., Inc. v. State Tax Comm'n, 371 Mass. 254, --- ^B, 356 N.E.2d 698 (1976). See Cleary v. Cardullo's, Inc., 347 Mass. 337, 343, 198 N.E.2d 281 (1964). In construing St.1966, c. 14, § 1(6)(R ) and (S ), contemporaneously with its enactment, the then Commissioner of Corporations and Taxation explicitly included as exempt the items in controversy here. That interpretation was followed consistently by various Commissioners until now.

The defendant argues that the interpretation given the statute by the Commissioner in 1966 is not helpful in resolving the present controversy "because it is unclear whether the exemption originally extended to the disputed items was predicated upon their status as machinery, within the scope of G.L. c. 64H, § 6(s), or as 'materials . . . which are consumed and used directly . . . in the furnishing of gas, water, steam or electricity,' under G.L. c. 64H, § 6(r)." The defendant contends that in 1966 the Commissioner might have based his exemption of the contested items on his reading of § 6(R ), and that, since we do not know which section was in fact relied on as the basis for exemption of these items, the ruling is not definitive with regard to § 6(S ).

We do not interpret the 1966 ruling with respect to the items in controversy as having been based on § 6(R ), for two reasons. First, the original § 6(R ), see note 3, Supra, like the currently effective amended version, appears clearly to refer to materials of a generally consumable variety, and not to such more durable fixtures as pipes and meters. Second, we take notice of the fact that although the Legislature in 1971 limited the scope of § 6(R ) by specifying that the maximum useful life of covered items was one year, see St.1971, c. 555, § 45, and thereby made clear that pipes and meters were not included, the Commissioner of Corporations and Taxation did not at that time revise the 1966 ruling so as to remove the controverted equipment from the exempt list. His failure to do so, and the continued application of the original list for several years thereafter, can be viewed as at least tacit recognition by the Department of Corporations and Taxation that the 1966 ruling exempting the disputed items was in fact based on § 6(S ), and not on § 6(R ).

For the foregoing reasons, we hold that each of the items in dispute, listed in note 2, falls within the exemption provided by G.L. c. 64H, § 6(S ), and also that provided by G.L. c. 64I, § 7(B ). The case is remanded to the county court for the entry of a judgment declaring the rights of the parties in accordance with this opinion.

So ordered.

1 Since G.L. c. 64I, § 7(B ), as amended through St.1969, c. 558, § 3, exempts from use tax, with stated exceptions not relevant here, "(s)ales exempt from the taxes imposed under chapter sixty-four H," our discussion will focus on the ambit of c. 64H, § 6(S ).

2 A list of those items, with their descriptions, follows:

(a) gas "mains" are large diameter pipes for the distribution of gas from storage tanks to individual "services";

(b) gas "services" are small diameter pipes leading from gas mains to the meter on the customers' premises;

(c) gas "meters" are devices to measure and record the amount of gas, from a "service," entering the customer's internal pipes or lines, through which the gas flows to points of actual use; and

(d) meter "i...