Morton Bldgs., Inc. v. Bannon

• Decision Date: 12 May 1992
• Docket Number: No. 14398,14398
• Citation: 222 Conn. 49,607 A.2d 424
• Court: Connecticut Supreme Court
• Parties: MORTON BUILDINGS, INC. v. Timothy F. BANNON, Commissioner of Revenue Services.

Page 424

607 A.2d 424

222 Conn. 49

MORTON BUILDINGS, INC. v. Timothy F. BANNON, Commissioner of Revenue Services.

No. 14398.

Supreme Court of Connecticut.

Argued March 26, 1992.

Decided May 12, 1992.

Wesley W. Horton, with whom were Susan M. Cormier, Hartford, Abraham M. Stanger, pro hac vice, and, on the brief, James E. Brandt, New York City, pro hac vice, and Scott F. Lewis, Hartford, for appellant (plaintiff).

Jonathan L. Ensign, Asst. Atty. Gen., with whom, on the brief, was Richard Blumenthal, Atty. Gen., for appellee (defendant).

Before PETERS, C.J., and GLASS, BORDEN, BERDON and FRANCIS X. HENNESSY, JJ.

PETERS, Chief Justice.

The principal issue in this appeal is whether General Statutes § 12-411(1) ¹ imposes a use tax on raw materials that a building contractor has converted into building components outside of this state for incorporation into prefabricated buildings that it erects for its customers in this state. The plaintiff, Morton Buildings, Inc. (taxpayer), appealed to the trial court, pursuant to General Statutes § 12-422, ² from a ruling of the defendant commissioner of revenue services (commissioner) that denied the taxpayer's claim for a refund of use taxes. ³ Relying on a stipulation of facts, the trial court determined that the taxpayer's appeal should be dismissed. The taxpayer sought review of this judgment in the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 4023. We reverse.

The stipulation reveals the following facts. The taxpayer is an Illinois corporation that is licensed to do business in Connecticut. In this state, the taxpayer assembles and installs prefabricated timber-frame, metal-sheathed warehouses and agricultural buildings at the customers' building sites. It markets its buildings directly to its customers, rather than retailing either buildings or building components through lumber yards or other retailers. ⁴

The taxpayer purchases out-of-state, in bulk, almost all of the raw materials that are required for the construction of buildings in this state and elsewhere. The raw materials are stored in the taxpayer's out-of-state warehouses. When the taxpayer receives an order for a building, it delivers some of these raw materials to the work site in Connecticut without subjecting them to any further out-of-state production process. The taxpayer also delivers to the work site some windows, doors and hardware that it has bought in final form from other suppliers outside of Connecticut. With regard to these unaltered raw materials and supplies, the taxpayer concededly must pay, and has paid, Connecticut's use tax assessments.

Upon receipt of an order for the production and installation of a building in this state, the taxpayer, however, also regularly converts other raw materials, such as sheets of lumber and rolls of steel, into building components and hardware components in accordance with the customer's specifications. The conversion process, which takes place entirely in factories located outside of Connecticut, results in the production of building components such as trusses, lower columns, upper columns, purlins, metal panels and overhang rafters. The taxpayer transports appropriately prefabricated building and hardware components to the job site in Connecticut, where they are incorporated into the assembly and erection of the customer's building.

The taxpayer maintains that it has no Connecticut use tax liability for raw materials once its out-of-state production process has transformed such materials into prefabricated building and hardware components. Such components, according to the taxpayer, are no longer "tangible personal property purchased from any retailer," as § 12-411(1) requires. The commissioner maintains, to the contrary, that our use tax applies to any raw materials incorporated into a Connecticut building project regardless of the degree of transformation that such materials might have undergone prior to their entering Connecticut.

The trial court ruled in favor of the commissioner. It determined that the raw materials that the taxpayer had bought outside of Connecticut were not "so changed and transformed before they came into Connecticut as to preclude their being tangible personal property subject to the use tax.... [W]hat comes into Connecticut is steel and lumber in its original identifiable form for use in the construction of warehouses on customers' sites. As such it is tangible personal property subject to Connecticut's Use Tax."

The taxpayer's appeal raises two issues. Procedurally, does the trial court's determination that prefabricated production components come into Connecticut in their "original identifiable form" constitute a finding of fact or a conclusion of law? Substantively, does the taxpayer's production of prefabricated building components outside of Connecticut fall within the ambit of the Connecticut use tax as that tax is defined by § 12-411(1)? We agree with the taxpayer that the trial court made a determination of law for which our review is plenary and that, on the merits, its appeal must be sustained.

I

The scope of our appellate review depends upon the proper characterization of the rulings made by the trial court. To the extent that the trial court has made findings of fact, our review is limited to deciding whether such findings were clearly erroneous. When, however, the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record. Practice Book § 4061; United Illuminating Co. v. Groppo, 220 Conn. 749, 752, 601 A.2d 1005 (1992); Zachs v. Groppo, 207 Conn. 683, 689, 542 A.2d 1145 (1988); Pandolphe's Auto Parts, Inc. v. Manchester, 181 Conn. 217, 221-22, 435 A.2d 24 (1980).

In this case, the trial court's determinations were based on a record that consisted solely of a stipulation of facts, written briefs, and oral arguments by counsel. The trial court had no occasion to evaluate the credibility of witnesses or to assess the intent of the parties in light of additional evidence first presented at trial. The record before the trial court was, therefore, identical with the record before this court. In these circumstances, the legal inferences properly to be drawn from the parties' definitive stipulation of facts raise questions of law rather than of fact. Cf. Connecticut National Bank v. Douglas, 221 Conn. 530, 545, 606 A.2d 684 (1992); Bell Food Services, Inc. v. Sherbacow, 217 Conn. 476, 482 n. 7, 586 A.2d 1157 (1991); Canaan National Bank v. Peters, 217 Conn. 330, 335, 586 A.2d 562 (1991); Mizla v. Depalo, 183 Conn. 59, 63 n. 8, 438 A.2d 820 (1981). Accordingly, our review of the ruling of the trial court in this case is plenary.

II

The substantive issue that we must resolve is whether this taxpayer's use of building components fabricated outside of Connecticut falls within the terms of § 12-411(1) that impose a tax on the "use in this state of tangible personal property purchased from any retailer for ... use in this state." In our plenary review of the trial court's decision sustaining the commissioner's tax assessment, our point of departure is the oft-repeated principle that "when the issue is the imposition of a tax, rather than a claimed right to an exemption or a deduction, the governing authorities must be strictly construed against the commissioner and in favor of the taxpayer." Hartford Parkview Associates Limited Partnership v. Groppo, 211 Conn. 246, 249-50, 558 A.2d 993 (1989); Zachs v. Groppo, supra, 207 Conn. at 689, 542 A.2d 1145; Texaco Refining & Marketing Co. v. Commissioner, 202 Conn. 583, 588, 522 A.2d 771 (1987); Schlumberger Technology Corporation v. Dubno, 202 Conn. 412, 420-23, 521 A.2d 569 (1987).

The parties agree with the trial court's analysis of § 12-411(1) as requiring the establishment of three conditions for the imposition of the use tax. The commissioner must show that: (1) the allegedly taxable item was "tangible personal property" that was used in this state; (2) the "tangible personal property" was "purchased" from a "retailer"; and (3) the "tangible personal property" was purchased for "use in this state." With respect to the third of these conditions, General Statutes § 12-411(13) provides: "It shall be presumed that tangible personal property shipped or brought to this state by the purchaser was purchased from a retailer for storage, use or other consumption in this state."

The taxpayer brings prefabricated building components into Connecticut for the purpose of installing these components into a building that it is constructing in this state. This activity involves the use of "tangible personal property" in Connecticut and establishes that the first condition contained in § 12-411(1) has been met.

The disagreement between the parties focuses on the applicability of the second condition. The crucial issue is how to characterize the building components. The taxpayer contends that the fabrication of the building components has converted them into manufactured items that have acquired a new identity so as to remove them from the category of "tangible personal property purchased from any retailer for ... use in this state." The commissioner contends, to the contrary, that the partial preassembly of lumber and steel into building components does not change the identity of the underlying raw materials for tax purposes and that these raw materials continue to fall within the basis for the use tax. In light of the stipulated facts, we agree with the taxpayer.

The stipulation of facts addresses the nature of the production process that takes place in the taxpayer's out-of-state factories. That process involves an integrated series of operations using the taxpayer's production machinery that not only cuts the raw materials to size but changes their shape and affixes metal plates and other...