Morton Bldgs., Inc. v. Commissioner of Revenue

• Decision Date: 28 August 1997
• Docket Number: No. 96-P-295,96-P-295
• Citation: 683 N.E.2d 720,43 Mass.App.Ct. 441
• Court: Appeals Court of Massachusetts
• Parties: MORTON BUILDINGS, INC. v. COMMISSIONER OF REVENUE.

Page 720

683 N.E.2d 720

43 Mass.App.Ct. 441

MORTON BUILDINGS, INC. v. COMMISSIONER OF REVENUE.

No. 96-P-295.

Appeals Court of Massachusetts Suffolk.

Argued April 18, 1997.

Decided Aug. 28, 1997.

Leo T. Sorokin, Assistant Attorney General, for the Commissioner of Revenue.

Abraham M. Stanger, New York City (Richard Brunell, Boston, with him), for the taxpayer.

Before PERRETTA, GILLERMAN and KASS, JJ.

KASS, Justice.

Are the raw materials, e.g., lumber and steel, used in building components prefabricated outside of Massachusetts and used in the erection of buildings in Massachusetts subject to the use tax, G.L. c. 64I, § 2? The Appellate Tax Board decided that they are not, and from that decision the Commissioner of Revenue has appealed. We affirm.

Morton Buildings, Inc. (Morton), incorporated under Illinois law and with its principal office in that State, manufactures, sells, and erects prefabricated, timber-frame, metal-sheathed structures, most often warehouses, for agricultural and industrial use. At the time the case was presented in the Appellate Tax Board, Morton was active in thirty-eight States. A customer order begins with a choice of one of the basic models Morton makes, as to which the customer may opt to add windows, extra doors, sliding doors, and overhangs, located where the buyer wants them. Morton has factories spotted around the country. Orders for Massachusetts are filled by factories that Morton operates in Kenton, Ohio and Gettysburg, Pennsylvania.

What Morton delivers to a customer is a completed building that becomes attached to the customer's land, i.e., it is real estate and, as such, not subject to the sales or use tax. Those taxes deal with tangible personal property and in the case of a building, if sales or use taxes are to be paid, they are paid by the supplier and installer--often a contractor--of the building. See generally Hellerstein & Hellerstein, State Taxation par. 15.07 & n. 135 (1992).

The use tax, assessed in Massachusetts under G.L. c. 64I, § 2, as amended by St.1976, c. 415, § 79, imposes

"an excise ... upon the storage, use or other consumption in the commonwealth of tangible personal property purchased from any vendor for storage, use or consumption within the commonwealth at the rate of five per cent of the sales price of the property...."

A purpose of the use tax is to make it futile to attempt to avoid the Massachusetts sales tax (imposed by G.L. c. 64H, § 2) by buying a product in a State where there is no sales tax. The use tax is complementary to the sales tax and bites when the sales tax does not. It would be pointless, for example, to buy in New Hampshire a refrigerator that will be used in a Massachusetts house to avoid the sales tax. The use tax will come into play. See Boston Tow Boat Co. v. State Tax Commn., 366 Mass. 474, 477, 319 N.E.2d 908 (1974); M & T Charters, Inc. v. Commissioner of Rev., 404 Mass. 137, 140, 533 N.E.2d 1359 (1989). "The use tax was designed to prevent the loss of sales tax revenue from out-of-State purchases." Ibid.

During the years in controversy, 1984-1987, Morton paid $329,981.74 in use taxes, which it asked the commissioner to abate. More refined calculations developed that of that amount 16.6124% was allocable to windows, doors, hardware, and certain raw materials that Morton bought outside of Massachusetts and installed in Massachusetts jobs without significant alteration. Those products, Morton conceded, were subject to the use tax. The net amount in controversy became $275,163.85.

How Morton goes about its business in manufacturing and installing buildings was the subject of a statement of agreed facts. Both the Appellate Tax Board and we, therefore, confront a pure question of statutory interpretation and application in the light of the stipulated facts. See Commissioner of Rev. v. Houghton Mifflin Co., 423 Mass. 42, 42-43, 666 N.E.2d 491 (1996).

Morton buys its raw materials, notably lumber and steel, in bulk outside of Massachusetts and stores them in warehouses outside of Massachusetts. Those purchases are not made for a particular job but on estimates of the volume of business Morton is likely to be doing in the area served by the regional factories. When Morton receives an order for a building, it draws materials from storage and proceeds to make building components such as trusses, lower columns, upper columns, purlins, metal panels, and overhang rafters. The stipulation details how Morton makes each category of component. One illustration suffices:

"To make the trusses, the upper chords and lower chords that will form the truss are run through a machine which cuts the chords to the proper lengths and to the proper angles at both ends of each chord. Lumber webbing, which is attached between the upper and lower chords, is also cut to length and to the correct angles. The trusses (chords and webs) are then transferred to a fixture table where they are positioned 'face-up' and metal gusset plates, themselves made by Morton from rolled steel that it purchased, are positioned at each joint. The gusset plates are then stitched into position with a pneumatic gun nailer. The truss is then positioned onto a conveyer and transported through a roller press machine. The roller press machine imbeds the metal gusset plates onto the wooden chords and webs at the pre-selected positions. The trusses include end trusses and intermediate trusses." ¹

After completing the building components, Morton transports them and any specialty items directly to the building site for erection. Generally it takes a three-person crew three to five days to complete a building. Employees of Morton or, in some instances subcontractors that Morton hires, perform all of the transportation, loading, unloading, and erection work.

Several principles that govern decision-making in tax cases warrant mention. The commissioner's authority to tax must rest on an express statutory source. DiStefano v. Commissioner of Rev., 394 Mass. 315, 325-326, 476 N.E.2d 161 (1985). To the extent a taxing statute raises interpretive questions, doubts are to be resolved in favor of the taxpayer. Dennis v. Commissioner of Corporations & Taxation, 340 Mass. 629, 631, 165 N.E.2d 893 (1960). Commissioner of Rev. v. AMIWoodbroke, Inc., 418 Mass. 92, 94, 634 N.E.2d 114 (1994). The taxpayer, however, carries the burden of establishing entitlement to an abatement. Towle v. Commissioner of Rev., 397 Mass. 599, 603, 492 N.E.2d 739 (1986).

Broken down to its components, the use tax falls on tangible personal property that (1) is stored, used or otherwise consumed in the Commonwealth; (2) is purchased from any vendor; and (3) was purchased for storage, use, or consumption within the Commonwealth. Obviously, the building components--trusses, columns, panels, etc.--are used in Massachusetts. ² But, as the...