Northeast Datacom, Inc. v. City of Wallingford, 13549

CourtSupreme Court of Connecticut
Citation563 A.2d 688,212 Conn. 639
Decision Date15 August 1989
Docket NumberNo. 13549,13549

Page 688

563 A.2d 688
212 Conn. 639
No. 13549.
Supreme Court of Connecticut.
Argued June 7, 1989.
Decided Aug. 15, 1989.

[212 Conn. 640]

Page 689

Shaun S. Sullivan, with whom was Bennett J. Bernblum, New Haven, for appellants (plaintiffs).

Robert K. Ciulla, with whom was Ben A. Solnit, New Haven, for appellee (defendant).

Wesley W. Horton, David L. Fineberg and Kimberly A. Knox, Hartford, filed a brief, for Connecticut Conference of Municipalities, amicus curiae.

Charles H. Lenore and James Sicilian, Hartford, filed a brief, for Connecticut Bankers Ass'n, et al., amici curiae.

Patrick W. Hanifan, Wayne S. Henderson and Joseph F. Brennan, Manchester, filed a brief, for Greater Hartford Chamber of Commerce, et al., amici curiae.

Before [212 Conn. 639] SHEA, CALLAHAN, GLASS, COVELLO and HULL, JJ.

[212 Conn. 640] COVELLO, Justice.

This is an appeal from a personal property tax assessment made by the city of Wallingford. The principal issue is whether computer software 1 constitutes personal property subject to municipal taxation under General Statutes § 12-71. 2 We conclude that such software is intangible personal property and therefore not subject to the provisions of § 12-71.

[212 Conn. 641] The appeal involves two categories of property that the assessor included on Wallingford's grand list of October 1, 1986. First, the assessor listed computer software that the named plaintiff, Northeast DataCom (NEDC), had created in the course of its business for use by its clients. The assessor also imposed a penalty for NEDC's failure to list this software. Second, the assessor listed computer hardware 3 and related equipment owned and leased by the various plaintiffs at a value that the plaintiffs claimed was far in excess of its true and actual value. NEDC and the other plaintiffs unsuccessfully appealed the assessor's determination to the Wallingford board of tax review (board).

On April 9, 1987, the plaintiffs appealed the board's decision to the Superior Court pursuant to General Statutes §§ 12-118, 12-119 and 12-53. On February 26, 1988, the plaintiffs filed an amended complaint to add to their appeal claims for relief from the assessments on the grand list of October 1, 1987. The trial court, Hon. Joseph W. Bogdanski, state trial referee, concluded: (1) that NEDC's computer software

Page 690

was tangible personal property subject to taxation; (2) that NEDC had not proved that the assessor's valuation of its computer hardware was excessive; (3) that the plaintiffs Bank of New England, Lorac Leasing Corporation, Ford Motor Credit Company and Textron Financial Corporation were estopped from claiming that the values assigned to their computer hardware were manifestly excessive because of their failure to file the statutorily required "declarations"; and (4) that the penalties assessed against NEDC for failure to declare its software were proper. The trial court thereafter rendered judgment for the defendant. The plaintiffs then appealed to the Appellate Court. We [212 Conn. 642] thereafter transferred the appeal to ourselves in accordance with Practice Book § 4023.

NEDC first claims that the trial court erred in concluding that its software was tangible personal property. In this connection, the court found that the software at issue had an original cost of $2,756,740. The assessor valued this property at $2,317,183. This amount "included canned software purchased by [NEDC], software customized by outside contractors for [NEDC], and custom software developed by [NEDC] itself." The trial court further found that the tapes and discs with the computer program instructions on them appeared tangible and could be "seen, touched and generally perceived by the senses." The trial court also found that "[l]ike a book, a magnetic tape with a computer program encoded on it, is made up of a physical medium component and an intangible intellectual component.... The fact that the author's idea exists apart from the book and is itself intangible does not lessen the book's obvious tangibility. Similarly, a music cassette tape and a movie videotape contain an intangible intellectual component that is retained in a physical medium. A cassette tape with a Beethoven symphony recorded on it and a videotape with a movie recorded on it are not rendered intangible because they contain an 'intellectual works product.' " The trial court thereafter concluded that the software was tangible personal property and, therefore, subject to taxation. We do not agree.

General Statutes § 12-71(a) subjects to local municipal taxation "[a]ll goods, chattels and effects or any interest therein, belonging to any person who is a resident in this state...." The phrase "goods, chattels and effects or any interest therein" is not defined in the statutes. While we have not had recent occasion to construe this statute, we have held that the broad [212 Conn. 643] language of its predecessor 4 "was intended to cover all classes of intangible property. The term 'property,' as the word is used in statutes relating to assessment and taxation, refers to every species of valuable right or interest that is subject to ownership, has an exchangeable value, or adds to one's wealth or estate. Eric v. Walsh, 135 Conn. 85, 90, 61 A.2d 1 [1948], and cases cited; Hartford-Connecticut Trust Co. v. O'Connor, 137 Conn. 267, 272, 76 A.2d 9 [1950]." Stirling v. Connelly, 141 Conn. 483, 488, 107 A.2d 274 (1954). "The breadth and inclusive character of the list so prescribed is apparent. The General Assembly intended to include therein all types of tangible and intangible personal property." Hartford-Connecticut Trust Co. v. O'Connor, supra, 137 Conn. at 271, 76 A.2d 9.

These earlier holdings would provide an immediate resolution of the present controversy were it not for the fact that in 1953 General Statutes § 1745 was repealed and republished as amended. 5 The specific references to notes, bonds, stocks, moneys, credits and choses in action were deleted so that only "vessels ... goods, chattels or effects, or any interest therein" remained subject to taxation. At the same time a new provision was added to that statute that dealt with property in towns having

Page 691

two or more taxing districts. 6 [212 Conn. 644] The new language described the property mentioned above as "tangible personal property." This coupled with the fact that there is now provision in a companion statute for the inclusion on the assessor's list of "tangible personal property" belonging to nonresidents; see General Statutes § 12-43; and provision for the removal from the list of erroneously included "tangible personal property"; 7 see General Statutes § 12-57; causes us to conclude that after its 1953 republication, the legislature intended that General Statutes § 12-71 was thereafter to apply only to tangible personal property.

In concluding that software was tangible personal property within the meaning of § 12-71, the trial court recognized that "[l]ike a book, a magnetic tape with a computer program encoded on it, is made up of a physical medium component and an intangible intellectual component." It identified the physical component as the "magnetic tape, dis[k]ette and photographs of a disc jack[et] ... used ... to store and transmit ... [the] computer programs." We conclude, however, that these physical devices are only the most tangential incidents of a computer program and the fact that tangible property is used to store or transmit the software's binary instructions does not change the character of what is fundamentally a classic form of intellectual property.

Software is a variety of "literary work" covered by the Copyright Act. 17 U.S.C. §§ 101, 102(a) and 117. To be copyrightable, an "original work of authorship," such as a program, must be "fixed in any tangible medium of expression." 17 U.S.C. § 102(a). Despite being so fixed, the original work of authorship is legally [212 Conn. 645] distinct from the medium, and from each copy of the work, including the "material object ... in which the work is first fixed." 17 U.S.C. § 101.

The software here cost NEDC $2,756,740. The magnetic discs and tapes cost approximately $1000. Wallingford assessed the "property" for $2,317,183. Wallingford's theory then is that if one has intangible personal property that is fixed, even temporarily, in a tangible medium, the municipal tax on tangible personal property is due based upon the value of the tangible medium plus the value of the intangible personal property. We do not agree.

In Columbia Pictures Industries, Inc. v. Tax Commissioner, 176 Conn. 604, 610, 410 A.2d 457 (1979), we held...

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