Northern X-Ray Co., Inc. v. State By and Through Hanson, X-RAY

• Decision Date: 30 January 1996
• Docket Number: No. 950256,X-RAY,950256
• Citation: 542 N.W.2d 733
• Parties: NORTHERNCOMPANY, INC., Petitioner and Appellant, v. STATE of North Dakota by and through its Tax Commissioner, Bob HANSON, Respondent and Appellee. Civil
• Court: North Dakota Supreme Court

Page 733

542 N.W.2d 733

NORTHERN X-RAY COMPANY, INC., Petitioner and Appellant, v. STATE of North Dakota by and through its Tax Commissioner Bob HANSON, Respondent and Appellee.

Civil No. 950256.

Supreme Court of North Dakota.

Jan. 30, 1996.

William Pearce of Pearce & Durick, Bismarck, for petitioner and appellant. Appearance by Steve Miller, President of Northern X-Ray Company, Inc.

Christianne Yvette Runge, Assistant Attorney General, Tax Department, Bismarck, for respondent and appellee.

LEVINE, Justice.

Northern X-Ray Company, Inc. (Northern) appeals from a district court judgment affirming an order of the North Dakota Tax Commissioner (Commissioner) finding Northern liable for use taxes. We reverse and remand.

Northern is a Minnesota corporation that sells, installs, and services medical equipment. Northern sold medical equipment to North Dakota leasing companies, which leased the equipment to several North Dakota health care clinics. The leasing companies collected lease payments and sales taxes from the clinics. The sales taxes on the leased equipment were paid to the Commissioner. Northern installed the equipment at the clinics, and calibrated and tested it for use.

The work required to install the medical equipment items varied depending on the type of equipment. Some equipment required only minor adjustments and plugging in, other equipment had to be connected to building plumbing, and some equipment required elaborate wiring, bolting in place, and testing. Installation time for the equipment items varied from minutes to one week. All the equipment installed was removable, with removal times ranging from a matter of minutes to two days.

In September 1993, the Commissioner conducted a sales and use tax audit on Northern, covering the period from July 1990 to August 1993. In October 1993, the Commissioner issued a Notice of Determination and imposed a use tax liability against Northern, under section 57-40.2-03.3, NDCC. This section makes "contractors," who use "tangible personal property" in the performance of a contract, liable for payment of a use tax. ¹ Northern protested the Notice of Determination and requested a formal hearing. The parties stipulated to the facts, and submitted their arguments to the hearing officer on briefs.

The hearing officer issued his recommended findings of fact, conclusions of law and order on January 9, 1995. The hearing officer concluded that Northern was a "contractor" under section 57-40.2-03.3, NDCC, and that it became liable to pay the use tax when it installed the medical equipment in the North Dakota medical clinics. The Commissioner issued an order affirming its revised May 9, 1994, Notice of Determination assessing tax, penalties, and interest and adopting the hearing officer's findings. Northern appealed from the Commissioner's order to district court, which affirmed. Northern then appealed to this court.

The dispositive issue on appeal is whether Northern is a "contractor" under our contractor's use tax statute.

The interpretation of a statute is a question of law and is fully reviewable by this court. Koch Oil Co. v. Hanson, 536 N.W.2d 702 (N.D.1995). Our primary goal in construing a statute is to discover the intent of the legislature. Burlington Northern v. State, 500 N.W.2d 615 (N.D.1993). We look first to the language of the statute in seeking to find legislative intent. Rocky Mountain Oil & Gas Ass'n v. Conrad, 405 N.W.2d 279 (N.D.1987). If a statute's language is clear and unambiguous, the legislative intent is presumed clear on the face of the statute. Western Gas Resources, Inc. v. Heitkamp, 489 N.W.2d 869 (N.D.1992), cert. denied, 507 U.S. 920, 113 S.Ct. 1281, 122 L.Ed.2d 675 (1993). If a statute's language is ambiguous, however, we may look to "extrinsic aids" in interpreting the statute. Id. at 872.

Northern argues that "contractor," as used in section 57-40.2-03.3, means construction industry contractor and, therefore, does not encompass Northern. The Commissioner, on the other hand, argues that "contractor" under section 57-40.2-03.3 is any entity that "uses tangible personal property in the performance of [a] contract." Generally, "[w]ords used in any statute are to be understood in their ordinary sense." NDCC § 1-02-02. An "ordinary sense" interpretation of "contractor" gives some support to both parties' construction of the term. See Webster's New World Dictionary 308 (2nd College Ed.1980) [defining "contractor" as "1. one of the parties to a contract[;] 2. a person who contracts to supply certain materials or do certain work for a stipulated sum, esp. one who does so in any of the building trades"]. "A statute is ambiguous if it is susceptible to differing but rational meanings." Western Gas, 489 N.W.2d at 872. Here, the term "contractor," as used in section 57-40.2-03.3, NDCC, is susceptible to different rational interpretations, and we conclude that section 57-40.2-03.3 is ambiguous.

Therefore, we may look to extrinsic aids in determining what the legislature meant when it used the term "contractor" in section 57-40.2-03.3. See NDCC § 1-02-39. As Justice Holmes cautioned, "[a] word is not a crystal, transparent and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and the time in which it is used." Towne v. Eisner, 245 U.S. 418, 425, 38 S.Ct. 158, 159, 62 L.Ed. 372 (1918). When the plain language of a statute is not "transparent," our codified rules of statutory interpretation direct us to look to the Code itself in determining the meaning of statutory terms. See NDCC § 1-02-02 ["[A]ny words explained in this code are to be understood as thus explained."]; NDCC § 1-02-03 ["Technical words and phrases and such others as have acquired a peculiar and appropriate meaning in law, or as are defined by statute, must be construed according to such peculiar and appropriate meaning or definition."]. "When the meaning of a word or phrase is defined in a section of our Code that definition applies to any use of the word or phrase in other sections of the Code, except when a contrary intent plainly appears." Adams County Record v. Greater North Dakota Ass'n, 529 N.W.2d 830, 834 (N.D.1995) (citing NDCC § 1-01-09); see also Guardianship of Braaten, 502 N.W.2d 512 (N.D.1993).

The statutory term "contractor" is not defined in section 57-40.2-03.3, NDCC. Section 43-07-01(3), however, provides a clear and thorough definition of the term:

"A 'contractor' is any person, as hereinbefore defined, engaged in the business of construction, repair, alteration, dismantling, or demolition of bridges, highways, roads, streets, buildings, airports, dams, drainage or irrigation ditches, sewers, water or gas mains, water filters, tanks, towers, oil, gas, or water pipelines, and every other type of structure, project, development, or improvement coming within the definition of real or personal property, including the construction, alteration, or repair of property to be held either for sale or rental, and shall include subcontractor, public contractor, and nonresident contractor."

This definition is consistent with the references to contractor activities contained in section 57-40.2-14, which is part of the use tax section of the Code and discusses contractors involved in "the erection of buildings or the alteration, improvement or repair of real property."

Considering the statutory definition of "contractor" found in section 43-07-01(3), Northern's argument it is not a "contractor" under section 57-40.2-03.3 is reasonable. We must determine, however, whether the legislature favored a "contrary" definition for "contractor" when it drafted section 57-40.2-03.3. In seeking to uncover the legislature's intent, we are mindful of Judge Learned Hand's counsel:

"[I]t is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning." Cabell v. Markham, 148 F.2d 737, 739 (2nd Cir.1945), aff'd, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945).

Section 1-02-39, NDCC, lists several aids for the construction of ambiguous statutes:

"If a statute is ambiguous, the court, in determining the intention of the legislation, may consider among other matters:

1. The object sought to be attained.

2. The circumstances under which the statute was enacted.

3. The legislative history.

4. The common law or former statutory provisions, including laws upon the same or similar subjects.

5. The consequences of a particular construction.

6. The administrative construction of the statute.

7. The preamble."

The first five subsections of section 1-02-39 are but components of that ancient rule of statutory construction, the "Mischief Rule." See Heydon's Case, 76 Eng. Rep. 637 (Exchequer 1584) (quoted in Hart & Sacks, The Legal Process 1144 (mimeo ed.1987)). Under this rule, a court considers four elements when interpreting a statute:

"1st. What was the common law before the making of the Act.

2nd. What was the mischief and defect for which the common law did not provide.

3rd. What remedy the [legislature] resolved and appointed to cure the disease....

And 4th. The true reason of the remedy; and then the office of all the Judges is always to make sure construction as shall suppress the mischief, and advance the remedy...." Id.

We construe section 57-40.2-03.3 with section 1-02-39 and the "Mischief Rule" in mind.

For North Dakota, two cases established the "common law" of the contractor's use tax. United States v. Boyd, 378 U.S. 39, 84 S.Ct. 1518, 12 L.Ed.2d 713 (1964), held that a tax on government property used by government contractors was not an unconstitutional tax on the United States. The constitution "does not forbid a tax whose legal incidence is upon a contractor doing business with...