Pennsylvania and West Virginia Supply Corp. v. Rose

• Decision Date: 10 March 1988
• Docket Number: No. 17700,17700
• Citation: 368 S.E.2d 101,179 W.Va. 317
• Court: West Virginia Supreme Court
• Parties: PENNSYLVANIA AND WEST VIRGINIA SUPPLY CORP., a West Virginia Corporation, Plaintiff Below, Appellee, v. Herschel H. ROSE, III, State Tax Commissioner, Defendant Below, Appellant.

Page 101

368 S.E.2d 101

179 W.Va. 317

PENNSYLVANIA AND WEST VIRGINIA SUPPLY CORP., a West Virginia

Corporation, Plaintiff Below, Appellee, v. Herschel H. ROSE, III, State Tax Commissioner, Defendant

Below, Appellant.

No. 17700.

Supreme Court of Appeals of

West Virginia.

March 10, 1988.

Syllabus by the Court

1. "In the absence of any specific indication to the contrary, words used in a statute will be given their common, ordinary and accepted meaning." Syl. Pt. 1, Tug Valley Recovery Center, Inc. v. Mingo County Commission, 164 W.Va. 94, 261 S.E.2d 165 (1979).

2. Standardized computer software discs fall within the "common, ordinary and accepted meaning" of the phrase "tangible goods, wares, and merchandise" as included in former West Virginia Code § 11-15A-1(5) (1983 Replacement Vol.). Computer software discs possess physical form, are capable of being touched, seen, and possessed, are real and substantial, and, therefore, are "tangible personal property" for purposes of former West Virginia Code § 11-15A-2 (1983 Replacement Vol.).

3. The taxability of the purchase and use of standardized computer software discs under former West Virginia Code § 11-15A-2 (1983 Replacement Vol.) does not depend upon the separability of the software instructions from the discs.

4. Where the language of the statute is of doubtful meaning or ambiguous, rules of construction may be resorted to and the construction of such statute by the person charged with the duty of executing the same is accorded great weight.

5. "Where a person claims an exemption from a law imposing a license or tax, such law is strictly construed against the person claiming the exemption." Syl. Pt. 2, State ex rel. Lambert v. Carman, State Tax Commissioner, 145 W.Va. 635, 116 S.E.2d 265 (1960).

6. Taxpayers who are involved in both wholesale and retail business activity may claim an exemption from the use tax on tangible personal property purchases used in their retail business equal to the percentage of their sales attributable to retail transactions.

Charles G. Brown, Atty. Gen., Richard L. Lanicanes, Asst. Atty. Gen., Tax Div., Charleston, for Herschel H. Rose, III, State Tax Com'r.

William D. Wilmoth, Donald J. Tennant, Schrader, Stamp, Byrd, Byrum & Campanion, Wheeling, for Pennsylvania and WV Supply Corp.

McGRAW, Justice.

In the case now before this Court, the State Tax Commissioner appeals and the taxpayer, Pennsylvania and West Virginia Supply Corporation, cross appeals from an order entered by the Circuit Court of Ohio County on November 25, 1986. The primary issues presented on appeal are as follows: (1) whether purchases of standardized computer software discs for use in the taxpayer's West Virginia business are taxable as "tangible personal property" under the use tax imposed by former West Virginia Code § 11-15A-2 (1983 Replacement Vol.); (2) whether persons involved in both wholesale and retail business transactions may apportion purchases for use in their business and claim an exemption from the use tax equal to the percentage of their sales attributable to retail transactions; and (3) whether reasonable cause exists in this case to waive the additions to tax and the penalty assessed against the taxpayer for failure to remit use tax on the purchases in question. As detailed below, this Court answers each of these questions in the affirmative.

I.

On October 25, 1983, the Tax Commissioner issued a use tax assessment against the taxpayer for the period April 1, 1978, to December 31, 1982, after an audit revealed that the taxpayer had failed to remit use tax during that period to the State of West Virginia on the purchase of various items subsequently used in the taxpayer's West Virginia business. The use tax assessment included: $12,758.09 tax owed; $2,255.76 interest; $293.23 additions to tax; and $2,516.42 penalty.

The taxpayer is a West Virginia corporation primarily engaged in the business of selling supplies at wholesale to mines, construction firms, and other industries. Retail sales account for only about two percent of the taxpayer's gross receipts. The taxpayer performs virtually all of its wholesale and retail accounting using a computer and standardized software. On November 1, 1979, the taxpayer purchased its computer hardware from a New Jersey vendor. The taxpayer also purchased standardized computer software discs from the vendor during the assessment period. The vendor develops and mass markets the standardized software discs for use by purchasers with similar accounting needs. In this instance, the taxpayer used the discs purchased from the vendor to load instructions into the taxpayer's computer. Those instructions programmed the computer to perform the desired accounting functions. Periodic updates and modifications to the software were also purchased and used by the taxpayer during the assessment period. The taxpayer did not pay either sales tax in New Jersey or use tax in West Virginia on the computer hardware and software purchases.

Following receipt of the October 25, 1983, assessment, the taxpayer filed a petition for reassessment, contending that: (1) the computer software purchases constituted purchases of intangible information and therefore, were not subject to the excise tax on the use of "tangible personal property" delivered to users in this state; (2) the taxpayer is entitled to fully exempt those tangible personal property purchases from the use tax which were used in the taxpayer's retail business; and (3) the additions to tax and penalty assessed should be waived because the taxpayer's failure to remit use tax was due to reasonable cause, not willful neglect.

After a hearing on the petition for reassessment, the Tax Commissioner issued an administrative decision on November 14, 1984, wherein the Commissioner determined that: (1) the taxpayer's purchase and use of discs containing standardized computer software are subject to the excise tax imposed on the use of "tangible personal property" delivered to users in this state; (2) the taxpayer is not entitled to exempt any of its tangible personal property purchases from the use tax because the purchases were not used solely in the taxpayer's retail business and, in fact, would have been made for use in the taxpayer's wholesale business irrespective of the taxpayer's retail business; and (3) the additions to tax and penalty would be waived because the taxpayer's failure to remit the use tax, given the legal issues involved, was due to reasonable cause. ¹

The taxpayer paid the assessment under protest and appealed to the Circuit Court of Ohio County. On November 25, 1986, the circuit court issued an order, ruling that: (1) the software purchases made by the taxpayer are not taxable as "tangible personal property" under former West Virginia Code § 11-15A-2 (1983 Replacement Vol.); (2) the taxpayer is entitled to an exemption from the use tax assessment on the computer hardware but only to the extent of the percentage of retail business engaged in by the taxpayer; and (3) the additions to tax and penalty would be waived for reasonable cause under the circumstances.

II.

We first address whether purchases of standardized computer software discs by the taxpayer for use in the taxpayer's West Virginia business are subject to taxation under the use tax statute in effect during the assessment period.

Former West Virginia Code § 11-15A-2 (1983 Replacement Vol.) imposed "[a]n excise tax ... on the use in this State of tangible personal property furnished or delivered within this State to consumers or users within this State...." (emphasis added). "Tangible personal property" was defined under former West Virginia Code § 11-15A-1(5) (1983 Replacement Vol.) to mean "tangible goods, wares and merchandise when furnished or delivered within this State to consumers or users within this State." The Commissioner determined in his administrative decision, and contends an appeal, that standardized computer software discs are "tangible personal property" for use tax purposes. The circuit court, however, ruled that the statute must be construed in favor of the taxpayer and against the taxing authority because the meaning of "tangible personal property" is ambiguous. Therefore, the circuit court reversed the Commissioner's administrative decision.

The circuit court is correct in saying that unclear tax laws must be construed in favor of the taxpayer, Consolidation Coal Co. v. Krupica, 163 W.Va. 74, 80, 254 S.E.2d 813, 816 (1979); Wooddell v. Dailey, 160 W.Va. 65, 68, 230 S.E.2d 466, 469 (1977); however, "[i]n the absence of any specific indication to the contrary, words used in a statute will be given their common, ordinary and accepted meaning." Syl. Pt. 1, Tug Valley Recovery Center, Inc. v. Mingo County Commission, 164 W.Va. 94, 261 S.E.2d 165 (1979). The consequence of purchasing and using "TANGIBLE personal property" in West Virginia is clear--an excise tax is imposed on the purchase price, see W.Va.Code § 11-15A-2 (1983 Replacement Vol.), see also W.Va.Code § 11-15A-2(a) (1987 Replacement Vol.). This Court agrees with the Commissioner that standardized computer software discs fall within the "common, ordinary and accepted meaning" of the phrase "tangible goods, wares, and merchandise" as included in former West Virginia Code § 11-15A-1(5) (1983 Replacement Vol.). "Tangible" is defined as: "Having or possessing physical form. Capable of being touched and seen; perceptible to the touch; tactile; palable; capable of being possessed or realized; readily apprehensible by the mind; real; substantial." Black's Law Dictionary 1305 (5th ed. 1979); see Webster's New Collegiate Dictionary 1182 (1979). Computer software discs possess physical form, are capable of being touched, seen, and possessed, are real and substantial, and, therefore, are "tangible personal property" for purposes of former West Virginia Code § 11-15A-2 (1983 Replacement Vol.). Accordingly, the...