Prospecting Unlimited, Inc. v. Norberg, s. 75-251-M

• Decision Date: 05 August 1977
• Docket Number: Nos. 75-251-M,s. 75-251-M
• Parties: PROSPECTING UNLIMITED, INC. v. John H. NORBERG, Tax Administrator. LEE LITTLEFIELD REAL ESTATE, INC. v. John H. NORBERG, Tax Administrator. P. and 75-255-Appeal.
• Court: Rhode Island Supreme Court

Page 702

376 A.2d 702

119 R.I. 116

PROSPECTING UNLIMITED, INC. v. John H. NORBERG, Tax Administrator.

LEE LITTLEFIELD REAL ESTATE, INC. v. John H. NORBERG, Tax Administrator.

Nos. 75-251-M.P. and 75-255-Appeal.

Supreme Court of Rhode Island.

Aug. 5, 1977.

[119 R.I. 126] Joseph F. Vitullo, Coventry, for Prospecting Unlimited, Inc. and Lee Littlefield Real Estate, Inc.

Tobin, LeRoy & Silverstein, Michael A. Silverstein, Charles S. Sokoloff, James M. Lenaghan, Providence, for amicus curiae Wylain, Inc.

Julius C. Michaelson, Atty. Gen., Allen P. Rubine, Sp. Asst. Atty. Gen., Perry Shatkin, Chief Legal Officer, Providence, for Taxation.

OPINION

PAOLINO, Justice.

These consolidated cases are before us on appeal and on certiorari for a review of a Superior Court judgment affirming a decision of the respondent, the tax administrator. The respondent had assessed on each petitioner a use tax under G.L. 1956 (1970 Reenactment) § 44-18-20, as amended by P.L. 1967, ch. 179, art. 2, § 7, on modular home components each had purchased. After paying the amounts of the deficiencies, the petitioners appealed to Superior Court pursuant to § 44-19-18. A Superior Court justice reviewed the record and the findings of the tax administrator and affirmed his decision. Because of uncertainty as to the correct procedure for seeking review of the Superior Court decision, the petitioners filed an appeal and also sought a writ of certiorari. We granted the writ, and both cases are now before us on appeal and on certiorari.

The testimony presented before respondent's hearing officer indicates that petitioners arranged the erection of modular homes on land which they owned, and then sold the completed houses. A modular home is a structure which is prefabricated in a factory and delivered to its intended site where it is installed on a foundation. The homes at issue here were fabricated in Nashua, New Hampshire, and were delivered to Rhode Island by truck in two halves so that they would meet highway restrictions on vehicle width. The modules were manufactured by Continental Homes of New England, a division of Wylain, Inc. Wylain has filed a brief in this case as amicus curiae.

The testimony heard by the tax administrator's hearing officer indicates that the modules involved in these cases arrived at their particular sites with factory-installed electrical wiring and insulation and with lighting and plumbing fixtures packed inside. Depending on the type of house and the buyer's choice, some modules had exterior siding already applied and others did not. The petitioners were responsible for preparing the site and for laying the foundation to receive the modules.

When the modules arrived at the prepared sites, the manufacturer's crew chief, with help from two employees of the buyers, first laid supporting girders. The two halves of the house were then bolted together and slipped onto the foundations and the crew chief helped erect underlying supports such as lally columns. Once the halves were joined and placed squarely on the foundation, the manufacturer's crew had completed its contractual responsibilities.

Although the manufacturer's crew may have assisted in making the structures weather-tight, petitioners were responsible for completing construction work on these houses. The petitioners applied shingling to at least some of the outside surfaces and prepared the interior walls with paint, which they purchased separately, or with wallpaper, which was sometimes supplied by the manufacturer. Carpeting was already installed by the manufacturer but had to be joined where the modules met, and insulation had to be installed below the floors. The petitioners joined together the electrical wiring in the two halves, tied the system into outside electricity, and then installed lighting fixtures which were shipped loose in the modules. Similarly, petitioners had to assemble below-floor plumbing, tie it into sewer and water lines, and install the plumbing fixtures, which were also shipped loose inside the modules. Hot water heaters were purchased from Continental Homes and petitioners installed them and hooked them up to outside water and electricity. In some cases, foyers were constructed by petitioners with materials supplied by the manufacturer. Details varied from house to house, but generally petitioners did the work of tying together the halves and connecting them to outside lines, and the manufacturer did none of the on-site work.

By agreement between the manufacturer and the buyers, the modules were considered personal property of the former until its crew chief received payment from the buyers. Continental Homes' printed contract called for this transaction to take place before the modules were unloaded from the truck. However, in order to accommodate petitioners' financing banks, which would not advance funds until the structures were on their foundations, Continental agreed orally to modify the agreement and to complete its delivery before demanding payment.

Five houses are in question in the Littlefield case and one in the Prospecting Unlimited case.

In both of these cases the tax administrator found that when Continental Homes completed its contractual obligations, the modules were still only components of houses and did not become part of the real estate until petitioners combined them with other components to complete the construction of the houses. The tax administrator thus held that the modules were personal property which petitioners used in construction and were therefore subject to the use tax.

Because the facts in both cases were virtually identical, the cases were consolidated and presented to a Superior Court justice who reviewed the record and affirmed the tax administrator's decision. Citing an early Rhode Island case, the trial justice stated that until petitioners had completed all the connecting and other construction work, the modules could have been removed without damage to the realty and thus were tangible personal property still subject to the use tax when petitioners received title to them. The petitioners are now seeking review of the trial court's judgment by appeal and by certiorari.

In Couture v. Norberg, 114 R.I. 704, 338 A.2d 538 (1975), we held that the correct procedure for reviewing a deficiency determination of the tax administrator is by certiorari under the Administrative Procedures Act, G.L. 1956 (1969 Reenactment) § 42-35-16. Couture v. Norberg, supra at 706, 338 A.2d at 540. That decision has since been affirmed by the Legislature in P.L. 1976, ch. 140, § 27, which amended § 44-19-18 the review provision of the sales and use tax statute, by referring to § 42-35-16 as the proper vehicle for judicial review of deficiency determinations.

The appeals in these cases will therefore be dismissed pro forma and we will review the trial court's judgment on certiorari pursuant to the Administrative Procedures Act.

The petitioners contend that it was error for the trial justice to affirm respondent's decision on the sole basis that the modules could be removed from their foundations without damage to the realty. The petitioners argue that to determine whether this personal property had become real property, the court should have considered not only the manner of annexation used, but also the nature of these particular chattels and the intention of the parties in annexing the modules to their foundations.

The conclusion which petitioners evidently would have us reach is that the facts show the modules were placed on their foundations by the manufacturer with the clear intention that they remain there as permanent structures. Therefore, had the trial justice applied the correct test to these facts, he would have had to conclude that these modules were fixtures by the time of their conveyance to petitioners and that petitioners never used them while they were personalty, and therefore were not liable for a use tax on them.

It is true that courts no longer determine if a chattel has become a fixture simply by considering whether or not it can be removed without damaging it or the real estate. Rather the modern approach involves three general tests:

" 'First, annexation to the realty, either actual or constructive; second, adaptation or application to the use or purpose to which that part of the realty to which it is connected is appropriated; and third, intention to make the article a permanent accession to the freehold.' " Annot. 77 A.L.R. 1400, 1400 (1932); see, e.g., Tudor Arms, Inc. v. McKendall Land Co., 63 R.I. 52, 56-57, 6 A.2d 735, 737 (1939); Canning v. Owen, 22 R.I. 624, 628-29, 48 A. 1033, 1034-35 (1901).

These tests, however, are applied where the dispute concerns the legal nature of chattels which have already been put to an intended use in or on realty, that is, chattels which have been annexed to the real estate. See, e.g., Butler v. Butler's Diner, Inc., 81 R.I. 43, 98 A.2d 875 (1953); Tudor Arms, Inc. v. McKendall Land Co., and Canning v. Owen, both supra.

In the cases before us there is no question under either the early test of removal without damage or the modern tripartite test mentioned above that once the modules were actually incorporated into completed houses, they became part of the real estate just as any other house usually does. When the houses were completed, the modules were not removable without damage to themselves or the realty. Furthermore, they were permanently fastened to their foundations, were intended to remain so, and were adapted for use as housing, as was the realty to which they were attached.

The real issue in these cases, however, is a factual one: Whether the modules were actually annexed to the real estate by the manufacturer before it sold them or by petitioners after they bought them. This is the primary...