R.S. Audley, Inc., In re

• Decision Date: 05 May 1989
• Docket Number: No. 87-521,87-521
• Citation: 562 A.2d 1046,151 Vt. 513
• Court: Vermont Supreme Court
• Parties: In re R.S. AUDLEY, INC.

Page 1046

562 A.2d 1046

151 Vt. 513

In re R.S. AUDLEY, INC.

No. 87-521.

Supreme Court of Vermont.

May 5, 1989.

Samuel C. FitzPatrick, Montpelier, for plaintiff-appellant.

Jeffrey L. Amestoy, Atty. Gen. and Mary L. Bachman, Asst. Atty. Gen., Montpelier, for defendant-appellee.

Before ALLEN, C.J., PECK and GIBSON, JJ., and BARNEY, C.J. (Ret.) and KEYSER, J. (Ret.), Specially Assigned. GIBSON, Justice.

R.S. Audley, Inc. ("taxpayer") appeals from the superior court's affirmance of a determination by the Commissioner of Taxes holding it liable for an underpayment of the compensating use tax ¹ imposed on tangible personal property purchased elsewhere but used in this state. We affirm.

Taxpayer, a foreign corporation, is a general contractor engaged in bridge and highway construction in the New England area. In the course of its business, taxpayer brought into and used within Vermont equipment purchased outside the state upon which no Vermont sales tax had been paid. This equipment (seven trucks, two graders and two bulldozers) was used in the performance of one or more contracts in Vermont in the period for which the underpayment was assessed. It was stipulated by taxpayer and the Department of Taxes that no one piece of equipment was used in Vermont for more than six consecutive months in the performance of a contract. Each piece was, however, used in excess of six cumulative months within this state over the course of between one and three years.

The Department assessed a compensating use tax on the equipment based on either its purchase price, 32 V.S.A. § 9774(b), or (where the equipment had been used outside Vermont for six months prior to its use within the state) on its market value as of the time of its first use within the state, id. § 9774(b)(1). Taxpayer elected, however, to pay the State of Vermont a tax based on the rental value of the equipment, pursuant to 32 V.S.A. § 9774(b)(2). Taxpayer raises two issues on appeal: first, that the property is exempt from tax entirely because taxpayer is not a "resident" of Vermont for purposes of 32 V.S.A. § 9774; and second, that taxpayer's payment of a compensating use tax based on the equipment's fair rental value (as opposed to its purchase price or market value) was proper under 32 V.S.A. § 9774(b)(2).

Section 9774 of Title 32 provides the framework for both issues raised by taxpayer. That statute provides, in pertinent part, as follows:

(b) Tangible personal property which has been purchased by a resident of the state outside of this state for use outside of this state and subsequently becomes subject to the compensating use tax imposed under this chapter, shall be taxed on the basis of the purchase price of the property, provided however:

(1) That where a taxpayer affirmatively shows that the property was used outside the state by him for more than six months prior to its use within this state, the property shall be taxed on the basis of current market value of the property at the time of its first use within the state....

(2) That the compensating use tax on the tangible personal property brought into this state ... and used in the performance of a contract or subcontract within this state by a purchaser or user for a period of less than six months may be based, at the option of the taxpayer, on the fair rental value of the property for the period of use within this state.

32 V.S.A. § 9774(b) (emphasis added).

I.

Taxpayer argues that the compensating use tax addressed in § 9774(b), which by definition is imposed only on personal property purchased by a resident of Vermont, does not apply to it as a foreign corporation. The Department argues, however, that 32 V.S.A. § 9744(b) requires that a business in taxpayer's position "shall not be deemed a nonresident." ²

Taxpayer's argument, in essence, is that the use of the double negative somehow warrants a conclusion that while it is not a nonresident, neither is it a resident. Section 9773 states that the compensating use tax is imposed "on every person" using "any tangible personal property" within the state, except as otherwise exempted. Statutes granting an exemption from taxation are construed strictly against the party claiming an exemption, yet reasonably so as not to defeat their purpose. In re Abbey Church, 145 Vt. 227, 229, 485 A.2d 1263, 1264 (1984); Rock of Ages Corp. v. Commissioner of Taxes, 134 Vt. 356, 359, 360 A.2d 63, 65 (1975). Taxpayer offers no explanation as to why the Legislature would grant a use tax exemption to a foreign corporation doing business in Vermont, thus giving it a competitive advantage over local businesses which must pay a sales or use tax, and we can think of none. Indeed, such an exemption could contravene one of the underlying purposes of the use tax: the protection of local merchants from unfair out-of-state competition. Rowe-Genereux, Inc. v. Department of Taxes, 138 Vt. 130, 133-34, 411 A.2d 1345, 1347 (1980).

Although it would, perhaps, have been preferable for the statute to have been worded affirmatively, the result is still the same: one who is "not a nonresident" is "a resident" for purposes of the compensating use tax. The fact that the statute's framers chose to employ a double negative in § 9744(b) is of no avail to taxpayer.

II.

Taxpayer's second issue revolves around the interpretation of the phrase "period of less than six months" contained in 32 V.S.A. § 9774(b)(2). Taxpayer argues that this provision should be read to mean that where personal property is used within Vermont for less than six consecutive months, the property may, at the taxpayer's option, be taxed only on its fair rental value. The Commissioner disagreed, and, finding that the equipment at issue was used in excess of six cumulative months in Vermont (although on different contracts and for different periods of time), taxed each piece either on its purchase price or its market value. The Commissioner's decision was upheld by the superior court on the basis that while both interpretations were plausible, the more reasonable construction, and the one better furthering the legislative intent, was that "six months" must be counted cumulatively. We agree.

Statutes are to be given reasonable construction, International Business Machines v. Department of Taxes, 133 Vt. 269, 275, 336 A.2d 158, 162 (1975), so that they will neither be rendered ineffectual nor lead to irrational consequences. Audette v. Greer, 134 Vt. 300, 302, 360 A.2d 66, 68 (1976). In construing a statute, the Court must look to the whole statute, the subject matter, its effects and consequences, and the reason and spirit of the law. Langrock v. Department of Taxes, 139 Vt. 108, 110, 423 A.2d 838, 839 (1980). Moreover, absent compelling indication of error, the interpretation of a statute by the administrative body responsible for its execution will be sustained on appeal. Bedford v. Department of Taxes, 146 Vt. 376, 378, 505 A.2d 658, 659 (1985).

A use tax is clearly not only a revenue-raising measure, designed to compensate Vermont for sales taxes lost when state residents purchase goods elsewhere for use in this state, but also is aimed at more equitably distributing the tax burden. Rowe-Genereux, 138 Vt. at 133-34, 411 A.2d at 1347 (use tax is generally perceived as necessary complement to sales tax "to protect a state's revenues by taking away the advantages to residents of travelling out of state to make untaxed purchases, and to protect local merchants from out-of-state competition which, because of its lower or nonexistent tax burdens, can offer lower prices").

The threefold scheme of § 9774 bears out this analysis. A state resident who purchases goods elsewhere but brings them into Vermont will be liable for the equivalent of the regular Vermont sales tax (i.e., a compensating use tax of 4% on the property's purchase price), with two exceptions.

The first exception provides that if the taxpayer can prove the property was used elsewhere for more than six months, the tax will be based on the item's market value. This requirement is clearly designed to avoid unfair discrimination against residents who purchase products for out-of-state use, and who so use them, by requiring payment of a use tax approximately equivalent to that which would have been payable had the items been purchased at the time they were first brought into the state. See Lane Construction Corp. v. Comptroller of Treasury, 228 Md. 90, 93-94, 178...