Regional Transp. Dist. v. Martin Marietta Corp.

• Decision Date: 11 February 1991
• Docket Number: No. 89SC253,89SC253
• Parties: The REGIONAL TRANSPORTATION DISTRICT, a special district; Alan N. Charnes, Director of the Colorado Department of Revenue; and the Department of Revenue, State of Colorado, Petitioners, v. MARTIN MARIETTA CORPORATION, Respondent.
• Court: Colorado Supreme Court

Page 1102

805 P.2d 1102

The REGIONAL TRANSPORTATION DISTRICT, a special district;

Alan N. Charnes, Director of the Colorado

Department of Revenue; and the

Department of Revenue, State

of Colorado, Petitioners, v. MARTIN MARIETTA CORPORATION, Respondent.

No. 89SC253.

Supreme Court of Colorado,

En Banc.

Feb. 11, 1991.

As Modified on Denial of Rehearing March 11, 1991.

Gale A. Norton, Atty. Gen., Timothy M. Tymkovich, Sol. Gen., and Anthony S. Trumbly, Asst. Atty. Gen., Denver, for petitioners.

Holme Roberts & Owen, David S. Steefel and Susan Begesse Prose, Denver, for respondent.

Justice KIRSHBAUM delivered the Opinion of the Court.

In Martin Marietta v. Regional Transportation District, 772 P.2d 668 (Colo.App.1989) , the Colorado Court of Appeals held that the Department of Revenue, State of Colorado (the Department), a petitioner herein, erroneously assessed Colorado use taxes and Regional Transportation District (RTD) taxes on purchases of certain items of tangible personal property by respondent, Martin Marietta Corporation (Martin). We granted certiorari to consider the propriety of that court's determination that Martin's purchases were purchases for resale and therefore exempt from use tax and RTD tax assessments under applicable statutory provisions. We reverse.

A

The material facts are not in dispute. ¹ Martin, a Maryland corporation specializing in defense and aerospace technologies, was at all relevant times the prime contractor under approximately fifty contracts with various executive agencies of the United States government. In general, the contracts required Martin to produce and deliver specified products to federal agency customers.

In preparing to perform the contracts, Martin purchased from vendors "special testing and tooling equipment" (equipment). ² Martin used the equipment solely in the performance of the contracts or as otherwise directed by a federal agency customer. None of the equipment here at issue was incorporated into the final products delivered to Martin's federal agency customers.

In performing the contracts, Martin also used many items of tangible personal property acquired by the federal government prior to the date of the contracts and furnished to Martin for that purpose. The Department has not sought to assess state use taxes or RTD taxes on Martin's use of property so furnished by its customers.

Martin acquired the equipment with its own funds and in its own name. It did not purchase the equipment as an agent or instrumentality of the federal government. The contracts provided for Martin's reimbursement for all amounts it paid for the equipment, and also contained clauses regulating Martin's management, administration and disposition of the equipment. Under all of the contracts, title to the equipment vested in the federal government prior to, or at the commencement of, Martin's use thereof. ³ After completing its use of the equipment, Martin delivered the equipment to its customers or, when appropriate, complied with special instructions of its customers concerning disposition of the equipment.

Use taxes and RTD taxes were assessed by the Department and by RTD, respectively, against Martin for its purchases of the equipment for the period April 1, 1979, to March 31, 1982. ⁴ Martin protested the assessments, and a hearing was conducted on March 6 and 7, 1984, by the Director of the Department to consider the protest. See § 39-21-103, 16B C.R.S. (1982). The Director upheld the assessments, concluding that Martin's purchases were not purchases for resale. Martin paid the taxes under protest and filed an action seeking refund of the sums paid. § 39-21-105, 16B C.R.S. (1982).

The district court entered judgment in favor of Martin. It concluded that under the stipulated facts the equipment was purchased for resale and was therefore exempt from use tax and RTD tax assessments pursuant to section 39-26-203(1)(b), 16 C.R.S. (1982). On appeal, the Court of Appeals affirmed that judgment.

The General Assembly has by statute levied taxes "[o]n the purchase price paid or charged upon all sales and purchases of tangible personal property at retail...." § 39-26-104(1)(a), 16B C.R.S. (1982). The General Assembly has also authorized the imposition of use taxes on sales of tangible personal property as a supplement to the imposition of sales taxes. §§ 39-26-202, -203(1); State Dept. of Revenue v. Adolph Coors Co., 724 P.2d 1341, 1344 (1986); International Business Machs. Corp. v. Charnes, 198 Colo. 374, 377, 601 P.2d 622, 624 (1979); Matthews v. State, Dept. of Revenue, 193 Colo. 44, 47, 562 P.2d 415, 417 (1977). The term "sale" is defined in pertinent part as follows:

"Sale" or "sale and purchase" includes installment and credit sales and the exchange of property as well as the sale thereof for money; every such transaction, conditional or otherwise, for a consideration, constituting a sale....

§ 39-26-102(10), 16B C.R.S. (1982). The term "retail sale" is defined to include "all sales made within the state except wholesale sales." § 39-26-102(9), 16B C.R.S. (1982). The term "wholesale sale" is defined as follows:

"Wholesale sale" means a sale by wholesalers to retail merchants, jobbers, dealers, or other wholesalers for resale and does not include a sale by wholesalers to users or consumers not for resale; and the latter sales shall be deemed retail sales, and subject to the provisions of this article.

§ 39-26-102(19), 16B C.R.S. (1982).

This statutory scheme establishes a broad base for the imposition of retail sales taxes or use taxes on most transactions involving tangible personal property. See Craftsman Painters & Decorators v. Carpenter, 111 Colo. 1, 137 P.2d 414 (1942); Bedford v. Colorado Fuel & Iron Corp., 102 Colo. 538, 81 P.2d 752 (1938). Wholesale sales for resale are exempt from the inclusive program of taxation established by the General Assembly. § 39-26-203(1)(b), 16B C.R.S. (1982); see Bedford, 102 Colo. at 543, 81 P.2d at 752. As we stated in Bedford: "The [sales and use tax] statute was fundamentally intended to impose a tax upon that which is consumed and used and exempts only that which is sold for resale." 102 Colo. at 543, 81 P.2d at 752.

In this case, the petitioners argue that Martin's purchases of equipment were not exempt purchases for resale because Martin used the items in the performance of its contracts with its federal agency customers. This argument assumes that the test of whether a purchase is for resale as contemplated by section 39-26-102(19) and therefore exempt from the imposition of retail sales taxes or use taxes is whether the purchaser refrains from using the item in any fashion. That standard, if adopted, would certainly enlarge the range of commercial transactions subject to the imposition of such taxes. However, in our view, it would impermissibly narrow the scope of the wholesale for resale exclusion created by the General Assembly.

In A.B. Hirschfeld Press, Inc. v. City and County of Denver, 806 P.2d 917 (Colo.1991), we considered a wholesale for resale exclusion adopted by the City and County of Denver in language almost identical to the language of the statute. We concluded that for purposes of the Denver Municipal Code, a purchase of an item of tangible personal property is a purchase for resale and therefore not a retail sale if the primary purpose of the transaction is the acquisition of the item for resale in an unaltered condition and basically unused by the purchaser. Id. at 921. The test requires objective evaluation of the nature of the purchaser's contractual obligations, if any, to use, alter or consume the property to produce goods or perform services; the degree to which the items in question are essential to the purchaser's performance of those obligations; the degree to which the purchaser controls the manner in which the items are used, altered or consumed prior to their transfer to third parties; and the degree to which the form, character or composition of the items when transferred to third parties differ from the form, character or composition of those items at the time they were initially purchased. Id. at 921.

The primary purpose test articulated in Hirschfeld was derived to a large extent from the structure and language of the Denver Municipal Code. We also referred to several decisions of this court in which we explored issues arising under prior versions of the state retail sales tax and use tax statutes. See Howard Elec. and Mech., Inc. v. Department of Revenue, 771 P.2d 475 (Colo.1989); C.F. & I. Steel Corp. v. Charnes, 637 P.2d 324 (Colo.1981); International Business Machs. Corp. v. Charnes, 198 Colo. 374, 601 P.2d 622 (1979); Carpenter v. Carman Distrib. Co., 111 Colo. 566, 144 P.2d 770 (1943); Craftsman Painters & Decorators v. Carpenter, 111 Colo. 1, 137 P.2d 414 (1942); Bedford v. Colorado Fuel & Iron Corp., 102 Colo. 538, 81 P.2d 752 (1938). The structure and language of the retail sales tax and use tax statute are almost identical to the structure and language of the parallel provisions of the Denver Municipal Code. These considerations lead us to the conclusion that the question of whether a purchase of an item of tangible personal property is a purchase for resale as contemplated by the statute requires a determination of whether the item is purchased primarily for resale in an unaltered condition and basically unused by the purchaser. See Kaiser Steel Corp. v. State Bd. of Equalization, 24 Cal.3d 188, 154 Cal.Rptr. 919, 593 P.2d 864 (1979); Baltimore Foundry & Mach. Corp. v. Comptroller, 211 Md. 316, 127 A.2d 368 (Md.1956). The use to which the purchaser puts the property will often define the true nature of a particular transaction. See Howard Elec. and Mech., Inc. v. Department of Revenue, 771 P.2d 475 (Colo.19...