Rice Machinery, Inc. v. Norberg, 76-169-M
| Decision Date | 24 July 1978 |
| Docket Number | No. 76-169-M,76-169-M |
| Parties | , 2 A.L.R.4th 1110 RICE MACHINERY, INC. v. John H. NORBERG, Tax Administrator. P. |
| Court | Rhode Island Supreme Court |
We have issued a writ of certiorari pursuant to the pertinent provisions of the Administrative Procedures Act, G.L. 1956 (1977 Reenactment) ch. 35 of title 42, in order that we may review a judgment entered in the Superior Court that affirmed a decision by the tax administrator assessing a deficiency determination as to certain sales taxes due the state from the petitioner, Rice Machinery, Inc. (Rice). The deficiency results from Rice's failure to include within its tax computations certain freight charges collected from its customers. The narrative which follows is based on what transpired at a hearing held before a Division of Taxation hearing officer.
Rice is a Rhode Island corporation engaged primarily in the business of selling highly priced, customized industrial machinery and machine tools. It plant is located in Cranston. In this facet of its operation, Rice acts as a sales representative for a number of machinery manufacturers located outside of the state. Through its salesmen or by competitive bidding, Rice, in consultation with a manufacturer, quotes a price to a potential purchaser of a piece of machinery. In the typical situation the machinery desired by the buyer must be specially manufactured or tailored to meet the buyer's needs. If the buyer indicates a willingness to purchase, a price is established, and Rice accepts the order on behalf of the manufacturer. The price set by Rice does not include transportation charges from the manufacturer's factory to the place designated by the purchaser for delivery. Thereafter, Rice sends its purchase order to the manufacturer, who engineers the equipment to satisfy the particularized needs of the buyer.
When the product is complete, the manufacturer ships the machine by common carrier f.o.b. its factory. Ordinarily, the machinery is delivered directly to the purchaser's place of business. Occasionally, the product is shipped to Rice. This diversion can take place for a variety of reasons, but it usually occurs when Rice must add certain accessories to the machinery or prepare it for installation. After Rice has completed this phase of the transaction, Rice or the customer makes arrangements for delivery to the buyer's plant.
About 10 days after the machinery has been installed in the purchaser's establishment, one of Rice's sales personnel procures a certificate from the customer which indicates that the machinery meets the contract specifications and is performing satisfactorily. Rice then sends to the buyer an invoice setting forth the amount due. The invoice itemizes the agreed-upon purchase price, transportation charges, and Rhode Island sales tax computed solely on the purchase price. The freight charges included in the invoice may, depending upon the circumstances, actually be a combination of different items. In all cases the sum includes the cost of shipment from the manufacturer's factory to either Rice or the purchaser, whichever the case may be. Furthermore, if the machinery was originally shipped to Rice, the transportation charges would also include Rice's cost of moving the machinery from its shop to the customer's plant. In the meantime, the manufacturer has billed Rice for the full purchase price minus Rice's percentage commission plus the freight cost from the factory. Usually, Rice pays the manufacturer prior to receiving remuneration from the purchaser.
In his decision the hearing officer pointed out that the operative statute, G.L. 1956 (1970 Reenactment) § 44-18-12(E), exempts from the sales tax "(t) ransportation charges separately stated, if the transportation occurs after the purchase of the property is made." He then took note of regulations issued by the tax administrator which established detailed guidelines as to the application of § 44-18-12(E). 1 In particular, he pointed to a regulation entitled "Delivery by Carrier," which provides that the tax shall not apply to separately stated transportation charges if the goods are shipped by common carrier directly to a place specified by the purchaser unless the sales contract states that title to the goods shall not pass until actual delivery to the place specified by the buyer. Based upon this regulation, the hearing officer focused upon a notation on Rice's business invoices specifying that title did not pass to the buyer until payment had been made in full. The hearing officer considered this proviso decisive despite testimony by Rice's chief executive that the invoice notation was only intended as a scare tactic and that it was universally understood within the trade that title to the machinery passed at the time it was shipped from the manufacturer. The hearing officer, therefore, found that the deficiency assessment was proper.
The tax administrator adopted in toto the factual findings and conclusions of law made by the hearing officer. Subsequently, Rice filed a petition for review in the Superior Court. 2 In mid-1976 the trial justice rendered his decision affirming the tax administrator's findings. His approach to the issues presented in the case differed, however, from that taken on the administrative level. In the trial justice's view, the critical inquiry under § 44-18-12(E) was the time title to the goods passed under G.L. 1956 (1969 Reenactment) § 6A-2-401 of the Uniform Commercial Code. The trial justice's reading of this provision led him to conclude that title did not pass until the buyer received the machinery and, therefore, the transport had been completed prior to the purchase. The dispute between Rice and the tax administrator, in essence, involves the single question of whether the machinery was transported to the customer before or after the "purchase."
The word "purchase" is not defined in the Sales and Use Tax Act 3 and is used with reference to the sales tax only once § 44-18-12(E). In all other instances, the Legislature has employed the term "sale" to identify the determinative event regarding sales tax liability or lack thereof. Why the General Assembly chose to use "purchase" in § 44-18-12(E) rather than "sale" is somewhat puzzling, especially since "sale" could be inserted in place of "purchase" and thereby maintain a degree of internal consistency in the Sales Tax Act. 4 Our function in interpreting the meaning of the word is, however, no different from when this court is called upon to construe any law to ascertain the legislative intent. In doing so, we assume that the Legislature intended to give words their ordinary and customary meaning in the context within which they are used unless to do so would be at odds with a contrary intent clearly appearing on the face of the statute. Bristol County Water Co. v. Public Utilities Commission, 117 R.I. 89, 363 A.2d 444 (1976); Potowomut Golf Club, Inc. v. Norberg, 114 R.I. 589, 337 A.2d 226 (1975); Andreozzi v. D'Antuono, 113 R.I. 155, 319 A.2d 16 (1974).
"Purchase" is a multi-faceted term. Its meaning depends upon the context in which it is used. It can refer to any and all modes of acquiring real estate other than by descent. 5 A "purchase" can occur when there is a binding agreement to pay at an agreed price. 6 "Purchase" also describes a wide variety of transactions in which title to property is voluntarily transferred from one individual to another for consideration. 7 A "purchase" has also been construed to be a synonym for a "trade," 8 but not for a "lease." 9
It should be obvious that our embracing one, some, or all of these definitions would be of little help in our present task. The "real property" concept is inapplicable so far as the acquisition of title is concerned because the imposition of the sales tax relates solely to transactions involving tangible personal property. If we adopt the "transfer of title" approach, we would be limiting the exception to freight charges assessed post transfer of title. Such a view overlooks the well-known fact that there are a number of situations in which parties participate in transactions involving tangible personal property in which the purchaser's ultimate interest in the cargo may be something less than absolute ownership. Those transactions are, nevertheless, taxed as sales under § 44-18-7(A), which defines a sale as
"Any transfer of title or Possession, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means of tangible personal property for a consideration." (Emphasis added.)
Presumably, since these transactions are subject to the same degree of taxation, the Legislature also intended to make the § 44-18-12(E) exemption available to the parties for transportation charges incurred subsequent to the transfer of "possession," "the exchange," "the barter," "the lease," or "the rental" of whatever the cargo may consist.
Likewise, interpreting "purchase" as meaning the creation of enforceable contractual rights would, especially when the operative taxable event is the transfer of title or possession, exempt as a matter of routine, transportation charges from the sales tax that would otherwise be due on a substantial portion of transactions. Such an exemption would do violence to the well-recognized principle that all transactions are taxable unless specifically exempted. We must keep in mind that § 44-18-12(E) is an exemption provision and as such is to be strictly construed against the taxpayer unless the legislative intent to grant such an exemption is clear on the face of the statute. Great Lakes Dredge & Dock Co. v. Norberg, 117 R.I. 600, 369 A.2d 1101 (1977); Sportfisherman Charter, Inc. v. Norberg, 115...
To continue reading
Request your trial
-
State v. Yashar, No. PC 06-1866 (R.I. Super 3/21/2007)
...considered controlling by this [C]ourt unless the interpretation is clearly erroneous or unauthorized." Rice Machinery, Inc. v. Norberg, 120 R.I. 542, 550, 391 A.2d 66, 71 (R.I. 1978). "Where . . . the [implementing] regulation tracks in precisely the same direction as the language of the g......
-
Maverick Motorsports Group Llc v. Dep't of Revenue
...be better able to gauge the parties' intent in those instances where intent is decisive under the regulations.Rice Machinery, Inc. v. Norberg, 120 R.I. 542, 391 A.2d 66, 72 (1978). [¶ 23] Other jurisdictions applying the U.C.C. to resolve tax issues include: O'Brien v. Isaacs, 32 Ill.2d 105......
-
Herald Press, Inc. v. Norberg
...stated that review of a tax administrator's decision is properly sought under the provisions of § 42-35-15. Rice Machinery, Inc. v. Norberg, R.I., 391 A.2d 66, 69 n. 2 (1978); See Prospecting Unlimited, Inc., v. Norberg, R.I. 376 A.2d 702 (1977). Although the issue presented may not have be......
-
State v. One 1990 Chevrolet Corvette VIN: 1G1YY3388L5111488
...mean "concerning" a forfeiture we conclude that we "better fulfill the purpose of the statute." See, e.g., Rice Machinery, Inc. v. Norberg, 120 R.I. 542, 550, 391 A.2d 66, 71 (1978). We are also not willing to accept claimant's contention that the phrase contained in § 21-28-5.04.2(j)(1) th......