State, Dept. of Revenue v. Boeing Co.
| Decision Date | 24 July 1975 |
| Docket Number | No. 43466,43466 |
| Citation | 538 P.2d 505,85 Wn.2d 663 |
| Parties | STATE of Washington, DEPARTMENT OF REVENUE, Respondent, v. The BOEING COMPANY, Appellant. |
| Court | Washington Supreme Court |
Perkins, Coie, Stone, Olsen & Williams, Graham H. Fernald, Pamela G. Bradburn, Seattle, for appellant.
Slade Gorton, Atty. Gen., Richard D. Hicks, Timothy R. Malone, Asst. Attys. Gen., Olympia, for respondent.
The Boeing Company appeals a decision of the superior court for Thurston County which held that certain equipment in the Boeing 747 assembly plant at Everett, Washington, does not qualify for manufacturing tax credits that are available under RCW 82.04.435 for fixtures that substantially add to the productive capacity of the plant. The decision of the superior court had reversed an administrative ruling in favor of the Boeing Company rendered by the Board of Tax Appeals. We affirm the superior court.
Most, but not all, of the facts are undisputed. The facts not in dispute are as follows: Boeing maintains and operates an assembly plant in Everett, Washington, which was designed and built primarily for purposes of manufacturing and assembling the Boeing 747. It is anticipated by Boeing that this will be the primary purpose of the plant for the next 20 years or longer.
In the assembly of the Boeing 747, immense 1 tools termed 'fixed assembly jigs' are used to hold various large sections of the aircraft steady and in alignment. The function and purpose of the jigs is thus similar to, but far more complicated than that of a vise on a workbench. The jigs are specially designed to hold the major component parts of the Boeing 747 and cannot be used in the assembly of any other airplane.
The jigs are not built into the floor of the plant. Rather, most of the jigs are bolted to the floor and/or to concrete foundations rising from the floor. Other jigs, however, are apparently secured by their massive weight alone. Moreover it is possible to disassemble the jigs and remove them from the plant without injuring the building itself and Boeing has moved similar, although smaller, jigs from plant to plant in previous aircraft assembly projects.
Boeing lists and reports these jigs as personalty to Snohomish County for property tax purposes and Boeing's work manual refers to the jigs as 'tools.' Boeing depreciates the main building at 40 years; it depreciates the building equipment at 25 years; and it depreciates the 'tools'--including the jigs--at 12 years.
The jigs themselves do not provide working access to the parts of the aircraft being assembled. Therefore, the jigs are surrounded by large platforms, called 'floor mounted equipment' which provides such access to the aircraft sections at appropriate levels. These platforms contain walkways, stairways, built-in utility services, storage space, offices, et cetera. The Department of Revenue considered the 'floor mounted equipment' to be fixtures and Boeing was allowed a tax credit with respect to it.
The potential future use of the plant building apparently is in dispute. The Board of Tax Appeals entered a finding which could be read to imply that the building can be used only in conjunction with the jigs here in question. We agree with the superior court that this is clearly erroneous and that the record establishes that the building could be used for purposes other than the manufacture of Boeing 747's.
All parties agree that the pertinent statute is the 1967 version of RCW 82.04.435. That statute allowed, as a credit against manufacturing business and occupation taxes, the amount of sales and uses taxes paid:
on materials, labor and services in the construction or major improvement of buildings, structures or other improvements to real property that are essential to or an integral part of a factory, mill or manufacturing plant . . .
The term 'major improvement' means and includes only construction or Fixtures which constitute real property which adds substantially and directly to the size or productive capacity of the factory, mill or manufacturing plant.
Laws of 1967, 1st Ex. Sess., ch. 89, § 1 (Italics ours).
The parties are also in agreement that the jigs meet all other requirements for tax credits under this statute if they are fixtures. Therefore, the sole issue for our consideration is whether the Boeing 'fixed assembly jigs' constitute fixtures.
In resolving this issue, it must first be observed that the tax credit statute on its face evinces no intent to import into the term 'fixtures' a more encompassing meaning than the term carried at common law. On the contrary, this statute neither defines 'fixtures' nor qualifies the term in any manner which might indicate that it should have a legal meaning independent to that which it has under common-law principles. As such, it is apparent that this case must be governed and decided by reference to common-law principles.
However, there is some question as to the appropriate scope of review of the decision of the Board of Tax Appeals which applied common-law principles relating to the law of fixtures. Review of the decision of the Board is governed by RCW 34.04.130(6) 2 which provides:
The court may affirm the decision of the agency or remand the case for further proceedings; or it may reverse the decision if the substantial rights of the petitioners may have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
* * *
* * *
(d) affected by other error of law; or
(e) clearly erroneous in view of the entire record as submitted and the public policy contained in the act of the legislature authorizing the decision or order; . . .
Boeing contends that review of the Board's decision is governed by subsection (e) and, therefore, deference should be given to the policy of the tax credit statute which apparently was to encourage spending for improvements and to thereby stimulate employment. Implicit within this reasoning is the contention that, for purposes of the tax credit statute, the term 'fixtures' should be given a more encompassing meaning than might otherwise be warranted under strict common law principles.
We cannot agree with Boeing's analysis. As noted earlier, the face of the tax credit statute indicates that the definition of the term 'fixtures' is to be governed solely by common law principles. And the determination of what is a fixture is a mixed question of law and fact. Nearhoff v. Rucker, 156 Wash. 621, 287 P. 658 (1930); Philadelphia Mtge. & Trust Co. v. Miller, 20 Wash. 607, 56 P. 382 (1899); 1 G. Thompson, Real Property § 55 (1964). When an agency allegedly makes an error of law or, as here, an error involving a mixed question of law and fact, its decision is properly reviewable pursuant to subsection (d) of RCW 34.04.130(6), Supra. In such a case, the policy of the statute in question is not controlling and cannot be invoked to alter established legal principles, particularly when the statute on its face Retains such principles. As such, our review of this case is directed at whether the Board of Tax Appeals made an error of law in its determination that the 'fixed assembly jigs' qualified as fixtures.
Our starting point is the oft-repeated common law principles, most recently reiterated in Lipsett Steel Products v. King County, 67 Wash.2d 650, 409 P.2d 475 (1965), that:
'The true criterion of a fixture is the united application of these requisites: (1) Actual annexation to the realty, or something appurtenant thereto; (2) application to the use or purpose to which that part of the realty with which it is connected is appropriated; and (3) the intention of the party making the annexation to make a permanent accession to the freehold.'
This test, originally imported into the law in Washington in Chase v. Tacoma Box Co., 11 Wash. 377, 39 P. 639 (1895) and followed by most American courts, had its genesis in Teaff v. Hewitt, 1 Ohio St. 511 (1853), which is generally considered to be the leading case on the law of fixtures. See generally 5 American Law of Property § 19.3 (1952).
Each prong of this test must be established before an article may properly be deemed to be a fixture. 3 We agree with the Department of Revenue that the third prong, I.e., the intent of Boeing to make a permanent annexation to the freehold is lacking in the instant case.
Evidence of intent, of course, must be gathered from all the surrounding circumstances At the time of installation of the jigs, and is not to be gathered from the testimony of the annexor as to his actual state of mind. Ballard v. Alaska Theatre Co., 93 Wash. 655, 161 P. 478 (1916); Westinghouse v. Hawthorne, 21 Wash.2d 74, 150 P.2d 55 (1944). Moreover, all pertinent factors reasonably bearing on the intent of the annexor should be considered in assessing the intent at the time of annexation including, but not being limited to, the nature of...
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