Tax Appeal of Logan and Associates, Matter of

• Decision Date: 21 January 1983
• Docket Number: No. 13853,13853
• Citation: 331 N.W.2d 281
• Parties: In the Matter of the TAX APPEAL OF LOGAN AND ASSOCIATES From a Decision of the South Dakota State Board of Equalization. McCULLOCH GAS PROCESSING CORPORATION, Appellee, v. BUTTE COUNTY, South Dakota, Appellant. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 281

331 N.W.2d 281

In the Matter of the TAX APPEAL OF LOGAN AND ASSOCIATES From a Decision of the South Dakota State Board of Equalization McCULLOCH GAS PROCESSING CORPORATION, Appellee, v. BUTTE COUNTY, South Dakota, Appellant.

No. 13853.

Supreme Court of South Dakota.

Considered on Briefs Jan. 21, 1983.

Decided March 9, 1983.

Robert B. Anderson of May, Adam, Gerdes & Thompson, Pierre, for appellee.

Chris Beesley, Butte County Deputy State's Atty., Belle Fourche, for appellant.

WOLLMAN, Justice.

This is an appeal from a judgment reversing the decisions of the State Board of Equalization and ordering that certain of appellee's property be reclassified as personal property. We affirm.

The property in issue is certain equipment and machinery of a gas processing plant that is owned by appellee ¹ and that has not been in operation since 1978. The plant is located on land leased by appellee in Butte County. Prior to 1979, the equipment and machinery were assessed as personal property. Subsequent to the 1978 legislative repeal of the personal property tax, 1978 S.D.Sess.Laws, ch. 72, the Butte County taxing authorities changed the classification of the property to real property.

SDCL 10-4-2 specifies what shall be considered real property for taxation purposes. This section provides:

Real property, for the purposes of taxation, shall be construed to include the land itself, whether laid out in town lots or otherwise, and all buildings, structures, mobile homes as they are defined in subdivision (1) of Sec. 34-34A-1 which are permanently affixed by foundation to the land upon which they are located, and improvements, including systems for the heating, air conditioning, ventilation, sanitation, lighting, and plumbing of such structures and buildings, and all rights and privileges thereto belonging or in anywise appertaining, trees or other fixtures of whatsoever kind thereon, and all rights and privileges thereto belonging or in anywise appertaining, and all mines, minerals, quarries in and under the same.

In addition, SDCL 10-4-2.1, which was enacted by the 1978 Legislature, provides: "Buildings and improvements on leased sites are classified for tax purposes and are taxed as real property." ²

Appellant contends that the machinery and equipment in issue are improvements or fixtures under SDCL 10-4-2 and SDCL 10-4-2.1.

In determining whether an article is a fixture, we consider the following tests: (1) annexation to the realty; either actual or constructive; (2) its adaptability to the use and purpose for which the realty is used; and (3) the intention of the party making the annexation. ³ Metropolitan Life Ins. Co. v. Jensen, 69 S.D. 225, 9 N.W.2d 140 (1943). The intention of the party with regard to making the article a permanent accession to the realty is the controlling criterion. First Nat'l Bank of Aberdeen v. Jacobs, 273 N.W.2d 743 (S.D.1978); Metropolitan Life, supra; Killian v. Hubbard, 69 S.D. 289, 9 N.W.2d 700 (1943). The other tests derive their chief value as evidence of such intention. Metropolitan Life, supra. Intention is deduced from the relation of the parties and the circumstances of a particular case. First Nat'l Bank of Aberdeen, supra; Metropolitan Life, supra.

The parties have stipulated to the facts in this case. The stipulation states that the equipment is all mounted on skids for ease of moving from one location to another, and the skids, to which the equipment is bolted, are bolted to concrete slabs to reduce vibration. Storage tanks are bolted to and removable from concrete footings. These tanks are connected to the plant by pipeline, part of which is underground. The stipulation further states that with the exception of the concrete floors and concrete slabs, the footings under the storage tanks, and the underground pipeline, the entire gas processing plant is assembled so as to be removable from one location to another.

We have stated:

Machinery normally is personal property and is not deemed a fixture except where it is installed in such manner that its removal will result in material injury to it or the realty, or where the building in which it is placed was specially designed to house it, or where there is other evidence that its installation was of a permanent nature.

City of Huron v. Jelgerhuis, 77 S.D. 600, 608, 97 N.W.2d 314, 318 (1959) (quoting In re Whitlock Ave. in City of New York, 278 N.Y. 276, 277, 16 N.E.2d 281, 282 (1938).

Although appellant has stipulated that the plant was assembled so as to be readily removable and does not contend that removal of any of the machinery would result in material injury to the machinery or realty, appellant still maintains that other evidence shows that the installation of the machinery was of a permanent nature.

Appellant contends that the length of the lease, twenty years, is evidence that the installation of the machinery and equipment was of a permanent nature. Appellant relies on Michigan Nat'l Bank, Lansing v. City of Lansing, 96 Mich.App. 551, 293 N.W.2d 626, 627 (Mich.App.1980), aff'd, 414 Mich. 851, 322 N.W.2d 173 (1982), which states:

The permanence required is not equated with perpetuity. It is sufficient if the item is intended to remain where affixed until worn out, until the purpose to which the realty is devoted is accomplished or until the item is superseded by another item more suitable for the purpose.

Notwithstanding the lengthy lease period, the lease also provides that:

Lessee and its successors and assigns, are further hereby granted the right to remove, in whole or in part, all installations and facilities on the premises connected therewith at any time. Removal of all facilities shall constitute abandonment, and shall terminate said lease and all rentals shall thereupon cease.

We agree with the trial court that this provision leads to the conclusion that the equipment and machinery were never intended to become a permanent installation.

Given the preeminence of the intent test, and the evidence from the stipulation of facts and lease which bears on intent, we must agree with the trial court that the machinery and equipment are not fixtures.

We must also consider whether the machinery and equipment constitute improvements. The term "improvement" is generally defined to include everything, such as buildings and fixtures, that permanently enhances the value of premises for general uses. 41 Am.Jur.2d Improvements Sec. 1 (1968). The stipulated facts give lie to any contention that the machinery and fixtures in the case before us fall...