Transamerica Leasing Corp. v. Bureau of Revenue

Decision Date07 February 1969
Docket NumberNo. 242,242
Citation80 N.M. 48,1969 NMCA 11,450 P.2d 934
PartiesTRANSAMERICA LEASING CORPORATION, a California corporation, Appellant, v. BUREAU OF REVENUE, State of New Mexico and F. A. Vigil, Commissioner of Revenue, Appellees.
CourtCourt of Appeals of New Mexico
OPINION

WOOD, Judge.

The Bureau (Bureau of Revenue) assessed a compensating tax under Laws 1963, ch. 324, § 1 (an amendment to § 72--17--3, N.M.S.A.1953 (Repl.Vol. 10, pt. 2)), and a sales tax (emergency school tax) under Laws 1963, ch. 325, § 3 (an amendment to § 72--16--4.5, N.M.S.A.1953 (Repl.Vol. 10, pt. 2)). Both laws were repealed by Laws 1966, ch. 47, § 22. Transamerica (Transamerica Leasing Corporation) protested the assessment. The Commissioner (Commissioner of Revenue) denied the protest. Transamerica has appealed directly to this court contending the Commissioner's order is not in accordance with law. The issue is whether Transamerica is liable for the taxes assessed. Before deciding this question, we answer the attack made on our jurisdiction.

Jurisdiction of this court.

All of the proceedings in this matter--the audit, the assessment, the protest, the hearing, the findings of fact and conclusions of law and the Commissioner's orders--were in 1967 and 1968. The proceedings were under the Tax Administration Act, §§ 72--13--13 to 72--13--92, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1967) which went into effect January 1, 1966. Laws 1965, ch. 248, § 78. The Act has a savings clause. Laws 1965, ch. 248, § 79. It reads:

'The Tax Administration Act does not apply to taxes the liability for payment of which was incurred prior to its effective date, or to any act done prior thereto. The payment, collection or enforcement of such taxes is to be accomplished according to the provisions of appropriate statutes previously in force and in every manner as though the Tax Administration Act had not been enacted.'

The compensating tax assessed against Transamerica is based on events which occurred prior to the effective date of the Act. The sales tax assessed against Transamerica is based on events which occurred both prior and subsequent to the effective date of the Act.

Because of the savings clause, the Bureau contends that court review of tax assessments based on events prior to January 1, 1966 is limited to the review procedure which existed prior to that date. In making this contention, the Bureau disregards the date the assessment was made. As applied to this case, the Bureau's contention would require proceedings under § 72--17--16, N.M.S.A.1953 (Repl.Vol. 10, pt. 2) for all of the compensating tax assessment and under § 72--16--31, N.M.S.A.1953, (Repl.Vol. 10, pt. 2) for a portion of the sales tax assessment. Such proceedings would be in the District Court and not in this court. Thus, the jurisdictional question challenges our power to decide the liability of the taxpayer for the compensating tax and a portion of the sales tax; no challenge is made to our jurisdiction to determine liability for sales tax based on events subsequent to January 1, 1966.

The Bureau overlooks another provision of the Tax Administration Act. Laws 1965, ch. 248, § 24, as originally enacted, provided for appeals to the District Court from orders of the Commissioner. This section was amended in 1966 and now provides that the appeal is to this court. Section 72--13--36, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1967).

Section 72--13--36, supra, does much more than identify the court to which an appeal may be taken. It states:

'No court of this state has jurisdiction to entertain any proceeding by a taxpayer in which he calls into question his liability for any tax or the application to him of any provision of the Tax Administration Act (72--13--13 to 72--13--92), except as a consequence of the appeal by him to the court of appeals from the action and order of the commission, * * *.'

We do not consider whether § 72--13--36, supra, being a leter as a result of the 1966 amendment, controls the savings clause. We do not do so because the two sections are not in conflict. The savings clause pertains to situations where liability for the tax has been established prior to January 1, 1966. Here, liability for the tax is the issue. Where the question is whether tax liability has been incurred, the savings clause is not applicable.

Section 72--13--36, supra, provides that the question of tax liability may be appealed to this court from the action and order of the Commissioner. Section 72--13--39, N.M.S.A.1953 (Repl.Vol. 10, pt. 2, Supp.1967), authorizes this court to review the orders of the Commissioner. See Union County Feedlot, Inc., v. Vigil, (Ct.App.), 79 N.M. 684, 448 P.2d 485, decided November 27, 1968; compare Board of Education v. State Board of Education, 79 N.M. 332, 443 P.2d 502 (Ct.App.1968).

Liability for the taxes.

Transamerica and Constructors (Colorado Constructors Inc.) entered into a 'master lease' under which equipment, to be selected in the future, was to be leased from Transamerica by Constructors. Transamerica then extended a lease line of credit to Constructors. Constructors selected the items of equipment involved in this case. The equipment was shipped to Constructors for its use in New Mexico. Transamerica paid for the equipment, and in accordance with the 'master lease', took title to the equipment. A lease schedule was then entered as provided in the 'master lease'. The schedule provided for thirty-six monthly payments by Constructors to Transamerica.

The Bureau assessed a compensating tax against Transamerica on the basis of § 72--17--3, supra, but at the 3% rate provided by the 1963 amendment to that section. A basic issue is the propriety of any compensating tax assessment. If the compensating tax is applicable, Transamerica contends that the wrong rate was applied. Transamerica is correct. The Bureau concedes that the equipment was not subject to registration under the provisions of § 64--3--2, N.M.S.A.1953 (Repl.Vol. 9, pt. 1, 1960). As amended in 1963, § 72--17--3, supra, states that:

'* * * the tax on the storage, use or other consumption in this state of * * * vehicles of a type not required to be registered under the provisions of Section 64--3--2 New Mexico Statutes Annotated, 1953 Compilation shall be at the rate of one and one-half percent of the sales price of such tractor or vehicle; * * *.'

Thus, if the compensating tax is applicable, the tax rate is 1 1/2%. Under the facts of this case, if this tax is applicable, it is applicable because Transamerica purchased the equipment and used it in New Mexico. See § 72--17--3, supra.

If Transamerica did purchase the property, and if the lease agreements do constitute a lease, there was a 'use' within the meaning of the compensating tax law. Section 72--17--2, N.M.S.A. 1953 (Repl.Vol. 10, pt. 2 (repealed by Laws 1966, ch. 47, § 22)), defines 'use' to include '* * * the exercise of any right or power over tangible personal property incident to the ownership of that property * * *'. Leasing tangible personal property is the exercise of an incident of ownership over the leased property. See Philco Corporation v. Department of Revenue, 40 Ill.2d 312, 239 N.E.2d 805 (1968); Union Oil Co. of Cal. v. State Board of Equalization, 60 Cal.2d 441, 34 Cal.Rptr. 872, 386 P.2d 496 (1963). The questions are whether Transamerica purchased the equipment and whether the agreements between it and Constructors constitute a lease.

The Bureau assessed a sales tax against Transamerica on the basis of § 72--16--4.5, supra, as amended in 1963. Under the amendment the tax rate is 3% of the gross receipts from sales therein specified. These sales include '* * * receipts from rentals or leasing of tangible personal property * * *'. The Bureau asserts that payments to Transamerica under the lease schedule are receipts from leasing tangible personal property and that these receipts are taxable at the 3% rate. The applicability of § 72--16--4.5, supra, depends on whether Transamerica has either sold or leased the equipment to Constructors.

A basic issue is the propriety of any sales tax on the transactions here involved. However, if the sales tax law is applicable, Transamerica claims the transaction between it and Constructors amounted to a sale of vehicles not subject to registration and should be taxed at the 1 1/2% rate provided for such sales. See § 72--16--4.5, supra. Because of our decision on the basic issue, we do not reach this contention.

Both taxes were assessed on the basis that the agreements constituted a lease between Transamerica and Constructors. But was there a lease? Neither of the tax statutes define lease. Accordingly, we look to the general law in determining whether the agreements were a lease.

Generally speaking, a lease is an agreement under which the owner gives up the possession and use of his property for a valuable consideration and for a definite term. At the end of the term the owner has the absolute right to retake, control and use the property. See Johnson Oil Refining Co. v. Indian Refining Co., 94 Ind.App. 416, 179 N.E. 179 (1932).

Under general law, the character of the instrument is not to be determined by its form, but from the intention of the parties as shown by the contents of the instrument. Hervey v. R.I. Locomotive Works, 93 U.S. 664, 23 L.Ed. 1003 (1876); Kolb v. Golden Rule Baking Co., 222 Mo.App. 1068, 9 S.W.2d 840 (1928). Thus, instruments which purport to be leases have been determined to be conditional sales contracts. Kolb v. Golden Rule Baking Co., supra; Kidder v. Wittler-Corbin Machinery Co., 38 Wash. 179, 80 P. 301 (1905); Pringle v. Canfield,19 S.D. 506, 104 N.W. 223 (1905); see Redewill v. Gillen, 4 N.M. (Gild.) 72, 4 N.M. (John.) 78, 12 P. 872 (1887). In sales and use tax cases, the lease has...

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