U.S. Lines, Inc. v. State Bd. of Equalization
Decision Date | 18 June 1986 |
Citation | 227 Cal.Rptr. 347,182 Cal.App.3d 529 |
Parties | UNITED STATES LINES, INC., Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. AO 26020. |
Court | California Court of Appeals Court of Appeals |
John B. Lowry, John R. Reese, Kenta K. Duffey, McCutcheon, Doyle, Brown & Enersen, San Francisco, for plaintiff and appellant.
John K. Van de Kamp, Atty. Gen., Timothy G. Laddish, Deputy Atty. Gen., San Francisco, for defendant and respondent.
United States Lines, Inc. (U.S. Lines) brought suit against respondent State Board of Equalization (Board) for refund of sales taxes paid pursuant to a deficiency determination following denial of its administrative refund claim. The parties stipulated to the material facts in conjunction with the filing of cross-motions for summary judgment. The trial court denied U.S. Lines' motion and granted the Board's motion for summary judgment. This appeal ensued.
The stipulated facts follow:
U.S. Lines was the owner of two massive container cranes scheduled to be erected at its facility at the Port of New York Authority Terminal in New Jersey. Before the cranes were erected, however, U.S. Lines began negotiations for the lease of space at the Port of Oakland. In anticipation of an agreement, U.S. Lines shipped the equipment components to California.
On March 7, 1973, U.S. Lines and the Port of Oakland entered into four interdependent, contemporaneously effective agreements: a lease of an office and terminal building; a preferential assignment agreement providing access to wharf and berth areas; a crane purchase agreement whereby U.S. Lines sold the two cargo cranes to the Port; and a crane lease agreement whereby the Port leased the cranes back to U.S. Lines.
For the lease of the office and terminal building, U.S. Lines agreed to pay the prevailing rate for rental of the land and to reimburse the Port for construction costs amortized over eight years.
Under the terms of the preferential assignment agreement, U.S. Lines received the primary right to use 20 acres of Port land, including the wharf area and berth area. (Other shippers possessed secondary rights to use the areas.) U.S. Lines agreed to pay the Port's usual tariffs, at a minimum of $500,000 to a maximum of $692,000, depending on the extent of use.
The crane purchase agreement provided that U.S. Lines sold the cranes to the Port, ownership to be effective upon the safe erection of the cranes. The "actual purchase price" was ultimately fixed at $3.68 million. 1 However, the Port had no obligation to pay the purchase price in cash; instead, U.S. Lines acknowledged that the Port's execution of the 25-year crane lease (at a dollar-a-year rental) was valuable consideration for the cranes. 2 U.S. Lines retained the option of earlier termination and substituted user which would entitle it to reimbursement for its "incompleted leasehold interest" calculated on the basis of the actual purchase price. The effective date of the crane lease (and related agreements) is the date the cranes became certified for safe operation and use: January 13, 1975. Upon passage of title, the cranes became real property fixtures in which U.S. Lines possesses a taxable possessory interest. 3
The larger question on appeal is whether the sale of two 750-ton container cranes by
U.S. Lines to the Port of Oakland in connection with a leaseback agreement constituted a taxable sale of tangible personal property. A related issue is whether use of the stated purchase price of $3.68 million--as the basis for the disputed tax assessment ($239,200)--was proper.
Since the underlying action was submitted and decided on stipulated facts, we are confronted solely with questions of law and make our own judgment independent of the trial court's determination. (Cedars-Sinai Medical Center v. State Bd. of Equalization (1984) 162 Cal.App.3d 1182, 1186-1187, 208 Cal.Rptr. 837; Far West Services, Inc. v. Livingston (1984) 156 Cal.App.3d 931, 936, fn. 3, 203 Cal.Rptr. 486; Container Corp. of America v. Franchise Tax Bd. (1981) 117 Cal.App.3d 988, 993, 173 Cal.Rptr. 121, affd. (1983) 463 U.S. 159 [103 S.Ct. 2933, 77 L.Ed.2d 545; Dealers Installation Service, Inc. v. State Bd. of Equal. (1970) 13 Cal.App.3d 395, 399, 90 Cal.Rptr. 888.)
U.S. Lines argues, in essence, that the provisions authorizing imposition of a retail sales tax on tangible personal property (sections 6006, subdivision (a) and 6051 of the Revenue and Taxation Code 4) do not apply to the sale of the cranes which became affixed to real property at the time of sale. Relying on this court's decision in Seatrain Terminals of California, Inc. v. County of Alameda (1978) 83 Cal.App.3d 69, 147 Cal.Rptr. 578, U.S. Lines contends that since the cranes were "in place" on the rails at the operative time of sale, they became--by definition--real property fixtures not subject to the sales tax provisions. The argument misses the mark.
Under the Sales and Use Tax Law, a sale is defined, inter alia, as "[a]ny transfer of title or possession, ... conditional or otherwise, ... of tangible personal property for a consideration." ( § 6006, subd. (a), emphasis added; Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 645, 335 P.2d 672.) (Coast Elevator Co. v. State Bd. of Equalization (1975) 44 Cal.App.3d 576, 587-588, 118 Cal.Rptr. 818, disapproved on another point in Culligan Water Conditioning v. State Bd. of Equalization (1976) 17 Cal.3d 86, 93, fn. 4, 130 Cal.Rptr. 321, 550 P.2d 593.)
As a general proposition, an item which was originally movable personal property (Civ.Code, §§ 657, 663) may become real property if it is permanently affixed to or resting upon land (Civ.Code, §§ 658-660).
Items annexed to real property are classified as real property improvements and fixtures for purposes of ad valorem real property taxes. ( §§ 104-105; see, e.g., Trabue Pittman Corp. v. County of L.A. (1946) 29 Cal.2d 385, 175 P.2d 512 [ ]; Seatrain Terminals of California, Inc. v. County of Alameda, supra, 83 Cal.App.3d 69, 147 Cal.Rptr. 578 [ ].)
U.S. Lines' myopic focus on the stipulated real property character of the cranes for purposes of local tax assessment and property tax payment on its possessory interest overlooks the fact that classification of affixed equipment as real property "fixtures" for property taxation purposes does not preclude classification of the same equipment as tangible personal property for sales tax purposes. (Standard Oil Co. v. State Bd. of Equal. (1965) 232 Cal.App.2d 91, 100, 42 Cal.Rptr. 543; Gen. Elec. Co. v. State Bd. of Equalization (1952) 111 Cal.App.2d 180, 244 P.2d 427.) As Justice Friedman cogently explained:
.)
(King v. State Bd. of Equalization (1972) 22 Cal.App.3d 1006, 1010-1011, fns. omitted, 99 Cal.Rptr. 802.)
In the context of sales tax, two discrete situations are presented in which the sale of personal property is cloaked with the indicia of real property. First, when the object is installed by the seller on the buyer's land and becomes affixed thereto, the courts generally have held the object is personal property in the hands of the seller even though it is real property to the owner of the land. (Coast Elevator Co. v. State Bd. of Equalization, supra, 44 Cal.App.3d 576, 118 Cal.Rptr. 818; Gen. Elec. Co. v. State Bd. of Equalization, supra, 111...
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