United Aircraft Corp. v. Connelly

• Decision Date: 25 March 1958
• Citation: 145 Conn. 176,140 A.2d 486
• Court: Connecticut Supreme Court
• Parties: UNITED AIRCRAFT CORPORATION v. William F. CONNELLY, Tax Commissioner. 1 Supreme Court of Errors of Connecticut

Page 486

140 A.2d 486

145 Conn. 176

UNITED AIRCRAFT CORPORATION v. William F. CONNELLY, Tax Commissioner. ¹

Supreme Court of Errors of Connecticut.

March 25, 1958.

Walter T. Faulkner, Asst. Atty. Gen., with whom where F. Michael Ahern, Asst. Atty. Gen., and, on the brief, John J. Bracken, Atty. Gen., for the appellant-appellee (defendant).

Cyril Coleman, Hartford, with whom was C. Duane Blinn, Hartford, for the appellant-appellee (plaintiff).

H. Eugene Heine, Jr., Washington, D. C., of the Pennsylvania bar, with whom, on the brief, were John N. Stull, Washington, D. C., of the New York and Pennsylvania bars, Acting Asst. Atty. Gen., of the United States, Simon S. Cohen, U. S. Atty. Henry C. Stone, Asst. U. S. Atty., Hartford, and A. F. Prescott, Washington, D. C., of the Maryland bar, as amicus curiae.

Before WYNNE, C. J., DALY and MURPHY, JJ., and COTTER and MacDONALD, Superior Court Judges.

MacDONALD, Justice.

Four appeals, which have been consolidated for the purposes of appeal to this court, were originally brought by the plaintiff from the assessment against it by the defendant of various tax deficiencies under the provisions of the Sales and Use Tax Act. General Statutes, c. 104, §§ 2090-2115, as amended. The deficiencies were assessed, in three of the cases, on activities of the plaintiff during the period April 1, 1948, to December 31, 1952, and in the fourth case on activities during the first quarter of 1954. Except in one case, where the taxes in dispute are unpaid, all of the taxes in issue, together with interest thereon, were paid by the plaintiff on receipt of the defendant's deficiency assessments, and the plaintiff's claims for refunds were denied by defendant.

The taxes in issue relate to the plaintiff's business as an aeronautical manufacturer, carried on through numerous corporate divisions, and the tax assessments were actually directed to one or another of these divisions, each of which, with one exception, held throughout the periods covered by the assessments, a retail sales and use tax permit issued to it by the defendant pursuant to § 2093 of the General Statutes. Of the more than one million dollars in taxes originally in issue, $702,012.53 remains directly or indirectly in controversy on the defendant's appeal, and an additional $22,844 is in controversy on the plaintiff's cross appeal, so that the total amount remaining in controversy is $724,856.53, together with statutory interest as applicable.

It has been stipulated by the parties that all of the property the taxes as to which are in issue may be considered to have been purchased in Connecticut and that the plaintiff gave each vendor from whom such property was purchased a certificate to the effect that the property was purchased for resale. All of the taxes were assessed on account of what the defendant asserts is a taxable use, by the plaintiff, of the tangible personal property thus purchased by it, no tax having been assessed on account of any sales of such property by the plaintiff, nor for receiving, fabricating or installing what is described in the finding as the 'severable facilities.' The taxes remaining in issue were assessed on account of the plaintiff's purported use of tangible personal property falling within one or another of the following categories: (1) Property such as machine tools and office equipment, acquired pursuant to three so-called facilities contracts between the plaintiff and the government of the United States; (2) property such as fabrication materials, employed by the plaintiff in fulfilling certain so-called experimental contracts between it and the government; (3) miscellaneous materials such as x-ray film and chemicals, used by the plaintiff in its ordinary manufacturing operations. In the interests of clarity, these three categories of tangible personal property will be considered separately.

I. Property Acquired Pursuant to Facilities Contracts.

The plaintiff had three facilities contracts with the government, each of which contemplated that the plaintiff would, without charge for its services, handle most of the mechanics of buying such new facilities as might be required. Two of the contracts provided that title to the facilities would automatically pass to, and vest in, the government upon delivery to the contractor at the contractor's plant, and the remaining contract provided that title would pass to, and vest in, the government 'upon delivery to the Contractor, or upon the happening of any earlier event by which title passes from the Contractor's vendor or supplier.' Prior to any purchase, the plaintiff was required to, and did, obtain government approval, and immediately upon arrival at the plaintiff's plant every facility item was identified by a permanent metal tag as government owned. Following arrival at the plaintiff's plant, the facilities were inspected jointly by representatives of the plaintiff and the government, and the plaintiff's use of the facilities thereafter was under constant government supervision. The purchase price of each facility was paid initially by the plaintiff, which was reimbursed by the government.

Many of the details pertaining to the ordering, purchasing, inspection and supervision of the facilities were quite similar to those described in the lengthy summary of facts given in our opinion in Avco Mfg. Corporation v. Connelly, Conn., 140 A.2d 479. Consequently, much of what we said in that case is applicable in reaching the conclusion here--at least with respect to all the items under one contract and the items listed in the other two contracts which were purchased from vendors on an f. o. b. destination point basis--that the party to whom title directly passed was the government of the United States. With respect to these items, the principal factual difference between the two cases is that in the Avco case the title clause in the facilities contracts provided that title should pass to the government simply 'upon delivery of such property by the vendor,' and since all purchase orders involved there provided for shipment f. o. b. the vendor's plant, the vendor transferred title at the moment of delivery to the carrier, while here, as pointed out above, one contract provided that title should pass to the government upon delivery to the contractor, and the other two, upon delivery to the contractor at the contractor's plant. Upon these conditions, the trial court held not taxable all items in the first contract and such items in the other two as were purchased from vendors on an f. o. b. destination point basis, ruling, in effect, that the instant at which the vendor transferred title was the instant at which, under the contracts, title was to vest in the government, and that any ownership by the plaintiff could have endured only for a theoretical instant of time, during which the plaintiff had no opportunity to, and in fact of course did not, make any 'use' of the facilities within the meaning of § 2094(4) of the General Statutes ² and was not taxable thereunder.

On the other hand, with respect to the items which, under two of the contracts, were purchased on an f. o. b. shipping point basis, the court sustained the assessment of the taxes, and this holding forms the subject matter of the plaintiff's cross appeal. In reaching this result, the court found that title was in the plaintiff during transportation, that therefore the plaintiff was the owner for more than a theoretical instant of time, and that the plaintiff made a taxable 'use' during the period of transportation by retaining ownership of the facilities with all of the rights, powers and privileges incident thereto. Even this very brief and limited 'use' is sufficient, under the definition of that word in § 2091(6) as 'the exercise of any right or power over tangible personal property incident to the ownership of that property,' to justify imposition of the tax with respect to these transactions.

The action of the trial court, with respect to property acquired under the facilities contracts, in setting aside the assessment of $2278.08, plus interest, under the first contract, the assessment of $571,510.11 under the second contract, and the assessment of $11,912.93 under the thrid contract, and in affirming the assessment of $22,844 attributable to the facilities involved in plaintiff's cross appeal--being those purchased on an f. o. b. shipping point basis--is entirely in accord with our decision in the Avco case, supra for the reasons stated therein, and under the authorities therein cited, notably Illinois Central R. Co. v. United States, 265 U.S. 209, 44 S.Ct. 485, 68 L.Ed. 983; Kern-Limerick, Inc., v. Scurlock, 347 U.S. 110, 74 S.Ct. 403, 98 L.Ed....