Waterbury Motor Lease, Inc. v. Tax Com'r

• Decision Date: 20 December 1977
• Citation: 381 A.2d 552,174 Conn. 51
• Parties: WATERBURY MOTOR LEASE, INC., et al. v. TAX COMMISSIONER of the State of Connecticut. ENGINEERED SINTERINGS AND PLASTICS COMPANY, INC. v. TAX COMMISSIONER of the State of Connecticut.
• Court: Connecticut Supreme Court

Page 552

381 A.2d 552

174 Conn. 51

WATERBURY MOTOR LEASE, INC., et al. v. TAX COMMISSIONER of the State of Connecticut.

ENGINEERED SINTERINGS AND PLASTICS COMPANY, INC. v. TAX COMMISSIONER of the State of Connecticut.

Supreme Court of Connecticut.

Argued Oct. 5, 1977.

Decided Dec. 20, 1977.

J. Warren Upson, Waterbury, for appellants (plaintiffs in each case).

Richard K. Greenberg, Asst. Atty. Gen., with whom, on the brief, were Carl R. Ajello, Atty. Gen., and Ralph G. Murphy, Asst. Atty. Gen., for appellee (defendant in each case).

Jeffrey M. Mines, Hartford, filed a brief as amicus curiae in each case.

Before HOUSE, C. J., and LOISELLE, BOGDANSKI, LONGO and SPEZIALE, JJ.

HOUSE, Chief Justice.

Both of these cases came to this court on stipulations of fact and pursuant to reservations as requested by the parties in each action. Practice Book §§ 738, 739. Although the cases were brought separately by different parties, they have reached our docket simultaneously, were argued at the same session and involve related issues. We have, therefore, decided to consider them in a single opinion.

Both of the plaintiffs appealed to the Court of Common Pleas after hearings, pursuant to § 12-421 of the General Statutes, at which the defendant state tax commissioner denied each of their requests for refunds of sales taxes paid under protest. The cases were not tried in the Court of Common Pleas because there were no disputed issues of fact. The parties in each case stipulated as to the facts and the questions which they wished to have reserved for the advice of this court. The questions asked in the Waterbury Motor Lease, Inc., case are printed in footnote 1. ¹ Those asked in the Engineered Sinterings and Plastics Company, Inc., case are printed in footnote 2. ² Basically, the plaintiffs challenge the constitutionality of certain provisions of 1975 Public Acts, No. 75-213, entitled "An Act Concerning Increased State Revenues" (hereinafter referred to as the act) which extensively revised the Sales and Use Tax Act, chapter 219 of the General Statutes. ³ More particularly, they argue that while the act created a new classification (i. e., lessees) of persons subject to the sales and use tax which may have a "rational basis," such a classification is unconstitutional because it treats some lessees "differently." The classification which they attack was created by the expansion of the "sale," "selling," "purchase," "purchasing," and "gross receipts" definitions to include the rental or leasing of tangible personal property. The plaintiffs claim that by virtue of the expansion, the imposition sections, § 12-408 for the sales tax and § 12-411 for the use tax, thereafter subjected them to double taxation. The act imposed a 7 percent sales tax on the total amount of payment or periodic payments received after July 1, 1975, for leasing or rental in Connecticut of tangible personal property. The act also provided that (1) any equipment brought into Connecticut and leased to a Connecticut lessee for use in Connecticut after July 1, 1975, was exempt from a use tax, and (2) purchases of tangible personal property after July 1, 1975, made exclusively for leasing or rental are purchases for resale and thus exempt from the sales tax. Thus, after July 1, 1975, the only applicable sales tax on a leasing transaction is that imposed on the rental payments received under the lease or rental agreement.

The parties stipulated and agreed to the following facts: The plaintiff Waterbury Motor Lease, Inc. (hereinafter referred to as Motor Lease) is a Connecticut corporation engaged in the business of buying motor vehicles from Connecticut sellers and leasing them to Connecticut lessees for extended periods (usually two years long) pursuant to lease agreements. For several years prior to July 1, 1975 (the effective date of the challenged revisions), Motor Lease had purchased a substantial number of vehicles, paid the required sales tax to the seller, and recouped the cost of the sales tax by incorporating it in the formula used to compute the total rent provided for in the lease agreements to lessees. On January 2, 1974, Motor Lease purchased a 1974 Oldsmobile at the sale price of $5369.97 with a sales tax of $247. A lease was entered into with the lessee, Engineered Sinterings and Plastics Company, Inc. (hereinafter referred to as E.S.P.), a Connecticut corporation engaged in the production and sale of items made of either plastic or sintered metals. E.S.P. executed a twenty-four month lease at the monthly rent of $290. The rent included reimbursement for the sales tax payment originally paid by Motor Lease as part of its cost for the car.

In October, 1975, Motor Lease remitted to the defendant tax commissioner a check for $1102.51, representing a 7 percent sales tax on all rental payments received by it for the quarter ending on September 1, 1975. The payment was made under protest and accompanied by a letter stating that the payment would be the basis for a refund claim. The remittance included $116.28 which was the 7 percent tax which Motor Lease had collected from E.S.P. The defendant tax commissioner subsequently denied both E.S.P.'s and Motor Lease's requests for refunds of the 7 percent sales tax paid on the rental payments. Motor Lease subsequently appealed the defendant's decision to the Court of Common Pleas which in turn reserved the stipulated questions to this court. E.S.P. further complains in its separate action that in 1974 it executed two five-year lease agreements for presses with C.I.T. Leasing Corporation (hereinafter referred to as C.I.T.) of New York City. The computed cost of one of the leases was $79,325, to which was added a sales or use tax of $5156.13. Rental payments on the total $84.481.13 were computed to be $1840 per month. E.S.P. was billed by C.I.T. for a sales tax on the rental payments on the two presses for the quarter ending September 30, 1975. E.S.P. paid to C.I.T. a total of $640.59, representing the sales taxes on the rental payments. C.I.T. in turn paid a like amount to the defendant. In November, 1975, E.S.P. requested a refund of this amount which the defendant denied. Upon appeal to the Court of Common Pleas, the questions previously cited in footnote 2 were reserved to this court.

The questions reserved for advice in the Motor Lease case, briefly stated, are whether the provisions of the act which impose a sales tax on "the total amount of payment or periodic payments received for leasing or rental of tangible personal property for the term of any such lease or rental occurring" after July 1, 1975, on which property a sales tax had been previously paid as a result of the initial pre-July 1, 1975, motor vehicle purchases, yet does not impose a sales tax on post-July 1, 1975, motor vehicle purchases made exclusively for subsequent leasing, are violative of the equal protection clauses of the constitution of Connecticut, article first, § 20, or of section 1 of the fourteenth amendment to the constitution of the United States. As we have most recently stated in Miller v. Heffernan, 173 Conn. 506, 509, 378 A.2d 572, 575, citing Horton v. Meskill, 172 Conn. 615, 639, 376 A.2d 359; and State v. Rao, 171 Conn. 600, 601, 370 A.2d 1310: "These equal protection provisions have often been held to have a like meaning, imposing similar constitutional limitations." Before discussing the merits of the claims of Motor Lease, we first note the relevant portions of the act which bear on the issues presented.

Section 15 of the act amended subsection 2 of § 12-407 by redefining the words "sale" and "selling" to include "(k) the leasing or rental of tangible personal property of any kind whatsoever, including but not limited to motor vehicles, linen or towels, machinery or apparatus, office equipment and data processing equipment." To the extent that Motor Lease rents motor vehicles to lessees, it performs a "selling" function within the purview of this section. Section 17 of the act amended subsection 7 of § 12-407 by defining the words "purchase" and "purchasing" to include "(f) any leasing or rental of tangible personal property." Section 19 of the act amended subsection 9 of § 12-407 by redefining the words "gross receipts" to include "the total amount of payment or periodic payments received for leasing or rental of tangible personal property for the term of any such lease or rental occurring after the effective date of this act."

These changes became significant as applied to Motor Lease by operation of the sales tax imposition section, § 12-408, which was amended by § 23 of the act to read, in part: "For the privilege of making any sales as defined in subsection (2) of section 12-407, at retail, in this state for a consideration, a tax is hereby imposed on all retailers at the rate of seven per cent of the gross receipts of any retailer from the sale of all tangible personal property." ⁴ It is clearly apparent that the General Assembly thereby expanded the types of transactions to be subjected to sales taxes so that the leasing or renting of tangible personal property became a taxable event after July 1, 1975, the effective date of the act. It is also provided that reimbursement for the sales tax imposed by this section "shall be collected by the retailer (Motor Lease) from the consumer." ⁵ General Statutes § 12-408(2). Also, § 16 of the act amended subsection 3 of § 12-407 to exempt any purchaser (including a lessor) from the imposition of a sales tax on a transaction where the property is purchased for resale or leasing, provided that the purchaser obtains the appropriate certificate to the effect that the property is purchased for resale or lease.

Shortly after the enactment of 1975 Public Acts, No. 75-213, the defendant promulgated § 12-426-25 of the regulations of Connecticut State Agencies, ⁶ effective December 8, 1975. 37 Conn.L.J., No. 27, p. 13.

In Miller v. Heffernan, 173 Conn....