Westinghouse Elec. Corp. v. King

• Decision Date: 10 September 1984
• Citation: 678 S.W.2d 19
• Parties: WESTINGHOUSE ELECTRIC CORPORATION, Plaintiff-Appellant, v. John K. KING, Commissioner of Revenue, State of Tennessee, Defendant-Appellee.
• Court: Tennessee Supreme Court

Page 19

678 S.W.2d 19

WESTINGHOUSE ELECTRIC CORPORATION, Plaintiff-Appellant, v. John K. KING, Commissioner of Revenue, State of Tennessee Defendant-Appellee.

Supreme Court of Tennessee at Knoxville.

Sept. 10, 1984.

Thomas O. Helton, Carl E. Hartley, Barry W. Eubanks, Chattanooga, for plaintiff-appellant.

Joseph C. Peel, Asst. Atty. Gen., Nashville, for defendant-appellee; William M. Leech, Jr., Atty. Gen., Nashville, of counsel.

OPINION

BROCK, Justice.

I

The plaintiff, Westinghouse Electric Corporation (Westinghouse) brought this suit against the Commissioner of Revenue in the Circuit Court for Hamilton County, Tennessee, seeking recovery of taxes and interest paid under protest under the Business Tax Act, T.C.A., §§ 67-5801, et seq. (now T.C.A., §§ 67-4-701, et seq.). The taxes were paid for the years 1971-76 and were based upon the proceeds of contracts between Westinghouse and the Tennessee Valley Authority (TVA). The trial court found that the statute of limitations barred collection of the 1971 taxes, but it found Westinghouse liable for taxes and interest in all other years and entered judgment accordingly. Westinghouse is appealing the judgment raising issues concerning the nature of the business tax and its applicability to the transactions with TVA, the base from which the taxes were calculated, apportionment of the taxes, and statute of limitations.

Westinghouse is a Pennsylvania corporation, maintaining its principal office and place of business in Pittsburgh, Pennsylvania. It designs, manufactures and sells electrical equipment, products and supplies and is authorized to do business in Tennessee as a foreign corporation. At all times pertinent to this case, it had sales offices and manufacturing plants located throughout Tennessee.

Between 1968 and 1971, Westinghouse entered into four contracts with TVA whereby Westinghouse agreed to design, manufacture and sell nuclear steam supply systems and turbo-generator units to TVA for the Sequoyah Nuclear Plant and Watts Bar Nuclear Plant in Hamilton and Rhea Counties, Tennessee. All of the contracts were signed on or before January 26, 1971. At the time the contracts were negotiated, Westinghouse had sales representatives in Tennessee specifically assigned to TVA. Employees from Tennessee were part of the Westinghouse team which negotiated the contracts. According to the testimony of Mr. Franklin E. Rolston, Westinghouse's field sales representative working out of Chattanooga, the Tennessee marketing team "was responsible for the interface and coordination of any substantial project that Westinghouse would have to TVA." Westinghouse submitted all bids to TVA through its Chattanooga office.

The equipment purchased by TVA under the contracts was either manufactured or purchased by Westinghouse outside the state of Tennessee. TVA was to make progress payments as each unit of equipment was completed. Title passed to TVA when the payment was made. It is not disputed that in all instances title passed outside Tennessee.

Westinghouse also provided on-site technical assistance to TVA under the contracts. The duties of Westinghouse personnel at the sites included answering questions, interpreting drawings, assisting in setting up installation procedures, handling reports of defective components and maintaining a schedule of installation progress. Westinghouse technical advisers did not have the authority to supervise installation, but it was part of their job to insure that the equipment was installed according to its design in order to protect the warranties. The contract required that the equipment be able to perform. TVA retained 10% of the contract price until the systems were commercially operating. At the time of trial some ten to twelve years after the contracts were signed, commercial operation had not yet been reached.

During the tax period in question, the Chattanooga office of Westinghouse remained involved in the execution of the contracts. The hundreds of contract changes made necessary by regulatory changes and TVA's requirement of state of the art equipment were channeled through Chattanooga. The Chattanooga sales office participated in the resolution of problems encountered in the performance of the contract. Sales personnel visited the TVA sites regularly both to check on the progress of the installation and to solicit TVA business for other Westinghouse products. According to one Westinghouse employee, TVA's satisfaction with the manner in which the contracts were handled affected the possibility of Westinghouse's obtaining future TVA contracts.

In the period from June 1, 1971, to December 31, 1976, Westinghouse filed business tax returns but did not report the proceeds from the TVA contracts which it received during those years. On January 17, 1978, it paid under protest an additional $154,121.43 in business taxes based on the TVA contracts. After filing this suit for a refund, it paid under protest an additional $45,195.23 in interest. As stated above, the trial court awarded Westinghouse a refund of $9,282.35 plus interest for the tax year 1971, an action which is not now disputed by the Commissioner. Westinghouse, however, appeals the remainder of the trial court's order denying it a refund.

II

The plaintiff insists that it did not exercise a taxable privilege within the statutory scope of the Business Tax Act. The taxable privilege relevant to this case is set out in T.C.A., §§ 67-5802 and 5805. According to § 67-5802:

"... the making of sales by engaging in any vocation, occupation, business or business activity enumerated, described or referred to in § 67-5805, classification 1, classification 2, and classification 3 is declared to be a privilege upon which each county and/or incorporated municipality in which said business, business activity, vocation, or occupation is carried on may levy a privilege tax...."

The Commissioner classified the business activities of Westinghouse under classification 2. Section 67-5805 provides in pertinent part:

"Businesses, vocations, and occupations which are taxable are set forth in the following classifications: provided, however, that each person shall be classified according to the dominant business activity.

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"Classification 2

"Each person engaged in the business of making sales of the following:

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"(f) Tangible personal property not specifically enumerated or described elsewhere in this chapter."

The State argues that the tax is on the privilege of engaging in business in Tennessee. Westinghouse stipulated that it was doing business in Tennessee, but insists that the statute does not impose an ordinary doing business tax. Rather, the statute requires both doing business and the making of sales within the state. Because the TVA contracts are not sales within the state, it argues that these transactions were not taxable.

The primary purpose of statutory construction is to ascertain and give effect, if possible, to the intention or purpose of the legislature as expressed in the statute. Worrall v. Kroger Co., 545 S.W.2d 736, 738 (Tenn.1977); State ex rel. Rector v. Wilkes, 222 Tenn. 384, 389, 436 S.W.2d 425 (1968). The Court should not lift one word or clause from a statute and construe it alone without reference to the balance of the statute. State ex rel. Rector v. Wilkes, supra, 222 Tenn. at 390, 436 S.W.2d at 427. Statutes relating to the same subject matter should be construed together. Belle-Aire Village, Inc. v. Ghorley, 574 S.W.2d 723 (Tenn.1978).

Westinghouse focuses on the language of § 67-5802 which taxes as a privilege "the making of sales by engaging in" certain enumerated business activities. This language, however, must be construed together with § 67-5805 which refers to "businesses, vocations and occupations which are taxable" and which classifies persons "according to the dominant business activity." It then taxes persons "engaged in the business of making sales" of certain enumerated items.

The statute does not impose a tax on the sale as such. Rather, when construed together, the statutory provisions tax the privilege of doing business as that business is defined by the statute. The business of making sales of tangible personal property is a taxable privilege under the statute. ¹ Thus, the statutory provisions pertinent to this case do not tax all business activity but only that business activity engaged in selling tangible personal property. This interpretation of the statute is in agreement with Worrall v. Kroger, Co., supra, 545 S.W.2d at 738, where we stated that in enacting the Business Tax Act in 1971:

"... the legislature undertook to create a system of state and local taxation upon the privilege of engaging in certain types of business activities, replacing certain parts of the privilege tax law of the state and providing for a classification of businesses for the state and local administration of the system of taxation established in the Act." (Emphasis added.)

Westinghouse next argues that even if the tax is on the privilege of doing business by making sales, the statute does not tax the privilege of engaging in business by making sales when, as in the sales to TVA, title passes outside the state. Alternatively, Westinghouse contends that the base on which the tax is calculated is limited to sales in which title passes in-state. ²

Both arguments are based on T.C.A., § 67-5804(b), which provides in pertinent part as follows:

"(b) 'Sale' means any transfer of title or possession, or both, exchange, barter, lease or rental, conditional, or otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration, and includes the fabrication of tangible personal property for consumers who furnish, either directly or indirectly, the materials used in fabrication work, and the furnishing, repairing or servicing for a consideration of any tangible personal property consumed on the premises of the...