Wisconsin Dept. of Revenue v. A. O. Smith Harvestore Products, Inc.
| Decision Date | 07 April 1976 |
| Docket Number | No. 754,754 |
| Citation | 240 N.W.2d 357,72 Wis.2d 60 |
| Parties | WISCONSIN DEPARTMENT OF REVENUE, Appellant, v. A. O. SMITH HARVESTORE PRODUCTS, INC., Respondent. (1974). |
| Court | Wisconsin Supreme Court |
E. Weston Wood, Asst. Atty. Gen. (argued), for appellant; Bronson C. La Follette, Atty. Gen., on brief.
Thomas G. Ragatz, Madison (argued), and James F. Lorimer, David F. Grams and Boardman, Suhr, Curry & Field, Madison, on brief.
The plaintiff-appellant, Wisconsin Department of Revenue, determined sales tax due by the defendant-respondent, A. O. Smith Harvestore Products, Inc., in the amount of $264,228.99 for the period from September 1, 1969, to May 9, 1971, on sales by the respondent to dealers of the component parts for a blue, cylindrical structure known as a Harvestore. This determination was reversed by the Tax Appeals Commission, which, in turn, was affirmed by the circuit court. We reverse.
The usual assembly kit for a Harvestore includes 105 steel sheets, about 7,000 bolts, and sealant. The Harvestore, as erected by a dealer on farm land, typically stands 20 feet in diameter and 70 feet high, weighs about 30 tons, and costs in the vicinity of $22,000. The Harvestore is erected on a concrete slab that may weigh 60 tons.
The Harvestore itself is a structure which converts fodder into silage in a more effective manner than the conventional silo. Oxygen is excluded from and carbon dioxide is retained within the glass-lined steel walls of the Harvestore. Breather bags, which are sold as part of each Harvestore unit, are installed at the top of the structure to compensate for changes in barometric pressure and temperature. These bags enhance the natural conversion of fodder into silage. While a conventional silo unloads from the top, a Harvestore is unloaded from the bottom by means of a mechanical unloader, which is part of the structure. The sale of these unloaders is in no way involved in this dispute.
When Harvestore did not collect taxes on sales to its dealers between September 1, 1969, and September 30, 1970, the Department assessed additional sales tax for this period in the amount of $163,836.52. Although Harvestore did collect taxes in the amount of $100,392.47 for the period from October 1, 1970, to May 9, 1971, it petitioned the Department for a refund, which was declined. The Tax Appeals Commission ruling reversing these actions of the Department is the subject of this appeal.
One issue is dispositive of this appeal: Is the sale of the component parts of the Harvestore by the manufacturer to its dealers taxable on the ground that it is a sale of construction materials to contractors for the erection of structures or improvements of real property, within the meaning of sec. 77.51(4)(i), Stats.? 1
Standard of Review.
The first crucial matter to be determined on this appeal is the proper standard of review to be applied. The respondent asserts that the Commission determination that a Harvestore is personal property and therefore not a structure or improvement of real estate, is a finding of fact. Under its findings of fact, the Commission did find (under Finding 32) that the Harvestore unit 'when assembled and set upon farm property, retains its character as personal property.' The Commission made the very same determination as a conclusion of law.
The essential matter to be determined in this case is whether the facts found by the Commission fulfill a particular legal standard. The legal sandard has both a statutory and a common-law aspect. The statutory element is whether the sale to Harvestore dealers is a sale of 'building materials . . . to . . . contractors . . . for the erection of . . . structures . . . or improvement of real property,' within the meaning of sec. 77.51(4)(i), Stats. The common-law element arises from the necessity that the Harvestores be considered real property or fixtures, rather than personal property.
This court has uniformly held that whether or not the facts found fulfill a particular legal standard is a question of law, not a question of fact. 2 Due deference must be accorded the agency's application of the law to the found facts when the agency has particular competence or expertise in the matter at hand. 3 However, such deference is not required when this court is as competent as the agency to decide the question involved. 4 In the field of taxation, this court held in Pabst v. Department of Taxation 5 that, while it might defer to the agency in a matter involving accounting procedures, it was as competent as the agency in deciding a question of trust administration. In the case at bar this court is as competent as the Commission to decide whether a Harvestore is real or personal property. The only dispute to be resolved here is the legal conclusion to be drawn from facts that are essentially agreed to and undisputed. This is a question of law.
Erection of 'Structures' or 'Improvements of Real Property'.
Normally the sales tax is not imposed on the manufacturer-dealer transaction, but upon the dealer-customer transaction, since this is the final 'retail' sale. However, when this final transfer involves the construction of real-property structures or improvements, the sales tax cannot be imposed at this level because there is no transfer of tangible personal property. In such a situation, sec. 77.51(4)(i), Stats., defines the manufacturer-dealer transaction as a 'retail' sale, and imposes the sales tax at this level. This approach is not unusual, and has been followed in many other states. 6
The threshold questions are whether the Harvestore component parts are 'building materials' and whether the dealers are 'consumers' of these parts within the definition of 'contractors' given in sec. 77.51(18), Stats. The term 'building materials' is not limited to that which is used to construct a building with four sides and a roof, but includes materials of all kinds used in construction work. 7 The Harvestore parts are building materials because they are used to erect a free-standing structure on land.
Contractors are defined in sec. 77.51(18), Stats., as 'consumers of tangible personal property used by them in real property construction activities.' Because the dealers sell to farmers the completed structure rather than the individual parts purchased from the manufacturer, it must be concluded that they consume and use the kits in creating a new and different product. The fact that the parts are prefabricated only facilitates the construction job of the dealer; it does not prevent a conclusion that the dealer consumes and uses the kits.
The precise question to be determined in this case is whether the dealers are engaged in the construction of real property structures or improvements. In other words, is the Harvestore, when assembled on farm property, a fixture and therefore part of the realty?
This court has long followed a three-part test to determine whether or not particular articles of property are fixtures:
". . . Whether articles of personal property are fixtures, i.e., real estate, is determined in this state, if not generally, by the following rules or tests: (1) Actual physical annexation to the real estate; (2) application or adaptation to the use or purpose to which the realty is devoted; and (3) an intention on the part of the person making the annexation to make a permanent accession to the freehold." 8
Although the application of this test is normally a question of fact, it becomes a question of law when only one reasonable conclusion may be drawn from the evidence. 9 In the instant case, the issue is legal rather than factual because the meaning and application of a statutory standard is involved as distinguished from an evidentiary dispute over the actions and intentions of two private parties.
Annexation.
We conclude as a matter of law that this criterion has been met. The Harvestore is firmly attached and affixed to a concrete foundation set in the ground specifically for this purpose. Numerous bolts are used to affix the Harvestore to the foundation. Indeed, in its advertising Harvestore emphasizes that the unit is so firmly attached to the ground that it can and has withstood the force of a tornado.
Adaptation.
The Harvestore is clearly adapted to the use to which the realty is devoted. The Harvestore stores and processes fodder into silage, and this is clearly adapted to the use to which the farm realty is devoted.
Intention.
The factor of intention is regarded as the most important of the three factors. 10 The determinative intent is that of the annexor (in this case the farmer), and the question is whether he intends to make a permanent accession to the freehold. This intention is 'not the actual subjective intent of the landowner making the annexation, but an objective and presumed intention of that hypothetical ordinary reasonable person, to be ascertained in the light of the nature of the article, the degree of annexation, and the appropriateness of the article to the use to which the realty is put.' 11
In several cases this court has held that, when the article in question is clearly adapted to and is in fact put by the owner of the realty to the use to which he has devoted the realty, this is conclusive evidence of an intent to make a permanent accession to the realty. 12 In his treatise on personal property, Brown states that where the property is placed upon a foundation particularly prepared for it, the factor of adaptation is manifest, and the intent to make a permanent annexation is almost certain. 13
Here all of these objective circumstances are present, and thus it can be said as a matter of law that the average farmer, when purchasing a Harvestore, intends to make a permanent accession to his farm realty. The Harvestore is clearly adapted to the use to which the farmer devotes his real property and it...
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