Case Title: Burlington Northern R. Co. v. Wyoming State Bd. of Equalization,

Citation: 

Docket Number: 90-104

State: wyoming

Court: Wyoming Supreme Court

Date: 1991-11-25T00:00:00Z

Document:
Burlington Northern R. Co. v. Wyoming State Bd. of Equalization,1991 WY 150820 P.2d 993Case Number: 90-104Decided: 11/25/1991Supreme Court of Wyoming

BURLINGTON NORTHERN RAILROAD 
COMPANY, APPELLANT (PETITIONER),

v.

WYOMING STATE BOARD OF 
EQUALIZATION, APPELLEE (RESPONDENT).

Appeal from the District 
Court, LaramieCounty, Nicholas J. 
Kalokathis, J.

John A. Sundahl of 
Godfrey & Sundahl, Cheyenne, for appellant.

Joseph B. Meyer, Atty. 
Gen., and Michael L. Hubbard, Sr. Asst. Atty. Gen., for 
appellee.

Before THOMAS, 
CARDINE, MACY and GOLDEN, JJ., and LANGDON, District Judge.

OPINION

MACY, Justice.

[¶1.]     This is an appeal from 
an order affirming Appellee Wyoming State Board of Equalization's decision to 
impose a use tax assessed by the Wyoming Department of Revenue and Taxation 
against Appellant Burlington Northern Railroad Company upon component parts of 
wheel assemblies placed on its railroad cars in Wyoming.

[¶2.]     We reverse.

[¶3.]     The issues propounded 
on appeal by Burlington Northern are:

     1. Whether the use tax 
imposed by Wyoming on refurbished wheel assemblies installed on interstate 
railroads meets the four-prong test of Complete Auto Transit, Inc., v. Brady, 
430 U.S. 274?

     2. If there is a 
taxable event and the tax is otherwise due, is the tax exempt by virtue of W.S. 
39-6-505(a)(x) (1977), otherwise known as the "rolling stock" 
exemption[?]

[¶4.]     Burlington Northern was 
an interstate carrier utilizing railroad locomotives and cars which were 
substantially used in interstate commerce. All Burlington Northern trains which 
traveled through Guernsey, 
Wyoming, were inspected. If the 
inspection revealed a wheel assembly needed to be repaired, the wheel assembly 
was removed from the railroad car, shipped to Havelock, Nebraska, and rebuilt with new or used parts. 
Burlington Northern purchased the new parts from manufacturers in states which 
had sales and use tax exemptions for such parts. These new parts were received 
and stored in Havelock until they were used to repair the 
wheel assemblies. The repaired wheel assemblies were returned to Guernsey and placed on the cars as soon as the manpower 
was available to do so.

[¶5.]     On October 21, 1987, 
the Wyoming Department of Revenue and Taxation issued two tax deficiency 
assessments totaling $735,106.90 to Burlington Northern. Burlington Northern 
paid $315,369.67 but challenged the remaining portion, contending that 
Burlington Northern was exempt from use tax on repair parts for rolling stock, 
and appealed to the Board of Equalization.1 After the Board of Equalization 
held a hearing, it issued its decision on August 3, 1989, which reduced the use 
tax assessments on the wheel assemblies attributable to labor, overhead, and 
secondhand materials but otherwise affirmed the use tax, after 
finding:

[U]nder the particular 
facts herein, there is a taxable event within the jurisdiction of the State of 
Wyoming, and thus, the imposition of use tax on the repair parts at the 
Guernsey, Wyoming, facility is appropriate.

. . . . 

. . . [T]he exemption 
provided by W.S. 39-6-505(a)(x) is inapplicable, and the imposition of use tax 
on the new items is proper. Any amounts attributable however to labor, overhead, 
and secondhand parts should not be assessed.

[¶6.]     On September 5, 1989, 
Burlington Northern filed its petition for review in the district court. On 
March 20, 1990, the district court affirmed the Board of Equalization's 
decision. It is from that order that this appeal is taken.

[¶7.]     Burlington Northern 
contends the Board of Equalization's application of the relevant law to the 
undisputed facts was incorrect. We will review the appeal as though it came 
directly from the Board of Equalization, and we will determine, in compliance 
with Wyo. Stat. § 16-3-114(c)(ii)(A) (Supp. 1982), whether the decision was in 
accordance with the law of this state. Exxon Corporation v. Wyoming State Board 
of Equalization, 783 P.2d 685 (Wyo. 1989), cert. denied, ___ U.S. ___, 110 S. Ct. 1937, 109 L. Ed. 2d 300 (1990); Department of Revenue and Taxation of State of 
Wyoming v. Casper Legion Baseball Club, Inc., 767 P.2d 608 (Wyo. 
1989).

[¶8.]     In Exxon Corporation, 
this Court upheld a use tax upon pipe which, while en route to its permanent 
installation in a Wyoming intrastate pipeline, 
stopped in Colorado where it was inspected, sandblasted, 
and otherwise processed. We held that the "first use" of the pipe took place in 
Wyoming rather than in Colorado and that the tax upon the pipe satisfied the 
requirements of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S. Ct. 1076, 51 L. Ed. 2d 326 (1977).2 We stated in Exxon Corporation, 783 
P.2d at 688:

     The Wyoming use tax statutes, W.S. 39-6-501 through -518, 
impose an excise tax upon "persons storing, using or consuming tangible personal 
property" in Wyoming. W.S. 39-6-504(b). The legislature 
intended that the use tax be complementary to the Wyoming sales tax. 
Morrison-Knudson Co., Inc. v. State Board of Equalization, 58 Wyo. 500, 135 P.2d 927, 
932 (1943). See also Chap. IV, § 3, Rules and Regulations of the Wyoming State 
Tax Commission - Department of Revenue & Taxation. The use tax is applied to 
property purchased outside the state and brought into the state for storage, use 
or consumption, so as to put that property on an equal footing with property 
purchased within the state that is subject to the Wyoming sales 
tax.

The administrative rule 
referred to by this Court, i.e., Chapter IV, Section 3, provided:

The purchase or lease of 
all tangible personal property outside this state for first use, storage 
or consumption within this state, is subject to use tax, providing the same 
transaction would be subject to sales tax if the transaction had occurred wholly 
within the State of Wyoming.

Exxon Corporation, 783 P.2d  at 688 n. 3 (emphasis in original). We also stated that, "if the first use 
of the property occurs in another state, Wyoming's use tax is inapplicable." Id. at 688.

[¶9.]     The pivotal question to 
be answered by this Court in this case is whether the "first use" of the new 
replacement parts took place in Wyoming. If the "first use" did not occur in 
Wyoming, the 
four-part test articulated in Complete Auto Transit, Inc. and adopted by this 
Court in Exxon Corporation is inapplicable. The Board of Equalization 
concluded:

The evidence presented 
herein however clearly indicates the new parts purchased for inclusion in the 
wheel assemblies have their "first use" at the Guernsey facility when they are placed on locomotives or 
cars, the ultimate use for which their purchase was intended. The mere 
integration of various parts into a whole at the Havelock facility is not the type of "first use" that 
either the Wyoming statutes or regulations 
anticipate.

The Board of Equalization 
also concluded that, had the purchase of the new repair parts occurred wholly 
within Wyoming, the transaction would have been 
subject to Wyoming sales tax.

[¶10.]  Burlington Northern contends that the 
"first use" took place in Havelock, Nebraska, where the parts were used to rebuild 
the wheel assemblies which belonged to, and never left the possession of, 
Burlington Northern. Burlington Northern contrasts this scenario with Exxon 
Corporation, where the pipe was sold to Exxon for exclusive use and operation in 
Wyoming.

[¶11.]  The Board of Equalization has submitted a 
well reasoned and persuasive brief supporting its contention that the "first 
use" took place in Wyoming. We are convinced, however, that the 
"first use" of the new repair parts took place in Nebraska when they were 
installed as component parts in Burlington Northern's wheel assemblies. The mere 
replacement in Guernsey of repaired wheel 
assemblies on Burlington Northern's cars used in interstate commerce is not a 
"first use" which would trigger the application of the Complete Auto Transit, 
Inc. test.

[¶12.]  In view of the above, we hold that the 
decision of the Board of Equalization to impose a use tax on the new parts used 
to repair Burlington Northern's wheel assemblies was not in accordance with the 
law of this state, and we, therefore, reverse such decision.

[¶13.]  This Court's holding on the first issue 
being dispositive of the second issue presented by Burlington Northern, it is 
not necessary or appropriate for us to determine whether the rolling stock 
exemption would have applied had there been a taxable event.

[¶14.]  Reversed.

FOOTNOTES

1 Wyo. Stat. § 
39-6-505(a)(x) (Supp. 1987) provided:

(a) The following 
purchases or leases are exempt from the excise tax imposed by this 
article:

. . . .

     (x) Rolling stock 
including locomotives purchased by interstate railroads, aircraft purchased by 
interstate air carriers and trucks and trailers purchased by interstate carriers 
which are holders of valid United States interstate commerce commission or civil 
aeronautics board permits or authorities or which are operating in interstate 
commerce under exemption clauses in federal law if they are to be substantially 
used in interstate commerce[.]

(Amended by 1988 Wyo. 
Sess. Laws ch. 67, § 2 effective March 15, 1988, and by 1991 Wyo. Sess. Laws ch. 
251, § 1 effective March 9, 1991.)

2 In Complete Auto 
Transit, Inc., the United States Supreme Court articulated a four-prong test for 
analyzing whether a particular state tax can be upheld under the commerce 
clause. A tax will survive a commerce clause challenge "when the tax [(1)] is 
applied to an activity with a substantial nexus with the taxing State, [(2)] is 
fairly apportioned, [(3)] does not discriminate against interstate commerce, and 
[(4)] is fairly related to the services provided by the State." 430 U.S.  at 279, 97 S. Ct.  at 
1079.

THOMAS, Justice, concurring 
specially.

[¶15.]  I agree with the majority position in 
this case that the first use of the wheel assemblies did not occur in Wyoming. In reversing the 
judgment of the trial court, I would invoke an additional rationale to that 
articulated in the opinion of the court. The majority opinion does not address 
the availability of the rolling stock exemption. Yet, the end result is that 
these wheel assemblies are not subject to use tax in Wyoming. That result, of 
course, avoids any question as to whether there is a state tax burden upon 
interstate commerce.

[¶16.]  I am disposed to approach the issue more 
directly. I would invoke the exemption from excise tax for "rolling stock" 
articulated in Section 39-6-505(a)(x), W.S. 1977. In my view, the wheel 
assemblies appropriately are part of the railroad car that, I assume, even the 
Wyoming State 
Board of Equalization would agree is rolling stock. In this context, I cannot 
agree with the concept that somehow or other the whole of the railroad car is 
greater than the sum of all of its parts and, in my opinion, the several parts 
of that railroad car cannot avoid being identified as "rolling 
stock."

[¶17.]  A simple illustration explains my 
position. I am satisfied that, if Burlington Northern Railroad Company shipped 
into Wyoming via motor carrier all of the component parts of a railroad car and 
then assembled those parts on railroad trackage in Wyoming, the railroad car 
would be rolling stock. My intent is to make it entirely clear that the first 
use of the railroad car would have to occur in Wyoming, but the express statutory exemption 
would serve to insulate it from the use tax. Logic persuades me that the 
installation of a wheel assembly on a freight car that is otherwise exempt from 
taxation cannot produce a taxable event in Wyoming without infringing upon interstate 
commerce.

[¶18.]  I find persuasive authority from other 
jurisdictions that supports this conclusion recognizing that, in each instance, 
there may be some difference with respect to statutory language or 
administrative rules. To the extent that those differences exist, I am satisfied 
that the legislative or executive branches of government in those other states 
were sensitive to a potential constitutional concern and wisely adopted the 
statute or the rules to lead to the appropriate result of exempting rolling 
stock from the application of excise tax.

[¶19.]  In Burlington Northern, Inc. v. 
Department of Revenue, 32 Ill. App.3d 166, 336 N.E.2d 170 (1975), the Illinois 
Court of Appeals recognized that diesel switching engines, passenger commuter 
cars, and shipping containers and tractor trailers, all came within a "rolling 
stock" exemption provided in the Illinois statutes. The court rejected an 
argument by the Illinois Department of Revenue that the appropriate exemption 
was the one providing the credit for use tax paid in another state. It held 
that, contrary to the argument by the taxing authority, the appropriate 
exemption to look to was the "rolling stock" exemption in the statute and that 
it did reach the several items of property in issue.

[¶20.]  By contrast, in LeTourneau R.R. Services, 
Inc. v. Dept. of Revenue, 134 Ill. App.3d 638, 90 Ill.Dec. 64, 481 N.E.2d 864 (1985), the Illinois Court of Appeals recognized that equipment that had the 
function of loading and unloading containerized freight from rail cars was not 
"rolling stock" within the purview of the statutory exemption. In that case, the 
court made a point of noting the difference between equipment that travels on 
railroad tracks and equipment that does not. Even though there exists specific 
authority in a tax regulation in Illinois, I am 
persuaded that there is no question that the wheel assemblies would be "rolling 
stock" in Illinois.

[¶21.]  In Missouri, the director of revenue assessed a 
use tax on certain flanged wheel equipment which was intended for the purpose of 
roadway and work equipment. The Supreme Court of Missouri looked at an exemption 
from state and local sales and use tax for "`[r]ailroad rolling stock for use in 
transporting persons or property in interstate commerce * * *.'" Burlington Northern Railroad v. Director of Revenue, 785 S.W.2d 272, 273 (Mo. 1990). That court noted the restrictive 
construction given for tax exemption provisions but, invoking the rule of 
statutory construction that words are to be given their plain and ordinary 
meaning, it held that this equipment, used in constructing and maintaining 
railroad tracks and railways, came within the rolling stock exemption. Burlington, supra. Other 
cases cited by Burlington Northern in its brief would be consistent with those 
discussed above. See Ohio and Mississippi 
Railroad Company v. Weber, 96 Ill. 443 (1880). Cf. Duval Sierrita Corp. v. 
Arizona Department of Revenue, 116 Ariz. 200, 568 P.2d 1098 (1977); United 
Parcel Service, Inc. v. Comptroller of Treasury, 69 Md. App. 458, 518 A.2d 164 
(1986); Tulsa Machinery Company v. Oklahoma Tax Commission, 208 Okla. 138, 253 P.2d 1067 (1953). I note that I would have great difficulty stretching this 
exemption as far as the Supreme Court of Montana did when it indicated that 
cooking utensils used by railroad employees on a boarding car was a "necessary 
and usual accompaniment" and, therefore, part of the rolling stock of the 
railroad. See Great Northern Railway Co. v. FlatheadCounty, 61 Mont. 263, 202 P. 198 (1921).

[¶22.]  Since I am satisfied that the Wyoming 
Board of Equalization, as a matter of law, erroneously failed to give to 
Burlington Northern Railroad Company the benefit of exemption from excise tax 
for "rolling stock," I would reverse the judgment of the district court. I am 
satisfied that this approach is an appropriate ground for deciding this case, 
and it would not be necessary for me to discuss whether the first use of the 
property occurred within the state of Wyoming. In my view, the exemption for 
rolling stock reaches all rolling stock and applies wherever the first use might 
have occurred. I do agree that in this instance, however, the first use occurred 
in some jurisdiction other than Wyoming.

CARDINE, Justice, dissenting, 
with whom GOLDEN, Justice, joins.

[¶23.]  I would affirm.

[¶24.]  The critical question is whether new or 
used parts are first used when the wheel assemblies are repaired with the parts 
or when the wheel assemblies are used for transportation in the railroad 
transportation business. I am unable to distinguish Exxon Corp. v. Wyoming State 
Bd. of Equalization, 783 P.2d 685 (Wyo. 1989), cert. denied ___ U.S. ___, 110 S. Ct. 1937, 109 L. Ed. 2d 300 (1990), where we held first use was as a pipeline 
rather than conditioning of the pipeline. Here, first use is for transportation 
rather than conditioning the wheel assembly for use in 
transportation.