Title: Sportfisherman Charter, Inc. v. Norberg

State: rhode-island

Issuer: Rhode Island Supreme Court

Document:

Sportfisherman Charter, Inc. v. Norberg  340 A.2d 143 (1975) SPORTFISHERMAN CHARTER, INC. v. John H. NORBERG, Tax Administrator. No. 73-200M. P. Supreme Court of Rhode Island. June 27, 1975. *144 John G. Coffey, Jr., Providence, for plaintiff-respondent. Richard J. Israel, Atty. Gen., W. Slater Allen, Jr., Asst. Atty. Gen., Perry Shatkin, Principal Legal Officer (Taxation), Providence, for defendant-petitioner. OPINION DORIS, Justice. The State Tax Administrator filed this petition for certiorari under G.L.1956 (1969 Reenactment) § 42-35-16, as amended by P.L.1972 ch. 169, § 30, seeking review of a judgment entered by a Superior Court justice reversing a decision of the tax administrator assessing a tax under the Sales and Use Tax Act against Sportfisherman Charter, Inc., a Rhode Island taxpayer. We granted the writ, and pursuant thereto, the pertinent records have been certified to this court. The record discloses that Sportfisherman Charter, Inc., hereinafter referred to as the taxpayer, is a Rhode Island corporation engaged in the business of chartering boats for sportfishing. In September 1970, the taxpayer purchased a boat, the subject of the present litigation, from its principal officer and in January 1971 documented the boat with the United States Coast Guard. On February 9,1971, the taxpayer obtained a sales tax permit from the State of Rhode Island. On March 9, 1971, the tax administrator *145 issued a "Notice of Deficiency Determination Under Sales and Use Tax Law" in the amount of $2,002.50, which amount consisted of tax due of $1,780 based on a valuation of the boat estimated at $1,000 a foot, interest of $44.50, and a penalty of $178. Pursuant to G.L.1956 (1970 Reenactment) § 44-19-17, the taxpayer requested a hearing to contest the deficiency determination. After a hearing, the administrator issued a final determination setting the taxpayer's use tax liability at $4,845.43, of which amount $3,907.60 was the tax due based on a valuation of the boat obtained from corporation tax return filed by the taxpayer after the original use tax determination had been made, $547.07 was interest on the tax due, and $390.76 was a penalty. The taxpayer, acting under the provisions of § 42-35-15, thereupon petitioned the Superior Court for review of the contested assessment. The Superior Court justice ruled that the administrator erred in assessing a use tax based on the purchase price of the taxpayer's boat and to that extent reversed the determination of the administrator. The administrator takes the position that the taxpayer had the option under § 44-18-27[1] to pay a sales tax on the rental income generated by the boat, but that by failing to elect this option within a reasonable time after purchase, he became liable for a use tax based on the entire sales price of the boat. We believe this position misconstrues the intent of § 44-18-27. As we indicated in Capitol Bldg. Co. v. Langton, 101 R.I. 131, 135, 221 A.2d 99 , 102 (1966), the sales and use taxes are intended to be complementary methods of assuring that sales of goods at retail are subjected to a 5 percent impost based on the price received by the seller. A retailer, who purchases goods from a manufacturer and holds them for resale, will incur no sales or use tax liability.[2] If, however, a retailer makes any use of the property other than holding it for resale, § 44-18-26 subjects him to tax liability. In order to allow a retailer to make the most efficient use of his sales stock, however, the Legislature has carved out an exception to the operation of § 44-18-26. Section 44-18-27 allows a retailer, who incidentally rents out property while holding it for sale, to elect to pay a sales tax measured by the amount of rental charged.[3] In the instant situation, the taxpayer is not holding his boat for sale in the regular course of business and only incidentally renting it. Charter, not sales, is the expressed purpose of the taxpayer, and thus he does not come within the exception marked out by § 44-18-27. *146 As § 44-18-27 applies only to property which one intends to sell and is only incidentally renting until a buyer can be found, the taxpayer argues that he is not subject to an election requirement, and that his situation should be governed by the exemption set out in § 44-18-34. That section reads as follows: "Exemption from use tax of property subject to sales tax.The storage, use, or other consumption in this state of property, the gross receipts from the sale of which are required to be included in the measure of the sales tax, shall be exempted from the use tax." In Capitol Bldg. Co. v. Langton, supra at 137, 221 A.2d at 103, we concluded that § 44-18-34 was prospective in thrust and was designed to avoid the imposition of double tax liability on any one consumer of property.[4] We also noted that statutes purporting to grant exemption from taxation are to be strictly construed against the taxpayer and in favor of the public unless in their terms they disclose clearly an intent to grant an exemption. See also Preservation Soc'y of Newport County v. Assessor of Taxes, 99 R.I. 592, 209 A.2d 701 (1965). We believe the general purpose of this chapter is to impose on any tangible personal property sold for any purpose other than resale a single tax of 5 percent of the market value of the property. Given this purpose, and the specific language of the relevant statutory sections, it is our opinion that the taxpayer may not take advantage of § 44-18-34. First of all, the taxpayer is not a retailer under the definition of § 44-18-15. Thus, the gross receipts from the ultimate sale of the taxpayer's boat will not be subject to a sales tax. This in and of itself is arguably enough to take the instant situation out of § 44-18-34, but there is a more compelling reason. Section 44-18-7(A) defines a sale as "Any transfer of title or possession, exchange, barter, lease, or rental, conditional or otherwise, in any manner or by any means of tangible personal property for a consideration. `Transfer of possession,' `lease,' or 'rental' includes transactions found by the tax administrator to be in lieu of a transfer of title, exchange, or barter." If this section is interpreted to treat all rentals as sales, even those that in no sense take the place of a transfer of title, the second sentence of § 44-18-7(A) becomes entirely superfluous. In construing a statute we are obligated to give effect to every part of the statute if it is workable and does not result in absurdity or inconsistency. Ewing v. Tax Assessors, 90 R.I. 86, 155 A.2d 61 (1959). The better interpretation would appear to be that this subsection was intended to include only transfers of title, exchanges, or barters as sales, but if a transaction were set up to be ostensibly a mere transfer of possession, lease or rental, while in actual economic fact it was in lieu of a transfer of title, exchange, or barter, the tax administrator might in his discretion treat it as a sale. This construction is reinforced by the fact that § 44-18-7 sets out a variety of specific situations where what amounts to a rental of property combined with a sale of services is specifically defined to be a sale. We therefore conclude that § 44-18-7(A) was intended to exclude short-term rentals, not in *147 lieu of a transfer of title, from the definition of a sale and thus from the ambit of the sales tax.[5] While § 44-18-7(A) gives the administrator broad discretion to determine what constitutes a transaction in lieu of a transfer of title, his discretion is not unbounded. His determination must be reasonable, and in the instant case where the taxpayer was merely chartering its boat for periodic sportfishing trips to a variety of customers, it is not reasonable to treat this as a transaction in lieu of a transfer of title. As the taxpayer's rental income was not properly subject to the imposition of a sales tax, and the taxpayer is not otherwise a retailer who would be subject to a sales tax on the ultimate sale of the boat, the taxpayer does not come within the exemption created by § 44-18-34.[6] He is therefore liable for a use tax at the rate of 5 percent of the sales price of the boat tinder § 44-18-20.[7] Finally, the taxpayer argues that the administrator is without the power to increase the amount of his determination once the taxpayer has requested an administrative hearing under § 44-19-17. While there appears to be some confusion as to whether the last sentence of § 44-19-17, which specifically gives the administrator the right to increase his determination, is properly included in the 1970 Reenactment of the General Laws of Rhode Island, we believe this power is implicit in the section's grant of authority to the administrator to determine the correct amount of the tax. We therefore find the administrator's redetermination of the tax to be in furtherance of his statutory authority. The petition for certiorari is granted, the judgment entered in the Superior Court is quashed, and the case is remitted to the Superior Court for the entry of judgment in accordance with this opinion. JOSLIN, Justice, with whom KELEHER, Justice, joins, dissenting. The question before us is whether the taxpayer, who in 1970 acquired a boat for use in its business of chartering boats for sportfishing, is liable for a sales tax measured by the rental payments received from chartering that boat or for a use tax based upon its cost price. Neither party disputes that under the pertinent taxing statutes boats should be treated no differently from other tangible personal property, and that the same principles obtain here as would apply if the taxpayer were an automobile rental agency like Hertz or Avis and the property rented were an automobile instead of a boat. The positions taken by the parties are straightforward, uncomplicated, and substantially *148 in accord. Implied in their briefs and oral arguments is their agreement that a "sale" as defined by G.L.1956 (1970 Reenactment) § 44-18-7(A) includes a rental or lease of tangible personal property,[1] that a retailer regularly engaged in the business of renting tangible personal property for a consideration may acquire the rental property tax-free by furnishing his supplier with a resale certificate prescribed by § 44-18-25, that such a retailer is obliged under § 44-19-1 to obtain a sales tax permit, and that he must add to the rentals charged a sales tax at the rate imposed by § 44-18-19. Regulations issued by the administrator concur with those positions.[2] The parties disagree only on whether, and if so under what conditions, a retailer regularly engaged in the business of renting tangible personal property who fails to pay a sales tax on rental receipts within a specified time becomes liable for a use tax. The administrator contends that § 44-18-27[3] and § 44-19-10[4] do not distinguish between such a retailer and one engaged in the business of selling tangible personal property who incidentally rents such property while holding it for sale. He further argues that those sections, fairly read, require (1) that a retailer, whether engaged in the business of selling or renting, elect on or before the 20th day of the month next following acquisition of the property *149 to pay either a sales or a use tax, and (2) that failure to do so results in a relinquishment of that right of election to the administrator, who in this case opted to impose the use tax. In response, the taxpayer indicates at the outset that the administrator's position in this case and that promulgated in his regulations are at odds.[5] It argues further and I find its argument the more convincingthat § 44-18-27,[6] if read in pari materia with § 44-18-26,[7] makes clear that the election provided therein applies only to retailers engaged in the business of selling tangible personal property who make incidental rentals pending sale, and not to those engaged in the business of renting such property to consumers. For reasons that I find difficult to fathom, the majority reject the contentions of both parties, ignore the department regulations, and proceed on a tangent of their own leading them to the same result reached by the administrator. They conclude * * * that § 44-18-7(A) was intended to exclude short-term rentals * * * from the definition of a sale and thus from the ambit of the sales tax," and that because the taxpayer's rental income therefore does not come within the exemption created by § 44-18-34[8] it is subject to a use tax. Obviously, those conclusions can be no sounder than their foundations, and they seem to me to be based on an unusually labored construction of clear and unambiguous language, which conveys a plain, sensible, and contrary meaning that is accepted both by the taxpayer and by the administrator in his department regulations. See notes 1 and 2, supra. Once it is thus accepted that § 44-18-7(A) means what it says when it defines "sales" as including a "rental," and that a tax based upon rentals must be collected by those engaged in the rental business, it necessarily follows that § 44-18-34 exempts such a retailer from paying a use tax based upon the acquisition cost of the rental property. I rest my disagreement with the majority, however, not only on their construction of § 44-18-7(A), but also on their total disregard for what the administrator conceded in oral argument was the longstanding department practice of requiring persons regularly engaged in the business of renting tangible personal property to collect sales taxes from their lessees based upon rental charges. That practice is confirmed by the department regulations.[9] I recognize, of course, that the administrative practice and the department regulations do not have the force and effect of *150 law, and that they serve merely as guideposts for the benefit of the taxpayers and the department entrusted with the duty of enforcing the sales and use tax law. But if the meaning of § 44-18-7(A) is doubtful as the majority contend it isthat practice and those regulations should receive great weight from us in resolving that section's ambiguity, particularly in this instance because they have endured the legislative reenactment and amendment of those statutes giving rise to their adoption. See 3 Sutherland, Statutory Construction § 66.04 at 192-93 (4th ed. 1974) ; Trice v. City of Cranston, 110 R.I. 724, 730, 297 A.2d 649 , 652 (1972) ; Broderick v. Keefe, 112 F.2d 293, 296 (1st Cir.), cert. dismissed, 311 U.S. 721, 60 S. Ct. 1107, 85 L. Ed. 470 (1940) ; Liss v. Goodman, 224 Md. 173, 179, 167 A.2d 123, 126 (1960) ; In re Gillmore's Estate, 101 N.J.Super. 77, 85, 243 A.2d 263 , 267 (1968). For these reasons I reject the majority's rationale, and because I believe the taxpayer's position more soundly premised than the tax administrator's, I respectfully dissent.