Case Name: GENERAL MOTORS CORPORATION v. Herschel H. ROSE, III, Tax Commissioner, etc.
Court: Supreme Court of Appeals of West Virginia
Jurisdiction: West Virginia
Decision Date: 1987-12-02
Citations: 179 W. Va. 461
Docket Number: 17161
Parties: GENERAL MOTORS CORPORATION v. Herschel H. ROSE, III, Tax Commissioner, etc.
Judges: 
Reporter: West Virginia Supreme Court
Volume: 179
Pages: 461–464

Head Matter:
370 S.E.2d 117
GENERAL MOTORS CORPORATION v. Herschel H. ROSE, III, Tax Commissioner, etc.
17161.
Supreme Court of Appeals of West Virginia.
Dec. 2, 1987.
Rehearing Refused Feb. 3, 1988.
Dissenting Opinion June 28, 1988.
Charles G. Brown, Atty. Gen., Mary Carol Holbert, Asst. Atty. Gen., Tax Div., for appellant.
Michael D. Foster, Charleston, for appel-lee.

Opinion:
NEELY, Justice:
General Motors manufactures automobiles which it then sells through a network of independent West Virginia dealers. When a consumer purchases a General Motors vehicle, the sales contract includes a one year or 12,000 mile warranty that the vehicle will be free from manufacturing defects. As a condition of the franchise agreement, dealers must undertake to perform warranty work for the manufacturer in fulfillment of the manufacturer's factory warranty. Dealers are paid by General Motors for the parts and labor involved in warranty work. Repairs and service adjustments required because of misuse, negligence, alteration, accident, or lack of specified maintenance are not covered under the factory warranty, nor are the replacement items, such as spark plugs, filters, brake pads and linings, and clutch discs, made in connection with normal maintenance services. In addition, tires are not covered under the factory warranty because General Motors does not manufacture the tires placed on its vehicles.
Although General Motors manufactures vehicles of high quality, manufacturing defects inevitably appear in most vehicles. Because it is either impossible or uneconomical to detect all defects at the manufacturing plant or even at the dealership, General Motors provides its warranty as an integral part of the overall manufacturing process. An obligation on the part of General Motors to repair, adjust, and replace defective parts in a vehicle for one year or 12,000 miles is a valuable and significant part of the sales contract; furthermore, the warranty is a major item of expense in the consumer's overall purchase price. A privilege tax, exactly equal in amount to the consumer's sales tax, is paid on both the value of the vehicle and the value of the warranty at the time of purchase. That tax, of course, is simply measured by the purchase price of the car less trade-in.
On 14 December 1976 the State Tax Commissioner issued Consumers Sales and Service Tax Memorandum Ruling No. 76-4, which stated that work performed by an automobile dealer in discharge of a manufacturer's factory warranty is a taxable incident under the consumer sales and service tax. As a result of this ruling tax deficiencies were assessed against General Motors from 1 February 1977 through the end of the audit period, 30 June 1977. After an administrative hearing the tax commissioner reaffirmed the assessment and General Motors appealed to the Circuit Court of Kanawha County. On 17 July 1985 the circuit court reversed the commissioner and held that warranty work performed by dealers and paid for by General Motors is exempt under W.Va.Code, 11-15-9(6) [1974]. That section of the Code provided the following exemption:
"[Sjales of property or services to persons engaged in this state in the business of contracting, manufacturing, transportation, transmission, communication, or in the production of natural resources: Provided however, that the exemption herein granted shall apply only to services, machinery, supplies and materials directly used or consumed in the business or organizations named above;" [Emphasis supplied by Court]
The tax commissioner now appeals the circuit court's ruling here on the grounds that the circuit court erred by not holding that to qualify for the Code, 11-15-9(6) [1974] exemption, General Motors must show that the replacement parts and repair services purchased by it to fulfill its warranty obligations were used directly in the business of manufacturing. We agree with the circuit court and affirm.
In his brief before this Court, the tax commissioner admits that "General Motors makes any needed service adjustments during the first 90 days of use as determined by a dealer road test, where applicable. Warranty repairs and needed service adjustments are performed without charge to the owner by the franchise dealer at its place of business." Furthermore, the tax commissioner does not challenge General Motors' basic contention, which is that warranty repairs, replacements, and adjustments are an integral part of providing high quality, reliable automobiles to consumers. The commissioner's objection to the circuit court's holding is that in order to qualify for the exemption, the sales of property or services must be made to persons "directly" engaged in manufacturing.
We reject this contention for two reasons: First, even the commissioner agrees that warranty work is an integral part of the overall manufacturing activity of delivering a serviceable car to the consumer. Second, regardless of who the nominal pay- or of the consumers sales tax is, and in this case it would be General Motors if we accepted the commissioner's argument, the ultimate payor is the consumer. But the consumer has already paid a 5 percent privilege tax under W.Va. Code, 17A-3-4 [1973], on both the vehicle as delivered from the factory with all of its inchoate imperfections, and the valuable warranty right to have General Motors repair the vehicle's imperfections when they become manifest without cost during the first year or 12,000 miles. If we were to accede to the commissioner's argument, we would simply tax the consumer twice in a situation where the legislature intended that he be taxed only once. We believe that confounds common sense, good public policy, the plain words and meaning of Code, 11-15-9(6) [1974], and the intent of the legislature. Therefore, the judgment of the Circuit Court of Kanawha County is affirmed.
Affirmed.
. The privilege tax on the transfer of a vehicle title is in an amount equal to the consumers' sales tax. However, unlike the consumer's sales tax, there is no exemption from the privilege tax for isolated sales outside the normal course of business as is found in W. Va. Code, 11 — 15—9(h) [1987] under the consumers' sales tax. Motor vehicle sales are exempted from the 5 percent consumers' sales tax by Code, 11 — 15—9(d) [1987] when a tax is imposed under the privilege tax, Code, 17A-3-4 [1983]. The privilege tax is but a sales tax by another name.
. At issue in this appeal is W.Va.Code, 11 — 15— 9(6) [1974] as it existed during the assessment period in this case (February 1977 through June 1977). The applicable language in Code, 11 — 15— 9(6) was renumbered in 1983 to Code, 11 — 15— 9(7) without substantive amendment. Acts of the Legislature, Regular Session, 1983, Chapter 179. In 1987 Code, 11-15-9(7) [1983] was substantially amended. The current code section that corresponds to the exemptions in this case is W.Va.Code, ll-15-9(g) [1987].
. W. Va.Code, 17A-3-4 [1973] is now W. Va.Code, 17A-3-4 [1983] but the amendments have not modified the statute in any fashion that would disturb the result in this case.