Court Opinion

ID: 4136283
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:11:52.552041+00
Date Added: 2024-06-11T14:35:06.526940
License: Public Domain

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                            THEATTORNEY               GENERAL

                                          OFTEXA~

            FVILL  WILSON
          A-ORNEYGENERAX.
                                             September 2, 1959
          Honorable Robert S. Calvert                Opinion No. W-696
          Comptroller of Public Accounts
          State of Texas                             Re:   Correct meaning of
          Austin, Texas                                    "self contained units"
                                                           as used in excise tax
                                                           imposed upon sales
                                                           of air conditioners
                                                           by Article 20.01, Sec-
                                                           tion 1, Cha ter 20,
                                                           H.B. 11, 7 2 C.S.
                                                           56th Leg.
          Dear Mr. Calvert:
                     We quote from   your opinion request as follows:
                     "House Bill No. 11, the tax bill of the
               3rd Special Session of the 56th Legislature,
               Chapter 20 in Sub-Sec. 1 of Article 20.01 de-
               fines air conditioners. We quote the def'ini-
               tion:
                    rl"'Airconditioner" shall mean any self-
              contained unit, apparatus or device commonly
              known, sold and used as an air conditioner and
              shall include any instrument, apparatus, or
              mechanical contrivance designed, constructed,
              or assembled as part of any such self-contained
              unit, apparatus or device to cool or assist in
              the cooling of air in any manner. The term 'air
              conditioner" shell also include all sub-assemblies,
              devices or instruments commonly used in conjunc-
              tion with any such other apparatus, device, sub-
              assembly or instrument, which when combined or
              connected as e functioning self-contained unit,
              apparatus or device will constitute an air con-
              ditioner. The term air conditioner, however,
              shall not Include a buzz fan or any other appera-
              tus, device or system designed and used only to
              circulate or move air, except when the same is e
              functioning pert of a larger unit defined herein
              es en air conditioner.'
                    "We are having some difficulty in finding the
              correct application or meaning of "self contained
              units." The tax levied on air conditioning units
                                                                   ..

Honorable Robert S. Calvert, page 2     Opinion No. W-696

    is found in Article 20.01 of this act.
          "Is the tax levied by this Article limited
    to self contained units? If so, does the self
    contained units include duct work, cooling
    towers, thermostats, heat pumps and the like?
          "One dealer has set out a detailed list of
    units or combination of equipment that Is sold
    by his customers. It would be helpful If you
    would examine this attached list and answer my
    questions in llsht of the questions submitted by
    this tax payer.
          The common or ordinary meaning of the term "self-con-
tained" is reflected by the following definition taken from
Webster's new International Dictionare (2nd. Ed.):
          "Sufficient in itself...........
    Mach. Having all the essential working parts
    connected by a bedplate or framework, or con-
    tained in a case, etc., so that the rmztualrele-
    tions of the parts do not depend upon fastenings
    outside of the machine itself."
          "Self-contained", as applied to an air conditioning
unit also has an established meaning in the air conditioning ln-
dustry:
         "A Self-Contained Air-Conditioning or Cooling
   Unit is one in which e condensing unit is combined
   in the same cabinet with the other functional ele-
   ments. Self-contained air-conditioning units are
   classified according to the method of rejecting con-
   denser heat (water-cooled, air-cooled, and evapore-
   tlvely cooled), method of introducing ventilation
   air (no ventilation, ventilation by drawing air from
   outdoors, ventilation by exhausting room air to the
   outdoors, or ventilation by a combination of the
   last two methods), and method of dis charging air
   to the room (free delivery or pressure type)."
   Heating Ventilating Air-conditioning Guide, 1959,
   Publish&d by America; Society of Heating end Air
   Conditioning Engineers, Ch. 16, pa 223.
          The federal government is apparently the only other
taxing authority to levy an excise tax on self-contained air
conditioning units. 26 U.S.C.A. Sec. 4111 (I.R.C. 1954) con-
tains the following language:
Honorable Robert 5. Calvert, Page 3                                        Opinion No. W-696

          I,
               .   .   .   .   .   .   .   .   .   .   .   .   .   .   .

          Items taxable at 10s:
          "Self-contained air-conditioni,ngunits."
          No further definition or explanation is given in the
federal statute, but the term "self-contained" has, through
departmental construction, been given a definition substantially
in accord with the trade meaning.1
          From the foregoing discussion, end in view of the canon
of~~statutoryconstruction embodied in Art. 10, Sec. 1, V.A.C.S.,
that "words connected with a particular trade. . . shall have
the signific;tion attached to them by excerts in such art or
trade. . .     it appears that the term self-contained" has a
meaning that 1s clear and unambiguous. .
          It is clear that the term "air conditioner" Is modi-
fied by the term "self-8ontained" in the definition set forth in
Art. 20.01 of H.B. 11.     It follows that the air conditioners

1'The type of self-contained air-conditioning unit subject to
  tax under Code Sec. 4111 includes a unit, whether a factory
  made encased assembly or one sold for assembly upon installa-
  tion, primarily designed for free delivery of air and for in-
  stallation in a window or in front of a window or other open-
  lng which (1) contains means for moving outside air through
  its condenser, (2) includes means for cooling, dehumidifying,
  and circulating the air of a room; and (3) has a total motor
  horsepower of less than 1 horsepower for motor-driven compres-
  sor types, or, in the case of absorption types, a total cool-
  ing capacity of less than 10,000 b.t.u.'s per hour at stand-
  ard American Society of Refrigerating Engineers test condi-
  tions as set forth in ASRE Circular No. 16, dated June, 1940.
  The horsepower rating assigned or designated by a manufacturer
  of a particular motor compressor or conditioning unit is con-
  clusive. (Rev. Rul. 54-462,  1954-2 CB 410, as clarified by
  Rev. Rul. 57-459, I.R.B. 1957-42, 68 superseding S.T. 934,
  1948-z m 180) .I’ The horsepower test in the foregoing defini-
  tbnwas ruled invalid as being an excession of the administra-
  tive power of the Revenue Department. Cory Corp. v. Sauber,
  59-l U.S.T.C.; Federal Excise Tax Reports Sec. 15,242, CCH;
  --F 2d---. It can be seen that with the elimination of the
  horsepower requirements, the construction is in substantial
  accord with the trade definitions. A recent revision of the
  quoted ruling by the Revenue Department, the citation of which
  is at present unavailable, relates the construction and the
  trade meaning even more closely.
2 It is significant to note that in the three sentence defini-
   tion, the term self-contained appears no less than 3 times.
Honorable Robert S. Calvert, page 4     Opinion No. W-696

taxable under Art. 20.01 are limited to "self-contained units",
es that term is defined above. To elucidate, all air condi-
tioners in which all instruments and/or equipment necessary to
the ordinary air conditioning function (i.e. the cooling of
air) are combined on one bedplate or assembly, or In one en-
casement, are taxable. Also, all instruments, devices, essemb-
lies, or equipment sold or designed for use in a self-contained
air conditioner are taxable under the Act. (To hold otherwise
would open the door to fraud end evasion of the tax). Size or
horsepower of the unit 1.snot important, nor is the manner in
which it cools the air.3
          The term "air conditioner" does not include duct
work, which serves only to deliver the cooled air. Separate
thermostats are not included, but thermostats attached to and
a part of a self-contained unit should be considered a part of
the unit for the purpose of,taxation. From the technical data
studied in connection with this opinion, it appears that cool-
ing towers serve only to eliminate waste of water used in the
air conditioning process, and are not "self-contained" within
the unit; under this state of facts, such towers are not tax-
able. (It should be noted that the foregoing equipment, though
located separately, will not keep a unit from being self-con-
tained).
          Rather than to discuss each instrument or device in-
dividually, we are returning the list forwarded to us, with an
indication of the items considered taxable under the principles
advanced above.
          An additional query has been propounded concerning
whether the "prime contractor" or "sub-contractor" is required
to account to the,State for taxes on air conditioners installed
in new buildings pursuant to construction contracts. The Act
contemplates that the tax shall be paid by the "user' and col-
lected and accounted for by the %etailer.'
          "Retailer" is defined as follows:
          II
           . . . . . .
          "(c) 'Retailer' shall mean and include every
    person in this State who manufactures, produces, or
    in any other manner acquires or possesses any of the
    items taxable under this Chapter for the purpose of

31t should be noted that the air conditioner must cool the air
 es opposed to merely moving or circulating the air.
.   .

        Honorable Robert S. Calvert, page 5~      Opinion No. b!‘t?-696

            making a resale, distribution, or use of the same
            In this State to the user; and it shall also in-
            clude every person in this State who ships, trans-
            ports or Imports into this State any Item taxable
            under this Chapter and makes the first distribu-
            tion of, use by, or sale to the user of same in
            this State."
                  "User" is defined as follows:
                  II
                   . . . . .

                   "(P) 'User' shall mean and include every per-
            son who purchases, uses or acquires in any other
            manner any item taxable under this Chapter for his
            own use in Texas and who does not purchase or acquire
            same for  the purpose of resale."
                  "Use" Is defined as follows:
                  "(n) 'Use' shall mean the keeping or retention
            in this State of any Item taxable under this Chapter
            by the user, or the exercise of any right or power
            over any such item incident to the ownership thereof.
            The term 'use' shall not include the storing, keep-
            int3,or retention of items taxable under this Chapter
            In any place of business where such items are sold,
            or offered for sale, or demonstrated for sale Ianthe
            regular course of business conducted at such places,
            nor shall the said term include items taxable under
            this Chapter which are crated and stored in Texas
            for sale and delivery outside the State of Texas."
                  As between the prlme and the sub-contractor, the sub-
        contractor Is the "retailer". Upon installation in the build-
        ing, the air-conditioner loses its identity as such. The prime
        contractor exercises all incidents of ownership over the house,
        ad, consequently, the air conditioner. The prime contractor
        does not store, keep or retain the conditioner in any place of
        business where such items are sold, offered for sale, or
        demonstrated in the regular course cf business. Therefore,
        having made the 'use" contemplated by paragraph (n) above, the
        prime contractor Is a "user" as defined in paragraph (p).
        It is immaterial that the building Is subsequently sold.' In
        making such a sale, the prime contractor is not deallng.wlth
        the air conditioner separately within the contemplation of Art.
        20.01 of H.B. 11. Therefore, you are advised that the sub-
        contractor makes the "retail sale" to the prime contractor,
        who has the duty of paying the tax; in turn the sub-contractor
        must collect and account for the tax to the State.
                                                                .   .

Honorable Robert S. Calvert, page 6       Opinion No. W-696

                               SUMMARY
          The air conditioners taxed under the
    definition contained in Art. 20.01 of H.B. 11,
    3rd C.S. 56th Leg. are limited to "self-con-
    tained" units, and include all devices, instru-
    ments, assemblies or sub-assemblies which com-
    prise, or which are sold or designed to be used
    in such a unit.
          In cases of building construction con-
    tracts, the prime contractor Is liable for the
    tax, and the sub-contractor has the duty of
    collecting the tax and accounting to the State.
                                    Yours very truly,
                                    WILL WILSON
                                    Attorney General of Texas

                                    By s/Jack N. Price
                                         Jack N. Price
                                         Assistant
JNP:cm:wc
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
J.C. Davis
James R. Irion
Marvin R. Thomas, Jr.
REVIEWED FOR THE ATTORNEY GENERAL
By: W. V. Geppert