Chadwick-BaRoss, Inc. v. City of Westbrook ( 2016 )

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2016 ME 62
Docket: Cum-15-159
Argued: February 10, 2016
Decided: April 21, 2016
Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, and HJELM, JJ.
CHADWICK-BaROSS, INC.
v.
CITY OF WESTBROOK et al.
SAUFLEY, C.J.
[¶1] In this appeal, we are asked to determine whether the Superior Court
(Cumberland County, Mills, J.) erred in concluding that equipment owned by a
business taxpayer—but leased to others—did not fall clearly within the personal
property tax exemption for stock-in-trade. See 36 M.R.S. § 655(1)(B) (2015).
Chadwick-BaRoss, Inc., appeals from a summary judgment entered in favor of the
City of Westbrook and its tax assessor on Chadwick-BaRoss’s complaint seeking a
declaratory judgment that it did not owe personal property taxes on heavy
equipment that it leased to others. We conclude, as did the Superior Court, that the
equipment does not fall “unmistakably within the spirit and intent,” Hurricane
Island Outward Bound v. Town of Vinalhaven, 372 A.2d 1043, 1046 (Me. 1977),
of the Legislature’s tax exemption for “[s]tock-in-trade,” 36 M.R.S. § 655(1)(B),
and we affirm the judgment.
2
I. BACKGROUND
[¶2] The following facts, supported by the statements of material facts and
referenced evidence in the summary judgment record, are viewed in the light most
favorable to Chadwick-BaRoss. See Victor Bravo Aviation, LLC v. State Tax
Assessor, 2011 ME 50, ¶ 10, 17 A.3d 1237 (reviewing “the grant of summary
judgment de novo, viewing the facts in the light most favorable to the
nonprevailing party to determine whether the court correctly concluded that there
were no genuine issues of material fact and that the prevailing party was entitled to
judgment as a matter of law”).
[¶3] Chadwick-BaRoss is a Maine corporation with a principal place of
business in Westbrook. It is a heavy-equipment dealer that sells equipment at
retail to customers, and occasionally leases that equipment.
[¶4] After receiving a 2012 personal property tax declaration form from
Chadwick-BaRoss, the City sent a letter to the company in May 2012 asking it to
include additional equipment that Chadwick-BaRoss owned but that, on the tax
day of April 1, 2012, was held in the physical possession of others pursuant to
lease agreements. The City asked for a response by June 8, 2012, but it received
no response and sent a follow-up letter on October 22, 2012, again seeking a list of
all equipment that had been on lease to others on April 1, 2012.
Chadwick-BaRoss’s president responded by letter that, although twelve identified
3
pieces of equipment (nine wheel loaders, one compact wheel loader, one arctic
hauler, and one skid steer) were in the hands of customers pursuant to “interim
rental agreements,” Chadwick-BaRoss considered those items to be inventory
available for immediate sale and therefore exempt from the personal property tax
pursuant to 36 M.R.S. § 655(1)(B).
[¶5] The equipment at issue was in the physical possession of
Chadwick-BaRoss customers1 pursuant to standard agreements entitled
“EQUIPMENT RENTAL AGREEMENT.” The standard agreement form
specified a term for the rental in weeks or months, established a rental rate, and
authorized repossession if the customer failed to pay the rent that it owed. The
agreement included the following provision: “Chadwick BaRoss has the right to
exchange the Equipment at any time for Equipment of equal capacity at no
additional expense to Customer. If Customer has an option to purchase, that
option, if not exercised, will lapse concurrent with the exchange.” The agreement
also stated, “The Equipment will at all times be located at Customer’s job site . . .
and will not be removed from said location without the prior written consent of
1
Chadwick-BaRoss did not assert facts or provide evidence concerning any customers’ specific
purposes for, or uses of, the identified equipment during the lease terms.
4
Chadwick-BaRoss.” All but two pieces of assessed equipment were ultimately
sold in the regular course of business.2
[¶6] Although asked to supply information about the age and value of the
identified equipment, Chadwick-BaRoss did not provide that information. On or
about December 3, 2012, the City and its tax assessor made a supplemental
assessment of items of personal property owned by Chadwick-BaRoss, based on
estimated values, resulting in a supplemental tax bill of $27,488.52 for the tax year
ending in 2013.
[¶7] On December 23, 2013, Chadwick-BaRoss filed a two-count complaint
in the Superior Court against the City and its tax assessor seeking a declaratory
judgment that (1) the tax was improperly assessed and (2) the City acted outside its
authority in issuing a supplemental assessment.3 Chadwick-BaRoss moved for
summary judgment on the first count, and the City and tax assessor filed a
cross-motion for summary judgment on that count.
[¶8] The court entered a summary judgment in favor of the City on the first
count, after which Chadwick-BaRoss stipulated to the dismissal of the second
2
The summary judgment record does not indicate whether the equipment was purchased by the
lessees or other customers.
3
As the Superior Court noted, a challenge to the lawfulness of an entire tax assessment may be
pursued in a declaratory judgment action instead of through a Rule 80B appeal. See Capodilupo v. Town
of Bristol, 1999 ME 96, ¶ 4, 730 A.2d 1257 (“A declaratory judgment action is a proper means to obtain a
remedy when an entire tax assessment is void (e.g., the tax itself is unlawful or the taxing authority is
invalid).”).
5
count of its complaint. Chadwick-BaRoss timely appealed to us from the resulting
final judgment. See 14 M.R.S. §§ 1851, 5959 (2015); M.R. App. P. 2.
II. DISCUSSION
[¶9] Chadwick-BaRoss argues that the court erred in determining that the
equipment was not inventory held for resale because the rental agreements
significantly limited the right of Chadwick-BaRoss to sell the equipment. It
contends that, because it had the right to retake possession and sell the equipment
at any time provided that it replaced the equipment with equipment of equivalent
capacity, the property was business inventory. According to Chadwick-BaRoss,
the Legislature intended the stock-in-trade exemption to benefit businesses such as
its own as an incentive to keep businesses that hold inventory from moving out of
Maine.
[¶10] With some exceptions and exemptions, “[a]ll personal property within
or without the State . . . shall be taxed to the owner in the place where he resides.”
36 M.R.S. § 602 (2015). “Personal property for the purposes of taxation includes
all tangible goods and chattels wheresoever they are and all vessels, at home or
abroad.” 36 M.R.S. § 601 (2015). One exemption from personal property taxation
applies to “[s]tock-in-trade, including inventory held for resale by a distributor,
wholesaler, retail merchant or service establishment.” Id. § 655(1)(B).
6
A. Standard of Review and Rules of Construction
[¶11] “We review de novo the Superior Court’s conclusion of law as to the
application of the statute. When interpreting a statute, we give effect to the intent
of the Legislature by first looking at the plain meaning of the statutory language.”
DaimlerChrysler Servs. N. Am., LLC v. State Tax Assessor, 2003 ME 27, ¶ 7,
817 A.2d 862 (citation omitted). In doing so, we “consider[] the language in the
context of the whole statutory scheme, and construe the statute to avoid absurd,
illogical, or inconsistent results.” Irving Pulp & Paper, Ltd. v. State Tax Assessor,
2005 ME 96, ¶ 8, 879 A.2d 15 (alteration in original) (citations omitted) (quotation
marks omitted). “Only if the language of a statute is ambiguous will we look
beyond it to the legislative history or other external indicia of legislative intent.”
Id. A statute is ambiguous if it “is susceptible of at least two different meanings.”
Id. ¶ 10.
[¶12] With respect to tax statutes in particular, because “taxation is the rule
and tax exemption is the exception,” the “burden of establishing tax exemption is
upon the plaintiff. Exemption is a special favor conferred. The party claiming it
must bring his case unmistakably within the spirit and intent of the act creating the
exemption.” Hurricane Island Outward Bound, 372 A.2d at 1046 (citations
omitted). “[W]e have said on several occasions that tax exemptions are construed
narrowly.” Brent Leasing Co. v. State Tax Assessor, 2001 ME 90, ¶ 15,
7
773 A.2d 457 (citing cases). Thus, “all doubt and uncertainty as to the meaning of
the statute and legislative intendment must be weighed against exemption.”
Silverman v. Town of Alton, 451 A.2d 103, 105 (Me. 1982). “[A]n exemption from
taxation, while entitled to reasonable interpretation in accordance with its purpose,
is not to be extended to situations not clearly within the scope of the statutory
provisions.” Id.
[¶13] Based on these rules of construction, unless the plain language or, in
the event of ambiguity, extrinsic information such as legislative history makes it
clear that Chadwick-BaRoss’s property falls within the exemption set forth in
36 M.R.S. § 655(1)(B), the Superior Court’s judgment affirming the imposition of
the personal property tax must be affirmed.
[¶14] In conducting our review, we are constrained by Chadwick-BaRoss’s
decision not to provide, either to the City or to the court on summary judgment,
specific evidence of the equipment renters’ purposes, the duration of the rentals,
the ease or difficulty with which the equipment could be returned to the
Chadwick-BaRoss lot, or the income that Chadwick-BaRoss received from the
rentals. In essence, Chadwick-BaRoss’s appeal tests whether the language of its
lease contracts alone renders the exemption applicable.4 Specifically, the question
4
Although Chadwick-BaRoss also challenges the court’s statement that Chadwick-BaRoss would
have to “procure” other equipment to replace the leased equipment, we are not persuaded that the court
8
presented here is whether the lease provision authorizing Chadwick-BaRoss to
retake possession of the equipment in exchange for comparable replacement
equipment brings the leased equipment within the stock-in-trade exemption.
B. Interpretation of Section 655(1)(B)
[¶15] Section 655(1)(B) exempts from personal property taxation
“[s]tock-in-trade, including inventory held for resale by a distributor, wholesaler,
retail merchant or service establishment.” Neither “stock-in-trade” nor “inventory”
is defined in the tax statutes. See 36 M.R.S. § 501 (2015) (providing definitions
for the chapter of title 36 governing cities and towns).
[¶16] Stock-in-trade may mean many different things, including inventory
held for sale, the tools of a trade, or specialized equipment required for a business.5
Given the absence of a statutory definition and the differing definitions available
through standard sources, the term is ambiguous. More than twenty years ago, we
construed this specific ambiguous language in view of “the purpose for the
misunderstood the effect of the leases or relied on any evidence extrinsic to the summary judgment
record.
5
In dictionaries, “stock-in-trade” is defined as “1. The inventory carried by a retail business for sale
in the ordinary course of business. 2. The tools and equipment owned and used by a person engaged in a
trade. 3. The equipment and other items needed to run a business,” Stock in Trade, Black’s Law
Dictionary (10th ed. 2014), or “the equipment necessary to or used in the conduct of a trade or business:
as a: the goods kept for sale by a shopkeeper b: the fittings and appliances of a workman c: the
aggregate of things necessary to carry on a business,” Webster’s Third New International Dictionary of
the English Language Unabridged (Webster’s) 2247 (2002). “Inventory” is defined as “[r]aw materials
or goods in stock,” Inventory, Black’s Law Dictionary, or “the quantity of goods or materials on hand:
STOCK, SUPPLY . . . a surplus of goods or materials accumulated against future needs: RESERVE,”
Webster’s at 1189.
9
enactment . . . to encourage businesses to move to, or remain in, Maine, by
eliminating the taxation of business inventory.” Eagle Rental, Inc. v. City of
Waterville, 632 A.2d 130, 131 (Me. 1993) (emphasis added). The Statement of
Fact that accompanied the enacting legislation clarified that the Legislature was
focused on inventory—not all tools of a business’s trade:
It is the intent of this legislation to eliminate the personal
property tax upon inventories and to substitute the revenue loss by the
increase in the corporate income tax. The municipalities will be
reimbursed for the revenue loss by the State.
The impact of the personal property tax on Maine industry is
both adverse and inequitable. Maine industry suffers a competitive
disadvantage in competing with neighboring states. Some major
manufacturers are storing their products outside of Maine because of
the effect of the tax. Maine, as a result, is losing some fabricating
warehousing and distribution activity as a source of employment to
neighboring states. The tax on inventory has no significant
relationship with profits. The inventories earn no profits while
awaiting sale.
L.D. 1862, Statement of Fact (106th Legis. 1973) (emphasis added); see also
3 Legis. Rec. 4393 (1973) (“[T]he main purpose of this bill is to eliminate the
inventory tax which is generally agreed to be a most inequitable tax. . . . [T]he
purpose of this bill is to keep industry and warehouses in the State of Maine.”
(statement of Rep. Cottrell)); id. at 4395-4396 (statement of Rep. Martin indicating
the purpose of the bill to eliminate “the inventory tax”).
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[¶17] Accordingly, when the property at issue had been leased to another
entity and did bring in profits, we held that it did not constitute inventory or
stock-in-trade because “[e]quipment in the possession of a lessee under a valid
lease agreement at the time of the tax assessment is not available for sale to any
customer but the lessee, whose consent is necessary for termination of the lease.”
Eagle Rental, 632 A.2d at 132 (quotation marks omitted); see also Inhabitants of
the Town of Farmington v. Hardy’s Trailer Sales, Inc., 410 A.2d 221, 224 (Me.
1980) (“The legislature has thus continued to treat stock in trade as manufactured
merchandise held for sale by the owner . . . .”). “‘To include equipment which is
not salable to the general public in the category of exemptible inventory would, we
think, obfuscate the most reasonable meaning of the term.’” Eagle Rental, 632
A.2d at 132 (quoting Tyler Equip. Corp. v. Town of Wallingford, 561 A.2d 936,
939 (Conn. 1989)). Thus, we concluded that “only the portion of Eagle Rental’s
inventory in its possession, and held for sale on the assessment date, [was] exempt
from the personal property tax under [section] 655(1)(B).” Id.
[¶18] Chadwick-BaRoss contends that its leases were not ordinary leases
subject to the application of section 655(1)(B) announced in Eagle Rental because
Chadwick-BaRoss’s leases were explicitly designed to allow potential buyers to
test equipment and Chadwick-BaRoss retained a right to possess the equipment
upon providing adequate replacement equipment. Chadwick-BaRoss suggests that
11
its agreements are more akin to test-drives than to leases, though nothing on the
face of the agreement form indicates this purpose.
[¶19] We agree with the Superior Court that neither the plain language of
the statute nor its legislative history brings the equipment identified in
Chadwick-BaRoss’s lease contracts “unmistakably within the spirit and intent of
the act creating the exemption.” Hurricane Island Outward Bound, 372 A.2d at
1046. The stated purpose of the legislation is to prevent taxation on inventory that
is “earn[ing] no profits while awaiting sale.” L.D. 1862, Statement of Fact (106th
Legis. 1973). Here, the equipment was leased for compensation, which
distinguishes this from a mere test-drive.6
[¶20] Consistent with the legislative history, and our interpretation in Eagle
Rental, the tax exemption applies to stock-in-trade “held for resale,” 36 M.R.S.
§ 655(1)(B), or “kept for sale,” Webster’s Third New International Dictionary of
the English Language Unabridged (Webster’s) 2247 (2002), such as inventory that
is “in stock,” Inventory, Black’s Law Dictionary (10th ed. 2014), or “on hand,”
Webster’s at 1189. The leased equipment was not held or kept in stock by
Chadwick-BaRoss for sale or rental. Rather, it was out on lease and could not be
6
Nor does the contract language here establish that the equipment inventory is tax-exempt because it
“is in the taxpayer’s possession and is available for both sale and rental on the assessment date.”
Handyman Equip. Rental Co. v. City of Portland, 1999 ME 20, ¶ 7, 724 A.2d 605 (emphasis added)
(citing Eagle Rental, 632 A.2d at 131). Here, the equipment was not in the taxpayer’s possession and was
not available for both sale and rental on the assessment date.
12
sold to the general public unless replaced with other equipment. Construing the
tax exemption narrowly, as we must, the equipment was properly subject to
taxation.
The entry is:
Judgment affirmed.
On the briefs:
David B. McConnell, Esq., and Joseph C. Siviski, Esq., Perkins
Thompson, P.A., Portland, for appellant Chadwick-BaRoss,
Inc.
Natalie L. Burns, Esq., and Roy T. Pierce, Esq., Jensen Baird
Gardner & Henry, Portland, for appellees City of Westbrook
and Elizabeth Sawyer
At oral argument:
David B. McConnell, Esq., for appellant Chadwick-BaRoss,
Inc.
Roy T. Pierce, Esq., for appellees City of Westbrook and
Elizabeth Sawyer
Cumberland County Superior Court docket number CV-2013-549
FOR CLERK REFERENCE ONLY