Groton v. Commissioner of Revenue Services

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TOWN OF GROTON v. COMMISSIONER
OF REVENUE SERVICES ET AL.
(SC 19397)
Rogers, C. J., and Palmer, Zarella, Eveleigh, Espinosa and Robinson, Js.
Argued January 5—officially released June 30, 2015
Bryan P. Fiengo, with whom, on the brief, was Eric
W. Callahan, for the appellant (plaintiff).
Dinah J. Bee, assistant attorney general, with whom,
on the brief, was George Jepsen, attorney general, for
the appellees (defendants).
Opinion
ROBINSON, J. The sole issue in this appeal is whether
the fees that a municipality charges for refuse removal
services provided to industrial, commercial, or income
producing real properties are subject to the sales tax
under General Statutes § 12-408 (1) (A)1 when that
municipality does not make a profit on those fees
because they are either used to defray the municipality’s
overhead expenses in administering the refuse removal
program, or to pay the service charges of other partici-
pants in the refuse disposal process. The plaintiff, the
town of Groton, appeals2 from the judgment of the trial
court dismissing its tax appeal from the decision of
the named defendant, the Commissioner of Revenue
Services,3 to render a sales and use tax assessment
against it in the amount of $240,653.89. On appeal, the
plaintiff claims, inter alia, that the trial court improperly
applied numerous cases from this court, in particular
AirKaman, Inc. v. Groppo, 221 Conn. 751, 607 A.2d 410
(1992), in concluding that its arrangement of refuse
collection services for industrial, commercial, or
income producing real properties, on a revenue neutral
basis, constituted a sale for ‘‘consideration’’ subject to
the sales tax under § 12-408 (1) (A). We agree with the
plaintiff and, accordingly, reverse the judgment of the
trial court.
The record reveals the following relevant undisputed
facts, as found by the trial court, and procedural history.
The plaintiff is a municipal corporation organized under
the laws of the state of Connecticut. On or about
November 13, 1985, the plaintiff became a member of
the Southeastern Connecticut Regional Resources
Recovery Authority (regional authority), which was
formed pursuant to General Statutes § 7-273aa et seq.
The regional authority operates a waste-to-energy facil-
ity (waste facility) in Preston. The plaintiff entered into
a ‘‘municipal service agreement’’ with the regional
authority, which provided the plaintiff with access to
the waste facility for its disposal needs in exchange
for a per ton fee. That agreement imposes a minimum
delivery requirement on the plaintiff.
In August, 1998, the plaintiff adopted an ordinance
that created a municipal resource recovery authority,
known as the Town of Groton Resource Recovery
Authority (town authority), with offices located at the
plaintiff’s town hall. In January, 1999, the plaintiff
adopted an ordinance putting the removal, transport,
and disposal of solid waste from commercial, industrial,
and income producing businesses within the plaintiff’s
geographical area, known as ‘‘end users,’’ under the
management of the town authority. During the time
period at issue in the present appeal, the plaintiff con-
tracted with a private trash hauler to take refuse from
the end users’ properties to the waste facility. The end
users would apply to the town authority for service
from the trash hauler, and would select the size of the
necessary trash receptacles and the frequency of trash
pickups from their properties; these elections would
determine the fee charged by the trash hauler. The trash
hauler would then transport the refuse to the regional
authority’s waste facility for disposal at the charge of
$60 per ton.
The hauler and the regional authority bill the plaintiff
for their fees on a monthly basis. The plaintiff pays the
invoices of the hauler and the regional authority in full
each month. After making those payments to the hauler
and the regional authority, the plaintiff then bills each
end user on a monthly basis for its share of the hauler’s
fee, the regional authority’s fee, and the plaintiff’s over-
head expenses of $3.58 per ton of waste to administer
the program.4 The end users’ monthly payments cover
the payments that the plaintiff advances to the trash
hauler and the regional authority; the total outlays and
receipts from the end users create a ‘‘ ‘break even’ ’’
situation for the plaintiff, which does not profit from
providing this service. The plaintiff did not apply state
sales tax to the invoices that it issued to the end users,
and did not remit sales tax to the defendant for these
services.
Following a sales and use tax audit relating to its
billings to industrial, commercial, or income producing
real property for refuse and sanitary waste removal,
the defendant issued a notice of assessment in the
amount of $240,866.06, for sales taxes and interest due
for the period from May 1, 2007, through September
30, 2010. The plaintiff subsequently filed a protest con-
testing the validity of that assessment with the defen-
dant. By a letter dated September 14, 2011, the
defendant denied the plaintiff’s protest, and issued a
revised assessment in the amount of $240,653.89.5
The plaintiff appealed from the decision of the defen-
dant to the trial court in accordance with General Stat-
utes § 12-422. The trial court concluded that the plaintiff
had failed to establish that the tax assessment was
incorrect, observing that refuse removal is a type of
service under General Statutes § 12-407 (a) (2) (I) and
(37) (I),6 as explicated by the defendant’s regulations;
see Regs., Conn. State Agencies § 12-407 (2) (i) (I)-1 (g)
(1);7 and, therefore, is subject to sales tax under § 12-
408 (1) (A), given that the plaintiff did ‘‘not dispute that
the [defendant] met the requirement of consideration
with regard to the exchange of cash by the ‘end users’
to the [plaintiff].’’ The trial court disagreed with the
plaintiff’s argument that, under AirKaman, Inc. v.
Groppo, supra, 221 Conn. 751, ‘‘there is no sale of ser-
vices where the [plaintiff] provides services and
receives by way of consideration a reimbursement of its
own expenses in providing such services,’’ concluding
instead that AirKaman, Inc., ‘‘does not stand for a
general rule that all ‘conduit’ situations are not subject
to sales tax,’’ given the agency relationships established
in that case, which were not present in this case. The
court further concluded that, ‘‘while the [plaintiff] sends
an invoice for its costs to the end users, and the end
users comply by paying this invoice, there is still justifi-
cation to find that there was a sale of services by’’ the
plaintiff, which was ‘‘for a consideration.’’ Finally, the
trial court rejected the plaintiff’s claim that it ‘‘is exempt
from the sales tax because the function of trash removal
is a traditional governmental function,’’ observing that
the plaintiff ‘‘has not demonstrated that Connecticut
has a constitutional or statutory provision exempting
municipalities that sell services, even if related to gov-
ernment functions, from the imposition of state sales
tax.’’8 Accordingly, the trial court rendered judgment
dismissing the plaintiff’s tax appeal. This appeal
followed.
On appeal, the plaintiff claims, inter alia, that the
trial court improperly concluded that the fees that it
collected for refuse removal were subject to the sales
tax. Specifically, the plaintiff contends that the trial
court improperly failed to consider the ‘‘ ‘true object’ ’’
of the transaction in accordance with AirKaman, Inc.
v. Groppo, supra, 221 Conn. 751, namely, that its fees
were a mere pass-through arrangement on which it did
not turn a profit in carrying out the statutorily author-
ized, governmental function of garbage collection via
a municipal or regional authority, as distinguished from
acting in a proprietary capacity for purposes of corpo-
rate benefit or profit for the municipality. Citing Sal
Tinnerello & Sons, Inc. v. Stonington, 141 F.3d 46 (2d
Cir.), cert. denied, 525 U.S. 923, 119 S. Ct. 278, 142 L.
Ed. 2d 230 (1998), the plaintiff emphasizes that its fees
were not sales or part of a commercial enterprise, but
rather, were ‘‘ ‘benefit assessments’ ’’ to pay for the
governmental function of solid waste collection. To this
end, the plaintiff argues that, under the ‘‘true object’’
inquiry required by AirKaman, Inc., unlike in the com-
mercial profit seeking context, it was a ‘‘mere conduit’’
between the end users and the hauler and regional
authority and, therefore, the fees that it charged were
a dollar for dollar reimbursement that did not constitute
the ‘‘consideration’’ required by § 12-407 (a) (2) (I) to
render services taxable, further relying on the principle
that ambiguities in taxing statutes are construed in favor
of the taxpayer.
In response, the defendant contends that the trial
court properly determined that refuse removal services
are subject to the sales tax under the plain language of
the applicable statutes and implementing regulation,
namely, § 12-407 (a) (2) (I) and (37) (I), and § 12-407
(2) (i) (I)-1 (g) (1) of the Regulations of Connecticut
State Agencies. Relying on Andersen Consulting, LLP
v. Gavin, 255 Conn. 498, 767 A.2d 692 (2001), the defen-
dant contends that the ‘‘true object’’ test of AirKaman,
Inc. v. Groppo, supra, 221 Conn. 763–64, does not apply
when the service at issue ‘‘clearly falls under a relevant
statute or regulation.’’ The defendant further argues
that the plaintiff’s power to provide for or regulate
the provision of trash removal services under General
Statutes § 7-148 (c) (4) (H)9 does not render it exempt
from the sales tax, because ‘‘there is no public mandate
that the refuse removal services be provided by a munic-
ipality at cost,’’ nor any legislative intention to ‘‘exempt
from sales tax the provision of those services simply
because the [plaintiff]—for salutary purposes—decided
to arrange and bill for the services itself,’’ noting that
General Statutes § 7-273bb (a) (9)10 specifically autho-
rizes municipal and regional authorities to ‘‘[c]harge
reasonable fees’’ for those services. Citing cases uphold-
ing the imposition of sales taxes on off-street parking
or extra duty police officers provided by municipalities;
see, e.g., Plainfield v. Commissioner of Revenue Ser-
vices, 213 Conn. 269, 567 A.2d 379 (1989); North Hemp-
stead v. Regan, 171 A.D. 2d 165, 574 N.Y.S.2d 851
(1991), aff’d, 80 N.Y.2d 936, 605 N.E.2d 867, 591 N.Y.S.2d
131 (1992); the defendant also contends that a munici-
pality’s decision to ‘‘[provide] services that are in the
public interest to constituents does not mean that the
services are not subject to the sales tax,’’ observing that
municipalities and private actors are equally subject to
the sales tax when they provide the same services,
regardless of profit motive. The defendant then relies
on our treatment of AirKaman, Inc., in HVT, Inc. v.
Law, 300 Conn. 623, 16 A.3d 686 (2011), and contends
that the trial court properly interpreted AirKaman,
Inc., in concluding that the fees collected by the plaintiff
constituted consideration subject to sales tax, rather
than a mere conduit or pass-through to another party,
because the plaintiff provided an actual service to the
end users. We disagree with the defendant, and con-
clude that the refuse removal fees that the plaintiff
charged to the commercial, industrial, and income pro-
ducing end users on a revenue neutral basis were not
subject to the sales tax under § 12-408 (1) (A).
The plaintiff’s claims ‘‘[present] an issue of statutory
interpretation, which is a question of law over which
we exercise plenary review. . . . The principles that
govern statutory construction are well established.
When construing a statute, [o]ur fundamental objective
is to ascertain and give effect to the apparent intent of
the legislature. . . . In other words, we seek to deter-
mine, in a reasoned manner, the meaning of the statu-
tory language as applied to the facts of [the] case,
including the question of whether the language actually
does apply. . . . In seeking to determine that meaning,
General Statutes § 1-2z directs us first to consider the
text of the statute itself and its relationship to other
statutes. If, after examining such text and considering
such relationship, the meaning of such text is plain and
unambiguous and does not yield absurd or unworkable
results, extratextual evidence of the meaning of the
statute shall not be considered. . . . When a statute is
not plain and unambiguous, we also look for interpre-
tive guidance to the legislative history and circum-
stances surrounding its enactment, to the legislative
policy it was designed to implement, and to its relation-
ship to existing legislation and common law principles
governing the same general subject matter . . . . We
recognize that terms in a statute are to be assigned
their ordinary meaning, unless context dictates other-
wise . . . .
‘‘[A]long with these principles, we are also guided by
the applicable rules of statutory construction specifi-
cally associated with the interpretation of tax statutes.
. . . [W]hen the issue is the imposition of a tax, rather
than a claimed right to an exemption or a deduction,
the governing authorities must be strictly construed
against the commissioner . . . and in favor of the tax-
payer. . . . Nevertheless, [i]t is also true . . . that
such strict construction neither requires nor permits
the contravention of the true intent and purpose of the
statute as expressed in the language used.’’ (Citations
omitted; internal quotation marks omitted.) Scholastic
Book Clubs, Inc. v. Commissioner of Revenue Services,
304 Conn. 204, 213–14, 38 A.3d 1183, cert. denied,
U.S. , 133 S. Ct. 425, 184 L. Ed. 2d 255 (2012). More-
over, ‘‘[i]n interpreting [statutory] language . . . we do
not write on a clean slate, but are bound by our previous
judicial interpretations of this language and the purpose
of the statute.’’ (Internal quotation marks omitted.)
Commissioner of Public Safety v. Freedom of Informa-
tion Commission, 312 Conn. 513, 527, 93 A.3d 1142
(2014).
Thus, in determining whether the plaintiff’s refuse
removal services were supported by the ‘‘consider-
ation’’ required for the imposition of a sales tax under
§ 12-408 (1) (A), we begin with a review of AirKaman,
Inc. v. Groppo, supra, 221 Conn. 751. In that case, ‘‘Uni-
royal, Inc. (Uniroyal), entered into a lease with the state
of Connecticut in which Uniroyal agreed to manage
the fixed base operation of the Oxford Airport from
November 1, 1969, through October 31, 1989. Uniroyal
was permitted to sublet with the approval of the state.
In December, 1981, Uniroyal entered into a sublease
with [AirKaman, Inc. (AirKaman)], in which AirKaman
agreed to assume Uniroyal’s duties for the fixed base
operation of the airport from December, 1981, through
December, 1984. The sublease provided that AirKaman
would receive as compensation $650 per week plus
40 percent of the net income generated. In addition,
AirKaman would be reimbursed for all costs incurred
in connection with the fixed base operation. . . . While
the [sublease was] in effect, AirKaman . . . billed Uni-
royal for the management fee (the fixed weekly fee
plus the percentage of profit) and for reimbursement
of operating costs, which included payroll and payroll
expenses, accounting fees, payroll services fees and
insurance premiums.’’ Id., 753–54; see also id., 763
(observing that ‘‘[t]he lease agreements between Uni-
royal and [AirKaman] disclose arrangements whereby
[AirKaman] essentially undertook to act as Uniroyal’s
agent by managing the fixed base operation, which
included collecting revenue and paying expenses on
behalf of Uniroyal’’ [emphasis added]). The issue in
AirKaman, Inc., of import to the present case is
whether the ‘‘payroll reimbursement received by [Air-
Kaman was] taxable as consideration for the rendering
of management services.’’11 Id., 754.
In holding that the payroll reimbursements were not
‘‘consideration’’ under § 12-408 (1), this court first cited
Dine Out Tonight Club, Inc. v. Dept. of Revenue Ser-
vices, 210 Conn. 567, 571, 556 A.2d 580 (1989), and
American Totalisator Co. v. Dubno, 210 Conn. 401,
406, 555 A.2d 414 (1989), and stated that, ‘‘[t]o decide
whether and to what extent a sales tax is applicable,
we must determine the true object of the transaction
between [AirKaman] and Uniroyal.’’12 AirKaman, Inc.
v. Groppo, supra, 221 Conn. 763. It then observed that
‘‘§ 12-408 (1) levies a tax on ‘any sales as defined in
subsection (2) of section 12-407, at retail, in this state
for a consideration . . . .’ ’’ (Emphasis in original.) Id.,
763–64. Because the sales tax statutes did not define
the term ‘‘consideration,’’ the court then ‘‘look[ed] to
the dictionary definition to ascertain its commonly
approved usage, [as] something given as recompense,
a payment, reward.’’ (Internal quotation marks omit-
ted.) Id., 764, quoting Webster’s Third New International
Dictionary (1971). The court emphasized that the com-
missioner’s ‘‘notion that reimbursement for out-of-
pocket expenditures could constitute a consideration
for services rendered is contrary to the concept of pay-
ment or recompense.’’ (Emphasis added.) AirKaman,
Inc. v. Groppo, supra, 764. The court rejected what
it characterized as the ‘‘commissioner’s view’’ that ‘‘a
company that agreed to manage a business for another
company and received only reimbursement for inciden-
tal expenses incurred in the management of that busi-
ness and no fee or other profit from the arrangement
would have to pay a tax on the reimbursement received.
The imposition of a sales tax under such circumstances
would be improper because a mere transfer of expenses
between parties cannot be regarded as a sale of services.
That is precisely the situation in this case, in which the
fee earned by [AirKaman] clearly constituted payment
for managerial services rendered, while the reimburse-
ment received by [it] was simply the return of moneys
expended by [AirKaman] on Uniroyal’s behalf. [AirKa-
man] acted as a mere conduit for Uniroyal with respect
to operational expenses and realized no recompense
for its services simply by being reimbursed by Uniroyal
for its outlay.’’ (Emphasis added.) Id. Thus, the court
concluded that, ‘‘[w]ithout evidence that the payroll
reimbursement included some payment to [AirKaman]
for [its] managerial services in addition to the amounts
[it] had expended . . . such reimbursement is not tax-
able as a consideration for the rendering of management
services.’’13 Id., 765.
Guided by the analytical structure of AirKaman, Inc.,
we agree with the defendant that the applicable statutes
and regulations plainly identify refuse removal services
as services subject to the sales tax generally, such as
when provided by a direct contractual arrangement
between a property owner or manager and a commer-
cial provider. See General Statutes § 12-407 (a) (2) (I)
and (37) (I); Regs., Conn. State Agencies § 12-407 (2)
(i) (I)-1 (g) (1). Nevertheless, that does not relieve us
from examining the ‘‘true object’’ of the transaction at
issue to determine whether there is ‘‘consideration’’ for
purposes of triggering the sales tax under § 12-408 (1).
See AirKaman, Inc. v. Groppo, supra, 221 Conn.
762–65; see also footnote 18 of this opinion and accom-
panying text.
In considering the true object of the transaction at
issue in this case, we are guided by the well established
proposition that ‘‘stringent control over the collection
of garbage is indispensable to the public health and
safety’’ and, therefore, municipalities validly may exer-
cise their powers to regulate sanitation within their
boundaries. Strub v. Deerfield, 19 Ill. 2d 401, 403, 167
N.E.2d 178 (1960); see also Nehrbas v. Lloyd Harbor,
2 N.Y.2d 190, 194, 140 N.E.2d 241, 159 N.Y.S.2d 145
(1957). Indeed, as the United States Court of Appeals
for the Second Circuit has observed in rejecting a consti-
tutional contracts clause challenge to a similar waste
disposal scheme, ‘‘the objective of safe and efficient
waste disposal undoubtedly is a legitimate public goal.
Imposing the costs of solid waste disposal on an equita-
ble, user-fee basis rather than utilizing general tax reve-
nue is also a legitimate public goal.’’ Sal Tinnerello &
Sons, Inc. v. Stonington, supra, 141 F.3d 54; see also
USA Recycling, Inc. v. Babylon, 66 F.3d 1272, 1283 (2d
Cir. 1995) (‘‘New York law makes clear that the [t]own
is fulfilling a governmental duty, not making a sale,
when it provides garbage services. New York municipal-
ities have a duty to ensure proper collection and dis-
posal of trash for the well-being and health of the
community.’’), cert. denied, 517 U.S. 1135, 116 S. Ct.
1419, 134 L. Ed. 2d 544 (1996).
It is evident that the requisite consideration did not
exist to sustain the imposition of the sales tax on the
transaction in this case because the plaintiff functioned
as a ‘‘mere conduit’’14 between the end users and the
trash haulers and the regional authority with respect
to those entities’ portion of the fees levied on the end
users.15 See AirKaman, Inc. v. Groppo, supra, 221 Conn.
764. Second, the administrative overhead portion of the
fee, which was a reimbursement for the expenditures
incurred by the plaintiff in administering the program,
was revenue neutral and did not reflect an attempt
by the plaintiff to engage in a proprietary function in
competition with the private sector.16 Rather, this fee
structure is the plaintiff’s attempt to consolidate and
fund the important municipal governmental function of
sanitation more equitably and efficiently than by using
general tax revenues to pay for the expenses involved,
including by outsourcing garbage pick up to a private
sector vendor rather than using municipal human
resources and equipment for that task.17 See USA
Recycling, Inc. v. Babylon, supra, 66 F.3d 1284–85.
Contrary to the defendant’s arguments, this court’s
more recent decisions in HVT, Inc. v. Law, supra, 300
Conn. 623, and Andersen Consulting, LLP v. Gavin,
supra, 255 Conn. 498, do not undermine the persuasive
value of AirKaman, Inc. v. Groppo, supra, 221 Conn.
751, because both cases are distinguishable given that
the element of ‘‘consideration’’ under § 12-408 (1) (A)
was not at issue therein. First, we disagree with the
defendant’s reliance on Andersen Consulting, LLP, for
the proposition that the true object test is inapplicable
given the plain and unambiguous statutory and regula-
tory language rendering refuse collection service sub-
ject to the sales tax.18 See General Statutes § 12-407 (a)
(2) (I) and (37) (I); Regs., Conn. State Agencies § 12-
407 (2) (i) (I)-1 (g) (1). Our application of AirKaman,
Inc., in the present case is not inconsistent with this
court’s decision not to apply the true object test in
Andersen Consulting, LLP, because, unlike in AirKa-
man, Inc., Andersen Consulting, LLP, did not raise the
separate issue of whether the services whose taxability
was at issue under the definitions set forth in § 12-407
were provided for ‘‘consideration’’ under § 12-408 (1)
(A). Compare AirKaman, Inc. v. Groppo, supra, 762–65
(determining whether ‘‘actual operation of a business
is included within the term ‘management services’ ’’
before considering whether all of those services had
been provided for ‘‘consideration’’), with Andersen
Consulting, LLP v. Gavin, supra, 527–28 (solely consid-
ering whether ‘‘services provided to develop, create or
produce software are taxable as computer services’’).
Our recent decision in HVT, Inc. v. Law, supra, 300
Conn. 623, is similarly distinguishable. In that case, we
concluded that an automobile leasing company was
obligated to pay sales tax on the amount of the registra-
tion renewal fees that its lessees paid on its behalf
directly to the Department of Motor Vehicles.19 Id., 625–
26. In so holding, we rejected the leasing company’s
reliance on the mere conduit analysis from AirKaman,
Inc., stating that AirKaman, Inc., ‘‘stands for the propo-
sition that a preexisting financial obligation of the cus-
tomer cannot later be parlayed into the retailer’s taxable
gross receipts if the retailer first satisfies the obligation
and is later reimbursed by the customer.’’20 (Emphasis
omitted.) Id., 637. We agree with the plaintiff that HVT,
Inc., is distinguishable from the present case for the
more basic reason that the existence of consideration
was not an issue of law in that case, given that it was
undisputed in HVT, Inc., there was a ‘‘sale’’ for ‘‘consid-
eration’’ under § 12-408 (1), namely, the underlying vehi-
cle lease. In contrast, whether the refuse collection
services facilitated by the plaintiff constituted a ‘‘sale’’
for ‘‘consideration’’ is the very issue in contention in
this appeal.
Guided by the true object test and mere conduit the-
ory set forth in AirKaman, Inc., we, therefore, conclude
that the trial court improperly determined that consider-
ation existed to support the defendant’s assessment of
the plaintiff for sales tax in connection with its revenue
neutral program for the collection of refuse generated
by commercial, industrial, or income producing real
properties. The trial court, therefore, improperly dis-
missed the plaintiff’s appeal from the sales tax assess-
ment imposed by the defendant.
The judgment is reversed and the case is remanded
with direction to sustain the plaintiff’s appeal.
In this opinion the other justices concurred.
1
General Statutes § 12-408 (1) (A) provides: ‘‘For the privilege of making
any sales, as defined in subdivision (2) of subsection (a) of section 12-407,
at retail, in this state for a consideration, a tax is hereby imposed on all
retailers at the rate of six and thirty-five-hundredths per cent of the gross
receipts of any retailer from the sale of all tangible personal property sold
at retail or from the rendering of any services constituting a sale in accor-
dance with subdivision (2) of subsection (a) of section 12-407 . . . .’’
We note that § 12-408 (1) (A) has been the subject of several recent
amendments by our legislature. See, e.g., Public Acts 2013, No. 13-184, § 77.
These amendments contain, among other things, changes to the applicable
tax rate. See Public Acts 2011, No. 11-6, § 93. Because these amendments
have no bearing on the merits of the present appeal, in the interest of
simplicity, we refer to the current revision of the statute.
2
The plaintiff appealed from the judgment of the trial court to the Appellate
Court, and we transferred the appeal to this court pursuant to General
Statutes § 51-199 (c) and Practice Book § 65-1.
3
We note that the Department of Revenue Services is also a defendant
in the present case. In the interest of simplicity, references to the defendant
in this opinion include both the Department of Revenue Services and the
Commissioner of Revenue Services. When necessary, we refer to these
parties individually as the department and the commissioner.
4
The plaintiff calculates the end users’ monthly bills by using a chart that
reflects the expenses for hauling, disposal, and overhead.
5
The defendant determined that $182.97 of the initial sales and use tax
assessment was improper, and reduced the plaintiff’s tax liability accord-
ingly. It directed the payment of a refund in the amount of $212.17 because,
prior to protesting the assessment, the plaintiff had deposited a cash bond
in the original assessment amount of $240,866.06.
6
General Statutes § 12-407 (a) (2) provides in relevant part: ‘‘ ‘Sale’ and
‘selling’ mean and include . . .
‘‘(I) The rendering of certain services, as defined in subdivision (37) of
this subsection, for a consideration, exclusive of such services rendered by
an employee for the employer . . . .’’
General Statutes § 12-407 (a) (37) provides in relevant part: ‘‘ ‘Services’
for purposes of subdivision (2) of this subsection, means . . .
‘‘(I) Services to industrial, commercial or income-producing real property,
including, but not limited to, such services as management, electrical, plumb-
ing, painting and carpentry . . . .’’
We note that, although § 12-407 has been the subject of several recent
amendments by the legislature; see, e.g., Public Acts 2011, No. 11-6, § 88;
those amendments have no bearing on the merits of this appeal. In the
interest of simplicity, unless otherwise noted, we refer to the current revision
of the statute.
7
Section 12-407 (2) (i) (I)-1 (g) (1) of the Regulations of Connecticut State
Agencies provides: ‘‘In general. Except as otherwise provided in subdivision
(2) of this subsection, services to industrial, commercial or income-produc-
ing real property mean those services set out in section 12-407 (2) (i) (I)
of the general statutes (namely, management, electrical, plumbing, painting
and carpentry services) and include but are not limited to such services
affecting real property as roofing, siding, excavating, foundation work, plas-
tering, heating, air conditioning, ventilation, welding, flooring, sandblasting,
carpeting, elevator or escalator work, wallpapering, masonry, refuse
removal, demolition and structural inspection.’’ (Emphasis added.)
8
The trial court also rejected the plaintiff’s additional contention that the
sales tax exemption set forth in General Statutes (Rev. to 2007) § 12-412
(95) for ‘‘tangible personal property . . . used or otherwise consumed in
the operation of a solid waste-to-energy facility,’’ applied to the transaction at
issue, holding that the exemption was limited to only the regional authority’s
expenses in operating the waste facility. Although the plaintiff renews this
claim on appeal, we need not reach its merits and, accordingly, express no
opinion on that aspect of the trial court’s judgment.
9
General Statutes § 7-148 (c) provides in relevant part: ‘‘Any municipality
shall have the power to do any of the following, in addition to all powers
granted to municipalities under the Constitution and general statutes . . . .
‘‘(4) . . . (H) Provide for or regulate the collection and disposal of gar-
bage, trash, rubbish, waste material and ashes by contract or otherwise,
including prohibiting the throwing or placing of such materials on the high-
ways . . . .’’
We note that, although § 7-148 has been the subject of several recent
amendments by the legislature; see, e.g., Public Acts 2010, No. 10-152, § 7;
those amendments have no bearing on the merits of this appeal. In the
interest of simplicity, we refer to the current revision of the statute.
10
General Statutes § 7-273bb (a) provides in relevant part: ‘‘Any municipal
or regional resource recovery authority created pursuant to this chapter
shall have the power to . . .
‘‘(9) Charge reasonable fees for the services it performs and waive, sus-
pend, reduce or otherwise modify such fees, provided such user fees shall
apply uniformly within each municipality to all users who are provided with
waste management services with respect to a given type or category of
wastes, in accordance with criteria established by the authority, and pro-
vided further no change may be made in user fees without at least sixty
days prior notice to the users affected thereby . . . .’’
We note that, although § 7-273bb was amended by the legislature in 2014;
see Public Acts 2014, No. 14-94, §§ 80, 81; that amendment has no bearing
on the merits of this appeal. In the interest of simplicity, we refer to the
current revision of the statute.
11
The first issue in AirKaman, Inc., was whether the ‘‘day-to-day opera-
tional management services’’ provided by AirKaman were taxable as ‘‘man-
agement services’’ under the definition of General Statutes (Rev. to 1985)
§ 12-407 (2) (i) (K). AirKaman, Inc. v. Groppo, supra, 221 Conn. 754. After
engaging in an extensive review of the statute, legislative history, and regula-
tions, this court concluded that ‘‘the actual operation of a business is included
within the term management services . . . .’’ (Internal quotation marks
omitted.) Id., 762.
12
This court’s decision in Dine Out Tonight Club, Inc. v. Dept. of Revenue
Services, supra, 210 Conn. 567, illustrates the application of the ‘‘true object’’
test well. In Dine Out Tonight Club, Inc., we first noted that, under the
statutes then at issue, ‘‘[o]nly the sale of tangible personal property at retail
is subject to the imposition of the Connecticut sales tax’’; id., 570; and that
the ‘‘Connecticut sales tax does not . . . extend to the sale of intangible
rights.’’ Id., 571. Applying the true object test, we concluded that a dining
club’s membership fees that entitled members to free meals at participating
restaurants were not subject to the sales tax. We rejected the commissioner’s
argument that the membership card and restaurant directory that the club
provided to its members were ‘‘tangible personal property,’’ noting that we
‘‘must therefore ascertain whether the true object of that transaction is to
provide club members with a card and a directory or to bestow upon
them the intangible right to free meals under specified conditions. . . . The
determinant is the intention of the parties. . . . We think that intention is
evident. Obviously, prospective club members are not enticed to pay the
plaintiff for the prospect of obtaining a card and a directory, items that
would be of little or no value without the concomitant right to receive free
meals. Conversely, the plaintiff could not expect to stay in business by
offering for sale only a card and a directory. Manifestly, the sine qua non
of the transaction between the club and its members is the intangible right
to receive free meals and access to the knowledge of an expanding list of
restaurants that provide them. . . . The membership card and directory
are merely indicia of that intangible right and incidental aids to its exercise.
. . . Because the transaction between the plaintiff club and its members is
essentially the conveyance of an intangible right to free meals, the plaintiff’s
membership fees are not subject to the imposition of the Connecticut sales
tax.’’ (Citations omitted.) Id., 572–73.
13
We note that, in 1992, the legislature subsequently modified the sales
tax statutes, specifically the definitions in § 12-407 (8) and (9); Public Acts,
Spec. Sess., May, 1992, No. 92-17, §§ 21, 23; in response to AirKaman,
Inc. v. Groppo, supra, 221 Conn. 751, to make clear that payroll related
reimbursements are taxable aspects of ‘‘management fees,’’ subject to certain
narrow exemptions. See Renaissance Management Co. v. Commissioner
of Revenue Services, 48 Conn. Supp. 221, 223–26, 838 A.2d 260 (2002), aff’d,
267 Conn. 188, 836 A.2d 1180 (2003) (per curiam).
14
We acknowledge that the trial court cited Mandell v. Gavin, 262 Conn.
659, 816 A.2d 619 (2003), and observed that the plaintiff ‘‘does not dispute
that the commissioner met the requirement of consideration with regard to
the exchange of cash by the ‘end users’ to the [plaintiff].’’ In Mandell, this
court concluded that consideration did not exist to support the imposition
of a conveyance tax under General Statutes (Rev. to 2003) § 12-494 (a) when
an individual taxpayer ‘‘unilaterally’’ transferred real property to a limited
liability company of which he was the sole member, by means of a quitclaim
deed expressly stating that there was ‘‘no consideration,’’ because the com-
pany had not promised ‘‘any performance or return promise,’’ and ‘‘neither
the [taxpayer] nor the company made any promises or exchanges regarding
the transfer whatsoever.’’ Id., 669; see also id., 668–69 (noting well estab-
lished legal definitions of ‘‘consideration’’ as requiring ‘‘bargained for
. . . exchange’’).
We note that this court’s decision in Mandell did not cite or limit the
‘‘mere conduit’’ rule set forth in AirKaman, Inc. v. Groppo, supra, 221 Conn.
764. Indeed, Mandell’s reasoning, holding that there was no bargained for
exchange when an individual taxpayer quitclaimed real property to a limited
liability company of which he was the sole member when no money or
other performance was exchanged, is not inconsistent with the mere conduit
theory in AirKaman, Inc. Finally, this concession before the trial court, to
the extent it implicates a point of law concerning the interpretation of the
tax statutes, is not binding upon us in any event. See, e.g., Coley v. Hartford,
312 Conn. 150, 168–69 n.14, 95 A.3d 480 (2014); State v. Putnoki, 200 Conn.
208, 219 n.6, 510 A.2d 1329 (1986).
15
We acknowledge the defendant’s reliance on this court’s police extra
duty cases, Plainfield v. Commissioner of Revenue Services, supra, 213
Conn. 269, and Berlin v. Commissioner of Revenue Services, 207 Conn.
289, 540 A.2d 1051 (1988), which held subject to sales tax the fees charged
by towns to private entities that engaged town police officers in extra duty
work in accordance with General Statutes § 7-284, despite the fact that the
towns merely passed the fees on to the police officers at the contractual
overtime rate after necessary deductions, and did not themselves turn a
profit. These cases are distinguishable, based on both the nature of the
tasks involved and the finding of consideration. In Plainfield, we emphasized
that the nature of the task at issue, namely, the provision of police officers
to provide security at the dog racing track, was ‘‘private,’’ insofar as the
legislature mandated the track pay for those services under § 7-284.
Plainfield v. Commissioner of Revenue Services, supra, 272–73. We agreed
with the trial court that the town, ‘‘by furnishing officers to the track, stands
in essentially the same position as would a private contractor furnishing
security personnel for the same purpose. Since the [town] concedes that
such a private contractor would have been subject to the sales tax, we hold
that the trial court did not err in resolving this issue in favor of the . . .
commissioner.’’ Id., 275–76.
In Berlin, we addressed whether there was sufficient consideration, and
upheld the trial court’s findings that there was consideration insofar as the
town ‘‘benefited either directly or indirectly from the off-duty arrangement.
The provision for such off-duty work in the union contract is obviously an
important incentive to the [town’s] police officers, both to enter police work
and to approve the collective bargaining agreement. The [town] benefited
to the extent that such a contract provision contributed to labor peace with
its police officers. It is reasonable to conclude further that the [town] also
benefited from the added police presence in the town.’’ Berlin v. Commis-
sioner of Revenue Services, supra, 207 Conn. 294–95. Notwithstanding the
plaintiff’s apparent concession in the trial court; see footnote 14 of this
opinion; the trial court’s finding of consideration is not consistent with the
case law.
16
Given the governmental function of garbage collection, we deem distin-
guishable the off-street parking cases cited by the defendant for the proposi-
tion that a municipality does not exempt itself for sales tax liability by failing
to turn a profit on a service that it provides to its constituents, namely,
North Hempstead v. Regan, supra, 171 A.D. 2d 165, and Stamford v.
Commissioner of Revenue Services, Superior Court, judicial district of New
Britain, Docket No. CV-99-0493545-S (December 13, 2000). Indeed, in holding
that a town had to pay sales tax on receipts from the operation of an off-
street parking lot, the New York Appellate Division emphasized that, under
New York law, ‘‘the operation of municipal parking lots has been repeatedly
held to be a proprietary function, not a governmental one,’’ observing that
off-street parking is ‘‘a service also ordinarily provided by private vendors,
who, by making parking available, also serve this same public interest [of
promoting traffic flow on streets] but are taxed nonetheless.’’ North Hemp-
stead v. Regan, supra, 167–68. Our state’s leading decision on this point is
generally in accord, holding in the tort immunity context that the operation
of off-street parking facilities such as garages is generally a proprietary
function, although that remains a question of fact and a ‘‘small or nominal
fee’’ that is not charged ‘‘as a means to derive a profit from the activity’’
may well leave governmental immunity intact. Doran v. Waterbury Parking
Authority, 35 Conn. Supp. 280, 282, 408 A.2d 277 (1979); see also id., 282–83
(‘‘The operation of a ramp garage by a municipality may admittedly be in
the public interest in that it lessens congestion in the streets and promotes
the flow of traffic. It appears to this court, however, that the activity has
traditionally been an undertaking provided in a private capacity for commer-
cial advantage. This court cannot, in good conscience, hold that the operation
of a ramp garage constitutes a governmental function.’’).
17
Indeed, as was discussed at oral argument before this court, there would
have been no sales tax liability for the plaintiff had it used general tax
revenues to pay for garbage collection, either through contract with a private
hauler or by use of municipal employees and equipment.
18
In particular, the defendant relies on our statement in Andersen Con-
sulting, LLP, that ‘‘[w]e have never applied the true object test, a judge-
made rule, so as to exclude from the purview of a statute or regulation a
service that, upon applying proper principles of statutory and regulatory
construction and absent a finding that the service was merely incidental to
the transaction, would otherwise fall under the relevant statute or regulation.
Instead, we have applied the so-called true object test in generally two
contexts: (1) where what would otherwise bring the transaction under the
purview of the relevant taxing statute is merely incidental to the objective
of the transaction . . . and (2) where the applicability of the sales tax
depends on the purpose of the sale, which is necessarily a question of
intent.’’ (Citations omitted.) Andersen Consulting, LLP v. Gavin, supra, 255
Conn. 526–27.
19
In HVT, Inc., we concluded that the ‘‘renewal fees paid by lessees
directly to the [Department of Motor Vehicles] are gross receipts as defined
by § 12-407 (a) (9) (A)’’ because, under the plain language of the statute,
‘‘the retailer need not actually [receive] the payments for them to be consid-
ered gross receipts. Finally, the definition of gross receipts provides that
there can be no deduction for any other expense from the payment or
periodic payments from leases . . . .’’ (Internal quotation marks omitted.)
HVT, Inc. v. Law, supra, 300 Conn. 630. We emphasized that the lessor’s
‘‘preexisting—and continuing—legal obligation . . . to register and reregis-
ter its leased motor vehicles, making that activity integral to the business
transaction,’’ and noted the lack of a specific exemption for registration
fees from gross receipts, unlike that provided for property tax reimburse-
ments. Id., 630–32.
20
We then observed that ‘‘it is undisputed that the lessees, as customers,
did not have a preexisting contractual or statutory obligation to pay the
renewal fees to the [Department of Motor Vehicles] before the lessees
entered into their leases . . . that obligation belongs solely to the lessor,
as the retailer and vehicle owner. Because the original obligation to pay the
renewal fees belonged to and remained with the plaintiff, the lessees’ pay-
ment of those fees to the [Department of Motor Vehicles], and, in some
cases, to the plaintiff, cannot qualify as reimbursements to the plaintiff
excluded from taxation under AirKaman, Inc.’’ (Emphasis omitted.) HVT,
Inc. v. Law, supra, 300 Conn. 638.