Opinion
No. CV 05-4012379 S
July 11, 2007
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
The plaintiff is a licensed new car and used car motor vehicle dealer. The West Haven Assessor's Office audited the business personal property of the plaintiff for three assessment years. The audit resulted in reassessments in favor of plaintiff in an amount over $400,000. But the city then imposed a new assessment for "dealer plate use" for each of the three years. In his brief the plaintiff states that the city "found that the total dealer plate use assessment exactly equaled the amount the plaintiff was over assessed on its other personal property" (for the assessment years in question, 2001, 2002, 2003). Therefore no adjustments were made.
The plaintiff then appealed pursuant to § 12-117a of the general statutes from the Board of Assessment Appeals' failure to change the city's assessment.
The plaintiff has now filed a motion for summary judgment. The head-note set forth in its brief defines the issues before the court.
The City's taxation of plaintiff's personal business property to include dealer plate use, dealer plates themselves, automobiles utilizing dealer plates, or automobiles held as inventory is invalid.
(1)
The first argument raised by the defendant city in opposition to the motion for summary judgment is that such a motion is "inappropriate" in a tax appeal. Practice Book § 17-44 defines the scope of the remedy by way of summary judgment. The relevant language of that section reads as follows: "In any action, except administrative appeals which are not enumerated in Section 14-7, any party may move for a summary judgment at any time. . ." Practice Book § 14-7 is entitled "Trial List for Administrative Appeals; Briefs; Placing cases thereon." Subsection (d) says: "The following administrative appeals shall, subsequent to the filing of the appeal, follow the same course of pleading as that followed in ordinary civil actions. (Emphasis by court.) Section (d)(i) then includes within this umbrella definition "(1) Appeals from municipal boards of tax review taken pursuant to §§ 12-117a and 12-119." The appeal before the court is in fact taken pursuant to § 12-117a and, being listed in Practice Book § 14-7, an administrative appeal such as this is in fact subject to summary judgment procedure under Practice Book § 17-44.
No appellate cases have discussed the claim raised by the plaintiff. However, five trial court cases have proceeded to the merits of a summary judgment motion on tax appeal cases Calabrese v. Waterbury, 35 Conn. L. Rptr. 257 (Holzberg, J., 2003); Stamford v. Commissioner, Dept of Revenue Services, CV99-0493545 S (Dronson, J., 2000); Turkington v. Town of Windham, 25 Conn. L. Rptr. 550 (Sferrazza, J., 1999); Town of Watertown v. McDonald, 15 Conn. L. Rptr. 575 (Mcdonald, J., 1996); Christ the Redeemer Evangelical Lutheran Church v. Board of Tax Revenue, CV86-0230164S (Jones, J., 1990) [2 Conn. L. Rptr. 689].
The court concludes on the basis of the foregoing that it can entertain the plaintiff's motion for summary judgment.
(2) (a)
The plaintiff correctly points out that "dealer plate use" and the "right" to use dealer plates are not subject to taxation by the city. As further pointed out, § 7-148(c)(2)(B) and § 12-71 permit the city to tax certain types of personal property and the latter section has been interpreted as applying only to "tangible personal property" Northeast Datacom, Inc. v. Wallingford, 212 Conn. 639, 644 (1989). Section 12-407(13) defines "tangible personal property as "personal property which may be seen, weighed measured, felt or touched or which is in any other manner perceptible to the senses." Conn. State Regulations § 14-63-15 says "If as an incident to demonstration of the vehicle, the use to which it is put is in furtherance of the prospective purchaser's business, the use of dealer's plates on the vehicle is legal but when the vehicle is not being used for demonstration but for ordinary commercial purposes, then dealer's licensed plates may not be used" cf. 7A Am.Jur.2d, City of Maumee v. Prebetz, 41 Ohio MISC 52, 55; 322 N.E.2d 380; State v. Tucker, 160 A.2d 295 (N.J., 1960). In other words, dealer plates sanction the use of a vehicle in a certain way, they are not, for example, themselves of any independent value; they are an instrument of state control of certain vehicles and their use, so it is difficult to see how they can be categorized as tangible property subjecting a citizen or company to municipal taxation for the mere state authorized use of them. In any event, all number plates (including dealer plate) are the property of the state and as the plaintiff points out the city can hardly levy a tax on property it does not own (see § 14-18(d)) — it also follows it cannot levy a tax on the "use" of the plates because the mere use would not be "tangible property," cf. Northeast Datacom Inc. v. City of Wallingford, 212 Conn. 639, 944, 646 (1989); Dine Out Tonight Club v. Dept. Revenue Services, 210 Conn. 567, 572 (1989).
The city does not appear to take issue with this position and in its brief denies it is taxing the plates or their use.
(b)
But the foregoing does not dictate that the plaintiff should prevail on its motion. Cities are certainly permitted to tax "tangible personal property" and motor vehicles fall within that category. A tax on vehicles held by dealers is only prohibited if they fall under the exemption in § 12-81(54) of the general statues which provides that "wholesale and retail business inventory" is exempt from taxation. The issue before the court then is to determine whether the vehicles claimed by the city to be subject to taxation fall within the statutory exemption as the plaintiff claims.
First the court will try to define, the appropriate ambit of the § 12-81(54) exemption, then it will examine the documents and especially the affidavit submitted by the plaintiff's comptroller to determine if the requirements of the exemption have been met and summary judgment should be granted for the plaintiff.
The statutes do not define "Wholesale and Retail Business Inventory" but subsection (54) has as its caption that very title. Also the subsection states "wholesale and retail business, means a business the principle activity of which is making sales of tangible personal property with the object of gain, benefit or advantage, either direct or indirect." In other words, if particular vehicles are not being held by the car dealer for sale they cannot be defined as "wholesale and retail business inventory" because they would not contribute to or be part of the business "activity" which gives a particular business, holding tangible property for sale, its exemption. The subsection says after 1982 the "goods of any wholesale and retail business" shall be, in effect, exempt from taxation. In Tyler Equipment Corporation v. Wallingford, 212 Conn. 167, 171 (1989) the court reviewed the legislative history of the subsection and said:
It is reasonable to infer that in creating the exemption for "goods" of wholesale and retail businesses the legislators were responding to the proposals of wholesalers and retailers for the elimination of the "inventory tax," as it was usually referred to, on merchandise kept on their premises for sale.
Connecticut is not the only state that exempts "business inventories" from taxation which are held for sale. In Amadahl Corporation v. County of Santa Clara, 116 Cal.App.4th 604 (2004) the court interpreted California's statutes and regulations which exempt "business inventories" from taxation by the counties although otherwise recognizing that "as a general proposition, all forms of tangible personal property are taxable in California," id., p. 611. In that state "business inventories" is defined by statute and the court held pursuant to statute "it is therefore, essential that the property, in order to qualify for the exemption, be intended for sale or lease," id., p. 612. A state regulation further provides that the term is not meant to apply to "property being used by its owner for any purpose not directly associated with the prospective sale or lease of that property."
Oregon has a statute exempting from taxation all property "held for sale in the ordinary course of business." In H-P Ventures, Inc. v. Dept. of Rev., 13 Oregon Tax Court (OTR) 330 (1995) the court used interesting language in deciding rental property was not included under the exemption. The court said at page 333:
However, a strict but reasonable construction would limit this phrase to property held or used by manufacturing and processing businesses. Otherwise, all personal property could be considered exempt under the philosophy of the ancient but cynical adage that "everything is for sale at the right price."
(c)
The question becomes one of deciding whether the particular items composing this inventory can be said to have been held for sale. The facts supporting the exemption claim are, as indicated, set forth in an affidavit submitted by the plaintiff's comptroller. But resolution of the issue comes down to factual interpretation so that a preliminary consideration is deciding whether certain presumptions apply in weighing the facts relevant to the exemption claims.
This is a difficult question itself. On the one hand there are cases like Low Stamford Corp. v. Stamford, 164 Conn. 178, 182 (1972) which, quoting from earlier cases, says cities have no taxing power of their own, grants of the power to tax must be "exercised only in strict conformity" to enabling statutes and "when a taxing statute is being considered, ambiguities are resolved in favor of the taxpayer."
On the other hand with regards to tax exemption cases have held that: "The burden of taxation ought to fall equally upon all. Statutes exempting persons or property are construed strictly, and an exemption should be denied to exist, unless it be so clearly granted as to be free from reasonable doubt," Behinke-Walker v. Multnounah County, 173 Ore. 510, 521, ( 46 P.2d 614 (1944)), cf. H-P Ventures, Inc. v. Dept. of Revenue, supra. This theme of strict construction of exemptions was followed in a Connecticut case, Fanny J. Crosby Memorial v. Bridgeport, 262 Conn. 213, 220 (2002) which quoted an earlier case giving the reasons for the rule:
[e]xemption from taxation is the equivalent of an appropriation of public funds, because the burden of the tax is lifted from the back of the potential taxpayer who is exempted and shifted to the backs of others The owners of tax-exempt property in the community derive the same benefits from government as other property owners but pay no property taxes for those benefits. (Citation omitted; internal quotation marks omitted.) United Church of Christ v. West Hartford, 206 Conn. 711, 718-19, 539 A.2d 573 (1988).
Interestingly the Fanny J. Crosby Memorial case applied the foregoing interpretive rule to an exemption also under § 12-81, subsection (7). That subsection provides an exemption for property held for charitable purposes and the court held that the plaintiff's housing property did not qualify since the property must be used exclusively for charitable purposes and in that case rents were collected, also the subsection specifically excluded low and moderate income housing from qualifying for the exemption.
On the other hand in Loomis Institute v. Windsor, 234 Conn. 169 (1995) the court, when interpreting the same subsection (7) as applied to an educational institution, said the rule of strict construction does not apply because subsection (7) does not grant an exemption: "Rather it merely states a rule of non-taxability. Consequently it does not come within the rule that tax exemption statutes must be construed strictly against the taxpayer," id., p. 176, court quoted from earlier case of Arnold College v. Milford, 144 Conn. 206, 210 (1957). This distinction between the previous case and Loomis apparently lies in the fact that the subsection provides a flat exemption for educational institutions, prove you are one and you are exempt. In any event the court is rescued from drawing fine distinctions because Tyler Equipment Corp. v. Wallingford, the court was interpreting the same exemption subsection (§ 12-81)(54) as is now before the court and quoted an earlier case to the effect that: "The burden of proving that (property) is exempt from taxation rests upon the taxpayer.," 212 Conn. at page 174.
(d)
How then does the plaintiff claim an exemption under § 12-81(54). The plaintiff relies on an affidavit submitted by its comptroller. It has appealed the assessment placed on forty of its vehicles which have been assigned dealer plates. It has now moved for summary judgment as to all these assessments and asks that "the items of property added by the assessor be stricken from the list." The affidavit makes the following relevant statements:
5. George Harte Nissan has forty (40) dealer plates registered under its name. Twenty (20) plates are used by George Harte Nissan; fourteen (14) plates are used by George Harte Infiniti; and six (6) plates are used by George Harte Nissan Used Cars.
6. Each dealership uses the plates assigned to it for one of the following purposes:
a. Nine (9) plates are used by managers and sales reps who are required to drive dealership vehicles for display and marketing purposes. The vehicles driven by such managers and sales reps are part of the dealership's inventory of vehicles for sale. If a customer is interested in a vehicle being driven by an employee, the employee returns the vehicle and is assigned a new vehicle.
b. Two (2) plates, Nos. X0A-624 and XPA-624, are used on parts vans, one each for George Harte Nissan and George Harte Infiniti;
c. Three (3) plates, Nos. XKA-624, XLA-624 and XNA-624, are used on shuttle vans and service vans, for picking up and dropping off customers. The shuttle van is used by George Harte Nissan and the two other plates are used by George Harte Nissan and George Harte Infiniti service departments;
d. The twenty-six (26) remaining plates are held for showroom display, for test drives by customers, for use by customers whose cars are pending registration or being repaired, or for transporting inventory vehicles for customizing or to other locations.
7. All care utilizing dealer plates are available for sale at any time. The plaintiff also relies on Thomas Cadillac v. City of Hartford, No. 311926 (Corrigan, J, 1986) which appears to be the only opinion dealing with the specific issue now before the court assessment of taxes on vehicles assigned dealer plates and whether such vehicles can be regarded as inventory.
As the Fanny J. Crosby Memorial case said in deciding whether a § 12-81 exemption should be found, a "fact intensive" inquiry is required. The affidavit supplied by the plaintiff does not, in the court's opinion, meet the burden of establishing the exemption. This is especially true if the court is correct in concluding the burden is upon the plaintiff dealer to establish the exemption. But even if no such burden is carried by the taxpayer the court concludes the right to an exemption has not been established.
Of the 40 dealer plates at issue assigned to particular vehicles which are claimed to be subsection (54) inventory, two plates are assigned to vehicles on parts vans for each of the corporate entities. Three are assigned to cars used for dropping and picking up customers. Two of the latter three are also used by service departments. Nine of the plates are used on cars assigned managers and sales reps. There is a conculsory statement to the effect that if a customer is interested in buying one of these vehicles it is returned and the employee is assigned a new vehicle. Twenty-six dealer plate vehicles are held for showroom display, test drives and use by customers whose cars are pending registration or are being repaired or for transporting inventory. Paragraph 7 is meant to be the saving clause — all the above 40 vehicles are "available for sale at any time."
The court at this juncture cannot ascertain what "available for sale" means. The point is not whether if asked the plaintiff would sell one of the vehicles mentioned for the right price — as the previously referred to Oregon court said "everything is for sale at the right price," H-P Ventures, Inc. v. Dept. of Revenue, supra. The point is that to show inventory is held for sale the taxpayer must establish the property in question is in fact affirmatively brought to the attention of prospective buyers as being available for sale — is it even mentioned to customers bringing their own cars in for repairs or who have just bought a new car and are awaiting registration — why would it be? Are these just mentioned people considered a second car market? Is there any advertisement aimed at these vehicles cf. Amdahl Corp. v. County of Santa Clara, supra, 116 Cal.Rptr.4th at page 613 interpreting a California regulation attempting to define business inventories. As to the vehicles in paragraph 6a and 6d is there any history of turnover as to these vehicles — how many are actually sold in the course of a tax year, how long are they kept? As to 6b and c how many people in the plaintiff's customer pool would be interested in buying service and parts vans? As to paragraph 6d some cars represent inventory vehicles transported for customizing — how many of the 26 cars fall in this category? As to these 26 cars what does it mean to say some are transported to other locations — for what purpose, sale by the dealer?
Judge Corrigan explicitly noted in his decision in Thomas Cadillac that managers and sales reps were assigned vehicles which had advertising signs, decals and emblems upon them. These employees had to reimburse their employer for personal use of the cars. Are the nine vehicles in paragraph 6a subject to personal use, is there a system of reimbursement — if not then common sense indicates these vehicles are not primarily held for sale, the employee would have an incentive not to tout them for that purpose. In Thomas Cadillac the court noted the employees assigned cars have their own cars for personal and family use but must drive the assigned cars to and from work for advertising purposes and marketing. This would be an indicia along with the advertising signs on these cars that they are in the inventory for sale purposes — there is nothing offered here to suggest similar use requirements.
Given the foregoing circumstances the court cannot grant summary judgment as to the 40 dealer-plate vehicles involved. The plaintiff may present sufficient evidence at trial to allay the concerns raised by the court but it cannot grant the motion for summary judgment at this point in the litigation.