204 Conn. 137 | Conn. | 1987
This is an appeal from the judgment of the trial court sustaining the plaintiff’s appeal from a determination of the defendant, the commissioner of revenue services (commissioner), uphold
The facts found by the trial court include the following: The plaintiff is a large national manufacturer of paper and related products. It has several plants throughout the country, including one located in New Milford, which employs approximately 1400 people. In 1978, the plaintiff decided to make substantial changes to its New Milford plant. The changes included installing a new production line at an estimated cost of $17 million and dismantling, expanding and modernizing an existing production line at an estimated cost of $7 million. These production lines are each over 100 yards long and are “completely integrated and automated.”
On August 31, 1978, the plaintiff wrote to the commissioner “to request a ruling, with respect to the Connecticut sales and use tax exemption on manufacturing machinery and equipment” for the two lines it
A conference on the plaintiffs request for a ruling was held on September 5,1978. Present at the conference were Nick D. Hansen, the plaintiffs vice president and tax counsel; David L. Hansell, the plaintiffs administrative manager for the expansion of products; Ralph Madden, the plaintiffs project engineer; Terence J. O’Neil, the commissioner’s division chief, legal/technical division; and Solomon J. Karam, the commissioner’s director of legal division, public relations and research. At this conference, Madden explained the design and operation of the two production lines. Most of the conference, however, was spent going over the itemized list of specific units of the two lines which had been included in the plaintiff’s request for a ruling. The commissioner’s representatives marked the specific items with an “E” indicating tax exempt, a “T” indicating taxable, and a “?” indicating that they were not sure whether the item was exempt and they needed more information to make such a determination. In the course of the discussions, the plaintiff raised the issue of whether, as a condition of sales tax exemption, the plaintiff had to have the two production lines fabricated by its Wisconsin subsidiary “Kim-Tech.” The commissioner’s representatives indicated that “that would not be necessary and [that] it would only hurt Connecticut by forcing construction out of the state.”
The plaintiff supplied additional information as to the questionable items and eventually all the items on the plaintiff’s list included in its letter of August 31, 1978, were ruled upon by the commissioner. Of the thirty-seven individual units of the new production line, thirty-five were given tax exempt status, and of the thirteen individual units of the modernized production line, eleven were given tax exempt status. The commissioner allowed an exemption for machine controls on the new production line but denied an exemption for the same controls on the modernized line, on the ground that the latter would not be purchased “in conjunction with new machinery” but instead “at a later date to update existing machinery.'”
Having obtained what the plaintiff believed to be a favorable ruling of tax exemption based on its letter request of August 31,1978, the plaintiff proceeded to construct the two production lines.
Following the construction of the two production lines, the commissioner audited the plaintiff as to sales and use tax for the period December 1,1976, through April 30, 1980. As a result of the audit, the commissioner determined that the plaintiff owed taxes in the amount of $137,366.66 of which $103,397.65, plus interest, is disputed.
“1. All of the disputed devices are used ‘directly in a manufacturing production process,’ as such phrase is used in [General Statutes] Sec. 12-412 (34).3
“2. None of the disputed devices, by themselves, constitute^] a ‘basic machine itself,’ as such phrase is used in Sec. 12-412 (34).
“3. All of the disputed devices are ‘component parts and contrivances, such as belts, pulleys, shafts, moving parts, operating structures,’ or ‘equipment or devices used or required to control, regulate or operate the machinery,’ as such terms are used in Sec. 12-412 (34).
“4. All of the disputed devices were purchased separately from any portion of the production lines that may constitute a basic machine itself, as defined in Sec. 12-412 (34).
“5. All of the disputed devices were purchased at the time of installation of the two production lines, were*142 necessary for the initial operation of those lines and are not repair or replacement parts.
“6. The production lines each constitute a ‘basic machine itself,’ as that phrase is used in Sec. 12-412 (34).
“7. All the disputed devices were included in plaintiff’s letter of August 31,1978 in categories later designated as exempt by the [Commissioner’s] ruling.”
The plaintiff, asserting that it had been “aggrieved by the action of the commissioner ... in fixing the amount of such tax,” requested an administrative hearing, pursuant to General Statutes § 12-421. After a hearing, the deputy commissioner of revenue services rendered a decision upholding the assessment. The plaintiff, thereafter, took a timely appeal to the Superior Court pursuant to General Statutes § 12-422.
At trial, the commissioner essentially attempted to establish that the exemption for the disputed devices
I
The commissioner’s first claim of error is that the trial court erred in conducting the appeal de novo. The commissioner argues that under the appropriate standard of review the trial court should have accepted his findings of facts unless they were clearly erroneous.
The plaintiffs appeal to the trial court was taken, not under the Uniform Administrative Procedure Act, which excludes tax appeals; General Statutes § 4-186;
In arguing that the trial court erred in conducting an appeal de novo, the commissioner places great emphasis on this court’s decision in Jaffe v. State Department of Health, 135 Conn. 339, 353-55, 64 A.2d 330 (1949). Jaffe, which is a pre-Uniform Administrative Procedure Act decision, does not avail the commissioner because the Uniform Administrative Procedure Act now expressly excludes tax appeals. As noted, our cases provide that a party appealing from an adverse ruling of the commissioner of revenue services is “entitled to a plenary review of its challenge of its tax assessment, and is not limited to an administrative appeal under the Uniform Administrative Procedure Act.” Texaco Refining & Marketing Co. v. Commissioner, supra; see also George P. Gustin Associates, Inc. v. Dubno, 203 Conn. 198, 202-203, 524 A.2d 603 (1987), citing Schlumberger Technology Corporation v. Dubno, supra. The trial court did not err in conducting this appeal de novo.
II
The commissioner’s second claim is that the declaratory ruling which he gave to the plaintiff did not estop him from making a lawful assessment of tax pursuant
Citing McGowan v. Administrator, 153 Conn. 691, 694, 220 A.2d 284 (1966), the commissioner argues that he is not subject to estoppel. Specifically, he maintains that “he cannot waive the rights of the state, nor can he, by any act of his, estop the state from asserting its rights . . . .” See also Harper v. Tax Commissioner, 199 Conn. 133, 142 n.10, 506 A.2d 93 (1986). We disagree.
In McGowan v. Administrator, supra, and in State v. Metrusky, 140 Conn. 26, 30, 97 A.2d 574 (1953), a case cited in McGowan, we held that a claim for estoppel could not be based on the particular actions of the unemployment compensation administrator and the commissioner of welfare, respectively. In those cases, we recognized that the particular state agents had acted outside of their authority. McGowan and Metrusky are inapposite to this case. In this case, the commissioner had express statutory authorization to give the declaratory rulings, which are the subject of this appeal. See General Statutes § 4-176.
Although this court has not had occasion to determine specifically whether the conduct of the department of revenue services gives rise to estoppel, this court has said that, in certain limited circumstances, estoppel may be invoked against a municipality. See, e.g., Zoning Commmission v. Lescynski, 188 Conn. 724, 731, 453 A.2d 1144 (1982), and cases cited therein. In Lescynski, we recognized that as a general rule, estoppel may not be invoked against a public agency in the exercise of its governmental functions. Zoning Commission v. Lescynski, supra; see also Dupuis v. Sub
The commissioner claims that, assuming he is subject to estoppel, the requisite elements of an estoppel are missing in this case. The commissioner’s argument as to this claim is twofold. The commissioner argues that he never ruled that the machinery in question was exempt and that if he did so rule, it was unreasonable for the plaintiff to have relied on that ruling, in light of General Statutes § 12-412 (34) and § 12-426-11 (A) of the regulations of Connecticut state agencies.
The commissioner claims that he never ruled the disputed devices “exempt.” We disagree.
The commissioner also argues that he should not be estopped because it was unreasonable for the plaintiff to rely on his rulings. It is clear that the commissioner had the authority to issue the ruling requested by the plaintiff. General Statutes § 4-176
The commissioner’s final claim is that “[t]he trial court’s decision is dependent upon certain factual findings not supported by the record.” As to this claim, the commissioner takes issue with the following findings: “(1) the ‘commissioner’s people’ never made clear their position that machine component parts purchased separately from basic machines were not exempt; (2) [the] plaintiff never orally at the conference changed the basic fact that ‘all the machinery would be fabricated by the plaintiff and components for such machinery would be purchased from several suppliers’; and (3) ‘[n]or did [the] commissioner make his rulings of exemptions conditioned on different facts.’ ” The commissioner also takes issue with the court’s finding that when the question of whether it was absolutely necessary to use a subsidiary was raised by the plaintiff, the “commissioner’s people said that it would not be necessary and it would only hurt Connecticut by forcing construction out of the state.”
The commissioner argues that “[i]n fact, the testimony by three of the four witnesses is uncontroverted that the [commissioner’s] personnel told the plaintiff’s
“ ‘On appeal, it is the function of this court to determine whether the decision of the trial court is clearly erroneous. See Practice Book [§ 4061]. This involves a two part function: where the legal conclusions of the court are challenged, we must determine whether they are legally and logically correct and whether they find support in the facts set out in the memorandum of decision; where the factual basis of the court’s decision is challenged we must determine whether the facts set out in the memorandum of decision are supported by the evidence or whether, in light of the evidence and the pleadings in the whole record, those facts are clearly erroneous.’ (Emphasis added.) Pandolphe’s Auto Parts, Inc. v. Manchester, 181 Conn. 217, 221-22, 435 A.2d 24 (1980).” Cookson v. Cookson, 201 Conn. 229, 242-43, 514 A.2d 323 (1986). In a case tried before a court, the trial judge is the sole arbiter of the credibility of the witnesses and the weight to be given specific testimony. Id., 243; Gorra Realty, Inc. v. Jetmore, 200 Conn. 151, 160, 510 A.2d 440 (1986). On appeal, “we will give the evidence the most favorable reasonable
The court’s findings and conclusions are supported by the evidence presented before it. Initially, we note that both Karam and O’Neil admitted during their testimony that in all of the written communication between the parties there was absolutely no mention that the exemption was conditioned on the fact that a subsidiary of the plaintiff would fabricate the production lines. Our review of those exhibits confirms that no such condition is included therein. At trial, Hanson testified that after the conference he was under the impression that the plaintiff received a favorable ruling from the commissioner which in his mind did not include the use of Kim-Tech or any other subsidiary. In fact, he recollected that during the conference very little time was spent discussing the possibility of using an out-of-state subsidiary to fabricate the machine. As to the commissioner’s response to the possibility of using an out-of-state subsidiary, it was Hanson’s impression that it was not required. In fact, “one of the things [Hanson was] trying to come away from the meeting with, was a decision as to whether or not [the plaintiff] had to go through [with that] formalitfy].” Hanson testified that they were never told orally that the exemption was conditional on the use of an out-of-state subsidiary and that the first time that he was aware of that condition was after the audit.
The testimony of Hansell also adds support for the trial court’s findings. Hansell testified that in his mind the rulings were not “in any way conditioned upon Kimberly-Clark using Kim-Tech or any other subsidiary to do the [fabrication].” When he left the meeting,
The trial court’s rulings also find some support in the testimony of Karam. Karam testified that although the principal reason for the meeting of September 4th, 1978, was to discuss the role of the subsidiary, they only discussed that fact for a few minutes. In response to the court’s statement that it was difficult to believe that the declaratory ruling was based on an oral condition, Karam stated that “we weren’t articulate enough, and that’s our problem.” Karam recognized that “perhaps [they] should have repeated the statement to [the plaintiff], but [that they] didn’t.”
Although both O’Neil and Karam testified that it was their “understanding that they [had] agreed that the [machine] would be fabricated out of state by a subsidiary,” the trial court was not required to credit that testimony. From our review of the entire record, we conclude that the trial court’s findings are amply supported by the evidence and are not “clearly erroneous,” and its conclusions based on those findings are “legally and logically correct.” See Pandolphe’s Auto Parts, Inc. v. Manchester, supra. The trial court was entitled to
There is no error.
In this opinion the other justices concurred.
Chapter 219 of the General Statutes is entitled “Sales and Use Tax” and provides, inter alia, for the imposition of the sales and use tax as well as the exemptions from that tax.
As an alternative ground upon which the judgment may be affirmed, the plaintiff presents the following issue: “Must an item of machinery constitute a machine in and of itself or be purchased in conjunction with a machine in order to be exempt from the Connecticut sales and use tax pursuant to Section 12-412 (34) of the Connecticut General Statutes?” Because of our disposition of the commissioner’s claims on appeal, we need not reach the merits of this alternative basis for affirming the judgment.
General Statutes § 12-412 (34) provides: “EXEMPTIONS. Taxes imposed by this chapter shall not apply to the gross receipts from the sale of and the storage, use or other consumption in this state with respect to the following items:
“(34) Machinery used in manufacturing or agricultural production. Sales of and the storage, use or other consumption of machinery used directly in a manufacturing or agricultural production process. The word ‘machinery’ as used in this subsection means the basic machine itself, including all of its component parts and contrivances, such as belts, pulleys, shafts, moving parts, operating structures and all equipment or devices used or required to control, regulate or operate the machinery, but excluding office equipment or data processing equipment other than numerically controlled machinery used directly in the manufacturing process.”
General Statutes § 12-422 provides: “appeal. Any taxpayer aggrieved because of any order, decision, determination or disallowance of the commissioner of revenue services under section 12-418,12-421 or 12-425 may, within one month after service upon the taxpayer of notice of such order, decision, determination or disallowance, take an appeal therefrom to the superior court for the judicial district of Hartford-New Britain, which shall be accompanied by a citation to the commissioner of revenue services to appear before said court. Such citation shall be signed by the same authority, and such appeal shall be returnable at the same time and served and returned in the same manner, as is required in case of a summons in a civil action. The authority issuing the citation shall take from the appellant a bond or recognizance to the state of Connecticut, with surety to prosecute the appeal to effect and to comply with the orders and decrees of the court in the premises. Such appeals shall be preferred cases, to be heard, unless cause appears to the contrary, at the first session, by the court or by a committee appointed by it. Said court may grant such relief as may be equitable and, if such tax has been paid prior to the granting of such relief, may order the treasurer to pay the amount of such relief, with interest at the rate of six per cent per annum, to the aggrieved taxpayer. If the appeal has been taken without probable cause, the court may tax double or triple costs, as the case demands; and, upon all such appeals which are denied, costs may be taxed against the appellant at the discretion of the court, but no costs shall be taxed against the state.”
The regulations of Connecticut state agencies, § 12-426-11 (A) provided in part: “Contrivances, such as belts, pulleys, shafts and operating structures accessory to such basic machine and equipment and devices used to control, regulate or operate it and spare parts for its repair will be subject to the 7% tax rate when purchased separately. The 2V2% tax rate is applicable only and if any of these accessory parts are purchased as a package with the basic machine.”
In 1980 the commissioner repealed § 12-426-11 (A) and replaced that regulation with § 12-426-llb.
General Statutes § 4-186 provides: “exemption of unemployment COMPENSATION AND EMPLOYMENT SECURITY APPEALS. Appeals from the decisions of the administrator of the unemployment compensation act, appeals from decisions of the employment security appeals referees to the board of review, and appeals from decisions of the employment security board of review to the courts, as is provided in chapter 567, and appeals from the commissioner of revenue services to the courts, as provided in chapters 207 to 212a, inclusive, 214, 215, 219, 221, 222, 224 and 225 are excepted from the provisions of this chapter.”
At oral argument, the commissioner pointed to Exhibit G, which lists the specific items constituting the disputed devices, and argued that none of the items listed in Exhibit G is listed in the ruling request, Exhibit A, submitted by the plaintiff. The commissioner argued that the ruling was based on Exhibit A, not Exhibit G. We disagree. The commissioner expressly stipulated that “[t]he Disputed Devices are listed on Exhibit G .... All
General Statutes § 4-176 provides: “declaratory RULINGS. Each agency may, in its discretion, issue declaratory rulings as to the applicability of any statutory provision or of any regulation or order of the agency, and each agency shall provide by regulation for the filing and prompt disposition of petitions seeking such rulings. If the agency issues an adverse ruling, the remedy for an aggrieved person shall be an action for declaratory judgment under section 4-175 unless the agency conducted a hearing pursuant to sections 4-177 and 4-178 for the purpose of finding facts as a basis for such ruling, in which case the remedy for an aggrieved person shall be an appeal pursuant to section 4-183. If the agency fails to exercise its discretion to issue such a ruling, such failure shall be deemed a suffi
The regulations of Connecticut state agencies, § 12-2-4 then provided:
“PETITION FOR DECLARATORY RULING
“The Tax Department will accept a petition for declaratory ruling as to the applicability of any statute or regulation administered by the Tax Department in the following form:
“(a) A petition stating the factual background of the issue must be in writing and include or have attached thereto a certificate indicating the manner in which and the date on which it is being filed with the Tax Department at the main office at 92 Farmington Avenue, Hartford, Connecticut 06115.
“(b) The petition shall be signed by the petitioner and shall include his address for purposes of reply.
“(c) A petitioner shall serve a copy of the petition on any party who he has reason to believe may not otherwise have knowledge thereof and may fairly have an interest therein. The petition or certificate shall indicate such service therein.
“(d) The petition shall state clearly the question of applicability upon which it seeks a ruling.
“(e) The petition shall state the position of the petitioner with respect to the question of applicability.
“(f) The petition may include an argument in support of the position of the petitioner with such legal citation as may be appropriate.”
It is the practice of the Internal Revenue Service to issue similar rulings stating the tax consequences of a completed or contemplated transaction. “A ‘ruling’ is a written statement issued to a taxpayer or his authorized representative by the National Office which interprets and applies the tax laws to a specific set of facts.” 26 C.P.R. § 601.201 (a) (2). Although the Internal Revenue Service has the authority to revoke or modify a ruling after it has been given, revocations or modifications are rarely applied retroactively to the taxpayer to whom the ruling was originally issued. The regulations provide: “Except in rare or unusual circumstances, the revocation or modification of a ruling will not be applied retroactively with respect to the taxpayer to whom the ruling was originally issued or to a taxpayer whose tax liability was directly involved in such ruling if (i) there has been no misstatement or omission of material facts, (ii) the facts subsequently developed are not materially different from the facts on which the ruling was based, (iii) there has been no change in the applicable law, (iv) the ruling was originally issued with respect to a prospective or pro
We also note that “[i]t is well settled that the doctrine of equitable estoppel, in proper circumstances, and with appropriate caution, may be invoked against the United States in cases involving internal revenue taxation. Joseph Eichelberger & Co. v. Commissioner, [88 F.2d 874 (5th Cir. 1937)]; Perkins et al. v. Thomas, Collector, [86 F.2d 954 (5th Cir. 1936)], affirmed 301 U.S. 655, 57 S. Ct. 911, 81 L. Ed. 1324 [1937].” Simmons v. United States, 308 F.2d 938, 945 (1962). It has also been said that “[although estoppel is rarely a proper defense against the government, there are instances where it would be unconscionable to allow the government to reverse an earlier position. Schuster v. Commissioner of Internal Revenue, 312 F.2d 311, 317 (9th Cir. 1962).” United States v. Lucienne D’Hotelle, 558 F.2d 37, 43 (1st Cir. 1977).
At trial, Hansell testified as follows: “My recollection was that the bulk of the meeting centered around the discussion of what the items were that were on that descriptive document. Ralph [Madden] did a lot of testimony as to the functions of the various pieces of machinery that make up the paper machines. I do recall there was some brief discussion about this concept of parts versus whole machines and, as I recall, when that subject came up Nick [Hansen] introduced this concept of using Kim-Tech, you know, if we had to, to get around that issue. And I fairly clearly recall, at that time, I think that it was [Solomon] Karam that made the statement that it was not the intention of the Connecticut tax rules to force construction work to take place outside the State of Connecticut, which using Kim-Tech would clearly do.”
On the record before us, the trial court was also entitled to find that the commissioner did not make clear in his ruling that if the plaintiff purchased the machine component parts separately from the basic machine, they would not be exempt.