CLINTON NURSERIES

13111

205 Conn. 761 (1988) | Cited 4 times | Supreme Court of Connecticut | January 12, 1988

The defendant commissioner of revenue servicesimposed a deficiency assessment against the plaintiff,Clinton Nurseries, Inc., for the sales and use taxallegedly due the state on various items of personalproperty used in connection with the plaintiff's nurserybusiness. The plaintiff appealed this assessment to theSuperior Court pursuant to General Statutes 12-422.1The trial court found that the sales and use tax wasproperly assessed against the plaintiffs purchase of thecomponents for its irrigation system, which consistsof pipes and sprinklers, and its winter protection units,which include concrete railroad ties.

[205 Conn. 763]

In this appeal from the judgment, the plaintiff claimsthat the trial court erred: (1) in ruling that the disputeddevices are not the type of machinery exempt from thestate sales and use tax under General Statutes (Rev. to1981) 12-412(hh);2 (2) in relying on 12-426-11b(c)(1)of the regulations of Connecticut state agencies in rulingthat the disputed devices were not exempt, whenthis regulation is invalid; and (3) in ruling that the disputeddevices are not materials used in agriculturalproduction within the meaning of the sales and use taxexemption established by General Statutes (Rev. to1981) 12-412(r).3 At oral argument the plaintiff concededthat his first two claims must fail in view of ourdecision in Phelps Dodge Copper Products Co. v.Groppo, 204 Conn. 122, 527 A.2d 672 (1987). Therefore,we will consider only the plaintiff's third claim.We find no error.

[205 Conn. 764]

The plaintiff claims that the trial court erred in notgranting an exemption from our sales and use tax forits winter protection units and irrigation system underthe provisions of 12-412(r). That section provides anexemption for "materials . . . which become an ingredientor component part of tangible personal propertyto be sold or which are used directly in agriculturalproduction. . . ." The plaintiff contends that the irrigationsystem and winter protection units are materials"used directly in agricultural production."

We note initially that this statute must be strictly construedin favor of the taxing authority and against thetaxpayer because it provides an exemption from taxation.Skaarup Shipping Corporation v. Commissioner,199 Conn. 346, 352, 507 A.2d 988 (1986). We concludethat the plaintiff has failed to meet its burden of showingthat the commissioner's interpretation of this statutewas unreasonable in this case.

The plaintiff's argument that it is entitled to anexemption for its irrigation protection units must bereconciled with the relevant agency regulation. Thecommissioner of revenue services has promulgated12-426-11b of the regulations of Connecticut stateagencies, which provides in part that protective equipmentdevices are not entitled to an exemption under12-412(r). The commissioner contends that the winterprotection units, including the concrete railroad ties,are protective equipment devices, and are, therefore,not entitled to an exemption under 12-412(r). Section12-426-11b(a)(12) of the regulations of Connecticutstate agencies, which determines whether materialsqualify for the exemption under 12-412(r), providesthat the term "materials" as used in the statute "shallnot include fracture, fixtures and protective equipmentdevices or clothing." This regulation must be given the

[205 Conn. 765]

     full force and effect of law. Fusco-Amatruda Co. v. TarCommissioner, 168 Conn. 597, 604, 362 A.2d 847(1975); Hartford Electric Light Co. v. Sullivan,161 Conn. 145, 154, 285 A.2d 352 (1971). The questionpresented here is whether the commissioner has properlyinterpreted the statute and regulation in assessing thesales and use tax against the plaintiff. This court givesconsiderable deference to the commissioner's interpretationof taxation statutes and regulations. PhelpsDodge Copper Products Co. v. Groppo, supra, 128-29;see also Board of Education v. Connecticut State Boardof Labor Relations, 190 Conn. 235, 241, 460 A.2d 1255(1983); International Business Machines Corporationv. Brown, 167 Conn. 123, 131 n. 3, 355 A.2d 236 (1974).

The trial court determined that the winter protectionunits are protective equipment devices: "The parties'stipulations and testimony by the president of theplaintiff company establish conclusively that the winterprotection units are essentially nothing but protectivedevices." We agree with this finding. The plaintiffitself chose the phrase "winter protection unit" in itspretrial memorandum: "Each winter protection unitconsists of concrete railroad ties, each 10 feet in length,running along side each bed. The frame of the unit isformed by curved 20 foot long pipes which are placedin holes every three feet in the railroad ties. This skeletonframe is then covered with plastic. The center ofthe unit is approximately eight feet tall." The plaintiffand defendant stipulated to these facts concerning thewinter protection units, adopting precisely the samelanguage. At oral argument, the plaintiff conceded thatthe curved pipes that are inserted into the concrete railroadties for support and the plastic covering placedover these pipes are protective devices and thus aresubject to the sales and use tax. The plaintiff, nevertheless,contends that the concrete railroad ties are exemptfrom taxation. In view of the plaintiff's stipulation that

[205 Conn. 766]

     "[e]ach winter protection unit consists of concrete railroadties . . ." it was reasonable for the court as thetrier of fact to classify them as protective equipmentdevices.

II

The commissioner argues that the irrigation systemcannot qualify for an exemption under 12-412(r)because, as the plaintiff has stipulated, it was assembledfrom separate component parts into a machine.In Phelps Dodge Copper Products Co. v. Groppo, supra,we held that component parts of a machine when purchasedseparately do not qualify for the machineryexemption under 12-412(hh). The plaintiff has concededit is not eligible for a machinery exemption under12-412(hh) because it purchased separate componentparts to build an irrigation system rather than a completefunctioning machine. The commissioner contendsthat 12-412(hh), as construed in Phelps to excludecomponent parts of machines purchased separatelyfrom the machinery tax exemption created by that section,would be rendered superfluous if these parts wereeligible for an exemption under 12-412(r). See Hayesv. Smith, 194 Conn. 52, 58, 480 A.2d 425 (1984).

We agree with the commissioner's argument that thelegislative decision to exclude component parts fromthe machinery tax exemption under 12-412(hh) wouldbe rendered superfluous if the same component partswere eligible for a tax exemption under 12-412(r).It is fundamental that a legislative act must be readas a whole, and that all of its parts must be reconciledso that no part is rendered superfluous. Hayes v. Smith,supra. We hold that component parts of machinery arenot "materials . . . used directly in agriculturalproduction. . . ." under 12-412(r). We need not considerthe commissioner's alternative argument, whichwas relied on by the trial court, that the irrigation systemis not a material used directly in agricultural

[205 Conn. 767]

     production within the meaning of 12-412(r) becausethe pipes and sprinklers are not substances that becomepart of the agricultural product.

There is no error.

In this opinion the other justices concurred.

1. "[General Statutes] Sec. 12-422. APPEAL. Anytaxpayer aggrieved because of any order, decision, determinationor disallowance of the commissioner of revenue servicesunder section 12-418, 12-421 or 12-425 may, within onemonth after service upon the taxpayer of notice of suchorder, decision, determination or disallowance, take anappeal therefrom to the superior court for the judicialdistrict of Hartford-New Britain, which shall be accompaniedby a citation to the commissioner of revenue services toappear before said court. Such citation shall be signed bythe same authority, and such appeal shall be returnable atthe same time and served and returned in the same manner,as is required in case of a summons in a civil action. Theauthority issuing the citation shall take from the appellanta bond or recognizance to the state of Connecticut, withsurety to prosecute the appeal to effect and to complywith the orders and decrees of the court in the premises.Such appeals shall be preferred cases, to be heard, unlesscause appears to the contrary, at the first session, bythe court or by a committee appointed by it. Said courtmay grant such relief as may be equitable and, if such taxhas been paid prior to the granting of such relief, mayorder the treasurer to pay the amount of such relief, withinterest at the rate of six per cent per annum, to theaggrieved taxpayer. If the appeal has been taken withoutprobable cause, the court may tax double or triple costs,as the case demands; and, upon all such appeals which aredenied, costs may be taxed against the appellant at thediscretion of the

2. General Statutes (Rev. to 1981) 12-412(hh), ineffect at the time of the defendant's assessment againstthe plaintiff, provides: "MACHINERY USED IN MANUFACTURINGOR AGRICULTURAL PRODUCTION. Sales of and the storage, useor other consumption of machinery used directly in a manufacturingor agricultural production process. The word `machinery'as used in this subsection means the basic machine itself,including all of its component parts and contrivances, suchas belts, pulleys, shafts, moving parts, operating structuresand all equipment or devices used or required to control,regulate or operate the machinery, but excluding officeequipment or data processing equipment other thannumerically controlled machinery used directly in themanufacturing process." This statute has been recodified as General Statutes12-412(34).

3. General Statutes (Rev. to 1981) 12-412(r), ineffect at the time of the defendant's assessment againstthe plaintiff, provides: "PRODUCTION MATERIALS. Sales ofand the storage or use of materials, rope, fishing nets,tools and fuel or any substitute therefor, which becomean ingredient or component part of tangible personal propertyto be sold or which are used directly in agriculturalproduction or in the fishing industry or in an industrialplant in the actual fabrication of the finished productto be sold. For the purpose of this subsection, theraising of poultry and livestock shall be construed tobe included in the term `agricultural production.' Salesof and the storage or use of materials, tools and fuelor any substitute therefor, when such products are useddirectly in the furnishing of power to an industrialmanufacturing plant or in the furnishing of gas, water,steam or electricity when delivered to consumers throughmains, lines or pipes." This statute has been recodified as General Statutes12-412(18).

The defendant commissioner of revenue servicesimposed a deficiency assessment against the plaintiff,Clinton Nurseries, Inc., for the sales and use taxallegedly due the state on various items of personalproperty used in connection with the plaintiff's nurserybusiness. The plaintiff appealed this assessment to theSuperior Court pursuant to General Statutes 12-422.1The trial court found that the sales and use tax wasproperly assessed against the plaintiffs purchase of thecomponents for its irrigation system, which consistsof pipes and sprinklers, and its winter protection units,which include concrete railroad ties.

[205 Conn. 763]

In this appeal from the judgment, the plaintiff claimsthat the trial court erred: (1) in ruling that the disputeddevices are not the type of machinery exempt from thestate sales and use tax under General Statutes (Rev. to1981) 12-412(hh);2 (2) in relying on 12-426-11b(c)(1)of the regulations of Connecticut state agencies in rulingthat the disputed devices were not exempt, whenthis regulation is invalid; and (3) in ruling that the disputeddevices are not materials used in agriculturalproduction within the meaning of the sales and use taxexemption established by General Statutes (Rev. to1981) 12-412(r).3 At oral argument the plaintiff concededthat his first two claims must fail in view of ourdecision in Phelps Dodge Copper Products Co. v.Groppo, 204 Conn. 122, 527 A.2d 672 (1987). Therefore,we will consider only the plaintiff's third claim.We find no error.

[205 Conn. 764]

The plaintiff claims that the trial court erred in notgranting an exemption from our sales and use tax forits winter protection units and irrigation system underthe provisions of 12-412(r). That section provides anexemption for "materials . . . which become an ingredientor component part of tangible personal propertyto be sold or which are used directly in agriculturalproduction. . . ." The plaintiff contends that the irrigationsystem and winter protection units are materials"used directly in agricultural production."

We note initially that this statute must be strictly construedin favor of the taxing authority and against thetaxpayer because it provides an exemption from taxation.Skaarup Shipping Corporation v. Commissioner,199 Conn. 346, 352, 507 A.2d 988 (1986). We concludethat the plaintiff has failed to meet its burden of showingthat the commissioner's interpretation of this statutewas unreasonable in this case.

The plaintiff's argument that it is entitled to anexemption for its irrigation protection units must bereconciled with the relevant agency regulation. Thecommissioner of revenue services has promulgated12-426-11b of the regulations of Connecticut stateagencies, which provides in part that protective equipmentdevices are not entitled to an exemption under12-412(r). The commissioner contends that the winterprotection units, including the concrete railroad ties,are protective equipment devices, and are, therefore,not entitled to an exemption under 12-412(r). Section12-426-11b(a)(12) of the regulations of Connecticutstate agencies, which determines whether materialsqualify for the exemption under 12-412(r), providesthat the term "materials" as used in the statute "shallnot include fracture, fixtures and protective equipmentdevices or clothing." This regulation must be given the

[205 Conn. 765]

     full force and effect of law. Fusco-Amatruda Co. v. TarCommissioner, 168 Conn. 597, 604, 362 A.2d 847(1975); Hartford Electric Light Co. v. Sullivan,161 Conn. 145, 154, 285 A.2d 352 (1971). The questionpresented here is whether the commissioner has properlyinterpreted the statute and regulation in assessing thesales and use tax against the plaintiff. This court givesconsiderable deference to the commissioner's interpretationof taxation statutes and regulations. PhelpsDodge Copper Products Co. v. Groppo, supra, 128-29;see also Board of Education v. Connecticut State Boardof Labor Relations, 190 Conn. 235, 241, 460 A.2d 1255(1983); International Business Machines Corporationv. Brown, 167 Conn. 123, 131 n. 3, 355 A.2d 236 (1974).

The trial court determined that the winter protectionunits are protective equipment devices: "The parties'stipulations and testimony by the president of theplaintiff company establish conclusively that the winterprotection units are essentially nothing but protectivedevices." We agree with this finding. The plaintiffitself chose the phrase "winter protection unit" in itspretrial memorandum: "Each winter protection unitconsists of concrete railroad ties, each 10 feet in length,running along side each bed. The frame of the unit isformed by curved 20 foot long pipes which are placedin holes every three feet in the railroad ties. This skeletonframe is then covered with plastic. The center ofthe unit is approximately eight feet tall." The plaintiffand defendant stipulated to these facts concerning thewinter protection units, adopting precisely the samelanguage. At oral argument, the plaintiff conceded thatthe curved pipes that are inserted into the concrete railroadties for support and the plastic covering placedover these pipes are protective devices and thus aresubject to the sales and use tax. The plaintiff, nevertheless,contends that the concrete railroad ties are exemptfrom taxation. In view of the plaintiff's stipulation that

[205 Conn. 766]

     "[e]ach winter protection unit consists of concrete railroadties . . ." it was reasonable for the court as thetrier of fact to classify them as protective equipmentdevices.

II

The commissioner argues that the irrigation systemcannot qualify for an exemption under 12-412(r)because, as the plaintiff has stipulated, it was assembledfrom separate component parts into a machine.In Phelps Dodge Copper Products Co. v. Groppo, supra,we held that component parts of a machine when purchasedseparately do not qualify for the machineryexemption under 12-412(hh). The plaintiff has concededit is not eligible for a machinery exemption under12-412(hh) because it purchased separate componentparts to build an irrigation system rather than a completefunctioning machine. The commissioner contendsthat 12-412(hh), as construed in Phelps to excludecomponent parts of machines purchased separatelyfrom the machinery tax exemption created by that section,would be rendered superfluous if these parts wereeligible for an exemption under 12-412(r). See Hayesv. Smith, 194 Conn. 52, 58, 480 A.2d 425 (1984).

We agree with the commissioner's argument that thelegislative decision to exclude component parts fromthe machinery tax exemption under 12-412(hh) wouldbe rendered superfluous if the same component partswere eligible for a tax exemption under 12-412(r).It is fundamental that a legislative act must be readas a whole, and that all of its parts must be reconciledso that no part is rendered superfluous. Hayes v. Smith,supra. We hold that component parts of machinery arenot "materials . . . used directly in agriculturalproduction. . . ." under 12-412(r). We need not considerthe commissioner's alternative argument, whichwas relied on by the trial court, that the irrigation systemis not a material used directly in agricultural

[205 Conn. 767]

     production within the meaning of 12-412(r) becausethe pipes and sprinklers are not substances that becomepart of the agricultural product.

There is no error.

In this opinion the other justices concurred.

1. "[General Statutes] Sec. 12-422. APPEAL. Anytaxpayer aggrieved because of any order, decision, determinationor disallowance of the commissioner of revenue servicesunder section 12-418, 12-421 or 12-425 may, within onemonth after service upon the taxpayer of notice of suchorder, decision, determination or disallowance, take anappeal therefrom to the superior court for the judicialdistrict of Hartford-New Britain, which shall be accompaniedby a citation to the commissioner of revenue services toappear before said court. Such citation shall be signed bythe same authority, and such appeal shall be returnable atthe same time and served and returned in the same manner,as is required in case of a summons in a civil action. Theauthority issuing the citation shall take from the appellanta bond or recognizance to the state of Connecticut, withsurety to prosecute the appeal to effect and to complywith the orders and decrees of the court in the premises.Such appeals shall be preferred cases, to be heard, unlesscause appears to the contrary, at the first session, bythe court or by a committee appointed by it. Said courtmay grant such relief as may be equitable and, if such taxhas been paid prior to the granting of such relief, mayorder the treasurer to pay the amount of such relief, withinterest at the rate of six per cent per annum, to theaggrieved taxpayer. If the appeal has been taken withoutprobable cause, the court may tax double or triple costs,as the case demands; and, upon all such appeals which aredenied, costs may be taxed against the appellant at thediscretion of the

2. General Statutes (Rev. to 1981) 12-412(hh), ineffect at the time of the defendant's assessment againstthe plaintiff, provides: "MACHINERY USED IN MANUFACTURINGOR AGRICULTURAL PRODUCTION. Sales of and the storage, useor other consumption of machinery used directly in a manufacturingor agricultural production process. The word `machinery'as used in this subsection means the basic machine itself,including all of its component parts and contrivances, suchas belts, pulleys, shafts, moving parts, operating structuresand all equipment or devices used or required to control,regulate or operate the machinery, but excluding officeequipment or data processing equipment other thannumerically controlled machinery used directly in themanufacturing process." This statute has been recodified as General Statutes12-412(34).

3. General Statutes (Rev. to 1981) 12-412(r), ineffect at the time of the defendant's assessment againstthe plaintiff, provides: "PRODUCTION MATERIALS. Sales ofand the storage or use of materials, rope, fishing nets,tools and fuel or any substitute therefor, which becomean ingredient or component part of tangible personal propertyto be sold or which are used directly in agriculturalproduction or in the fishing industry or in an industrialplant in the actual fabrication of the finished productto be sold. For the purpose of this subsection, theraising of poultry and livestock shall be construed tobe included in the term `agricultural production.' Salesof and the storage or use of materials, tools and fuelor any substitute therefor, when such products are useddirectly in the furnishing of power to an industrialmanufacturing plant or in the furnishing of gas, water,steam or electricity when delivered to consumers throughmains, lines or pipes." This statute has been recodified as General Statutes12-412(18).

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