Geneva Steel Co. v. State Tax Commission

WOLFE, Justice. Certiorari to review a deficiency use tax assessment made by the defendant, State Tax Commission, against the plaintiff, Geneva Steel Corporation. The basic facts are almost entirely stipulated and therefore not in dispute. On June 19, 1946, the Reconstruction Finance Corporation, acting by and through the War Assets Administrator, entered into a contract of sale with the Geneva Steel Corporation, a wholy-owned subsidiary of the United States Steel Corporation, whereby the former sold to the latter for $40,000,000 the Geneva Steel Plant at Geneva, Utah, the Geneva Coal Mine and Interchange Yard near Columbia, Utah, the Keigley Quarry at Payson, Utah, and the Iron Mountain Ore Mine Facilities at Cedar City, Utah, all of which will hereinafter be referred to collectively as the Geneva Steel Plant. In addition, the plaintiff purchased certain inventories of the plant, all personal property, for $7,175,345. The various component parts of the steel plant were conveyed by separate instruments: the real estate by four deeds, and the tangible personal property involved in the sale of the plant as well as the inventories by bills of sale. The Reconstruction Finance Corporation and the War Assets Administrator operated through their main offices in Washington D. C. in effecting the sale, but the contract was executed by the plaintiff in Utah. The plant was constructed by the United States, acting by and through the Defense *172 Plant Corporation, whose assets and rights have been succeeded to by the Reconstruction Finance Corporation, for the purpose of manufacturing iron and steel products essential in the prosecution of World War II. The plaintiff operated the plant as a contractor for the Reconstruction Finance Corporation up until the time of the sale. After the close of the war, the plant was declared surplus property and the War Assets Administrator accepted the bid of the United States Steel Corporation for its purchase. On February 25, 1948, the defendant levied a deficiency use tax assessment against the plaintiff in the sum of $428,526.87, consisting of a tax of $385,550.18 and interest thereon in the sum of $37,976.69. The basis for the deficiency assessment was the claim of the defendant that a use tax at the rate of 2% became due at the time the plaintiff purchased the plant and upon the sale of the tangible personal property comprised in the sale of the plant and upon a certain portion of the inventories. Because the lump sum purchase price for the plant had not. been broken down at the time of the sale by the parties as to what amount was for the real property and what amount was for the personal property, nor as between its four principal physical locations in Utah, the defendant computed the tax due on an allocation made by the plaintiff on December 12, 1946, when it determined how much of the $40,000,000 was to be considered as payment for the real property for the purpose of affixing internal revenue stamps to the four deeds of conveyance. The War Assets Administration in making sales in Utah of surplus personal property owned by the United States, none of which were in connection with sales of integrated businesses, has collected from the purchasers an additional sum denominated a 2% sales tax which it has remitted to the Tax Commission. However, the War Assets Administration has not been licensed by the State of Utah as a “retailer” under the sales or use tax acts. In connection with making sales, it does not use sales tokens or file the reports required *173 by licensees, but collects and remits the “tax” in accordance with its own policies and those of the Federal Government. In the sale of the Geneva Steel Plant and the inventories, as well as in the sales of other intergrated businesses in Utah consisting of both real and personal property, the Regional Director of the War Assets Administration in Utah was advised by the War Assets Administrator not to collect from the purchaser any additional sum, but to report the facts in connection with such transactions to the state taxing authorities. The plaintiff contends, among other things, that the sale of the Geneva Steel Plant and the inventories is not subject to the use tax because it was an “isolated or occasional sale,” and hence not a “retail sale” upon which there is a tax imposed. The statute under which the defendant imposed the use tax upon the plaintiff is as follows: 80-16-3, Utah Code Annotated 1943. “There is levied and imposed an excise tax on the storage, use or other consumption in this state of tangible personal property purchased on or after July 1, 1937, for storage, use or other consumption in this state at the rate of two per cent of the sales price of such property. “Every person storing, using, or otherwise consuming in this state tangible personal property purchased shall be liable for the tax imposed by this act, and the liability shall not be extinguished until the tax has been paid to this state.” While the use tax act contains a section exempting certain sales from the tax, nothing in that act purports to exempt isolated or occasional sales. However an isolated or occasional sale does not come within the definition of a retail sale as defined in the sales tax act. Sec. 80-15-2, U. C. A. 1943, as amended by Chapter 92, Sec. 1, Laws 1943 provides: “* * * (e) * * * The term ‘retail sale’ means every sale within the state of Utah by a retailer or wholesaler to a user or consumer, except such sales as are defined as wholesale sales or otherwise exempted by the terms of this act; but the term ‘retail sale’ is not intended to include isolated nor occasional sales by persons not *174 regularly engaged, in business, nor seasonal sales of crops, seedling plants, garden or farm or other agricultural produce by the producer thereof, nor the return to the producer thereof of processed agricultural products.” (Italics added.) This court on rehearing of Union Portland Cement Co. v. State Tax Commission, 110 Utah 152, 176 P. 2d 879, held that in view of the legislative history of the sales and use tax acts and their administrative interpretation made with the knowledge and implied approval of the legislature, they are to be considered as correlative and complementary, and so far as exemptions are concerned, legislative created specific exemptions from the sales tax are also to be treated as exemptions from the use tax. We now affirm our holding in that case. To hold otherwise would be to render exemptions from the sales tax useless, unless they were also found in the use tax act. The defendant argues that inasmuch as the sales tax is imposed upon “every retail sale of tangible personal property,” the tax is in fact not imposed upon a transaction which is an isolated or occasional sale for the reason that it is not a retail sale as defined by the statute and, therefore, it is an “exclusion” and not a “specific exemption” as dealt with in the Union Portland Cement case. The defendant draws a distinction between sales, on the one hand, which it claims are retail sales, but exempt from the tax, e. g. sales to or by religious or charitable institutions and sales of industrial coal, and sales, on the other hand, which are non-retail sales because they do not come within the definition of a retail sale in 80-15-2 (e), U. C. A. 1948, as amended by Chapter 92, Sec. 1, Laws 1943, quoted supra, e. g. isolated or occasional sales. There is no merit in this argument. At least for the purpose of integrating the use and sales tax acts no distinction exists between sales which the defendant calls “exempted” and sales which it calls “excluded.” The use tax does not apply in either instance. If the defendant’s contention were true, seasonal sales of crops, plants, and agricultural produce made within the state would be sub7 *175 ject to the use tax since such sales, like isolated or occasional sales, are non-retail sales upon which the sales tax does not operate. Clearly the legislature did not intend to free seasonal sales of agricultural produce from the operation of the sales tax, only to have them caught up by the operation of the use tax. Furthermore, the legistlature in the wording of the definition of a “retail sale” not only does not make the distinction contended for by the defendant, but negatives any such distinction, to wit: “The term ‘retail sale’ means every sale within the state of Utah by a retailer or wholesaler to a user or consumer, except such sales as are defined as wholesale sales or otherwise exempted, by the terms of this act; but the term ‘retail sale’ is not intended to include isolated nor occasional sales by persons not regularly engaged in business, * * *” (Italics added.) There is no valid distinction between sales which are not retail sales because excepted from the definition of the term “retail sale” and sales which are not retail sales because they are not included within that term. A further proof that the legislature intended isolated or occasional sales made within this state not to be subject to the use tax is manifested in the fact that the 1949 session of the Legislature amended the definition of a “retail sále” in the sales tax act to provide that “no sale of a motor vehicle shall be deemed isolated or occasional for the purposes of this act.” Laws 1949, c. 83. Had the isolated or occasional sale of a motor vehicle within this state prior to this amendment been subject to the use tax, there would have been no point in enacting the amendment as both the sales and the use tax are imposed at the same rate. In the Union Portland Cement case we stated that “legislative created specific exemptions” [110 Utah 152, 176 P. 2d 881] from the sales tax were also to be treated as exemptions from the use tax. We were there concerned with a “specific exemption” — the sale of industrial coal. There was no need to go further in that opinion and enumerate every sale which we considered specifically exempted. *176 Courts, being unable to anticipate every conceivable question which might arise in the future, must, of necessity, limit their opinions to the facts of the case at hand. The wording of the use tax act is very broad and sweeping. It imposes a tax on the storage, use or other consumption in this state of tangible personal property purchased for storage, use or other consumption in this state. Exempted from the use tax, among other things, is the storage, use or other consumption of property, the gross receipts from the sales of which, have been subjected to the sales tax. In the Union Portland Cement case we narrowed further the scope of the use tax. But this narrowing did not make the use tax act useless or a “nullity.” Remaining for the use tax to operate upon is the storage, use or other consumption of property purchased outside of this state and brought into this state for storage, use or other consumption. The sale of property made outside this state is not subject to our sales tax, it being a sale which this state cannot constitutionally tax. But when such property is brought into this state for storage, use or other consumption here, thus coming to rest as an integrated part of the total property in this state, then the use tax comes into operation and taxes, not the event of the* sale of the property, but the event of storage, use or other consumption of that property within this state. We hold therefore, that the storage, use or other consumption of property, the sale of which is made in this state and which is not made amendable to the sales tax, is likewise not subject to the use tax. Thus it follows that isolated or occasional sales made in this state are not subject to the operation of the use tax. We express no opinion as to whether isolated or occasional sales made outside of this state are subject to our use tax. Was the sale of Geneva and the inventories an isolated or occasional sale within the meaning of our statute? What constitutes an isolated or occasional sale has not heretofore *177 been determined by this court, and none of the cases we have found decided by other jurisdictions on this question is helpful. However, the regulations of the agencies and commissions administering the sales and use tax acts of the several states decidedly indicate that they have considered the sale of an integrated business from one owner to another as coming within the definition of an isolated or occasional sale, or a casual and isolated sale as it is called in some of the acts. The defendant’s Sales and Use Tax Regulation, No. 38, is as follows: “Isolated or occasional sales made by persons not regularly engaged in business are not subject to the tax. Under this rule no sale is taxable if it is not made in the regular course of a business of a person selling tangible personal property. The word ‘business’ as thus used refers to an enterprise, engaged in selling tangible personal property notwithstanding the fact that the sales may be few or infrequent. “Wholesalers, manufacturers, and processors who sell primarily other than at retail are not deemed to be making casual or isolated sales when they sell such tangible personal property for use or consumption. “All sales made by officers of a court pursuant to court orders are occasional sales, with the exception of sales made by trustees, receivers, assignees and the like in connection with the liquidation or conduct of a regular established place of business.' Examples of such casual sales are those made by sheriffs in foreclosure proceedings and sales of confiscated property. “If a sale is an integral part of a business whose primary function is not the sale of tangible personal property, then such is not an isolated or occasional sale. For example, the sale of repossessed automobiles by a finance company is not an occasional or isolated sale. “No sale of an article of tangible personal property made by a dealer in such type of property is considered to be isolated or occasional regardless of whether or not such article was used by such dealer in his regular business prior to the sale. For example, the sale of a wrecker used by a motor vehicle dealer in his business is subject to tax when sold at retail.” Connecticut’s Sales and Use Tax Regulation, No. 15, provides : *178 “A ‘retail sale’ as defined by Section 2, Subsection 3% of the Sales and Use Tax Act, shall not include the following casual or isolated sales which are exempt from tax: “(a) Isolated sales of a non-recurring nature made by a person not engaged in the business of selling tangible personal property. “(b) Sales of articles of tangible personal property required for use or other consumption by a retailer or seller which are not sold in the regular course of any business engaged in by such retailer or seller. “Examples of exempt sales: * * * (2) Sales of an entire business by the owner thereof * * *” (Italics added.) Maryland’s Retail Sales and Use Tax Rules and Regulations states: “Rule 39. Casual and isolated sales. The tax does not apply to casual and isolated sales made by a vendor who is not engaged in the business of selling tangible personal property. However, this exemption does not apply to sales made by those persons who hold themselves out as engaged in a retail business, notwithstanding the fact that their sales may be few and infrequent * * * “Sales of fixtures and equipment in conjunction with a complete liquidation of a person’s business are considered casual and isolated sales.” Ohio’s regulations furnished this example: “Where a person sells his household furniture; where a farmer sells his farm machinery, or other farm equipment; or where a grocer sells his cash register, counters, or other store fixtures at auction or otherwise, such persons are not ‘engaged in the business’ of selling tangible personal property at retail with respect to this property, but are making casual or isolated sales.” Under Art. I of the Illinois regulations the selling of tangible personal property as machinery and other capital assets by a retailer which he has used in his business and no longer needs and which he does not otherwise engage in selling as a part of his regular business is an isolated and occasional sale. The above regulations, as well as those of other states which we have examined, definitey contemplate an isolated *179 or occasional sale as one made by a person while not in the pursuit of the regular course of his business of selling tangible personal property. We think this is a proper and fair interpretation. Thus ordinarily when a person sells his entire business outright to a single purchaser, the sale is isolated or occasional since the regular course of his business is not selling businesses. The defendant has not heretofore attempted to tax the personal property changing ownership when an integrated business has been sold. But it contends in the instant case that the War Assets Administration and the Reconstruction Finance Corporation are engaged in the business of selling surplus government property, and hence the selling of an integrated business by them is not an isolated or occasional sale. It points out that the Reconstruction Finance Corporation through the War Assets Administration has sold six other integrated businesses in Utah since the close of World War II, and that the War Assets Administration has sold millions of dollars worth of tangible personal property in this state since December of 1945. Assuming, without deciding, that the War Assets Administration makes retail sales as defined by our sales tax act when it sells surplus items of government property such as motor vehicles, life rafts, sleeping bags, etc. to ultimate consumers, it is not making a “retail sale” when it sells an integrated business to a new operator. The very nature and character of the two types of sales is radically different. The sale of a truck or a raft involves the simple exchange of an article of tangible personal property for a unit price. But the sale of an integrated business for a lump sum price is a complex transaction for it contemplates the exchange of real property as well as personal property, tangibles and intangibles, without regard as to what amount is being paid for real property, personal property, tangibles, or intangibles. The fact that the tangible personal property and the inventories in this case were transferred to the plaintiff by bills of sale *180 separate from the real estate and the fact that the plaintiff made a division of the purchase price after the sale to determine what amount was expended for real property for the purpose of affixing internal revenue stamps on the deeds of conveyance, do not indicate that the transaction was other than the sale of an integrated business for a lump sum purchase price. We do not mean to imply that a person can avoid paying the tax on the sale of an article of personal property justly due by combining it with the sale of real property for a lump sum price. We only hold the legislature did not intend to tax the sale of personal property transferred as a component part of the sale of an integrated business. Thus we conclude that the sale of the plant and the inventories was an isolated and occasional sale within the meaning of our statute, and it becomes unnecessary to consider the other arguments raised by counsel. The Tax Commission’s order making the deficiency assessment is reversed. Costs to plaintiff. PRATT, C. J., and LATIMER and McDONOUGH, JJ., concur.