Sportfisherman Charter, Inc. v. Norberg

*70Doris, J.

The State Tax Administrator filed this petition for certiorari under G. L. 1956 (1969 Reenactment) §42-35-16, as amended by P. L. 1972, ch. 169, §30, seeking review of a judgment entered by a Superior Court justice reversing a decision of the tax administrator assessing a tax under the Sales and Use Tax Act against Sportfisherman Charter, Inc., a Rhode Island taxpayer. We granted the writ, and pursuant thereto, the pertinent records have been certified to this court.

. -The record discloses that Sportfisherman Charter, Inc., hereinafter referred to as the taxpayer, is a Rhode Island corporation engaged in the business of chartering boats for sportfishing. In September 1970, the taxpayer purchased a boat, the subject of the present litigation, from its principal officer and in January 1971 documented the boat with the United States Coast Guard. On February 9, 1971, the taxpayer obtained a sales tax permit from the State of Rhode Island. On March 9, 1971, the tax administrator issued a “Notice of Deficiency Determination Under Sales and Use Tax Law” in the amount of $2,002.50, which amount consisted of tax due of $1,780 based on a valuation of the boat estimated at $1,000 a foot, interest of $44.50, and a penalty of $178.

Pursuant to G. L. 1956 (1970 Reenactment) §44-19-17, the taxpayer requested a hearing to contest the deficiency determination. After a hearing, the administrator issued a final determination setting the taxpayer’s use tax liability at $4,845.43, of which amount $3,907.60 was the tax due based on a valuation of the boat obtained from corporation tax return filed by the taxpayer after the original use tax determination had been made, $547.07 was interest on the tax due, and $390.76 was a penalty. The •taxpayer, acting under the provisions of §42-35-15, thereupon petitioned the Superior Court for review of the contested assessment. The Superior Court justice ruled that *71the administrator erred in assessing a use tax based on the; purchase price of the taxpayer's boat and to that extent, reversed the determination of the administrator.

The administrator takes the position that the taxpayer; had the option under §44-18-271 to pay a sales tax on the rental income generated by the boat, but that by failing to elect this option within a reasonable time after purchase, he became liable for a use tax based on the entire sales price of the boat. We believe this position misconstrues the intent of §44-18-27. As we indicated in Capitol Bldg. Co. v. Langton, 101 R. I. 131, 135, 221 A.2d 99, 102 (1966), the sales and use taxes are intended to be complementary methods of assuring that sales of goods at retail are subjected to a 5 percent impost based on the price received by the seller. A retailer, who purchases goods from a manufacturer and holds them for resale, will incur no sales or use tax liability.2 If, however, a retailer makes any use of the property other than holding it for resale, §44-18-26 subjects him to tax liability. In order to allow a retailer to make the most efficient use of his sales stock, however, the Legislature has carved out an *72.exception to the operation of §44-18-26. Section 44-18-27 allows a retailer, who incidentally .rents out property while holding it for sale, to elect to pay a sales tax measured by the amount of rental charged.3 In the instant situation, the taxpayer is not holding his boat for sale in the regular course of business and only incidentally renting it. Charter, not sales, is the expressed purpose of the taxpayer, and thus he does not come within the exception marked out by §44-18-27.

As §44-18-27 applies only to property which one intends to sell and is only incidentally renting until a buyer can be found, the taxpayer argues that he is not subject to an election requirement, and that his situation should be governed by the exemption set out in §44-18-34. That section reads as follows:

“Exemption from use tax of property subject to sales tax. — The storage, use, or other consumption in this state of property, the gross receipts from the sale of which are required to be included in the measure of the sales tax, shall be exempted from -the use tax.”

In Capitol Bldg. Co. v. Langton, supra at 137, 221 A.2d at 103, we concluded that §44-18-34 was prospective in thrust and was designed to avoid the imposition of double tax liability on any one consumer of property.4 We also *73noted that statutes purporting to grant exemption from taxation are to be strictly construed against the taxpayer .and in favor of the public unless in their terms they disclose clearly an intent to grant an exemption. See also Preservation Soc’y of Newport County v. Assessor of Taxes, 99 R. I. 592, 209 A.2d 701 (1965). We believe the general purpose of this chapter is to impose on any tangible personal property sold for any purpose other than resale a single tax of 5 percent of the market value of the property. Given this purpose, and the specific language of the relevant statutory sections, it is our opinion that the taxpayer may not' take advantage of §44-18-34.

First of all, the taxpayer is not a retailer under the definition of §44-18-15. Thus, the gross receipts from the ultimate sale of the taxpayer’s boat will not be subject to a sales tax. This in and of itself is arguably enough to take the instant situation out of §44-18-34, but there is a more compelling reason. Section 44-18-7(A) defines a sale as

“Any transfer of title or possession, exchange, barter, lease, or rental, conditional or otherwise, in any manner or by any means of tangible personal property for a consideration. ‘Transfer of possession/ ‘lease/ or ‘rental’ includes transactions found by the tax administrator to be in lieu of a transfer of title, exchange, or barter.”

If this section is interpreted to treat all rentals as sales, even those that in no sense take the place of a transfer of title, the second sentence of §44-18-7(A) becomes entirely superfluous. In construing a statute we are obligated to give effect to every part of the statute if it is workable and does not result in absurdity or inconsistency. Ewing v. Tax Assessors, 90 R. I. 86, 155 A.2d 61 (1959). The better interpretation would appear to be that this subsection was. intended' to include .rally transfers of title, 'exchange's, or barters as sales, but if a transaction were *74set up to be ostensibly a mere transfer of possession, lease or rental, while in actual economic fact it was in lieu of a transfer of title, exchange, or barter, the tax administrator might in his discretion treat it as a sale. This construction is reinforced by the fact that §44-18-7 sets out a variety of specific situations where what amounts to a rental of property combined with a sale of services is specifically defined to be a sale. We therefore conclude that §44-18-7(A) was intended to exclude short-term rentals, not in lieu of a transfer of title, from the definition of a sale and thus from the ambit of the sales tax.5

While §44-18-7(A) -gives the administrator broad discretion to determine what constitutes a transaction in lieu of a transfer of title, h-is discretion is not unbounded. His determination must 'be reasonable, and in the instant case where the taxpayer was merely chartering its boat for periodic .sportfishing trips to a variety of customers, it is not reasonable to treat this as a transaction in lieu of a transfer of title.

As the taxpayer’s rental income was not .properly subject to the imposition of a -sales tax, and the taxpayer is not otherwise a retailer who would be -subject to a sales tax on the ultimate sale of the boat, the taxpayer does not come within the exemption -created by §44-18-34.6 He is *75therefore liable for a use tax at the ¡rate of 5 percent of the sales price of the boat under §44-18-20.7

Finally, the taxpayer argues that the administrator is without the power to increase the amount of his determination once the taxpayer has requested an administrative hearing under §44-19-17. While there appears to be some confusion as to whether the last sentence of §44-19-17, which specifically gives the administrator the right to increase his determination, is properly included in the 1970 Reenactment of the General Laws of Rhode Island, we believe this power is implicit in the section’s grant of authority to the .administrator to determine the correct amount of the tax.

We therefore find the administrator’s redetermination of the tax to be in furtherance of his statutory authority.

The petition for certiorari is granted, the judgment entered in the Superior Court is quashed, and the case is remitted to the Superior Court for the entry of judgment-in .accordance with this opinion.

General Laws 1956 (1970 Reenactment) §44-18-27 reads as follows:

“Tax on rental income to retailer. — If the sole use of the property, other than retention, demonstration, or display in the regular course of business, is the "rental of the property while holding it for sale, the purchaser may elect to pay the tax as measured by the amount of the rental charged rather than as measured by the cost of the property to him. Upon a subsequent sale of such property, however, the person making the sale shall include the full amount of the selling price in his gross receipts and shall pay the tax thereon.”

General Laws 1956 (1970 Reenactment) §44-18-18 imposes a sales tax on sales at retail, defined in §44-18-8 as sales for any purpose, other than resale, in the regular course of business. Thus, a sale from manufacturer to retailer is exempt. Section 44-18-20 imposes an equivalent use tax on the storage (defined by §44-18-9 to exclude holding for sale in the regular course of business), use or other consumption in this state of tangible personal-property purchased from a retailer. There is, therefore, no taxable event until the retailer sells the property to one "who will not hold it for resale in the regular course of business.

Implicit in G. L. 1956 (1970 Reenactment) §44-18-27 is the assumption that the revenue derived from a sales tax on the rental of property presently held for sale, plus a sales tax on the gross receipts from the property’s ultimate sale, will be no less than would have been received if the property had been simply held and later sold.

It may be noted that G. L. 1956 (1970 Reenactment) §44-18-34 is not as widely applicable as might be thought on an initial reading. Section 44-18-18 imposes a sales tax only on sales at retail by a retailer, who §44-18-15 defines as one engaged in the business of making sales at retail (defined in §44-18-8 as a sale for any purpose other than resale), or in the business of making sales for storage, use, or other consumption. Thus, once a retailer makes a sale at retail, thereby incurring sales tax liability, any future sales will not be subject to the sales tax as by definition the purchaser will not be one who bought for the purpose of resale and therefore will not be a retailer.

See Annot., Sales Tax — Bight to Possession, 172 A.L.R. 1317 (1948) for cases interpreting similar provisions to exclude short-term, rentals.

It may be noted that if G. L. 1956 (1970 Reenactment) §44-18-34 were held to govern the instant situation, the taxpayer would be able, by chartering its boat only a few times a year, to pay a minimal sales tax on the rental received, .while making personal use of the -boat. When the boat was ultimately sold, it would be at a greatly depreciated price, and therefore the tax liability of the seller or purchaser would be relatively small. The gross receipts from the Tentáis plus those from the sale could well be a -mere fraction of the present sales price of the boat, thereby defeating the basic purpose of this chapter.

General Laws (1970 Reenactment) §44-18-20, reads in part:

“Use tax imposed.—* * *
“An excise tax is hereby. imposed on the storage, use, or other consumption in this state of a motor vehicle, a boat, an airplane or a trailer purchased from other than a licensed motor vehicle dealer or other than-a retailer of boats,. airplanes' or trailers respectively, at the rate of five per cent (5%) of the sale price of such motor vehicle, boat, airplane or trailer.”