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United States v. Sullivan

decided: July 10, 1968.

UNITED STATES OF AMERICA, AND LIEUTENANT STANLEY D. SCHUMAN, U.S.N., A MEMBER OF THE ARMED FORCES OF THE UNITED STATES ON ACTIVE MILITARY SERVICE NOT A RESIDENT OF OR DOMICILED IN THE STATE OF CONNECTICUT, SUING ON BEHALF OF HIMSELF AND ALL SERVICEMEN OR FORMER SERVICEMEN SIMILARLY SITUATED AND AFFECTED, PLAINTIFFS-APPELLEES,
v.
JOHN L. SULLIVAN, TAX COMMISSIONER OF THE STATE OF CONNECTICUT; GERALD A. LAMB, TREASURER OF THE STATE OF CONNECTICUT; LOUIS I. GLADSTONE, COMPTROLLER OF THE STATE OF CONNECTICUT; AND ROBERT K. KILLIAN, ATTORNEY GENERAL OF THE STATE OF CONNECTICUT, DEFENDANTS-APPELLANTS



Moore, Hays and Feinberg, Circuit Judges.

Author: Feinberg

FEINBERG, Circuit Judge.

This case was brought by the United States of America*fn1 against various officials of the State of Connecticut to determine whether servicemen present in Connecticut solely by reason of military orders are subject to Connecticut's sales and use taxes. The United States District Court for the District of Connecticut, M. Joseph Blumenfeld, J., granted the motion of the United States for summary judgment, 270 F. Supp. 236 (1967), on the ground that collection of such taxes contravened section 514 of the Soldiers' and Sailors' Civil Relief Act, 50 U.S.C. App. § 574.*fn2 Defendants appealed; we affirm.

Like most states, Connecticut levies a broad pattern of sales and use taxes on its residents. Conn.Gen.Stats. §§ 12-406 to 12-432a. With certain exceptions, all retail sales of tangible personal property are subject to the sales tax. The retailer pays the state three and one-half per cent of his gross receipts on goods subject to the tax, section 12-408(1); in turn, he is entitled to reimbursement from the customer. Sections 12-408(2), (3). The use tax, section 12-411, is imposed at the same rate on the "storage, use or other consumption" in Connecticut of "tangible personal property" purchased from a retailer for such storage, use or other consumption. Under the use tax, the customer is directly liable to the state, although if the purchase is made from a Connecticut retailer who collects the tax, the customer is relieved of liability. Section 12-411(2). Sales of motor vehicles, boats and airplanes from other than licensed dealers are also subject to the use tax. Section 12-431. When a Connecticut sales tax has been collected, the use tax does not apply. Section 12-413(1). Finally, whether a sales or use tax has been collected, all proceeds are to be used exclusively for "public health, welfare and education purposes." Section 12-432.

In the district court, the United States offered some examples of the imposition of these taxes on naval personnel domiciled in other jurisdictions but stationed in Connecticut. Lieutenant Stanley D. Schuman of Nebraska*fn3 and Commander Kent J. Carroll of Michigan both purchased used motorboats in Connecticut from non-dealers. Schuman paid the use tax under protest; Carroll refused to pay. Commander Clyde H. Shaffer of Pennsylvania purchased a new car from a Connecticut dealer who collected the sales tax. Commander Jerome W. Roloff of Wisconsin bought a used car in Florida, and paid a sales tax there. When he subsequently registered the car in Connecticut, he was required to pay the difference between the Florida sales tax and the Connecticut use tax. Finally, Commander William L. Foster purchased a new car from a Connecticut dealer and at the same time registered it in Texas, his home state, paying a Texas sales tax. Nevertheless, the dealer collected a full Connecticut tax.

The sole question on appeal is whether these purchases, and others like them, were exempt from Connecticut's sales and use taxes because of section 514 of the Soldiers' and Sailors' Civil Relief Act.*fn4 In relevant part, that section provides, 50 U.S.C. App. § 574:

(1) For the purposes of taxation in respect of any person, or of his personal property, income, or gross income, by any State * * * such person shall not be deemed to have lost a residence or domicile in any State * * * solely by reason of being absent therefrom in compliance with military or naval orders, or to have acquired a residence or domicile in, or to have become resident in or a resident of, any other State * * * while, and solely by reason of being, so absent. For the purposes of taxation in respect of the personal property, income or gross income of any such person by any State * * * of which such person is not a resident or in which he is not domiciled, compensation for military or naval service shall not be deemed income for services performed within, or from sources within, such State * * * and personal property shall not be deemed to be located or present in or to have a situs for taxation in such State * *. Where the owner of personal property is absent from his residence or domicile solely by reason of compliance with military or naval orders, this section applies with respect to personal property, or the use thereof, within any tax jurisdiction other than such place of residence or domicile, regardless of where the owner may be serving in compliance with such orders: Provided, That nothing contained in this section shall prevent taxation by any State * * * in respect of personal property used in or arising from a trade or business, if it otherwise has jurisdiction. * * *

(2) When used in this section, (a) the term "personal property" shall include tangible and intangible property (including motor vehicles), and (b) the term "taxation" shall include but not be limited to licenses, fees, or excises imposed in respect to motor vehicles or the use thereof: Provided, That the license, fee, or excise required by the State * * * of which the person is a resident or in which he is domiciled has been paid.

The basic purpose of section 514, as it now reads, is clear from its wording and structure. It defines the residence of servicemen, the source of their income, the situs of their property, and the nature of taxation, all for the purpose of exempting servicemen from certain forms of taxation by states in which they are stationed. Section 514(1) first provides that a serviceman shall not lose his home state residence or domicile because of absence due to military orders. Correlatively, it also states that he shall not acquire a residence or domicile in a host state because of his presence there under the same military requirement. It then illustrates the consequences of these provisions. For the purpose of state taxation on income, compensation for military service "shall not be deemed income * * * from sources within" any state of which the serviceman is not a resident. For the purpose of taxation "with respect to personal property, or the use thereof," that property shall not be deemed "to have a situs for taxation" in the host state. Thus, section 514(1) eliminates jurisdictional grounds that otherwise could support taxation by the host state related to the income or personal property of a serviceman. The broad nature of section 514(1) is also made clear by the definitions in section 514(2), which provide that "the term 'personal property' shall include tangible and intangible property (including motor vehicles)," and that "the term 'taxation' shall include but not be limited to licenses, fees, or excises imposed in respect to motor vehicles or the use thereof."*fn5

In considering whether Connecticut's sales and use taxes are affected by section 514, we turn from its broad design to its details, recognizing that while the face of the statute is not always the end of its interpretation, cf. In re Miracle Mart, Inc., 396 F.2d 62 (2d Cir. 1968), it is undeniably a good place to start. In arguing that nonresident servicemen stationed in Connecticut are exempt from these state taxes, the United States relies on the language of section 514, which by its terms affects taxation "in respect of * * * personal property." The Connecticut use tax is explicitly levied on the storage, use or consumption in Connecticut of "tangible personal property" purchased from a retailer for such use, and the amount of tax is computed by reference to the "sales price of the property." By its very terms, this is a tax "in respect of * * * personal property." The statutory phrase has a generous reach. The United States argues that it would seem to encompass all taxes, no matter how labelled, which pertain or relate to personal property, rather than to be limited to taxes on personal property. Certainly, if a nonresident serviceman's personal property is deemed, in the words of the statute, not to be present in the state, it would be difficult to justify a use tax on it. We realize that this begs the question, for such ghostly absence is allowed only for the purpose of specified taxes, whose definition we must construe. But the assumption helps to show the connection between the tax and the physical presence in the state of the personal property, a taxable nexus which seems to fall within the broad phrase "in respect of * * * personal property." Congress clearly had in mind the breadth of that language in removing from its effect taxes on a trade or business.*fn6 Moreover, section 514 twice specifically envisions the possibility of taxes involving the "use" of property. Thus, subsection (1) states that the exemption from state taxation applies to taxation:

with respect to personal property, or the use thereof, within any tax jurisdiction other than such place of residence or domicile, regardless of where the owner may be serving in compliance with such [military] orders * * *. [Emphasis added.]*fn7

Similarly, subsection (2) states that:

the term "taxation" shall include but not be limited to licenses, fees, or excises imposed in respect to motor vehicles or the use thereof * * *. [Emphasis added.]

The Connecticut sales tax, which is incurred at the time of purchase, is in terms based upon the retailer's privilege of sale, but what he must sell is "tangible personal property." Moreover, whatever the conceptual basis may be, the tax is in reality also assessed against the buyer of the "tangible personal property," as the Connecticut Supreme Court has held, see Avco Mfg. Corp. v. Connelly, 145 Conn. 161, 140 A.2d 479, 484 (1958), and as the statute explicitly requires. Section 12-408(2). See also First Agricultural Nat'l Bank v. State Tax Commission, 392 U.S. 339, 88 S. ...


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