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Chittenden Trust Co. v. King, 143 Vt. 271, 465 A.2d 1100

Facts

The Department of Taxes assessed a compensating use tax of $471 against the Chittenden Trust Company for purchasing a computer software tape valued at $15,700. The Bank appealed the assessment to the Tax Commissioner, who upheld it after a formal hearing. The Bank then sought relief from the Chittenden Superior Court, which reversed the Commissioner's decision, arguing that the tape was merely a medium for intangible property and not subject to taxation.

Pursuant to 32 V.S.A. § 9773, the Department of Taxes (Department) assessed a compensating use tax of $471 against the Chittenden Trust Company (Bank) for the purchase of a computer software tape valued at $15,700. The Bank appealed the assessment to the Tax Commissioner (Commissioner). After conducting a formal hearing, the Commissioner upheld the Department's assessment, whereupon the Bank petitioned the Chittenden Superior Court for relief.

Issue

Whether the residential mortgage loan program purchased by the Bank constitutes 'tangible personal property' as defined in 32 V.S.A. § 9701(7).

The sole issue briefed for our consideration is whether the residential mortgage loan program purchased by the Bank constitutes 'tangible personal property' as that term is defined in 32 V.S.A. § 9701(7).

Rule

'Tangible personal property' is defined as personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses and shall include fuel and electricity, but shall not include rights and credits, insurance policies, bills of exchange, stocks and bonds and similar evidences of indebtedness or ownership.

'Tangible personal property' is specifically defined as personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses and shall include fuel and electricity, but shall not include rights and credits, insurance policies, bills of exchange, stocks and bonds and similar evidences of indebtedness or ownership.

Analysis

The court determined that the computer software tape purchased by the Bank fell within the definition of tangible personal property because it could be seen, weighed, measured, and touched. The court rejected the Bank's argument that the focus of the transaction was on the intangible knowledge and information rather than the tangible tape, stating that the statutory scheme did not support such a distinction. The court emphasized that the tax consequences should reflect the actual transaction rather than hypothetical alternatives.

In view of the statutory scheme, we hold that the program tape purchased by the Bank falls within the definition of tangible personal property; the tape can be seen, weighed, measured and touched, and is not a right or credit. The Bank insists, however, that since the 'focus of the transaction' was the transfer of intangible knowledge and information, rather than the tangible magnetic tape, a use tax should not be assessed. We disagree.

Conclusion

The Supreme Court reversed the order of the Chittenden Superior Court and reinstated the determination of the Tax Commissioner, concluding that the software tape constituted tangible personal property subject to the state use tax.

The order of the Chittenden Superior Court is reversed; the determination of the Commissioner is reinstated.

Who won?

Vermont Department of Taxes prevailed in the case because the Supreme Court found that the computer software tape was tangible personal property under state law, thus affirming the tax assessment.

The Supreme Court, Hill, J., held that computer software tape purchased by bank constituted 'tangible personal property' for purposes of state use tax.

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