In 1950, the defendant made a deficiency assessment against the plaintiff for sales and use taxes incurred from July 1, 1947, to March 31, 1948, inclusive. The deficiency was assessed upon the storage, use and consumption within the state of tangible personal property purchased by the plaintiff to carry out five contracts between itself and the United States of America. General Statutes, Sup. 1947, § 337i. Claiming to be aggrieved by the defendant's action, the plaintiff appealed to the Superior Court, which affirmed the tax deficiency and dismissed the appeal. Sup. 1947, § 344i. From that judgment the plaintiff has appealed to this court.
The finding, which is not subject to material correction, recites the following facts: The plaintiff is engaged at East Hartford in the production and sale of standard aircraft engines and parts. It also maintains a research engineering department. This department performed services for the United States navy and the United States army air corps under five contracts, referred to herein as A, C, G, H and I. To fulfil its contractual obligations, the plaintiff purchased, from July 1, 1947, to March 31, 1948, inclusive, tangible personal property at a cost of $1,328,913.53. The defendant had issued to the plaintiff a retail sales and use tax permit pursuant to § 3311 (4) of the 1947 Supplement, and when the purchases were made, the plaintiff gave resale certificates therefor to the vendors. Sup. 1947, § 3321 (1), (2), (4).
Contract A required the plaintiff to furnish and deliver to the government eight experimental engines; contract C, to furnish and deliver one full-scale mockup, complete with mounts and other equipment, and three experimental engines; and contract I, to furnish and deliver four engines of a model to be developed by the plaintiff. Contracts G and H differed from the other three in that the government furnished engines for the plaintiff's use in experimentation. The services under contract G included the conversion of the engines into a type described as R-4360-41, which was then nonexistent, by the installation of new parts to the extent of about 15 per cent. Contract H required the plaintiff to convert three engines furnished by the government into new types by a change of approximately 25 per cent of the parts. Under contracts G and H, title to the furnished engines remained in the government. The
Contracts A, C and H also provided for partial payments and that when such payments were made, "title to all parts, materials, inventories, work in process and non-durable tools theretofore acquired or produced" should vest in the government, but that "[u]pon liquidation of all partial payments ... or upon completion of deliveries called for by this contract, title to all property (or the proceeds thereof) which has not been delivered to and accepted by the Government under this contract or which has not been incorporated in supplies delivered to and accepted by the Government under this contract and to which title has vested in the Government... shall vest in the Contractor."
The price for a regular production engine ranges from $30,000 to $70,000. The charge per engine under contract A was $187,000. The charge under contract C for three engines and the mock-up was $5,000,000. Under contract H, the plaintiff received $5,500,000 for reconverting three government-owned engines. Under contract I, the unit price per engine was $300,000. The expense of experimental work far exceeds that for production of standard engines and parts because materials and parts have to be purchased in greater volume in order to allow for failures and design changes on experimentation, and to avoid delays where time is of vital importance to the government.
The plaintiff's practice was not to purchase materials in anticipation of possible future contracts
All of the property purchased by the plaintiff for the five federal contracts was acquired upon the assumption that it was suitable for the particular work, and it was acquired in sufficient quantity to permit performance of the contract without interruption by reason of running short of material or the discovery of hidden defects, changes in engineering principles or design, alternative design and other conceivable eventualities. The plaintiff knew at the time of purchase that only a part of the materials would be incorporated in the final product. Materials which meet preliminary tests may be spoiled in the fabrication process or found to have hidden defects requiring that they be discarded. Where novel or difficult problems in design arise, the plaintiff must anticipate possible failure of one design upon testing and, in order to avoid delay, must make provision for one or more alternative designs by purchasing extra materials. Rapid advances in aircraft
The plaintiff purchased and paid for all the materials used in performing the contracts. The materials and parts were received, owned, placed in stockrooms and used by the plaintiff in its plant at East Hartford, or they were delivered to subcontractors at the plaintiff's direction and subject to its ownership and control. It did not make any of the purchases as an agent of the United States government. All purchases were made by the plaintiff as an independent contractor for the performance of the experimental projects. There is no finding as to how much of the material bought by the plaintiff for $1,328,913.53 was used and scrapped and how much was eventually incorporated into the engines.
The Sales and Use Tax Act was adopted by the General Assembly in 1947. Sup. 1947, c. 78a. The sales tax, on the one hand, and the use tax, on the other, are distinct from each other. They are based on different conceptions and are assessments on different transactions, even though, in many instances, they bring about the same result. Connecticut Light & Power Co. v. Walsh, 134 Conn. 295, 300, 57 A.2d 128. Speaking generally, the sales tax is imposed upon transactions within the state, and the use tax upon articles bought in other states which, if bought in Connecticut, would be subject to the sales tax. Ibid. In the case at bar we need not make any distinction, since the finding does not disclose where the items of personalty were purchased. It will not affect the result if, as we propose to do, it is assumed that the purchases were all made within
The 1947 act created a tax of 3 per cent upon all sales of tangible personal property sold at retail in this state. Sup. 1947, § 330i. A sale at retail was defined as a sale of tangible personal property for any purpose other than resale in the regular course of business. Sup. 1947, § 329i (3½). The act defined a sale as including various types of transactions, among which are those involving any transfer of title of tangible personal property for a consideration. Sup. 1947, § 329i (3) (a). This statutory definition controls the characterization of the transactions in the case at bar, regardless of whether a similar result would ensue upon the application of principles of common law. Bradley Supply Co. v. Ames, 359 Ill. 162, 169, 194 N.E. 272; Kohn v. Philadelphia, 151 Pa.Super. 635, 639, 30 A.2d 672. The subordinate facts clearly establish that the plaintiff's purchases of tangible personal property, at a cost of $1,328,913.53, were sales within the act. But whether they were sales at retail is another question.
The adverse claims of the parties sharpen the issue between them on this matter. The plaintiff maintains that the sales were not subject to a tax because they were purchased for resale. The defendant argues, on the other hand, that the sales are taxable because the personalty was not bought for resale but rather for experimental and research work to be performed under contracts primarily designed to obtain the technical skill of the plaintiff's engineering staff. We must turn, then, to the five contracts between the plaintiff and the federal government to determine whether they are contracts for services or contracts for sale of tangible personal property. The determinant is to be found in the intention of the parties to
Nor can we overlook the fact that the federal government is constantly searching, in these troubled times, for the improvement of engines in order to attain performance in the air at least comparable to that of friendly or hostile countries. This policy requires continual vigilance and the use of the best inventive powers of our people. There can be no doubt that, in entering into the five contracts, the government was pursuing this policy. It was looking for designs for engines better than any then existing. It sought to attain that end by utilizing the skill of the research and engineering department of the plaintiff's plant.
There is no error.
In this opinion the other judges concurred.