ZAYRE LEASING CORPORATION vs. STATE TAX COMMISSION.

KAPLAN, J. The temporary emergency sales tax statute of 1966 (St. 1966, c. 14) laid a tax on the sale at retail of tangible personal property, and provided in effect that leases were to be assimilated to sales for purposes of the tax. Raised by the present appeal is the question whether certain leases entered into prior to March 2, 1966, the effective date of the statute, and pursuant to which possession was transferred prior to that date, but with terms extending after April 1, 1966, the commencement of the taxable period, fell under the statute, so that tax was owing on the rents payable and paid after April 1, 1966.

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To be more precise: The appellant Zayre Leasing Corporation, which was engaged in the business of leasing furniture, fixtures, and other equipment to Zayre department stores, entered into eighteen lease agreements with such stores, all prior to 1966. The leases were all in the same form, differing, however, as to length of term, name of lessee, property leased, and rental amounts. Rent was expressed in each case as a flat yearly amount, payable in equal monthly instalments in advance. [Note 1] The leases were stated to be "non-terminable," but with the lessor retaining the right to terminate for nonpayment of any instalment of rent (and in a few other events [Note 2]); the lessee could terminate only by payment of the rent for the full term of the lease and surrender of the leased property, title to which was in all events reserved to the lessor. [Note 3]

The Commissioner of Corporations and Taxation assessed sales tax deficiencies against the appellant [Note 4] covering the monthly rents paid under these leases during the thirteen month period from April, 1966, through April, 1967. [Note 5] The appellant paid the deficiencies assessed and

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petitioned for abatement on the ground that the statute did not extend to these leases. The Appellate Tax Board held against the taxpayer, and the case is here on the taxpayer's appeal, the basic facts having been incorporated in a statement of agreed facts.

The tax was "[a]n excise . . . upon sales at retail of tangible personal property," see Section 1, subsection 2, and in another sense, an excise on the privilege of selling at retail, see Section 1, subsection 7 (a), with sale defined as including lease or rental or the transfer of possession. Section 1, subsection 1 (12) (a). [Note 6] The tax was not on the receipt of the price or rental paid; the payments were rather a measure of the amount of tax that was owed.

Few cases throw light on the question of the applicability of such a tax to a lease executed before the relevant statute went into force but extending thereafter. There is a natural temptation to engage in discussion of an abstract question inherently insoluble, namely, whether the lease or transfer of possession should be viewed as a single transaction or as a multiple transaction, or, otherwise stated, whether the possession is to be regarded as transferred in solido at the start, or piece by piece as agreed instalments of rent become due. In Broadacre Dairies, Inc. v. Evans, 193 Tenn. 441 (1952), the multiple view was taken, and the tax held correctly assessed on the rentals becoming due after the effective date of the statute. The same result was reached in Gandy v. Washington, 57 Wash. 2d 690 (1961) (a six to three decision). See also Canton Co. of Baltimore v. Comptroller of the Treasury, 231 Md. 294, 297-298 (1963), app. dism. 375 U.S. 58 (1963). A recent Minnesota case, Hansord Agency, Inc. v. Commissioner of Taxn. 294 Minn. 198 (1972), has avoided generalities and looked more closely at the nature of the particular transaction. The court had before it long-term, nonterminable leases of

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motor vehicles at flat rentals payable in monthly instalments. The lessor-taxpayer was held free of the tax that had been assessed on instalments payable after the statute took effect. Distinguishing the Broadacre Dairies case, the court pointed to the fact that the lease in question there, which was of a sealing machine for milk containers, had a special periodicity because it was terminable by the lessee on thirty days' notice and the rentals were not flat and fixed but were determined in part by the number of units processed through the machine. Cf. Dayton Rubber Mfg. Co. v. Glander, 149 Ohio St. 67 (1948). As to the Gandy case, supra, the Minnesota court joined with the dissenters there in thinking that the majority had erroneously fastened on the payments of the rent, rather than on the leasing, as the crux of the tax.

Although attracted by the Minnesota decision as an approach to the facts of the present appeal, we need not carry that analysis to the end, for, with some apparent awareness of the problem, our Legislature made the following quite specific provision in Section 3 of the temporary law: "Agreements for the sale of goods subject to the tax imposed by section one . . . entered into before the effective date of this section [March 2, 1966] shall be exempt from the tax imposed by said section; provided, that such agreements are in writing, signed by the vendor and purchaser, and impose an unconditional liability on the part of the purchaser to buy the goods covered thereby at a fixed price without escalator clause, and an unconditional liability on the part of the vendor to deliver a definite quantity of such goods at the contract price; and provided, further, that delivery is made not later than June thirtieth, nineteen hundred and sixty-six." [Note 7] As "sale" is defined to include "lease," [Note 8] and this like the other statutory definitions

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is to control "except where the context clearly indicates a different meaning," [Note 9] it appears on a superficial reading that the tax was here erroneously assessed on an exempted transaction. [Note 10] The appellee State Tax Commission argues that exemptions are to be strictly construed, and it also points to its Emergency Regulation No. 3, promulgated on April 28, 1966, providing in part as follows: "2. Each period for which a rental is paid shall be considered a complete sale for the purpose of the imposition, collection and payment of the sales or use tax. [Note 11] . . . 4. The sales or use tax shall apply to all charges for the rental or lease of tangible personal property with respect to periods beginning on and after April 1, 1966, for which a rental is paid, even though the rental agreement or contract was entered into prior to April 1, 1966 and transfer of possession to the lessee was made prior to that date." [Note 12] But, despite the fact that Section 3 of the temporary law is exemptive in character, we do not think there was anything in its context to avoid the definition of "sale" as including "lease." Thus,

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the regulation, in attempting to limit Section 3 by drawing a line between true sales on the one hand, and leases as assimilated sales, on the other hand, fails at least on the present facts because it is inconsistent with the statute. [Note 13] The appellee State Tax Commission has pressed the argument that application of the regulation here would promote "equality" of taxation, but this would ignore a distinction between past and future transactions in a given category that the Legislature chose to enact. [Note 14]

A case in Florida bears resemblance to the present. The Florida statute defined "sale" to include lease, as our statute did, and had substantially the same admonition about the governing effect of a statutory definition except where the context clearly indicated a different meaning. Exempted from the tax were "occasional and isolated sales or transactions." The "occasionals" in question were leases. An administrative regulation stated that "[t]he rental of tangible personal property cannot qualify for exemption as an occasional or isolated sale." There, as here, the tax authorities argued that the statutory definition assimilating leases to sales should not apply to an exemptive provision of the law; but the court, giving effect to the definition of "sale," held the regulation to be inconsistent with the statute and the taxpayer entitled to exemption. Richard Bertram & Co. v. Green, 132 So. 2d 24 (Fla. Dist. Ct. of App. 1961), cert. den. 135 So. 2d 743 (Fla.

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1961), app. dism. 136 So. 2d 343 (Fla. 1961). [Note 15] We follow the same line of interpretation.

The decision of the Appellate Tax Board is reversed. The case is remanded to the board. An abatement is to be granted in accordance with this opinion.

So ordered.