Chamberlin v. Dept. of Taxes

Annotate this Case

CHAMBERLIN_V_DEPT_OF_TAXES.92-360; 160 Vt. 578; 632 A.2d 1103

NOTICE: This opinion is subject to motions for reargument under V.R.A.P.
40 as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
order that corrections may be made before this opinion goes to press.

No. 92-360

Marvin and Marie Chamberlin Supreme Court

On Appeal from
v. Chittenden Superior Court

Vermont Department of Taxes February Term, 1993

Alden T. Bryan, J.

David M. Sunshine of Saxer, Anderson, Wolinsky & Sunshine, Richmond, for
plaintiffs-appellees

Jeffrey L. Amestoy, Attorney General, and Danforth Cardozo, III, Special
Assistant Attorney General, Montpelier, for defendant-appellant

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

DOOLEY, J. The Vermont Department of Taxes appeals from a judgment
that taxpayers substantially conformed to the requirements of the builder's
exemption to the land gains tax, see 32 V.S.A. { 10002(f), by preparing a
parcel of land for the installation of a modular home by the purchaser of
the property. We affirm.
Taxpayers purchased the parcel of land at issue from a seller in a
transaction that normally would be subject to a land gains tax of
approximately $10,000. Taxpayers claimed exemption from the tax, imposed by
32 V.S.A. { 10001, under what is known as the builder's exemption. This
exemption is codified at 32 V.S.A { 10002(f), and provides:
Also excluded from the definition of land is any land
up to ten acres . . . acquired by a person who will

build on that land a house which, by the next succeeding
sale, will be the principal residence of the occupant
when he purchases from the person who built the house.
The person acquiring such land must . . . begin building
within one year of the date of purchase, complete the
building within 2 years . . . and sell it within 3
years, from the date of purchase . . . .
There was no dwelling on the land at the time of the transfer of the land
from taxpayers to the subsequent purchaser. Taxpayers, however, had
prepared the land for the installation of a modular home by grading the lot,
pouring a cement foundation, installing a waste water disposal system,
water supply and utility connections, and constructing a driveway. Shortly
after the transfer, the purchasers had a modular home placed on the
foundation and occupied it as their primary residence.
The evidence before the Tax Commissioner indicated that taxpayers had
bought the parcel with the expectation they would build a house on it and
sell it and the land to a purchaser who would use it as a primary residence.
The prospective purchaser, however, was unable to afford an individually
built single-family home, and the parties agreed that a prefabricated home
would be placed on the property once the site was prepared by taxpayers.
After investigation, it was determined that the cost of the home and the
land would be significantly higher if taxpayers bought the modular home and
resold it to purchasers. As a result, the overall transaction was
structured so that the purchasers bought the home directly and had it placed
on the site prepared by taxpayers.
In arguing that the builder's exemption does not apply, the department
relies on familiar canons of statutory construction. Primarily, it argues
that the meaning of { 10002(f) is plain and needs no construction.
Specifically, it emphasizes that the statutory wording requires the taxpayer

to "build on that land a house" and that taxpayers plainly did not do so in
this case. It also points out that tax exemptions must be construed
strictly against the taxpayer. See Kingsland Bay School, Inc. v. Town of
Middlebury, 153 Vt. 201, 206, 569 A.2d 496, 499 (1989).
Ordinarily, these arguments will prevail. The principles on which the
department relies, however, are not absolutes. "We ordinarily rely on the
plain meaning of the words to construe statutes because we presume that it
shows the intent of the Legislature." State v. Papazoni, ___ Vt. ___, ___,
622 A.2d 501, 503 (1993). Where such a presumption is doubtful, the "plain"
meaning of the words will not necessarily control. Id. at 503 n.1.
Further, our rule that tax statutes should be strictly construed against the
party claiming exemption must be tempered by the paramount concern that
statutes be construed "reasonably so as not to defeat their purpose." In re
R.S. Audley, Inc., 151 Vt. 513, 516, 562 A.2d 1046, 1049 (1989). "[W]e must
presume that no unjust or unreasonable result was intended." International
Business Machs. Corp. v. Department of Taxes, 133 Vt. 269, 275, 336 A.2d 158, 162 (1975).
Unfortunately, application of tax statutes occasionally involves
instances where the literal application of the wording produces an
unreasonable result at variance with legislative intent. See, e.g.,
Langrock v. Department of Taxes, 139 Vt. 108, 110, 423 A.2d 838, 839 (1980)
(although statute appears to create flat rate, land gains tax calculated
using marginal rate to avoid harsh and illogical result); Wetherbee v.
State, 132 Vt. 165, 315 A.2d 251 (1974). In Wetherbee, the department
assessed a property transfer tax on the transfer of real property from
individual taxpayers to their closely held family business corporation and

again on the transfer back to the individuals from the corporation. The
transfers were made as part of a mortgage transaction that allowed taxpayers
to obtain a commercial interest rate. The department agreed that the
mortgage transfer from the corporation to the bank was exempt as a transfer
"to secure a debt" but that the other transfers were not covered by any
exemption language. This Court rejected the argument:
[S]uch an approach takes too mechanical a view of the
taxing statute. The intention of the legislature as it
relates to security transactions is plainly stated.
They are exempt from the tax. If the tax is to be
enforced according to its substantial import, the tax
department must not be confined to labels on
transactions.
. . .
. . . Once the facts establish, in substance, as they
do here, that the transaction is to secure a debt, the
exemption applies.
Id. at 168, 315 A.2d at 253.
This case is similar to Wetherbee. We must interpret the phrase "who
will build on that land a house" in a way that reasonably implements the
intent of the Legislature in light of the substance of the taxable event.
One of the purposes of the land gains tax is the "deterrence of land
speculation." Andrews v. Lathrop, 132 Vt. 256, 261, 315 A.2d 860, 863
(1974). The builder's exemption exists because the builder holds title in
order to turn the land into residential use as opposed to making a "high-
profit, short-term land deal[]." Langrock, 139 Vt. at 110, 423 A.2d at
839.
Nothing in this transaction involves land speculation or an intent to
evade the tax. The department admits that if taxpayers had bought the
modular home and had it installed on the site before the sale occurred, the
exemption would apply even though the modular home manufacturer actually

built and installed the home. Although the sequence of events is different
in this case, the result -- a home on the site occupied as a principal
residence by the purchaser -- is the same. Moreover, the items built by the
taxpayer -- foundation, waste-water disposal system, connections for water
and utilities and driveway -- are the same in either case.
In the context of a modular home, we think there is substantial
compliance with the exemption if the taxpayer builds, and sells to the
purchaser along with the land, all items necessary for attaching the
modular home as long as the home is delivered and occupied by the purchaser
as a principal residence within a reasonable time thereafter. Because the
evidence establishes that this occurred here, taxpayer was exempt from
payment of the land gains tax.
The department also attacks certain findings as not supported by the
evidence. These findings are not central to our rationale and therefore are
surplusage.
Affirmed.

_____________________________
Associate Justice

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Dissenting

No. 92-360

Marvin and Marie Chamberlin Supreme Court

On Appeal from
v. Chittenden Superior Court

Vermont Department of Taxes February Term, 1993

Alden T. Bryan, J.

David M. Sunshine of Saxer, Anderson, Wolinsky & Sunshine, Richmond, for
plaintiffs-appellees

Jeffrey L. Amestoy, Attorney General, and Danforth Cardozo, III, Special
Assistant Attorney General, Montpelier, for defendant-appellant

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

ALLEN, C.J., dissenting. I dissent. The statute clearly and
unambiguously requires that the taxpayer build a house on the land before
the land is sold in order to be qualified for the tax exemption. Where the
meaning of the statute is plain on its face, the legislative intent will be
derived from the statute, and the statute will be enforced according to its
terms. See Burlington Elec. Dep't v. Department of Taxes, 154 Vt. 332, 335-
36, 576 A.2d 450, 452 (1990). The majority now interprets this statute to
mean that the taxpayer will be exempt provided some other person builds a
house on the land after its sale. The majority justifies this
interpretation by claiming that the plain meaning of the statute does not
reveal the legislative intent. It cannot seriously be said that there is
any doubt about what the Legislature intended -- the statute unambiguously

requires that taxpayer build a house on the land prior to the transfer. The
majority's statutory destruction cannot be justified under the guise of
statutory construction.
The majority creates further confusion for the department and taxpayers
by holding that there is substantial compliance if, after the sale, the
home is "occupied by the purchaser as a principal residence within a
reasonable time thereafter." While the opinion earlier states that the
purchasers occupied the home "shortly after the transfer," the only
evidence in the record on this issue was that the home was installed "soon"
after it was purchased and that the purchaser was to move into it before it
was finished. A statute which requires a house to be built before sale is
now held to be complied with if the house is built "soon" after the sale.
I would reverse.

Chief Justice

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