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NOT FOR PUBLICATION WITHOUT THE APPROVAL
OF THE TAX COURT COMMITTEE ON OPINIONS
TAX COURT OF NEW JERSEY
DOCKET NO. 008928-94
FREEHOLD TOWNSHIP, :
:
Plaintiff, :
:
v. :
:
JAVIN PARTNERSHIP, :
:
Defendant. :
:
Decided: June 21, 1995
Nathan Wolf for plaintiff
(Rosenblum, Wolf & Lloyd, attorneys).
Steven J. Brodman for defendant
(Giordano, Halleran & Ciesla, attorneys).
HAMILL, J.T.C.
The subject of this local property tax appeal is a beer
distribution warehouse located at 183 Three Brooks Road and
designated as Block 72.06, Lot 1 on the Freehold Township tax map.
For 1994, the year at issue, the property was assessed at
$4,146,000. The assessment was reduced by the Monmouth County
Board of Taxation to $3,100,000. The township has appealed the
judgment of the county board.
Before the issue of valuation can be addressed, it must
be determined whether certain interior walls and ceilings, most of
which enclose two refrigerated areas within the warehouse, and the
compressors and blowers that are related to the refrigerated areas,
are realty as defined in N.J.S.A. 54:4-1 or personalty and
therefore not subject to local property taxation. It was decided
to proceed first with the realty/personalty issue so that the
parties' appraisers would know what property should be included in
valuing the warehouse.
The following facts were developed at a hearing devoted
to the realty/personalty issue.
The warehouse contains approximately 89,600 square feet.
A drive-through divides the warehouse into two segments. The wall
on one side of the drive-through is constructed of concrete blocks,
while the other wall is constructed of insulated panels measuring
approximately 2½ x 3 feet each. The panels are approximately 4-5
inches thick and contain an insulating material with a metal sheath
on each side. The panels attach to one another by means of a cam-lock fastener and are easily assembled and disassembled by means of
a wrench that locks and unlocks the cam-lock. The insulating
panels form the walls and ceilings of the two refrigerated areas
within the warehouse. The ceiling panels are suspended from the
roof by means of rods extending between the roof girders and the
insulating panels. The rods fit into grooves in the roof girders
and are attached to the insulated panels by means of clips that fit
between the seams of the panels. At floor level the insulated
panels are bolted or screwed to the floor by means of metal L
plates. Around the base of the insulated panels is a metal curb
filled with concrete, which protects the panels from being bumped
by forklift trucks. Approximately 75" of the curbing and panels
were originally used at a prior location of the taxpayer in
Holmdel. The panels and curbing were disassembled at the Holmdel
site and moved by truck to the Freehold site, where they were
reassembled.
Although most of the insulated panels are used to
segregate the refrigerated areas of the warehouse, a small portion
of the paneling serves simply as a wall for an unrefrigerated area
used for repacking, storing empty beer containers, and recharging
electric vehicles.
Testimony of the taxpayer's witnesses established that
the cooling of the refrigerated space is accomplished by
refrigeration equipment including blowers and compressors. Photos
offered by the township show that the compressors are located on
the outside of the warehouse, while the blowers are located on the
inside. Neither of these items is embedded in the walls or
ceilings. Both appear to be discrete pieces of machinery attached
to the walls or foundations of the warehouse.
The director of operations at the warehouse testified
that he had been offered "used refrigeration space." I presume he
meant insulated wall and ceiling panels. In his view, the primary
function of the panels was to cool the beer rather than to shelter
or contain it. On cross examination he conceded that the insulated
panels create walls and ceilings that segregate the beer needing
refrigeration from beer that does not need refrigeration. He
further testified that the taxpayer had intended to move the
warehouse from the prior location in Holmdel, which was leased, but
that there was no intention to move the warehouse from the Freehold
site. He stated that, were it not for the need to refrigerate some
of the beer, there would be no need for the insulated wall panels;
the exterior walls of the warehouse would suffice to shelter the
beer.
Plaintiff's other witness, the owner of a refrigeration
installation company that had disassembled the insulated wall and
ceiling panels of the Holmdel warehouse and reassembled the panels
in Freehold, testified on cross-examination that the same
insulating panels could be used as exterior walls with a steel
frame underneath to support them. The wall panels would be
functionally similar, serving, as they do in the subject property,
to maintain the temperature within the structure. This witness
agreed that, in order to make the refrigerated area operational,
lights, refrigeration, and piping had to be installed.
Mention should be made of an issue concerning the burden
of producing evidence that arose at the commencement of the
hearing. As the plaintiff in this matter, the township has the
ultimate burden of proving that the judgment of the county board is
in error. Riverview Gardens v. North Arlington Borough,
9 N.J. 167, 175 (1952); Rumson Borough v. Peckham,
7 N.J. Tax 539, 549
(Tax 1985). The township nevertheless maintains that, as to
whether the property at issue constitutes realty or personalty, the
taxpayer has the burden of proof and thus the burden of presenting
an affirmative case. I ruled in favor of the township on this
point and directed the defendant taxpayer to proceed with its
proofs on the realty/personalty issue.
Initially, it should be pointed out that what the
township labels the burden of proof on the realty/personalty issue
is more accurately described as the burden of producing evidence or
the duty of going forward. N.J.R.E. 101(b)(2) and Biunno, Current
N.J. Rules of Evidence, comment to N.J.R.E. 101(b)(2). The burden
of proof or persuasion refers to the "obligation which a party must
meet in order to prevail on a claim or defense." Biunno, supra,
Comment 1 to N.J.R.E. 101(b)(1). The burden of producing evidence
refers to the obligation of a party to introduce evidence to avoid
a finding against him on a particular fact. N.J.R.E. 101(b)(2) and
Comment to N.J.R.E. 101(b)(1).
Here, the township, as plaintiff challenging the judgment
of the county board, has the ultimate burden of persuasion, but
defendant taxpayer has the burden of producing evidence on the
realty/personalty issue. This is so for two reasons. First, the
township has the benefit of a statutory presumption that the
property in question is realty. N.J.S.A. 54:4-1 provides in
pertinent part:
Real property taxable under this
chapter means all land and
improvements thereon and includes
personal property affixed to the
real property or an appurtenance
thereto unless: [the conditions
specified in subsections (a) or (b)
are met].
Under the language of the statute, it is plain that unless
countervailing evidence is produced, personal property affixed to
real property is deemed to be real property. See American Hydro
Power Partners v. Clifton,
11 N.J. Tax 12, 22-23 (Tax 1990), aff'd
in part,
12 N.J. Tax 264 (App. Div. 1991). Although not labeled a
presumption, the effect of the statute is the same. Once the basic
fact is established, i.e., the existence of personal property
affixed to real property, the presumed fact is deemed established,
i.e., that the personal property is real property, unless evidence
is produced to rebut the presumption. See N.J.R.E. 301. The
difference between the operation of N.J.S.A. 54:4-1 and a normal
presumption is that the statute sets forth in subsections (a) and
(b) the proofs that must be produced to rebut the presumption.
The effect of the statutory presumption is to place on
the party opposing the presumption the burden of producing
evidence. "If no evidence tending to disprove the presumed fact
is presented, the presumed fact shall be deemed established if the
basic fact is found or otherwise established." N.J.R.E. 301.
"[T]he burden of producing evidence on the issue upon which a
presumption operates is on the party desiring a result contrary to
that compelled by the presumption." Rumson Borough v. Peckham,
supra, 7 N.J. Tax at 547. As made clear in N.J.R.E. 301, the
burden of persuasion does not shift to the party against whom the
presumption is directed, but the burden of producing evidence or
going forward does shift to that person.
As the insulated wall and ceiling panels are, at the very
least, personal property affixed to real property, the statutory
presumption that they are real property arises, and the taxpayer
has the burden of producing evidence to show otherwise.See footnote 1
Quite apart from the statutory presumption, the burden of
going forward on the realty/personalty issue should be placed on
the taxpayer because the taxpayer has greater access to the
relevant information. N.J.R.E. 101(b)(2), Biunno, supra, Comment
to N.J.R.E. 101(b)(2); J.E. On Behalf of G.E. v. State,
131 N.J. 552, 569-70 (1993). Such information includes facts necessary to
establish that the property in question is not "ordinarily intended
to be affixed permanently to real property" or is not machinery
that is intended to enable a structure to "support, shelter,
contain, enclose of house persons or property." N.J.S.A. 54:4-1.
N.J.S.A. 54:4-1 defines taxable real property as (1) all
land and improvements thereon and (2) personal property affixed to
real property unless (a) the personal property can be removed
without material injury to itself or the real property and "is not
ordinarily intended to be affixed permanently to real property" or
(b) the personal property is "machinery, apparatus, or equipment
used or held for use in business" provided the machinery, apparatus
or equipment is not a structure nor has as its primary purpose
enabling a structure to support, contain, house, etc., persons or
property.
Taxpayer maintains that the walls and ceilings of the
refrigerated areas are not improvements to real property because
the warehouse itself is the improvement and the bulk of the wall
and ceiling panels were moved from the taxpayer's prior location
and can be moved again. The township asserts that the insulated
walls and ceilings create a building or structure no different than
other interior space that is framed in with walls and a dropped
ceiling.
As to the subsection (a) test, taxpayer maintains that
the insulated walls and ceilings are not ordinarily intended to be
affixed permanently to real property because it has met the test
set forth in N.J.A.C. 18:12-10.1, specifically, that the insulated
panels are frequently resold separate from the real property and
that the panels would be removed from the real property in the
event defendant relocates its warehouse business. The township
counters that taxpayer failed to carry its burden of establishing
that the walls and ceilings of the refrigerated areas are "not
ordinarily intended to be affixed permanently to real property."
As to the subsection (b) test, taxpayer argues that the
walls and ceilings of the refrigerated areas constitute equipment
as defined in N.J.A.C. 18:12-10.1 because they are "item[s] of
tangible personal property used or held for use in business."
Taxpayer maintains that the primary purpose of the insulated walls
and ceilings is not to contain property but rather to refrigerate
it. The township responds that the walls and ceilings of the
refrigerated areas are not machinery, apparatus, or equipment, with
the result that subsection (b) does not come into play.
Alternatively, if viewed as machinery, apparatus, or equipment, the
township maintains that the walls and ceilings are structures and
therefore taxable as real property.
Taxpayer offered no argument regarding the blowers and
compressors. The township concedes that the blowers and
compressors are not improvements to real property and concedes that
they constitute machinery, apparatus, or equipment. However,
according to the township, the primary purpose of the compressors
and blowers is to enable a structure to house property and they
therefore constitute taxable real property under subsection (b).
Moreover, according to the township, there has been no proof that
the blowers and compressors are not ordinarily intended to be
affixed permanently to real property and they therefore constitute
taxable real property under subsection (a).
As a matter of logic, the first issue that should be
addressed is whether the walls and ceilings of the refrigerated
areas constitute improvements to real property. If so, the
property would be taxable real property and it would be unnecessary
to proceed further with the analysis. The difficulty with that
approach is that the line between an improvement to real property
and personal property affixed to real property is unclear, and
recent decisions have not provided much guidance. Thus, for
instance, in NYT Cable TV v. Audubon Borough,
230 N.J. Super. 530,
534-35 (App. Div.), certif. denied,
117 N.J. 646 (1989), the
Appellate Division affirmed the Tax Court's conclusion that a 250-foot high cable antenna tower was real property under L. 1986, c.
117 (the predecessor of the current Business Retention Act) because
the tower was ordinarily intended to be affixed permanently to real
property. The appellate court made clear that it was not ruling on
the trial judge's alternative holding that the "tower and its
foundation constituted a 'unitary improvement to real estate' and
the 'metal superstructure was never 'goods and chattels' or
'machinery,' or 'equipment' that was attached to real estate.'"
Id. at 534-35. The court noted that there were arguments to be
made on both sides and concluded that there was "no pressing need
to enter this thicket and resolve [the] question here." Id. at
535. Similarly in R.C. Maxwell Co. v. the Galloway Tp. ___ N.J.
Super. __ (App. Div. 1995), in affirming the Tax Court's conclusion
that billboards constituted real property because they were
ordinarily intended to be affixed permanently to real property, the
Appellate Division declined to rule on the issue of whether
billboards were also taxable as improvements to real property. The
Tax Court followed a similar approach in Emmis Broadcasting Corp.
v. East Rutherford, __ N.J. Tax __ (Tax 1995). As in NYT Cable,
R.C. Maxwell Co., and Emmis Broadcasting, I need not determine
whether the insulated walls and ceilings constitute improvements to
real property because the issue may be readily resolved by viewing
the panels as personal property affixed to real property.
Defendant taxpayer has two opportunities to establish
that the walls and ceilings of the refrigerated areas, when viewed
as personal property attached to real property, are nevertheless
not taxable as realty. First, taxpayer may establish that the
property in question can be removed without materially injuring
itself or the realty and is not ordinarily intended to be affixed
permanently. Second, if the property in question is machinery,
apparatus, or equipment used in business, defendant taxpayer may
establish that the property is not taxable because it is not a
structure or does not have as its primary purpose enabling a
structure to support, contain, house, etc., persons or property.
There is no dispute that the insulated walls and ceilings
can be removed without material injury either to the wall panels
themselves or to the realty. It is quite apparent from the cam-locks that join each panel that the panels can be easily assembled
and disassembled with a wrench and that no injury will result to
the panels themselves when they are disassembled. Similarly, the
fact that the panels are bolted to the floors with L joints and are
clipped to the roof girders with steel bars and clamps establishes
that the panels may be removed without material injury to the real
property.
The dispute between the parties centers around whether
the panels are ordinarily intended to be affixed permanently to the
real estate. Defendant taxpayer's evidence on this point included
the fact that approximately 75" of the wall and ceiling panels had
been moved from the taxpayer's prior location in Holmdel and
reassembled at the Freehold site. Moreover, according to
taxpayer's director of operations, during the course of his
employment, he had received offers for "used refrigeration space,"
meaning, I presume, insulated wall and ceiling panels. Other
evidence on this point included the evident ease with which the
insulated panels can be assembled and disassembled.
On the other hand, with the possible exception of the
implication that used refrigeration space is bought and sold, there
was no evidence as to what is ordinarily intended with respect to
moving refrigerated warehouse areas. As made clear in NYT Cable TV
v. Audubon Borough, supra, 230 N.J. Super. at 534, the test to
determine what is ordinarily intended is an objective one rather
than an assessment of what was subjectively intended with respect
to the particular property at issue. The question is whether the
outward appearance of the property and other objective
manifestations establish that the property is not ordinarily
intended to be permanently affixed. Chevron U.S.A. v. Perth Amboy,
9 N.J. Tax 205, 243 (Tax 1987).
The outward appearance of the property at issue is that
of walls and ceilings faced with metal, which, like other walls and
ceilings, are intended to be affixed permanently to the real
property to which they are attached. The fact that this particular
warehouse was, in large part, formerly located at a different site
does not establish ordinary intent in the trade. See N.J.A.C.
18:12-10.1. The testimony of plaintiff's on-site director of
operations that he had received offers for used insulated panels
falls short of establishing what is ordinarily intended once a
refrigerated space within a warehouse is built. In particular,
there was no testimony or other evidence to suggest that a
warehouse owner would dismantle and move a profitable refrigerated
warehouse once the space had been constructed and was in operation.
There was no testimony as to the frequency with which refrigerated
warehouses are dismantled and moved or the conditions that prompt
such moves. See N.J.A.C. 18:12-10.1. Nor was there definite,
detailed testimony as to the frequency with which used insulated
wall and ceiling panels are resold. See id.
In short, defendant taxpayer failed to produce sufficient
evidence to establish that the insulated walls and ceilings are
"not ordinarily intended to be affixed permanently to real
property."
Whether the walls and ceiling panels may escape taxation
as real property under subsection (b) of N.J.S.A. 54:4-1 depends
preliminarily upon whether they constitute machinery, apparatus, or
equipment used in business. Defendant taxpayer maintains that the
panels constitute machinery, apparatus, or equipment because their
primary purpose is to refrigerate beer. According to taxpayer, as
defined in N.J.A.C. 18:12-10.1, machinery, apparatus, or equipment
includes "tangible personal property used or held for use in
business," and it is undisputed that the wall and ceiling panels
constitute tangible personal property used in business. The
township responds that the primary purpose of the panels is not to
refrigerate beer but to segregate beer that requires refrigeration
from other areas of the warehouse. There was no dispute that the
property at issue is used in business.
Initially, it should be pointed out that the portion of
the regulatory definition of machinery, apparatus, or equipment
relied upon by taxpayer was incorporated into the statute itself by
the Business Retention Act. L. 1992, c. 24. Both N.J.S.A. 54:4-1.15 and N.J.A.C. 18:12-10.1 define machinery, apparatus, or
equipment to mean "any machine, device, mechanism, instrument,
tool, tank or item of tangible personal property used or held for
use in business."
The difficulty with taxpayer's argument that the walls
and ceilings are exempt as "item[s] of tangible personal property
used in business" is that the proposed construction would expand
the class of specific items listed in the definition of machinery,
apparatus, or equipment in violation of the rule of ejusdem
generis. "Under this rule, when general words follow specific
words in a statutory enumeration, the general words are construed
to embrace only the objects similar in nature to those objects
enumerated by the preceding specific words." Sutherland, Statutory
Construction, §47.17 (4th ed. 1985). See Denbo v. Moorestown Tp.,
23 N.J. 476, 482 (1957). Thus, in Denbo our Supreme Court held
that under the ejusdem generis principle a provision in the
Municipal Home Rule Act of 1917 permitting the enactment of
municipal ordinances regulating the use, storage, and sale of
inflammable materials and providing "for the protection of life and
property from fire, explosions and other dangers," did not
authorize the denial of a zoning perit for a gas station on the
ground that it would increase traffic congestion. The words "other
dangers" in the enabling legislation were limited to dangers
similar in nature to fires and explosions and could not be extended
to dangers resulting from increased traffic. Id. at 478-83. When
the principle of ejusdem generis is applied here, it is clear that
the very general words "item of tangible personal property used or
held for use in business" must be limited to property similar in
nature to the preceding specific types of property, namely
machines, devices, mechanisms, instruments, tools, and tanks.
Alternatively, taxpayer maintains that the insulated
walls and ceilings constitute "instruments" that cool the
refrigerated areas.
"Words in a statute are to be given their ordinary and
primary meaning unless there is an explicit indication of a special
meaning to be attached to the words." Taylor v. Lower Tp.,
13 N.J.
Tax 371, 380 (Tax 1993) (citations omitted). As neither the
statute nor regulations define the word "instrument," the ordinary
dictionary meaning should apply.
The word "instrument", as defined in Webster's Seventh
New Collegiate Dictionary (1971), has both an abstract meaning and
a more specific, physical one. In its abstract sense, an
instrument is a "means whereby something is achieved, performed, or
furthered." In its more specific, physical sense, the word is
defined as a tool, utensil, or implement. Under the maxim of
statutory construction noscitur a sociis, it is clear that the word
"instrument" is used in its specific sense in N.J.S.A. 54:4-1.
Under that maxim "the meaning of words may be indicated and
controlled by those with which they are associated." Germann v.
Matriss,
55 N.J. 193, 220-21 (1970) (citations omitted). The
associated words here are "machine, device, [and] mechanism." It
is thus apparent that the word "instrument" is used in its physical
sense to mean a tool, utensil, or implement that is akin to a
machine, device, or mechanism.
The question then becomes whether the insulated walls and
ceilings can be viewed as tools, utensils, or implements that are
akin to machines, devices, or mechanisms. Webster's Seventh New
Collegiate Dictionary defines the word "tool" as "an instrument (as
a hammer) used or worked by hand: implement." "Utensil" is
defined in the same dictionary as "a useful tool or implement."
Finally, "implement" is defined as a "tool, utensil, instrument."
In discussing the three words under the definition of "implement,"
the same dictionary includes the following explanation:
IMPLEMENT, TOOL, INSTRUMENT,
APPLIANCE, UTENSIL applied to any
relatively simple device for
performing work. IMPLEMENT may
apply to anything necessary to
effect an end; TOOL suggests an
implement adapted to facilitate a
definite kind or stage of work and
suggests the need of skill more
strongly then IMPLEMENT; ... UTENSIL
applies to a device used in domestic
work or some routine unskilled
activity.
[Webster's, supra].
The words with which "instrument" is associated in the
statute in turn are defined as follows. The pertinent definition
of "machine" is "an assemblage of parts that transmit forces,
motion, and energy one to another in a predetermined manner ... an
instrument (as a lever) designed to transmit or modify the
application of power, force, or motion." Webster's, supra. The
applicable definition of "device" is "a piece of equipment or
mechanism designed to serve a special purpose or perform a special
function." Webster's, supra. "Mechanism" is pertinently defined
as "a piece of machinery" Webster's, supra. Finally, "machinery"
is defined as "machines in general or as a functioning unit."
Webster's, supra.
The insulated walls and ceilings in the taxpayer's
warehouse do not qualify as "instruments" under the pertinent
definition of that word as a tool, utensil, or implement. The
walls and ceilings are not, themselves, a simple device for
performing work. The walls and ceilings do not themselves perform
any work. They simply contain cooled air and prevent its escape.
When viewed in conjunction with the associated words "machine,
device, [and] mechanism," it is clear that, as used in N.J.S.A.
54:4-1.15, the word "instrument" means tangible personal property
in the nature of a machine that transmits forces, motion, and
energy. Taxpayer's arguments to the contrary notwithstanding, the
insulated walls and ceilings do not create or transmit refrigerated
air. That function is performed by the compressors and blowers.
The walls and ceilings are passive. They simply maintain the
temperature created and transmitted by the compressors and blowers.
They differ only in degree and efficiency from insulated interior
walls and dropped ceilings found in any modern building.
Even if it could be concluded that the insulated walls
and ceilings do constitute machinery, apparatus, or equipment, it
is clear that they are "structures" and thus taxable as real
property. N.J.S.A. 54:4-1.15 defines a "structure" as "any
assemblage of building or construction materials fixed in place for
the primary purpose of supporting, sheltering, containing,
enclosing or housing persons or property."See footnote 2 The primary purpose
of the insulated walls and ceilings is to contain or enclose
refrigerated beer. Again, the walls and ceilings of the
refrigerated space are not themselves the active forces that cool
the beer. Absent the compressors, blowers, electrical fittings,
etc., the insulated walls would be incapable of cooling the beer.
Since the insulated walls and ceilings do not constitute
machinery, apparatus, or equipment as defined in N.J.S.A. 54:4-1.15
and N.J.A.C. 18:12-10.1, or, if they do constitute machinery,
apparatus, or equipment, they nevertheless qualify as "structures,"
the insulated walls and ceilings do not escape local property
taxation under subsection (b) of N.J.S.A. 54:4-1.
On the other hand, the compressors and blowers do escape
taxation under subsection (b). Although taxpayer's evidence
concerning the compressors and blowers was slim, it appears from
the testimony of taxpayer's witnesses that the function of the
compressors and blowers is to cool the beer. Moreover, the
township's photos corroborate the nature of the compressors and
blowers as discrete items of machinery attached to the warehouse
walls or foundations. The township concedes that these items
constitute machinery, apparatus, or equipment but asserts that
their primary purpose is to enable a structure, i.e., the insulated
walls and ceilings, to contain or enclose the refrigerated beer.
I disagree. The primary purpose of the compressors and blowers is
not to contain, enclose, or house the beer. Rather, their primary
purpose is to actually cool it. The warehouse structure, including
the interior areas created by the insulated panels, would be
perfectly capable of containing and housing the beer without the
compressors and blowers.
My conclusion with respect to the compressors and blowers
is based in part on the stated purpose of the Business Retention
Act to eliminate from local property taxation certain machinery,
apparatus, or equipment that became taxable locally as a result of
certain Tax Court decisions. One of these was Texas Eastern
Transmission Corp. v. Division of Taxation,
11 N.J. Tax 198 (Tax
1990), and among the items of tangible personal property affixed to
realty in Texas Eastern were compressors used in moving gas through
Texas Eastern's pipeline. The Tax Court held that all the
components that were necessary for the operation of the pipeline
which were constructed as part of the pipeline, were realty. Id.
at 207. In reaching that conclusion, the court relied on the then
existing definition of taxable machinery, apparatus, or equipment
in Chapter 117 of the Laws of 1986 and found that the compressors
and related items were "functionally essential" to the operation of
the pipeline. Id. at 209-10.
Were it not for the amendment to N.J.S.A. 54:4-1(b)
accomplished by the Business Retention Act, L. 1992, c. 24, the
compressors in this case, like the compressors in Texas Eastern,
would likely be viewed as realty because they appear to be
"functionally essential" to the operation of the refrigerated
warehouse. However, the Business Retention Act eliminated from
subsection (b) the "functionally essential" language which had been
inserted by Chapter 117 and substituted in its place the
requirement that the "primary purpose" of the machinery must be to
"enable a structure to ... contain, enclose or house persons or
property" in order for the machinery or apparatus to be taxable as
realty. Viewed in the context of the purpose of the Business
Retention Act and the change in the statutory language, compressors
and blowers whose primary purpose is to make operational the
refrigerated portions of a warehouse are not taxable as real
property.
I realize that there is a fine line between the blowers
and compressors at issue here and central heating and air
conditioning systems that are viewed as taxable real property under
the Business Retention Act. Thus, the Statement of the Senate
Budget and Appropriations Committee to S. 332, which was enacted as
the Business Retention Act, includes the following language:
"Examples of machinery, apparatus or equipment which enable a
structure to house persons or property, and which are therefore
locally taxable, include central heating or air conditioning
systems ...." One distinction is that the primary purpose of
central heating and air conditioning is to enable a structure to
carry out its basic function of housing persons and property, while
compressors and blowers used in a refrigerated warehouse have as
their primary purpose the operation of the warehouse business. The
function of the compressors and blowers is to further plaintiff's
business, specifically the sale of cold beer. Plaintiff would have
no need for such equipment were it not in the business of
distributing cold beer. Thus, the equipment serves a unique
business purpose and is distinguishable from a heating or air
conditioning system that makes a modern building habitable for
general use.See footnote 3
In sum, the insulated walls and ceilings in taxpayer's
warehouse are taxable real property. The blowers and compressors
that cool the refrigerated space are nontaxable personal property
attached to real property.
The court will enter an appropriate order. There will be
a telephone conference call to schedule an exchange of appraisal
reports and a hearing on valuation.
Footnote: 1It is possible that the insulated walls and ceilings are
"improvements," in which case they would be classified as realty
with no opportunity on the part of the taxpayer to show
otherwise. Emmis Broadcasting Corp. of N.Y. v. East Rutherford
Borough, ___ N.J. Tax ___, ___ (Tax 1995) (slip op. at 14). As
pointed out below, in this case it is unnecessary to decide the
issue.
Footnote: 2N.J.A.C. 18:12-10.1 contains the identical definition of
"structure" except that the words "or housing" are omitted.
Footnote: 3Having concluded that the compressors and blowers are not
taxable real property under subsection (b), I need not consider
whether they also escape taxation under subsection (a).
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