SIKORSKY AIRCRAFT CORPORATION v. PAMELA LAW, COMMISSIONER OF REVENUE SERVICES, SC 18302

Judicial District of New Britain

 Taxation; Whether Plaintiff was Entitled to Exemption From Sales and Use Tax Under General Statutes § 12-412 (78) on Purchase of Items Used for Research and Development as Part of Helicopter Manufacturing Process; Whether Doctrine of Nonmutual Collateral Estoppel can be Applied to the State to bar Consideration of the Scope of General Statutes § 12-412 (78).   The plaintiff manufactures helicopters, as well as their parts and components, at its manufacturing facility in Stratford.  The plaintiff sought a refund of the sales and use tax that it paid from April 1, 1995, through December 31, 2002, on various materials, tools, fuel, machinery and equipment that it purchased for use in its Stratford facility on the ground that the purchases were exempt from the sales and use tax under General Statutes § 12-412 (78).  Section 12-412 (78) provides an exemption for the "sales of and the storage, use or other consumption by an aircraft manufacturer operating an aircraft manufacturing facility in this state of materials, tools, fuel, machinery and equipment used in such facility."  The defendant concluded that while some of the purchases were entitled to an exemption, the balance did not qualify under the statute because the items purchased were used solely for research and development, which the defendant found to be a separate and distinct process from the manufacturing process covered by the statute.  The plaintiff appealed to the Superior Court, which reversed the decision.  The court found that, in determining whether the exemption applied, the defendant improperly relied upon the bookkeeping aspect of the plaintiff's purchases, that is, the fact that the plaintiff charged the purchases to a research and development account rather than a production and manufacturing account, and not on the actual use of the items purchased.  The court further found that there was no evidence that the plaintiff maintains a separate and distinct department devoted solely to research and development but, rather, that the plaintiff uses a multidisciplinary approach at every stage of the manufacturing process that utilizes personnel from all disciplines.  Citing a 2002 Superior Court decision involving a claim of a research and development exemption for aircraft industry purchases, the court concluded that the items used for research and development were exempt from the sales and use tax because research and development was an integral part of the manufacturing process for helicopter production.  The defendant appeals, claiming that the trial court improperly construed § 12-412 (78) as encompassing items used throughout the helicopter development process rather than limiting it to items used directly in manufacturing.  The defendant also claims that the plaintiff did not sustain its burden of proving its entitlement to the statutory exemption for each item purchased during the relevant time period.  In addition, it contends that the plaintiff cannot argue that the 2002 decision foreclosed litigation before the trial court - or should bar appellate review - of the scope of § 12-412 (78) because invoking the doctrine of collateral estoppel, absent mutuality, against a governmental entity would be inappropriate.