HOLY TRINITY LUTHERAN CHURCH (1985)(F)(ST)

Topic Code: C336Construction (ST), T006Tangible Personal Property (ST)          Document Reference:

RE: Holy Trinity Lutheran Church Consumer Use Tax Assessment Docket No. 84-26-6B-A Letter of Findings

Mr. Les V. Reddick

Mr. Brian J. Kane

O'Connor, Thomas, Hammer

Bertsch & Norley

200 Dubuque Building

Dubuque, IA 52001

Gentlemen:

The Tax Review Committee of the Iowa Department of Revenue has met and considered the Protest filed in the above-referenced matter. The Committee hereby issues its findings.

The Protestor, Holy Trinity Lutheran Church, was audited for consumer use tax for the period from October 1, 1978 through June 30, 1983. The auditor assessed use tax on purchases of materials from non-Iowa vendors delivered into Iowa. The main portion of the use tax liability was due to the purchase of a pipe organ from Holtkamp Organ Company in Cleveland, Ohio, for $103,940, which was installed in August 1982 at the church.

The only issue raised in this Protest concerns whether use tax is due on the purchase of the pipe organ. The Protestor maintains that the organ is not tangible personal property for purposes of Iowa Code § 423.1. It is the Protestor's contention that the pipe organ is a fixture and, therefore, is real property not tangible personal property.

Pursuant to a request for information the Protestor stated that the entire chancel area of the church was remodeled in order to place the organ in the church. The modification of the chancel area took approximately two and one-half months and cost approximately $35,000. In order to accomodate the organ, the chancel area was gutted to the bare concrete floor. All fixtures, including two brick half-walls, furniture, lighting equipment and carpeting were removed. Two windows were bricked shut. The north wall and the former window spaces were insulated and plastered to keep a constant temperature in order to keep the organ in tune. A new elevated deck with sound relective parquet flooring was constructed as specified by the organ builder's requirements. Two church pews at the front of the the church were removed to provide space for the flooring. The parquet deck was constructed so that space was left for the organ to fit into the deck. The organ was anchored to both the wall and the concrete floor. The organ case assembly was bolted to the concrete floor under it and bolted and nailed to the outside north wall of the building. A door in the side of the organ pipe chamber is available for access into the chamber.' The upper levels of the organ pipe chamber are accessible by ladders once one is inside. After the organ was assembled, tonal finishing or "voicing" of the organ in order to get the proper tonal quality took one week. The organ was expected to be functional for 75 to 100 years. Removal of the organ would result in significant structural damage and would require remodeling of the church.

The Protestor maintained that in view of the fact that the pipe organ was permanently annexed to the church structure and was intended to be so annexed, such organ was not tangible personal property pursuant to Iowa Code § 423.2 (1983) and was thus not subject to consumer use tax. The Committee is in agreement with the Protestor's contention.

Department rule 730-19.10(422, 432) IAC, states in pertinent part:

Generally, tangible personal property can be moved without causing damage or injury to itself or to the structure, it does not bear the weight of the structure, and it does not in any other manner, constitute an integral part of a structure.

The administrative rules further specifically define, for illustrative purposes, the sort of property which is to be considered realty. See rule 730-19.10(422,423). Included in this list are items such as boilers, furnaces, improvements to building, cooling systems, music and sound equipment, carpeting, storm doors and windows. For the most part, all of the items listed are of less permanent nature and less physically annexed than a pipe organ of the size and design at issue here. Conversely, the items listed by the administrative rule as being personal property within the purview of Chapter 423 are, without exception, items which are portable or otherwise readily moveable. Department rule 730-19.10(1) lists furniture, radios, televisions, tables and "other easily movable property" as personal property.

The Supreme Court of Iowa has outlined the general test to be applied in determining whether an article is a fixture. Marty v. Champlin Refining Company, 240 Iowa 325, 36 N.W.2d 360, 365 (1949). The Court in that case said:

In each case of these cases the general rule is set forth that three general tests should be applied in determining a particular case, to-wit: (1) annexation to the realty, either actual or constructive, (2) adaptation or application to the use or purpose to which that part of the realty to which it is connected is appropriated, and (3) intention to make the articles a permanent accession to the freehold.

36 N.W.2d at 365. Accord, Walker v. Puck, 236 Iowa 686, 8 N.W.2d 701, 702 (1943). The pipe organ at Holy Trinity fits within this three-pronged test. It is (1) securely affixed to the concrete structure of the church, (2) adapted in sound and tonal quality to this particular building, part of which was effectively remodeled to accommodate the organ and (3) was intended by the congregation to be a permanent accession to the building. Particularly persuasive in this regard is the fact that the cost of the organ is not significantly less than the church's annual budget; the organ was not a small purchase for this congregation.

In conclusion, the Committee finds that under the facts of this case the pipe organ purchased by Holy Trinity Lutheran Church and affixed to the church structure is a fixture rather than tangible personal property. Therefore, the portion of the assessment attributable to this issue is hereby concelled. The amount due for the remainder of the assessment is $403.04 through March 31, 1985 and $405.91 through April 30, 1985 as shown on the enclosed schedule. Please remit the amount directly to my attention. The calculation of the amount due takes into consideration payment of $1,100 as partial payment of uncontested items.

Since no issues remain to be resolved in the Protest, the Hearing Officer will be informed that the Protest can be closed. If you have any questions concerning this matter, do not hesitate to contact me. Thank you for your cooperation and assistance in providing requested information and in attempting to resolve this matter.

Sincerely, Elizabeth G. Beck Attorney at Law Appeals Section 515/281-4071