      IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                                                                S     coo

APL LIMITED; AMERICAN                                No. 70469-9-1
                                                                                **      o
PRESIDENT LINES, LTD.; and EAGLE
MARINE SERVICES, LTD.,                               DIVISION ONE
                                                                                —     =£:-Of~

                    Appellants,



WASHINGTON STATE DEPARTMENT                          UNPUBLISHED
OF REVENUE,
                                                     FILED: March 31. 2014
                    Respondent.



      Cox, J. — For the purposes of taxation, real property includes "land itself.

. . and all buildings, structures or improvements or other fixtures of whatsoever

kind thereon     "1 At issue in this retail sales tax refund action by APL Limited,

American President Lines Ltd., and Eagle Marine Services Ltd. (collectively APL)

is whether five 800-ton cranes leased by APL from the Port of Seattle constitute




       1 RCW 84.04.090 (emphasis added); see also WAC 458-12-010(3)
(emphasis added) ("'Real property' includes . . . [a]ny fixture permanently affixed
to and intended to be annexed to land or permanently affixed to and intended to
be a component of a building, structure, or improvement on land, including
machinery and equipment which become fixtures").
No. 70469-9-1/2


personalty, which is subject to retail sales tax, or fixtures, which is not.2 Because

this record fails to show one of the three essential elements to prove a fixture—

the Port's intent— we affirm the trial court's judgment denying a refund of taxes

that APL paid.

         This is the second time this case is before this court on appeal.3 In the

prior appeal, we reversed and remanded for further proceedings.4 A bench trial

followed in which the court denied the refund sought by APL.

         The historical facts are largely undisputed. APL entered into a long-term

lease with the Port in 1985 for use of a Port-owned facility known as Terminal 5

and for use of Port-owned container cranes.

         Four of these cranes were installed at Terminal 5 in 1986. The fifth was

installed about a year later. All five cranes (the "T5 Cranes") have remained at

Terminal 5. The cranes weigh more than 800 tons and stand close to 200 feet

tall. They are powered by a dedicated high voltage electrical substation and are

connected to the substation by an electrical cable. The cranes operate on

wheels that are positioned on 100-foot gauge rails connected to the terminal.

They are held on the rails by gravity and move along the rails as part of their

normal operation. The rails extend 2,900 feet from one end of the terminal to the

other.



       2 See RCW 82.04.050(4)(a) ("'Retail sale' includes the renting or leasing
of tangible personal property to consumers.").

         3 APL Ltd.. Am. President Lines. Ltd.. & Eagle Marine Servs.. Ltd. v. Dep't
of Revenue, noted at 154 Wn. App. 1020, 2010 WL 264992 (2010).

         4 Id. at *4.
No. 70469-9-1/3


       In 2006, APL sued the Department of Revenue, under RCW 82.32.180,

for a refund of sales tax paid on the lease of these five cranes. APL alleged that

"[bjecause the container cranes became real property when they were

permanently annexed to and integrated with Terminal 5 by the Port," APL's lease

of Terminal 5 and the cranes was not subject to sales tax.

      To determine whether the cranes are personal property or real property for

tax purposes, the common law fixtures test is applied.5

       The Department moved for summary judgment, which the trial court

granted. APL sought review, and this court reversed.6

       A bench trial followed. The court orally ruled in favor of the Department of

Revenue. It later entered its written findings of fact and conclusions of law.

       APL appeals.

                         COMMON LAW OF FIXTURES

       APL argues that the trial court erred when it denied APL's request for a

sales tax refund after concluding that APL had not met its burden of proving the

cranes were fixtures. The essence of the argument is that the cranes satisfy all

three of the essential elements of the common law fixtures test. We hold that this

record shows that the trial court correctly concluded that one of the required

elements, intent of the Port, has not been proven. Thus, we need not address

the other disputed element, annexation.




       5 Dep't of Revenue v. Boeing, 85 Wn.2d 663, 667, 538 P.2d 505 (1975).

       6 APL Ltd., 2010 WL 264992 at *4.
No. 70469-9-1/4



       The determination of whether an article is a fixture is a mixed question of

law and fact.7 Following a bench trial, the reviewing court determines "whether

substantial evidence supports the findings and whether the findings support the

court's conclusions of law."8 "Substantial evidence is evidence in sufficient

quantum to persuade a fair-minded person of the truth of the stated premise."9

The party challenging a finding of fact bears the burden of demonstrating that the

finding is not supported by substantial evidence.10 "If the standard is satisfied, a

reviewing court will not substitute its judgment for that of the trial court even

though it might have resolved a factual dispute differently."11

       Unchallenged findings are verities on appeal.12 Where the trial court

mislabels a conclusion of law as a finding of fact, a court reviews the conclusion

de novo.13

       "It is well recognized that determining what constitutes a fixture as

opposed to personal property is a difficult task that depends on the particular


       7 Boeing, 85 Wn.2d at 667.

       8 Casterline v. Roberts, 168 Wn. App. 376, 381, 284 P.3d 743 (2012).

       9 Schmidt v. Cornerstone Invs.. Inc., 115Wn.2d 148, 158, 795 P.2d 1143
(1990).

     10 Nordstrom Credit. Inc. v. Dep't of Revenue, 120 Wn.2d 935, 939-40,
845P.2d 1331 (1993).

       11 Sunnvside Valley Irr. Dist. v. Dickie, 149 Wn.2d 873, 879-80, 73 P.3d
369 (2003).

       12 Robelv. Roundup Corp., 148 Wn.2d 35, 42, 59 P.3d 611 (2002).

       13 Hegwine v. Longview Fibre Co., Inc.. 132 Wn. App. 546, 556, 132 P.3d
789 (2006).
No. 70469-9-1/5


facts of each case."14 Under the common law test for fixtures, which is applied in

tax cases of this type, a court considers the following three elements:

       "(1) Actual annexation to the realty, or something appurtenant
       thereto; (2) application to the use or purpose to which that part of
       the realty with which it is connected is appropriated; and (3) the
       intention of the party making the annexation to make a permanent
       accession to the freehold."[15]

The annexation element, the adaption element, and the intent element must all

be established before an article may be deemed to be a fixture.16 Thus, if any

one of these elements is absent, proof of a fixture is lacking.

       In this case, both parties agree that the adaption element is met. For

purposes of this appeal, the dispositive question is whether the intent element is

satisfied.

                                Intent of Port of Seattle

       APL argues that the trial court erred when it concluded that the Port did

not intend the cranes to be permanently attached to the realty. We disagree.

       Intent is the most important element of the fixtures test.17 "'[Wjhere the

intent is discovered it is generally controlling.'"18 "In fact, the other two criteria,



      14 Union Elevator & Warehouse Co., Inc. v. Dep't of Transp., 144 Wn. App.
593, 603, 183 P.3d 1097 (2008).

       15 Boeing, 85 Wn.2d at 667 (quoting Lipsett Steel Prods, v. King County.
67 Wn.2d 650, 652, 409 P.2d 475 (1965)).

       16 Jd, at 668.

       17 Union Elevator, 144 Wn. App. at 603.

       18 Strong v. Sunset Copper Co., 9 Wn.2d 214, 230, 114 P.2d 526 (1941)
(quoting Ballard v. Alaska Theatre Co.. 93 Wash. 655, 662, 161 P. 478 (1916)).
No. 70469-9-1/6


annexation and adaption, have been reduced by the courts to simply indications

of intention."19

       Intent is "not to be gathered from the testimony of the annexor as to his

actual state of mind."20 Rather, evidence of intent is gathered from the

circumstances at the time of installation.21 "[A]ll pertinent factors reasonably

bearing on the intent of the annexor should be considered in assessing the intent

at the time of annexation including, but not being limited to, the nature of the

article affixed, the relation and situation to the freehold of the annexor, the

manner of annexation, and the purpose for which the annexation is made."22

       State of Washington Department of Revenue v. The Boeing Co. is the

leading case in this state addressing the question of fixtures for tax purposes and

is substantially similar to this case.23 There, the supreme court considered

whether immense tools known as Boeing "fixed assembly jigs" were fixtures for

tax purposes.24 The jigs were used in the assembly of the Boeing 747 and

worked to hold steady large sections of the aircraft.25



       19 2 Wash. State Bar Ass'n, Real Property Deskbook §23.2(2)(c), at 23-6
(2009) (citing Boeing, 85 Wn.2d at 663).

        20 Boeing, 85 Wn.2d at 668.

        21 \±

        22 ]g\

        23 85 Wn.2d 663, 538 P.2d 505 (1975).

        24 Id, at 666.

        25 Id. at 664.
No. 70469-9-1/7


       In concluding that the jigs were not fixtures, the court determined that the

third element, "the intent of Boeing to make a permanent annexation to the

freehold," was lacking.26 For this conclusion, the court considered seven

pertinent factors.27

       The court determined that two factors supported Boeing, who argued that

the jigs were fixtures.28 Those factors were:

       (1) Since Boeing was the owner of the freehold, it "arguably could
       be presumed that the intent of the annexation was to benefit the
       freehold and not to preserve the jigs as personalty."[29]

       (2) The jigs in question were "necessary to the production of the
       Boeing 747 and the record does not disclose any plans by Boeing
       to end the production of such aircraft."[30]

       Nevertheless, the court then identified several other factors, which it

stated "the cumulative effect of which convinces us that the annexation was not

intended to be a permanent benefit to the freehold."31

       For this conclusion it cited the following factors:

       (3) The plant itself could be used to manufacture other aircraft in
       which case the jigs would have to be discarded and new ones
       brought into the plant;




       26 Id, at 668.

       27 jd, at 668-670.

       28 jd, at 668-69.

       29 id, at 669.

       30 id,

       31 Id.
No. 70469-9-1/8



      (4) The jigs were secured to the floor in such a manner that they
      could be easily removed without harm to the building itself;

      (5) The jigs were designed so that they can be disassembled and
      moved without undue difficulty or harm and could be readily moved
      and transformed back into personalty;

      (6) Boeing itself had considered the jigs to be personalty as they
      had reported them as such for tax purposes;

      (7) The jigs were not listed as fixtures in the "code chart manual"
      which distinguished between fixtures and other tools.[32]

      The court stated, "In sum, we do not think that the totality of the

circumstances can reasonably be construed to indicate an intent by Boeing for

the jigs to be a permanent accession to the freehold."33
       Here, to determine the Port's intent, the trial court looked to the factors

identified in Boeing. The court made 18 findings regarding the Port's intent.

       First, the trial court considered "the moveability of the cranes." The court

made several written findings on this. Specifically, the court found:

               18. Container cranes are movable and can be relocated
       from one terminal to another. Over time there has been a history of
       moving Port-owned container cranes between terminals at the Port
       of Seattle or removing the container cranes from the Port of Seattle
       terminal facilities.




              20. When 100-foot gauge cranes at the Port, including the
       T5 Cranes, are moved from their crane rails, the practice has been
       to construct temporary rails perpendicular to the working rails and
       to move the crane onto those temporary rails where the crane can
       be moved a distance from the working rails. For instance, when
       two of the T5 Cranes were modified to increase their height, one of


       32 See id, at 669-70.

       33 Id. at 670-71.
No. 70469-9-1/9



      the cranes was moved onto temporary rails perpendicular to the
       crane rails after being modified. This allowed the crane to be
       moved back, away from the working rails, and then to be
       repositioned on the crane rails.



                  22. There is a domestic and international market for used
      100-gauge container cranes. In the past the Port of Seattle has
      sold 50 gauge container cranes to smaller ports such as the Port of
      Olympia. These cranes were not disassembled but were moved by
       barge.!34'

      These unchallenged findings are verities on appeal. Additionally, they are

consistent with two of the factors considered in Boeing. They are consistent with

the fourth Boeing factor—that the manner in which the items are secured is

indicative of intent that they be easily removable.35 Additionally, they are

consistent with the fifth Boeing factor—that the items were designed in such a

manner that they could be moved without undue difficulty or harm and

transformed back into personalty.

      APL argues that "[t]he issue is not that an item can be removed, but

whether it was manufactured or installed with an intent that it be removed."

While this is the overall inquiry, whether an item can be removed is relevant to

the fourth and fifth considerations identified in Boeing.36 Thus, this argument is

not persuasive.




       34 Clerk's Papers at 201-02.

       35 Boeing, 85 Wn.2d at 669.

       36
            Id.
No. 70469-9-1/10


       APL attempts to distinguish Boeing by arguing that there, the jigs were

designed to be disassembled and moved, and here, the cranes were not

specifically designed to be disassembled or moved. APL cites to testimony from

the executive director of the Port to support this assertion.

       But, in Boeing, the court relied on this fact to show that the jigs could be

disassembled without harm and transformed back into personalty.37 Here, even

ifthe jigs were not designed to be easily disassembled, the unchallenged

findings show that they could be moved, had been moved in the past, could be

sold, and had been sold in the past.

       Further, the court found that there is a domestic and international market

for used 100-gauge container cranes, and in the past, the Port had sold cranes

that were not disassembled. Accordingly, even if these cranes were not

designed to be disassembled, they could be readily moved and thus transformed

back into personalty. Thus, despite the factual distinction, this evidence is

nonetheless consistent with the fifth Boeing factor.

       Next, the court looked to the Port's categorization of the cranes for tax

purposes.

       The court made three findings on the Port's tax treatment of the cranes,

including the following:

                43. Additional evidence of the Port's intention regarding the
       sales tax treatment of its purchase of container cranes is found in
       Exhibits 124 and 125. Exhibit 125 is a report seeking approval of
       the purchase of the T5 Cranes, with sales tax listed as zero.
       Exhibit 124 is a slightly later proposal in 1986 with the same tax


       37 Id,

                                              10
No. 70469-9-1/11


       treatment—sales tax listed as zero. On this record, the only sales
       tax exemption that would apply to the purchase of these cranes is
       the purchase for resale exemption. Again, if the Port had intended
       the cranes to be fixtures, it would have paid retail sales tax on the
       purchase and would not have billed the tax on the subsequent
       lease of the cranes to the tenant. Instead, the Port did just the
       opposite; it did not pay the sales tax on the purchase, but charged
       the tenant the sales tax on the lease. This is persuasive
       circumstantial evidence that the Port intended the cranes not be
       affixed to the land.[38]

As the court points out, Exhibits 124 and 125, reflect that the estimated sales tax

is zero. Additional documents in the record show that the state sales tax was

listed as "Exempt." This is substantial evidence to support the trial court's

findings. Additionally, it is consistent with the sixth factor identified in Boeing.

       APL argues that "critically, no witness actually knew whether the Port had

paid sales tax on the T-5 Cranes, or, if not, why not." It also argues that if the

Port had purchased the cranes for resale, the law required a "resale certificate,"

and the DOR did not present any evidence of such a certificate. Thus, it argues

that "no evidence supports a finding that the Port claimed a resale exemption

when purchasing the cranes." This argument is not persuasive.

       The essence of this argument is that APL disagrees with the trial court's

factual finding because other evidence allegedly undercuts the evidence on

which the court relied for its finding. This is a dispute over whether substantial

evidence supports the finding. As we previously discussed, the billing

statements and memorandums in the record support the trial court's findings that




       38 Clerk's Papers at 206-07.

                                               11
No. 70469-9-1/12


the Port did not pay sales tax. It was for the trial court to determine the weight of

this evidence, and it did so.

         Finally, the court addressed "documented categorization." For this, the

court made several findings about the lease agreement and the Port's policy

statements. Among those are the following:

                 30. The lease agreement contains direct evidence that the
         Port intended the container cranes to be personal property and not
         fixtures. The initial lease between the parties (Def. Ex. 101) under
         section (1)(a) described "the Premises" as consisting of
         approximately 77 acres of land and improvements. The
         improvements covered under this section "are fully described on
         Exhibit B" to the initial lease. The improvements described in
         Exhibit B do not include container cranes. Instead, Exhibit B
         describes three categories of improvements. In Part I, the listed
         improvements are not amortized. In Part II, the listed
         improvements are amortized, and the costs recovered over the
         term of the lease. In Part III, the listed improvements are amortized
         but not paid for unless APL terminates the lease early, and then
         payment is due for those improvements or an amortized schedule.
         Included in these schedules are many items that could be
         characterized as personal property, not fixtures. Examples include
         fencing and gates, truck scales, tanks, and reefer receptacles to
         name a few. The T5 Cranes are not listed as improvements on
         Exhibit B.

               31. Section 9(a) of the initial lease (Def. ex. 101-13)
         provides, "All improvements identified in Exhibit B including those
         the payment of which is amortized by Lessee shall at once, upon
         completion [become] a part of the realty and become the property
         of the Port." This is an unmistakable declaration that the
         improvements listed in Exhibit B are fixtures. As previously noted,
         the T5 Cranes are not listed on Exhibit B.[39]

         The trial court made four other similar findings related to other lease

terms.




         39 id, at 203-04.

                                               12
No. 70469-9-1/13


       Additionally, it looked to the Port Harbor Development Strategy and the

Container Terminal Development Plan. The court found that "[a] close reading of

all relevant parts of both these documents supports the Department's contention

that the Port of Seattle intended the T5 Cranes to be equipment held as

'inventory,' not fixtures."40 For example, the trial court pointed to specific

language in the plan that refers to the "crane inventory."

       The language in the lease and in these documents is similar to the

evidence presented in Boeing.41 The Port's own categorization of the cranes is

objective evidence that it did not intend for the cranes to be fixtures. As Boeing

noted, "If Boeing had intended for the jigs to be a permanent accession to the

freehold, it seems more likely that they would have been listed with the rest of the

fixtures."42 Similarly, here, if the Port intended for the cranes to be fixtures, it is

more likely that it would have listed them as "improvements" in the lease. It did

not do so. Overall, this documented categorization, including the language of the

lease agreement, and the Port's policy statements, is consistent with Boeing's

seventh factor.


       In sum, there is substantial evidence to support the trial court's challenged

findings. Additionally, these findings, along with the unchallenged findings, show

that most of the factors considered pertinent in Boeing are also present in this

case. The cranes could be easily removed, the cranes could be readily moved


       40 id, at 205-06.

       41 Boeing. 85 Wn.2d at 670.

       42 Id.


                                               13
No. 70469-9-1/14


and transformed back into personalty, the Port considered the cranes personalty

for tax purposes, and the Port did not list the cranes as improvements in the

lease. Looking to this evidence, and considering the totality of the

circumstances, the findings support the trial court's conclusion that the Port did

not intend for the cranes to be treated as fixtures.

       APL makes a number of additional arguments that the trial court erred

when it concluded that the Port did not intend to permanently affix the cranes to

the realty. None are persuasive.

       First, APL argues that "[b]ecause the cranes were annexed to the realty,

APL was entitled to a legal presumption that the Port intended to permanently

enrich the freehold," and that the trial court erred in refusing to apply a

presumption of intent in APL's favor. It is true that "when the annexation of a

fixture is made by the owner of the property, the presumption is that it was

annexed with the intention of enriching the freehold."43 But APL is wrong in its

assertion about how the presumption applies for several reasons.

       To start with, the trial court declined to apply the presumption because it

stated that "[t]he presumption works where the evidence of annexation is clear

and the issue is whether the owner intended that clear result. But where

annexation is not clear without resorting to examining what the owner intended,

application of the presumption serves no useful purpose."44 This approach is



       43 Nearhoff v. Rucker, 156 Wash. 621, 628, 287 P. 658 (1930).

       44 Clerk's Papers at 217.


                                              14
No. 70469-9-1/15


logical under these circumstances, and APL's argument to the contrary is not

persuasive.

       Next, APL cites to Western Ag Land Partners v. Department of Revenue

and Strain v. Green for the proposition that, "Where the presumption applies, the

burden shifts to the defendant to prove that, notwithstanding the annexation, the

annexor intended the item to remain personal property."45 While those cases

acknowledge that such a presumption would arise, they do not discuss shifting

the burden of proof on the intent element.46 And, in this case, the burden of proof

is on APL, because APL is the taxpayer.47 APL fails to cite any relevant authority

that supports the implicit argument it makes that this general rule does not apply

to this case. Further, in Western Ag. the court indicated that the intent prong was

satisfied given the presumption and "[a]bsent some evidence rebutting this

presumption."48 In contrast, here, it is clear that there is more than "some

evidence" to rebut the presumption. Accordingly, APL's reliance on these cases

is not helpful.

       Finally, even if the presumption did apply, in Boeing, the court considered

the presumption only as one factor that supported Boeing's argument that the




     45 Brief of Appellants at 25 (citing Western Ag Land Partners v. Dep't of
Revenue. 43 Wn. App. 167, 174, 716 P.2d 310 (1986); Strain v. Green. 25
Wn.2d 692, 700, 172 P.2d 216 (1946)).

       46 See Western Ag, 43 Wn. App. at 173-74; Strain, 25 Wn.2d at 700.

       47 See RCW 82.32.180; Clerk's Papers at 207.

       48 Western Ag, 43 Wn. App. at 174.


                                            15
No. 70469-9-1/16


jigs were fixtures.49 Looking at the totality of the circumstances, the Boeing court

nonetheless concluded that the jigs were not fixtures, given the other factors that

did not support Boeing. Similarly, here, even if we agreed that the presumption

supported APL, this would only suggest that the first factor identified in Boeing

favors APL. But still, considering all other pertinent factors and the totality of the

circumstances, the trial court's conclusion is firmly supported by Boeing.

       Second, APL argues that the Port installed the cranes with the intent that

they remain part of Terminal 5 for their entire useful lives. It first points to the

testimony of the Port's executive director who stated that it was the Port's view

that the cranes were "an integral part of the container facility and were not going

to be moved." APL also argues that the Port spent tens of millions of dollars to

rebuild Terminal 5 to accommodate the cranes, and that the lease term was for

30 years, which is the expected useful life of a T5 crane.

       Notwithstanding the above points, evidence of intent comes from objective

evidence existing at the time of annexation, not subjective belief.50 Accordingly,

evidence relating to subjective intent, such as the Port director's opinion, is not

relevant to the inquiry.

       Moreover, the trial court did not make findings for any of these evidentiary

points on which APL relies. And an appellate court "will not 'disturb findings of




       49 Boeing, 85 Wn.2d at 668-69.

       50 Id.


                                               16
No. 70469-9-1/17


fact supported by substantial evidence even if there is conflicting evidence.'"51

Accordingly, because there is substantial evidence to support the trial court's

findings, any conflicting evidence does not alter our analysis.

       To summarize, APL fails in its burden to show that the Port intended to

make a permanent accession to the Port's property when it allegedly annexed

the cranes to the property. Accordingly, we need not address whether there was

truly an annexation of the cranes to the Port's property.

       We affirm the judgment.



                                                       &          7(J

WE CONCUR:




                                                  \   "CV^svfr-^—J




      51 McClearv v. State, 173 Wn.2d 477, 514, 269 P.3d 227 (2012) (quoting
Merriman v. Cokelev, 168 Wn.2d 627, 631, 230 P.3d 162 (2010)).
                                             17
