For Plaintiff: John O. Mancini, Esq.
For Defendant: Lisa Fries, Esq.
Before the Court is SEI/Aaron's (Plaintiff) Motion for Summary Judgment. Plaintiff contends that David Quinn and Michael Pearis (collectively, Defendants), in their official capacities as Tax Assessor and Finance Director of the City of Providence, respectively, have illegally taxed Plaintiff by classifying Plaintiff's merchandise sold by a "rent-to-own" agreement as "leased goods" rather than "inventory." Conversely, Defendants aver that such merchandise is "leased goods." Jurisdiction is pursuant to G.L. 1956 §§ 44-5-26 and 44-5-27. For the following reasons, Plaintiff's Motion for Summary Judgment is denied.
I Facts and Travel
The facts of the instant matter appear to be undisputed-Defendants neither oppose nor challenge the facts recited in Plaintiff's motion. Plaintiff is a retail merchant who sells household goods, such as furniture, appliances, home electronics, and personal computers (collectively, Merchandise). Pl.'s Mot. for Summ. J., Ex. A at 1. A buyer can purchase goods from Plaintiff in three ways: (1) by cash, check, credit card, or money order; (2) "by 90 days same as cash"; and (3) by a twelve (12) month agreement, entitled Lease Purchase Agreement (the Agreement) Id. at 1-2. If a customer elects to purchase a good by the Agreement, the customer is obligated to make specified payments over a set period of time. Id. at 2. If a customer fails to make the required payments, he or she must return the Merchandise to Plaintiff. Id. at 3. Plaintiff remits to the state a state sales tax on each payment the buyer makes under the Agreement. Id.
Before a customer can purchase any Merchandise through the Agreement, he or she must read, acknowledge, sign and agree to the terms of the Agreement. See Defs.' Objection to Pl.'s Mot. for Summ. J., Ex. B at 1-2. The Agreement is two pages: the first page enumerates all the rights and obligations of the parties, and the second page is an addendum thereto. See id.
The first paragraph of the Agreement, entitled "Lease Transaction, " specifies that the customer "agree[s] to lease the below items ("Leased Property") from S.E.I. ("Aaron's"). . . ." Id. at 1. It also provides that the term of the lease is one month, and that the buyer can renew the lease by timely payment of a "renewal fee." Id. If the buyer fails to make such payment, he or she must return the Merchandise to Plaintiff. Id. Below this paragraph is an area to detail specifics about the Merchandise being sold, such as item number, serial number, description, lease rate, and cash price. Id. It also contains a chart that outlines a payment schedule. Id.
The second paragraph, entitled "Purchase Option, " provides that the customer "can acquire ownership of the Leased Property by making the Total No. of Payments to Own when due." Id. It further provides that the customer can change the frequency of his or her Renewal Payments at any time. Id. The following paragraph, entitled "Early Purchase Option, " explains that the customer can purchase the Leased Property "at any time by paying an amount equal to the Total Cash Price less 50% of the Lease portion of the Total Initial Payment" and all Renewal Payments made by the customer. Id. The fourth paragraph, entitled "Ownership, " states that the customer "will not own nor obtain any equity interest in the Leased Property until [he or she] ha[s] either paid the Total Cost to Own or exercised [his or her] early purchase option." Id.
The fifth paragraph, entitled "Other Charges, " provides that the customer could be subject to several fees, including a late charge, a returned check charge, any check verification charges, and an in-home collection charge if the customer defaults on his or her obligations. Id. Further, the sixth and seventh paragraphs, entitled "Risk of Loss and Damage" and "SERVICE PLUS, " explain that the customer may be subject to several other additional charges. Id.
The eighth paragraph, entitled "Reinstatement, " explains that if the customer fails to make a Renewal Payment, the Agreement will automatically terminate. Id. However, if the customer voluntarily returns the Merchandise to Plaintiff, the customer may reinstate the Agreement by making Renewal Payments and Other Charges owed to Plaintiff within 3 Renewal Terms after the expiration of the last Renewal Term. Id.
The tenth paragraph, entitled "Termination, " states that the customer can terminate the Agreement without penalty at any time by "surrendering or returning the Leased Property in good repair and paying all Renewal Payments and Other Charges through the date of surrender or return." Id. However, the following paragraph, entitled "Right to Take Possession, " elucidates that if the buyer does not renew the Agreement, it will automatically terminate along with the buyer's right to possess the Leased Property, and Plaintiff will be entitled to immediate possession of the Leased Property. Id. The customer will remain liable for all Renewal Payments until the Merchandise is returned to Plaintiff. Id.
The second to last paragraph, entitled "Prohibited Acts, " states that the customer may not "pledge, pawn, attempt to sell or otherwise dispose of the Leased Property or move it from the address listed above without written authorization from [Plaintiff]." Id. Similarly, the last paragraph, entitled "Assignment, " provides that the Plaintiff may assign or transfer the Agreement without the customer's consent. Id. Conversely, it explains that the customer may not assign his or her rights or obligations under the Agreement. Id.
At the bottom of the Agreement, there is a place for the "lessee" and a representative of Plaintiff to sign and date the document. Id. The second page of the Agreement is an addendum, which provides information pertaining to application processing, delivery, relocation, payment holidays, new agreement discounts, preferred customer coupons, and limited warranties. Id. at 2.
On July 11, 2013, Defendants sent Plaintiff a tax bill for tax years 2007 through 2013. See Pl.'s Mot. for Summ. J., Ex. C. However, Plaintiff contends that it did not maintain any stores in Providence from 2008 to 2013. As of January 2014, including interest on the 2007 through 2013 tax bills, the total amount of taxes owed to Defendants are $2, 119, 581.33. See Pl.'s Mot. for Summ. J., Ex. D.
Plaintiff filed a Complaint on October 10, 2013, and Defendants filed an Answer on November 4, 2013. Subsequently, on February 2, 2014, Plaintiff filed a "Motion for Relief, " seeking an injunction; the motion was heard and denied by this Court on March 4, 2014. Plaintiff filed the instant motion on September 21, 2015, and Defendants objected to the motion on October 13, 2015. Plaintiff avers that Defendants have violated § 44-3-29.1 by failing to assess its Merchandise sold pursuant to the Agreement as "inventory, " which is exempt from taxation under Rhode Island law, but instead have classified Plaintiff's property as "leased equipment." Plaintiff further contends that taxation of its "inventory" violates article XIII, section 5 of the Rhode Island Constitution. Defendants respond that the Merchandise is "leased goods, " which are taxable.
II Standard of Review
In ruling upon a motion for summary judgment, the Court must "view the evidence in the light most favorable to the nonmoving party" and determine whether there exist "'genuine issues of material fact and [whether] the moving party is entitled to judgment as a matter of law.'" Bucci v. Hurd Buick Pontiac GMC Truck, LLC, 85 A.3d 1160, 1170 (R.I. 2014) (quoting Sullo v. Greenberg, 68 A.3d 404, 406 (R.I. 2013)); see Super. R. Civ. P. 56(c). The burden to avoid summary judgment "is on the nonmoving party to produce competent evidence that 'proves the existence of a disputed issue of material fact.'" Id. (quoting Sullo, 68 A.3d at 407). Summary judgment is appropriate if the nonmoving party "'fails to make a showing sufficient to establish the existence of an element essential to that party's case.'" Beauregard v. Gouin, 66 A.3d 489, 493 (R.I. 2013) (quoting Lavoie v. North East Knitting, Inc., 918 A.2d 225, 228 (R.I. 2007)). A factual dispute alone will not preclude summary judgment; "'the requirement is that there be no genuine issue of material fact.'" Bucci, 85 A.3d at 1170 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
The threshold issue before the Court is whether Plaintiff's merchandise sold by the Agreement is "inventory" or "leased goods." Plaintiff makes two arguments in its motion: (1) that its Merchandise is "inventory"; and (2) that Defendants taxing its "inventory" violates article XIII, section 5 of the Rhode Island Constitution. In opposition, Defendants maintain that Plaintiff's merchandise is "leased goods" and not exempt ...