An Idaho Ltd. Liab. Co. v. Idaho State Tax Comm'n

• Decision Date: 31 August 2010
• Docket Number: No. 36111.,36111.
• Citation: 237 P.3d 1196,149 Idaho 570
• Court: Idaho Supreme Court
• Parties: GRACIE, LLC, an Idaho limited liability company, and Barnes & Barnes Enterprises, LLC, an Idaho limited liability company, Petitioners-Appellants, v. IDAHO STATE TAX COMMISSION, a political subdivision of the State of Idaho, Respondent.

149 Idaho 570

237 P.3d 1196

GRACIE, LLC, an Idaho limited liability company, and Barnes & Barnes Enterprises, LLC, an Idaho limited liability company, Petitioners-Appellants,

v.IDAHO STATE TAX COMMISSION, a political subdivision of the State of Idaho, Respondent.

No. 36111.

Supreme Court of Idaho, Boise, June 2010 Term.

June 28, 2010.

Rehearing Denied Aug. 31, 2010.

Derek A. Pica, Boise, for appellants.

The Honorable Lawrence G. Wasden, Idaho Attorney General, Boise, for respondent. Brian D. Nicholas argued.

J. JONES, Justice.

Gracie, LLC, and Barnes & Barnes Enterprises, LLC, appeal the district court's decision requiring that they pay use tax on their out-of-state purchases of tanning and spa equipment. We affirm.

I. Background

Gracie, LLC, and Barnes & Barnes Enterprises, LLC, (the taxpayers) separately own and operate several Planet Beach tanning salons in Ada and Canyon Counties. Planet Beach generates revenue by offering a variety of tanning and spa services that are catered to the individual needs of its customers. Planet Beach customers may purchase a range of options, from a single tanning session in an individual room for a prearranged period of time, to contemporary spa packages that include wellness, relaxation, UV therapy, and skin rejuvenation services.

Because of the inherent risks associated with tanning, Planet Beach employees strictly control the use of the tanning and spa equipment. Employees are trained to advise and instruct each customer as to the proper usage of the equipment and the appropriate degree and length of exposure. Among other things, each customer is required, in accordance with federal law, to wear protective tanning lenses for the entirety of a tanning session, the maximum time a customer can use any tanning bed or piece of spa equipment is twenty minutes, and no customer is allowed to tan more than one time in a twenty-four hour period.

To aid in the tanning process, Planet Beach sells a variety of tanning lotions, skin care products, protective eyewear, and other similar items. Once the desired service is selected, each customer is provided an individual room for privacy and security. At the front desk, Planet Beach employees are responsible for initiating the tanning process by inputting data into a computer that commences, controls, and monitors the length and degree of exposure for each customer. The customer cannot lengthen the exposure time beyond that set by the Planet Beach employee and, with the exception of pushing a start button, cannot control any aspect of the tanning process without the aid of an employee. The session ends automatically upon the expiration of the pre-set time. At the conclusion of each session, Planet Beach employees are responsible for cleaning and sanitizing the equipment as well as ensuring that the equipment receives routine maintenance.

At some time prior to January 1, 2004, the taxpayers purchased tanning and spa equipment from an out-of-state franchisor for use in the Planet Beach tanning spas. The taxpayers did not pay Idaho sales taxes on the equipment at the time of purchase. In March of 2007, the Idaho State Tax Commission (the Tax Commission) issued deficiency determinations against the taxpayers, assessing sales and use tax and interest for the period of January 1, 2004, through December 31, 2006, relating to the equipment purchases. The taxpayers filed protests and petitions for redetermination pursuant to Idaho Code section 63-3631, arguing that they were exempt from paying use tax on the equipment because they rent the equipment to their customers in the regular course of business. The Tax Commission disagreed and upheld the assessments against both taxpayers.

The taxpayers then petitioned the district court for judicial review of the Tax Commission's decision pursuant to Idaho Code section 63-3049. On cross-motions for summary judgment, the district court affirmed the decision of the Tax Commission. The district court held that the taxpayers were not renting the tanning and spa equipment to their customers, but instead used the equipment as part of a service package offered to the customers, and thus were subject to liability for the Idaho use tax. The taxpayers now appeal to this Court, arguing the limited question of whether they are entitled to the resale exemption from the Idaho use tax.

II.

A.

A taxpayer may appeal a decision by the Tax Commission to the district court by filing a complaint against the Tax Commission in the district court pursuant to Idaho Code section 63-3049. The case proceeds as a de novo bench trial in the district court. Parker v. Idaho State Tax Comm'n, 148 Idaho 842, 845, 230 P.3d 734, 737 (2010). This Court reviews the district court's decision directly, and utilizes the Tax Commission's administrative determination as merely an articulation of the position of the Tax Commission as a party to the action. Lockheed Martin Corp. v. Idaho State Tax Comm'n, 142 Idaho 790, 793, 134 P.3d 641, 644 (2006).

This Court reviews the district court's grant of summary judgment under the same standard employed by the district court. Boise Tower Assocs. v. Hogland, 147 Idaho 774, 779, 215 P.3d 494, 499 (2009). “The fact that the parties have filed cross-motions for summary judgment does not change the applicable standard of review, and this Court must evaluate each party's motion on its own merits.” Intermountain Forest Mgmt., Inc. v. La. Pac. Corp., 136 Idaho 233, 235, 31 P.3d 921, 923 (2001). Summary judgment is proper “if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Idaho R. Civ. P. 56(c). Because the case proceeds as a de novo bench trial in front of the district court, the district court, as the trier of fact, “is entitled to arrive at the most probable inferences based upon the undisputed evidence properly before it and grant the summary judgment despite the possibility of conflicting inferences.” P.O. Ventures, Inc. v. Loucks Family Irrev. Trust, 144 Idaho 233, 237, 159 P.3d 870, 874 (2007). This Court freely reviews the entire record that was before the district court to determine whether either side was entitled to judgment as a matter of law and whether the inferences drawn by the district court are reasonably supported by the record. Id.

B.

The sole question on appeal is whether the taxpayers are entitled to the resale exemption from the Idaho use tax. The Idaho Sales Tax Act (Tax Act), Idaho Code chapter 36, title 63, governs sales and use taxes in Idaho. Because the Legislature cannot impose its sales tax on retail sales that are consummated in other states, Idaho has adopted a complementary use tax. I.C. § 63-3621; Am. Express Travel Related Servs. Co. v. Tax Comm'n, 128 Idaho 902, 905, 920 P.2d 921, 924 (1996). “The use tax is imposed on the exercise of a right or power over tangible personal property as opposed to being imposed on a sale of tangible personal property or services as is the sales tax.” Am. Express Travel Related Servs. Co., 128 Idaho at 905, 920 P.2d at 924.

In the absence of an exemption, “[e]very person storing, using, or otherwise consuming” tangible personal property within the state of Idaho is liable for the use tax. I.C. § 63-3621(a). A taxpayer “uses” tangible personal property through “the exercise of any right or power over tangible personal property incident to the ownership or the leasing of that property....” I.C. § 63-3615(b). However, “the term ‘use’ does not include the sale ¹ of that property in the regular course of business.” Id. Thus, under the resale exemption, any sale to a purchaser who leases, rents, or resells the purchased item prior to making any significant use of it is exempt from the Idaho use tax. I.C. §§ 63-3615(b), 63-3621(e).

In construing the Tax Act, there is a long-standing rule of statutory construction that the Act must be construed as favorably as possible to the taxpayer and strictly against the taxing authority. AIA Servs. Corp. v. Idaho State Tax Comm'n, 136 Idaho 184, 187, 30 P.3d 962, 965 (2001); Futura Corp. v. State Tax Comm'n, 92 Idaho 288, 291, 442 P.2d 174, 177 (1968). However, this presumption is reversed when the taxpayer claims a statutory resale exemption from use taxation. See I.C. § 63-3621(e). When a taxpayer claims a statutory resale exemption, it is presumed that the taxpayer is storing, using, or otherwise consuming the property and is subject to the use tax. I.C. § 63-3621(e). The taxpayer has the burden of proving an entitlement to the resale exemption “unless he obtains from the purchaser a resale certificate to the effect that the property is purchased for resale or rental.” I.C. § 63-3621(e). Thus, with regard to the use tax, liability for the tax is the rule and exemption from the tax is the exception.

In considering whether a taxpayer is entitled to the resale exemption by means of renting tangible personal property...