Appeal of J.G. Masonry, Inc.

• Decision Date: 27 April 1984
• Docket Number: No. 56096,56096
• Citation: 680 P.2d 291,235 Kan. 497
• Parties: In the Matter of the Appeal of J.G. MASONRY, INC., From an Order of the Board of Tax Appeals, State of Kansas, J.G. MASONRY, INC., Appellant, v. The DEPARTMENT OF REVENUE of the State of Kansas, Appellee.
• Court: Kansas Supreme Court

Page 291

680 P.2d 291

235 Kan. 497

In the Matter of the Appeal of J.G. MASONRY, INC., From an Order of the Board of Tax Appeals, State of Kansas J.G. MASONRY, INC., Appellant, v. The DEPARTMENT OF REVENUE of the State of Kansas, Appellee.

No. 56096.

Supreme Court of Kansas.

April 27, 1984.

Syllabus by the Court

1. The sales tax statutes are penal, and thus must be strictly construed in favor of the taxpayer. The rule of strict construction, however, does not permit a disregard of manifest legislative intention appearing from plain and unambiguous language.

2. The Kansas statutes imposing a sales tax on services do not exempt from the sales tax the construction of a building within a building or a room within a room.

3. The terms of a penal statute creating a new offense must be sufficiently explicit to inform those who are subject to it what conduct on their part will render them liable to its penalties. A statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.

4. If the words used in a statute have been previously judicially construed, the statute will not be considered vague.

5. K.S.A.1978 Supp. 79-3603(p) is not vague and indefinite, and is not constitutionally infirm.

6. K.S.A. 79-3701 et seq., the Kansas Compensating Tax Act, imposes a tax which complements the Kansas sales tax imposed by K.S.A. 79-3601 et seq. These tax statutes treat local and interstate purchases equally and without discrimination.

7. K.S.A. 79-3601 et seq. does not contravene the commerce clause of the United States Constitution.

8. The word "collectible," in the context of its use in the compensating tax statutes, K.S.A. 79-3701 et seq., indicates "capable of being collected" in the sense that the out-of-state seller was authorized to collect the tax for the State of Kansas.

9. When a Kansas retailer fails to collect sales tax on a sale made to a Kansas resident within this state, the state may proceed against the retailer to collect the tax. It may not invoke the provisions of the compensating tax act, K.S.A. 79-3701 et seq., and proceed against the purchaser when the transaction was wholly within this state.

Craig Towerman of Ryder, Rose, Frensley & Shapiro, Kansas City, Mo., argued the cause, and David R. Frensley, Kansas City, Mo., of the same firm, and Scott E. Giffen of Long & Giffen, Mission, were with him on the briefs for appellant.

Cleo G. Murphy, Kansas Dept. of Revenue, Topeka, argued the cause, and William L. Edds, Gen. Counsel, and Nancy E. Freund, Kansas Dept. of Revenue, Topeka, were with him on the brief for appellee.

MILLER, Justice:

This is a taxpayer's appeal from a judgment of the Wyandotte District Court affirming an order of the Board of Tax Appeals which upheld an assessment of sales and compensating taxes by the Kansas Department of Revenue. J.G. Masonry, Inc., a masonry construction firm of Kansas City, Kansas, is the taxpayer and appellant. Following an audit of the taxpayer's records in 1980, the Department assessed additional unpaid taxes on several services and business transactions occurring in the years 1977, 1978 and 1979. Total taxes, interest and penalties amounted to $2,912. Five questions are presented, two regarding the sales tax, K.S.A. 79-3601 et seq., and the then-current amendments, and three regarding the compensating tax, K.S.A. 79-3701 et seq., as then constituted. Each issue is based upon different facts, so we will discuss separately the facts applicable to each.

I. THE "ORIGINAL CONSTRUCTION" AND "BUILDING" EXEMPTIONS IN K.S.A. 1978 Supp. 79-3603

The taxpayer first contends that two of its construction projects upon which sales taxes were levied come within the "original construction" exemption of the statute and thus should not have been taxed. The pertinent portions of the statute read:

"79-3603. Tax imposed; rate. From and after the effective date of this act, for the privilege of engaging in the business of selling tangible personal property at retail in this state or rendering or furnishing any of the services taxable under this act, there is hereby levied and there shall be collected and paid a tax as follows:

....

"(p) a tax at the rate of three percent (3%) upon the gross receipts received for the service of installing or applying tangible personal property which when installed or applied is not being held for sale in the regular course of business, and whether or not such tangible personal property when installed or applied remains tangible personal property or becomes a part of real estate, except that no tax shall be imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility or the construction, reconstruction, restoration, replacement or repair of a bridge or highway. The tax imposed pursuant to this subsection shall not be applicable to said services which were rendered on and after the effective date of this act pursuant to a written contract for a fixed price and not subject to negotiation or alteration entered into prior to May 15, 1977.

"For the purposes of this subsection:

"(1) 'Original construction' shall mean the first or initial construction of a new building or facility. The term 'original construction' shall include the addition of an entire room or floor to any existing building or facility, the completion of any unfinished portion of any existing building or facility and the restoration, reconstruction or replacement of a building or facility damaged or destroyed by fire, flood, windstorm, hailstorm, rainstorm, snowstorm, lightning, explosion or earthquake, but said term shall not include replacement, remodeling, restoration renovation or reconstruction under any other circumstances;

"(2) 'Building' shall mean only those enclosures within which individuals customarily live or are employed, or which are customarily used to house machinery, equipment or other property, and including the land improvements immediately surrounding such building ...."

In April or early May 1979, J.G. Masonry, Inc. (J.G.), built an office at the Perk Foods plant. The office is described as having four freestanding walls and a roof. It is wholly within the plant building and is "a building within a building." Similarly, in June 1979, J.G. built an office inside the Midwest Conveyor plant. Again, it consists of four freestanding walls and a roof. It is "a building inside a building." Taxpayer contends that these rooms were "original construction," as that term is used in 79-3603(p)(1), because each is "the addition of an entire room ... to [an] existing building ...." J.G. argues that it added a new room to each plant. The State claims that the statute exempts only rooms added to the exterior of buildings, and in support of its argument it cites K.A.R.1983 Supp. 92-19-31. That regulation as originally adopted by the secretary of revenue was submitted to the 1979 session of the Kansas Legislature and was modified by Senate Concurrent Resolution No. 1627. The modified regulation, set forth in 1979 Session Laws, chapter 349, reads in part as follows:

"92-19-31. Installation or application of tangible personal property. (a) General rule. Kansas sales tax must be collected by the retailer on total gross receipts received for the service of installing or applying tangible personal property. A retailer of the service of installing or applying tangible personal property is the person who performs such service.

"(b ) Original construction. No tax is imposed upon the service of installing or applying tangible personal property in connection with the original construction of a building or facility. (1) The addition of a room or floor inside an existing building is not considered to be original construction. The addition of an entire room or floor to the exterior of an existing building or facility is considered to be original construction." (Emphasis in original.)

The administrative regulation makes it clear that a building inside a building or a room within a room is not original construction. Administrative regulations, when adopted, have the force and effect of statutes. Jones v. The Grain Club, 227 Kan. 148, Syl. p 1, 605 P.2d 142 (1980); Harder v. Kansas Comm'n on Civil Rights, 225 Kan. 556, Syl. p 1, 592 P.2d 456 (1979). This resolution became effective on May 1, 1979, and thus was in full force at the time of the Midwest Conveyor construction. Whether it is applicable to the Perk Foods job depends upon the time that work was done, and the record shows only that the work was done in "April or early May."

Nevertheless, this issue may be decided on the basis of K.S.A. 1978 Supp. 79-3603(p)(1) alone, without resort to the regulation. That portion of 79-3603(p)(1) here applicable speaks of "the addition" of a room. "Addition" is defined in Webster's Third New International Dictionary as "a part added to or joined with a building to increase available space." To add is to enlarge. Neither the Perk Foods nor the Midwest Conveyor projects resulted in any increased available space in either plant; rather, the available space inside the plant was subdivided in order to make it usable for a particular purpose. The original structure was not enlarged. The interior of the plant was merely remodeled.

The sales tax statutes are penal, and thus must be strictly construed in favor of the taxpayer. State v. Zimmerman & Schmidt, 233 Kan. 151, 155, 660 P.2d 960 (1983). The rule of strict construction, however, does not permit a disregard of manifest legislative intention appearing from plain and unambiguous language. State v. Howard, 221 Kan. 51, 54, 557 P.2d 1280 (1976). The legislative language speaks of "the addition of an entire room." The plain and ordinary meaning of that language is not the dividing...