Becker Elec. Co., Inc. v. Director of Revenue, 69485
| Decision Date | 19 April 1988 |
| Docket Number | No. 69485,69485 |
| Citation | 749 S.W.2d 403 |
| Parties | BECKER ELECTRIC COMPANY, INC., Appellant, v. DIRECTOR OF REVENUE, State of Missouri, Respondent. |
| Court | Missouri Supreme Court |
Rochelle Kaskowitz, St. Louis, for appellant.
William L. Webster, Atty. Gen., Richard L. Wieler, Asst. Atty. Gen., Jefferson City, for respondent.
Shirley Ward Keeler, Kansas City, amicus curiae, for Kansas City, Missouri, School Dist.
W.B. Tichenor, Jefferson City, for Missouri Baptist Convention.
Harold L. Fridkin, Charles H. Stitt, Kansas City, for Missouri Hosp. Ass'n.
Gad Smith, Sandra L. Schermerhorn, Kansas City, for Builders Ass'n of Kansas City.
Juan D. Keller, St. Louis, for Independent Colleges and Universities of Missouri.
Amy R. Hinderer, Rhonda A. O'Brien, St. Louis, for Bi-State Development Agency of Missouri-Illinois Metropolitan Dist.
Stephen L. Ukman, St. Louis, for National Elec. Contractors Assn., Inc. St. Louis Chapter and Kansas City Chapter and Mechanical Contractors Assn. of St. Louis, Mo.
This is an appeal from a final decision of the Administrative Hearing Commission involving the construction of the revenue laws of the State of Missouri. This Court has exclusive jurisdiction. Mo. Const. art. V, § 3.
The facts are not in dispute. On January 8, 1982, Hankins Construction Company entered into a general contract with the St. Louis Housing Authority to renovate the Webbe Elderly Housing Project, which was situated on land owned by the Housing Authority. Appellant Becker Electric Company, Inc., subcontracted with Hankins on January 12, 1982, to renovate and remodel a certain building at the Webbe Project for a lump sum payment of $490,000. The subcontract required appellant to pay for all materials furnished and work and labor performed under the subcontract and to make good, at appellant's own expense, any defect in materials or workmanship. The estimated cost of materials and associated sales and use taxes were figured into the $490,000 subcontract price.
The Housing Authority was, and still is, exempt from state sales and use taxes. 1 The Housing Authority issued a tax exemption certificate covering purchases associated with the Webbe project, and Hankins ordered all subcontractors to purchase materials in the name of St. Louis Housing Authority, in care of the subcontractor. Accordingly, appellant ordered all construction materials necessary to fulfill the subcontract in the name of "St. Louis Housing Authority c/o Becker Electric." The Housing Authority directly paid for all purchases and the $490,000 lump sum payment was reduced in an amount equal to the sum of the tax-exempt purchases and any associated tax savings. No sales or use taxes were paid on such purchases.
On May 10, 1983, the Housing Authority and Hankins incorporated an addendum into the general contract which allowed the Housing Authority to pay suppliers directly for any purchases of materials for the Webbe project. The Housing Authority's payments to Hankins were reduced in an amount equal to the purchase price plus tax savings.
In September 1983, the Department of Revenue conducted a sales and use tax audit of appellant and issued an assessment the following February demanding $7,982.56 for sales tax, penalty and interest, and $108.19 for use tax, penalty and interest. The auditor's report stated:
None [sic] payment of tax on material billed to Becker Electric.
Findings were on contracts where work was done for St. Louis Housing Authority, but billed from vendor to Becker Electric.
St. Louis Housing Authority paid for material using exemption letter. Note invoices show billing to Becker, not St. Louis Housing Authority.
Appellant filed a timely complaint, and the Administrative Hearing Commission upheld the assessment.
On review, "[a] decision of the administrative hearing commission shall be upheld when authorized by law and supported by competent and substantial evidence upon the whole record, [unless the result is] clearly contrary to ... the reasonable expectations of the general assembly...." Section 621.193, RSMo 1986. Since we find that the Commission's decision was not authorized by law, we reverse.
Section 144.020(1), RSMo 1978, imposes a sales tax on
all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state. The rate of tax shall be as follows:
(1) Upon every retail sale in this state of tangible personal property a tax equivalent to three percent of the purchase price paid or charged....
The taxable event is a retail sale, which is defined as "any transfer made by any person ... of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale ..., for a valuable consideration...." Section 144.010(1)(8), RSMo 1978. Collection and submission of the sales tax is generally the responsibility of the seller, but "when a purchaser has purchased tangible personal property or services sales tax free under a claim of exemption that is found to be improper, the director of revenue may collect the proper amount of tax, interest and penalty from the purchaser directly." Section 144.210(1), RSMo 1978.
The Compensating Use Tax Law, sections 144.600-.745, RSMo 1978, imposes a complementary and equivalent tax on out-of-state purchases that would have been subject to sales tax had the purchases occurred in Missouri.
In concluding that appellant was liable for sales and use taxes on the construction materials, the Administrative Hearing Commission relied heavily on the settled proposition that contractors and subcontractors are the consumers of materials purchased and used in the fulfillment of a construction contract and are therefore liable for sales and use taxes. See Overland Steel, Inc. v. Director of Revenue, 647 S.W.2d 535 (Mo. banc 1983); J.E. Williams Construction Co. v. Spradling, 555 S.W.2d 16 (Mo. banc 1977); State ex rel. Thompson-Stearns-Roger v. Schaffner, 489 S.W.2d 207 (Mo.1973); City of St. Louis v. Smith, 342 Mo. 317, 114 S.W.2d 1017 (1937); 12 C.S.R. 10-3.028. 2 However, this proposition developed in response to the argument that construction materials purchased by contractors and subcontractors are resold upon completion of the construction project and are therefore not subject to sales tax. See City of St. Louis v. Smith, 342 Mo. at 320-321, 114 S.W.2d at 1019. None of the cited cases involved the situation found here, where a tax-exempt owner of the real property paid suppliers directly for the construction materials. 3
Therefore, the central issue on appeal is whether a contractor or subcontractor who does not pay for construction materials used to fulfill a construction project can nevertheless be considered a purchaser of the construction materials. Appellant argues that the Housing Authority, due to its direct payment for the construction materials, was the purchaser and therefore the sales were made pursuant to a valid exemption. If appellant was the purchaser, however, then the Housing Authority's exemption would not apply, and appellant is liable for the tax unless appellant qualifies for an exemption other than that of the Housing Authority.
As a preliminary matter, it must be recognized that revenue laws are to be construed strictly against the taxing authority in favor of the taxpayer. E.g., Goldberg v. Administrative Hearing Comm'n, 609 S.W.2d 140, 144 (Mo. banc 1980). Respondent argues that this case involves construction of an exemption and thus requires strict construction against the taxpayer. Farm and Home Savings Ass'n v. Spradling, 538 S.W.2d 313 (Mo.1976). However, the question of exemption will arise only if we find that appellant was the purchaser of the construction materials and was thus subject to sales and use taxes. Therefore, in determining whether appellant was the purchaser, the sales and use tax laws will be strictly construed against respondent.
Ordinarily, the word purchaser has two well defined meanings. It may be employed in the broad sense to include anyone who obtains title otherwise than by descent and distribution. In its more commonly used and ordinarily accepted sense it refers to a vendee or buyer who has purchased property for a valuable consideration.
Smith v. Enochs, 233 F.Supp. 925, 927 (S.D.Miss.1964), aff'd, 359 F.2d 924 (5th Cir.1966).
The first step in determining if appellant was the purchaser is to examine the statutes in an effort to determine legislative intent. "Purchaser," for purposes of the Sales Tax Laws, "means a person who purchases tangible personal property" subject to sales tax. Section 144.010(1)(7), RSMo 1978. The Compensating Use Tax Law defines "purchaser" as "any person who is the recipient for a valuable consideration of any sale of tangible personal property acquired for use, storage or consumption in this state...." Section 144.605(4), RSMo 1978. "Purchase" is not defined in the sales tax laws but is defined under the Compensating Use Tax Law as "the acquisition of the ownership of, or title to, tangible personal property...." Section 144.605(3), RSMo 1978. As mentioned, "sale at retail" is defined as "any transfer made by any person ... of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale ..., for a valuable consideration...." Section 144.010(1)(8), RSMo 1978. From these definitions it is unclear whether the legislature intended for an exchange of valuable consideration to be an element of the term "purchaser."
Article III, section 39(10), of the Missouri Constitution prohibits the General Assembly from imposing "a use or sales tax upon the use, purchase or acquisition of property paid for out of the funds of any county or other political subdivision." This emphasizes the importance placed on the party directly paying the purchase price in determining the applicability of a...
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