Dailey v. Bechtel Corp., 13431

• Decision Date: 23 July 1974
• Docket Number: No. 13431,13431
• Citation: 157 W.Va. 1023,207 S.E.2d 169
• Parties: Richard L. DAILEY, Tax Commissioner, State of West Virginia v. BECHTEL CORPORATION, a corporation.
• Court: West Virginia Supreme Court

Page 169

207 S.E.2d 169

157 W.Va. 1023

Richard L. DAILEY, Tax Commissioner, State of West Virginia v. BECHTEL CORPORATION, a corporation.

No. 13431.

Supreme Court of Appeals of West Virginia.

July 23, 1974.

Syllabus by the Court

1. 'Under Code, 11--13--1, as amended, (in effect at the time the taxes in this case were incurred) the measure of the Business and Occupation Tax is the gross income of the taxpayer defined therein as 'the gross receipts . . . received as compensation for personal services and the gross receipts . . . derived from trade, business, commerce or sales . . ..' Gross income does not include reimbursements from a party to a taxpayer for expenditures made by the taxpayer in accordance with the provisions of an agreement between the taxpayer and such party when it is clear from the terms of the agreement and the manner in which it is executed that such reimbursements were not a part of the remuneration of the taxpayer for services rendered to the other party to the agreement.' Point 4 Syllabus, Bethlehem Mines Corporation v. Haden, 153 W.Va. 721 (172 S.E.2d 126).

2. An appellate court should not overrule a previous decision recently rendered without evidence of changing conditions or serious judicial error in interpretation sufficient to compel deviation from the basic policy of the doctrine of stare decisis, which is to promote certainty, stability, and uniformity in the law.

Chauncey H. Browning, Jr., Atty. Gen., Jack C. McClung, Deputy Atty. Gen., William F. Carroll, Asst. Atty. Gen., Charleston, for appellant.

James Wise, Robinson & Magnuson, E. Glenn Robinson, Charleston, for appellee.

SPROUSE, Justice:

This case is before the Court upon an appeal from a final judgment of the Circuit Court of Kanawha County in a declaratory judgment proceeding instituted by Richard L. Dailey, Tax Commissioner of the State of West Virginia, as the plaintiff, against Bechtel Corporation, as the defendant. The proceeding was instituted at the request of Bechtel, pursuant to the provisions of Code, 1931, 11--1--2a, as amended, for the purpose of ascertaining whether any portion of the business and occupation tax imposed upon Bechtel had been unlawfully collected by the State of West Virginia for the period ending December 31, 1965, through the period ending September 30, 1968, inclusive. The trial court found that a portion of the tax had been erroneously levied on the sums received by Bechtel as reimbursements for expenses. The court, on March 15, 1973, ordered the commissioner to refund to the taxpayer $267,406.81 collected from it for the period ending June 30, 1967 through the period ending September 30, 1968, inclusive. It is from this judgment that the plaintiff prosecutes its appeal to this Court. The issue is whether such sums received by the taxpayer as reimbursements are excluded from the business and occupation tax provisions of Code, 1931, 11--13, as amended, by this Court's decision in Bethlehem Mines Corporation v. Haden, 153 W.Va. 721, 172 S.E.2d 126.

Bechtel is a foreign corporation authorized and qualified to do business in the State of West Virginia. It is engaged in the business of providing and performing construction, engineering, construction management, and procurement services in connection with the improvement of real and personal property.

On September 17, 1965, Bechtel entered into a contract with National Steel Corporation. The project, as set forth in the contract, consisted of the construction of all the apparatus and necessary appurtenant facilities to enable National to utilize oxygen as fuel to fire furnaces for the manufacture of steel at National's plant in Weirton, West Virginia. As part of its performance, Bechtel agreed to provide management services for the construction of an elevated highway to be used in connection with the project.

The relevant facts of the case are undisputed and were ascertained from the stipulation and exhibits filed by the parties. Under the terms of the contract, five different methods of payment were set forth. Bechtel was to be paid $1,125,000 as a fee for performance of work under the contract, and a lump sum price of $1,354,000 as compensation for supervision and construction management services. Additionally, other work was to be paid by a 'unit price' formula or on a 'cost reimbursable' basis. Alternatively under this latter category, National could elect to have Bechtel perform the work on a lump sum basis or request Bechtel to subcontract such work on a lowest responsible bid basis.

Bechtel commenced work on the project in the last quarter of 1965. In order to resolve difficulties encountered in administering and in accounting for the 'unit price' provisions of the contract, Bechtel and National executed a written amendment of the contract of June 20, 1966. The effect of the amendment was to delete entirely all contract provisions applicable to 'unit prices' effective July 18, 1966. In amended form the contract provided that work previously covered on a 'unit price' basis would be performed on a 'cost reimbursable' basis.

On September 13, 1966, the contract was again amended by Bechtel and National. By this amendment, which was effective October 1, 1966, the lump sum price was deleted and the parties agreed that any work performed was to be 'paid for on a cost reimbursable basis, retroactive to the commencement of the work.' Consequently, in amended form the contract provided for Bechtel to receive a fee of $1,125,000 and to be reimbursed for its expenses in the construction, management and supervision of the project.

Bechtel reported to the commissioner as gross income received from National the sum of $24,440,861.12 for the period ending December 31, 1965, through the period ending September 30, 1968, and paid a business and occupation tax in the amount of $488,667.21 pursuant to the provisions of Code, 1931, 11--13--2e, as amended, prescribing the tax rate paid by persons engaged in the business of contracting in this State.

On July 9, 1970, the defendant filed a petition for a refund with the commissioner, alleging that under the provisions of Article 13, Chapter 11, Code, 1931, as amended, as construed by this Court in Bethlehem Mines Corporation v. Haden, Supra, the amounts which represented reimbursed costs and expenses under the contract were erroneously included in Bechtel's gross income; that the total gross income of the defendant corporation was $2,217,827.71, being composed of the fixed fee of $1,125,000, the unit price work payment for work completed prior to July 18, 1966, in the amount of $1,048,027.88 and $44,799.83 received from sources other than National; and that, since only $44,356.55 was tax due and owing, a refund in the sum of $444,310.66 was due and owing the defendant. The commissioner, by an administrative decision, refused to grant the refund prayed for in the petition.

At trial, the parties stipulated that the time limitation provisions of Code, 1931, 11--1--2a, as amended, barred a refund of taxes collected prior to April 15, 1967, in the sum of $176,903.86. It was stipulated that this amount was to be deducted from the total tax paid in the amount of $488,667.21. The additional sum of $44,356.55, representing the amount of taxes not claimed to be subject to refund, was likewise deducted. This left a balance of $267,406.81 alleged to have been unlawfully collected.

The Bethlehem Mines case involved three corporate entities: Bethlehem Mines Corporation (management company), Bethlehem Minerals Company (mining company), and Bethlehem Steel Company (manufacturing company). All three were wholly owned...