George Rose & Sons Sodding and Grading Co. v. Nebraska Dept. of Revenue, S-93-963

• Decision Date: 26 May 1995
• Docket Number: No. S-93-963,S-93-963
• Citation: 248 Neb. 92,532 N.W.2d 18
• Parties: GEORGE ROSE & SONS SODDING AND GRADING CO., Appellant, v. NEBRASKA DEPARTMENT OF REVENUE, Appellee.
• Court: Nebraska Supreme Court

Page 18

532 N.W.2d 18

248 Neb. 92

GEORGE ROSE & SONS SODDING AND GRADING CO., Appellant, v. NEBRASKA DEPARTMENT OF REVENUE, Appellee.

No. S-93-963.

Supreme Court of Nebraska.

May 26, 1995.

Syllabus by the Court

1. Administrative Law: Final Orders: Appeal and Error. Proceedings for review of a final decision of an administrative agency shall be to the district court, which shall conduct the review without a jury de novo on the record of the agency.

2. Administrative Law: Judgments: Appeal and Error. On an appeal under the Administrative Procedure Act, an appellate court reviews the judgment of the district court for errors appearing on the record and will not substitute its factual findings for those of the district court where competent evidence supports those findings.

3. Judgments: Appeal and Error. When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

4. Judgments: Appeal and Error. As to questions of law, an appellate court has an obligation to reach a conclusion independent from a trial court's conclusion in a judgment under review.

5. Administrative Law: Statutes: Appeal and Error. The meaning of a statute is a question of law, and a reviewing court is obligated to reach its conclusions independent of the determination made by the administrative agency.

6. Statutes: Legislature: Intent. When asked to interpret a statute, a court must determine and give effect to the purpose and intent of the Legislature as ascertained from the entire language of the statute considered in its plain, ordinary, and popular sense.

7. Statutes: Legislature: Intent: Appeal and Error. In settling upon the meaning of a statute, an appellate court must determine and give effect to the purpose and intent of the Legislature as ascertained from the entire language of the statute considered in its plain, ordinary, and popular sense, it being the court's duty to discover, if possible, the Legislature's intent from the language of the statute itself.

8. Statutes. Effect must be given, if possible, to all the several parts of a statute; no sentence, clause, or word should be rejected as meaningless or superfluous if it can be avoided.

9. Taxation: Contractors and Subcontractors: Real Estate. A contractor who incorporates live plants, including sod, into real estate is a retailer for sales tax purposes under Neb.Rev.Stat. §§ 77-2702.05 and 77-2702.13 (Cum.Supp.1994). The exception to the definition of "retail sale," encompassing those who conduct "sales of live plants incorporated into real estate incidental to the transfer of an improvement upon the real estate," is limited to general building contractors who perform landscaping services incidental to other home improvements.

10. Taxation: Contractors and Subcontractors. Under Neb.Rev.Stat. § 77-2702.05 (Cum.Supp.1994), only contractors are allowed to elect their taxation scheme. Retailers must remit sales tax to the state in the uniform manner provided in Neb.Rev.Stat. § 77-2703 (Cum.Supp.1994).

David A. Domina and Denise E. Frost, of Domina & Copple, P.C., Omaha, for appellant.

Don Stenberg, Atty. Gen., and L. Jay Bartel, Lincoln, for appellee.

WHITE, C.J., CAPORALE, FAHRNBRUCH, LANPHIER, WRIGHT, and CONNOLLY, JJ.

CONNOLLY, Justice.

George Rose & Sons Sodding and Grading Co. (the company) appeals the Lancaster County District Court's decision to affirm an order by the State Tax Commissioner which sustained deficiency assessments for sales and use taxes against the company. We affirm because the company is a "retailer" for the purposes of the Nebraska sales and use tax statutes.

I. FACTUAL BACKGROUND

The company is an Omaha-based landscaping partnership. In the course of its business, the company subcontracts with building contractors to cultivate sod, trees, and flowers into homeowners' land, as well as grading and installing landscaping materials such as railroad ties. The company's primary customers are general building contractors, though occasionally the company did work for individual homeowners. Generally, the company did not pay a sales tax on the sod that it purchased from its supplier and did not remit a use tax when it stored or installed the sod. The company never held a sales tax permit and does not collect or remit sales tax on any of the sod it installs.

In July 1991, the Nebraska Department of Revenue (Department) informed the company that the Department planned to conduct an audit regarding the company's tax liabilities. On July 31, 1991, the Department informed Rosie Rose, a co-owner of the company, that she needed to select one of three options regarding the information upon which the audit would be performed. Rose chose to have the Department conduct the audit based on the company's income tax returns rather than providing the company's business records. The Department audit resulted in the company being served with a notice of deficiency determination in the amount of $61,426.

Subsequent to the first audit, the company filed a protest petition and made its business records available to the Department. Based on the business records, the Department conducted a second audit, which resulted in two notice of deficiency determinations: one in the amount of $7,094 for the period from July 1, 1986, through December 31, 1988, and a second in the amount of $5,413 for the period from January 1, 1989, through September 30, 1991, for a total deficiency of $12,507.

On June 8, 1992, the company filed a second protest petition. The Department conducted a hearing on September 15, 1992, in Lincoln, Nebraska. Rose represented the company at the hearing pro se. The Department presented updated evidence reflecting the company's total deficiency liability through September 25, 1992. The updated evidence included unpaid sales and use tax and accrued interest on the company's deficiency since the most recent notice of deficiency determination, as well as credits for sales and use taxes that the company paid. The updated deficiency information totaled $11,216.

The hearing officer issued a "recommended decision and order" finding that the Department's deficiency determination accurately reflected the company's tax liability. The hearing officer concluded that the sale and incorporation of live plants into real estate is a retail sale subject to the Nebraska sales tax. The Tax Commissioner adopted the hearing officer's findings, and the district court affirmed the Tax Commissioner's decision.

II. ASSIGNMENTS OF ERROR

The company contends that (1) the sales and use tax was unconstitutionally applied to the company and (2) the Department's assessment of sales and use tax was not supported by the evidence.

III. STANDARD OF REVIEW

Proceedings for review of a final decision of an administrative agency shall be to the district court, which shall conduct the review without a jury de novo on the record of the agency. Abbott v. Department of Motor Vehicles, 246 Neb. 685, 522 N.W.2d 421 (1994); Gausman v. Department of Motor Vehicles, 246 Neb. 677, 522 N.W.2d 417 (1994). On an appeal under the Administrative Procedure Act, an appellate court reviews the judgment of the district court for errors appearing on the record and will not substitute its factual findings for those of the district court where competent evidence supports those findings. Slack Nsg. Home v. Department of Soc. Servs., 247 Neb. 452, 528 N.W.2d 285 (1995); Wagoner v. Central Platte Nat. Resources Dist., 247 Neb. 233, 526 N.W.2d 422 (1995); Abdullah v. Nebraska Dept. of Corr. Servs., 245 Neb. 545, 513 N.W.2d 877 (1994). When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. Wagoner, supra; Sunrise Country Manor v. Neb. Dept. of Soc. Servs., 246 Neb. 726, 523 N.W.2d 499 (1994); Abbott, supra.

As to questions of law, an appellate court has an obligation to reach a conclusion independent from a trial court's conclusion in a judgment under review. Unland v. City of Lincoln, 247 Neb. 837, 530 N.W.2d 624 (1995); Winslow v. Hammer, 247 Neb. 418, 527 N.W.2d 631 (1995); In re Guardianship & Conservatorship of Bloomquist, 246 Neb. 711, 523 N.W.2d 352 (1994).

IV. ANALYSIS

1. APPLICABLE STATUTES

(a) Difference Between "Retailers" and "Contractors"

The primary issue in the case at bar is whether the company is a "retailer" or a "contractor" for the purpose of the sales tax statutes.

A retailer is responsible for collecting the sales tax from consumers on each sale the retailer makes. The sales tax collected constitutes a debt owed by the retailer to the state. Neb.Rev.Stat. § 77-2703(1)(a) (Cum.Supp.1994). Therefore, the retailer is responsible for remitting the sales tax to the state. The gross receipts of a retailer's sales are taxed at a rate of 5 percent. Neb.Rev.Stat. §§ 77-2701.02 (Reissue 1990) and 77-2703(1).

A contractor, as opposed to a retailer, can elect to be treated in one of three ways for sales tax purposes: (1) as a retailer, (2) as a consumer of property annexed to real estate who pays the sale tax or remits the use tax at the time of purchase and maintains a tax-paid inventory, or (3) as a consumer of property annexed to real estate who issues a resale certificate when purchasing property that will be annexed to real estate and remits the appropriate use tax when the property is withdrawn from inventory. Neb.Rev.Stat. § 77-2702.05(1) through (3) (Cum.Supp.1994). When a contractor elects to pay a use tax under either the second or third option, the rate charged is the same as the sales tax rate in effect at the time of the taxable transaction. § 77-2703(2). The ultimate...