Green Acres Contracting Co. v. Commonwealth
| Decision Date | 10 August 2016 |
| Docket Number | No. 81 F.R. 2013,81 F.R. 2013 |
| Parties | Green Acres Contracting Company, Inc., Petitioner v. Commonwealth of Pennsylvania, Respondent |
| Court | Pennsylvania Commonwealth Court |
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE MICHAEL H. WOJCIK, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
This matter is a petition for review filed by Green Acres Contracting Company, Inc. (Taxpayer) appealing a determination of the Board of Finance and Revenue (BFR) that rejected Taxpayer's challenges to an assessment of state use taxes on certain items purchased and used by Taxpayer in its business. For the reasons set forth below, we affirm in part and reverse in part.
Taxpayer is a Pennsylvania corporation engaged in the business of construction, principally installation of highway guardrail systems and road signs. (McCort Dep. at 7; Ex. 5, Narrative Report of Audit (Audit Report) at 2.) Taxpayer performs this work for the Pennsylvania Department of Transportation (PennDOT) and the West Virginia, Maryland, Ohio, and Virginia state departments of transportation. (McCort Dep. at 7-8; Audit Report at 2.) Taxpayer's guardrail systems are composed of guardrail panels and guardrail posts. (McCort Dep. at 21-25.) Taxpayer uses nuts, bolts and washers to attach 12.5-foot long guardrail panels to each other to obtain the required guardrail length and to attach these guardrails to guardrail posts that are pounded into the ground and hold the guardrails up at the appropriate height. (Id. at 21-29.) Taxpayer installs a number of types of guardrail systems that differ in the spacing between the guardrail posts. (Id. at 8-9, 25-28, 61.) In some of Taxpayer's guardrail systems, steel, plastic or wood guardrail blocks are installed between the guardrail and each guardrail post to increase the force that the guardrail system can withstand. (Id. at 25-26; Audit Report at 9.)
Section 202(a) of the Tax Reform Code of 1971 (Tax Code)1 imposes a six-percent sales tax on the "sale at retail" of tangible personal property and certain types of services within Pennsylvania, which is collected by the vendor from the purchaser. 72 P.S. § 7202(a); Crawford Central School District v. Commonwealth, 888 A.2d 616, 620 (Pa. 2005); Kinsley Construction, Inc. v. Commonwealth, 894 A.2d 832, 833 (Pa. Cmwlth. 2006), aff'd without op., 915 A.2d 639 (Pa. 2007). Section 202(b) of the Tax Code imposes a six-percent use tax on the use within Pennsylvania of tangible personal property and certain types of services "purchased at retail," unless the user has paid the sales tax imposed by Section 202(a). 72 P.S. § 7202(b); Crawford Central School District, 888 A.2d at 620; Kinsley Construction, Inc., 894 A.2d at 833. The Tax Code defines the "use" that is subject to this tax as including both of the following:
In February 2011, following an audit covering the period from January 1, 2007 through March 31, 2010, the Department of Revenue (Department) sent Taxpayer a Notice of Audit Assessment assessing $413,145.24 in delinquent state and local sales and use taxes, plus interest, and also assessing $46,865.24 in penalties. (Ex. 2; Ex. 3.) This assessment consisted of $357.81 in state sales tax, $410,091.43 in state use taxes, and $2,696.00 in Allegheny County use taxes. (Board of Appeals Decision at 1.) The state use taxes assessed by the Department included $129,354.81 for nuts, bolts and washers that Taxpayer used in constructing and installing its guardrail systems, $16,116.27 for guardrail blocks, $6,975.09 for materials used in West Virginia construction projects on which Taxpayer paid use taxes to West Virginia, $4,408.21 with respect to torque wrench service and traffic control invoices, and $2,911.83 for three vehicles purchased by Taxpayer on which the Department contended that Taxpayer paid no sales tax. (McCort Dep. at 19; Ex. 8.) Taxpayer filed a petition for reassessment with the Department's Board of Appeals. The Board of Appeals reduced the total tax assessment to $410,233.41, plus interest, but denied Taxpayer's appeal with respect to the above items and the penalties.
Petitioner appealed the Board of Appeals decision to the BFR. On December 12, 2012, the BFR issued a determination abating the penalties, butrejecting Taxpayer's challenges with respect to the nuts, bolts, washers and guardrail blocks, construction materials used in West Virginia, torque wrench and traffic control invoices, and vehicle purchases. The BFR concluded that Taxpayer was entitled to relief with respect to several other items on which use taxes had been assessed, and reduced the state use tax assessment to $372,922.73 and the Allegheny County use tax assessment to $1,285.12, resulting, with the unchanged state sales tax assessment of $357.81, in a total tax deficiency reassessment of $374,565.66, plus interest. (BFR Determination at 8-10.) Taxpayer timely filed a petition for review appealing the BFR's determination to this Court.2
Although appeals from decisions of the Board of Finance and Revenue are under this Court's appellate jurisdiction, the Court functions as a trial court and hears the case de novo on the record created in this Court and the facts to which the parties have stipulated. Southern Pines Trucking v. Commonwealth, 42 A.3d 1222, 1227 & n.5 (Pa. Cmwlth. 2012), aff'd without op., 69 A.3d 235 (Pa. 2013); Plum Borough School District v. Commonwealth, 860 A.2d 1155, 1157 n.3 (Pa. Cmwlth. 2004), aff'd, 891 A.2d 726 (Pa. 2006). Taxpayer submitted exhibits and the deposition of its controller as the record before this Court. No stipulation of facts was filed by the parties, but the Commonwealth does not dispute the evidence submitted by Taxpayer.
Taxpayer challenges $159,766.21 of the BFR's $374,565.66 reassessment.3 Taxpayer argues: 1) that the nuts, bolts, washers and guardrail blocks used in its guardrail construction and installation are "building machineryand equipment" (BME) exempt from state sales and use taxes under Section 204(57) of the Tax Code, 72 P.S. § 7204(57); 2) that it is entitled to a credit for the use taxes paid to West Virginia under of Section 206(a) of the Tax Code, 72 P.S. §7206(a);4 3) that the torque wrench and traffic control invoices are for services that are not subject to sales and use taxes; and 4) that it does not owe use taxes for the three vehicles because it paid the sales tax for those vehicles. We address each of these issues in turn.
Nuts, bolts, washers and guardrail blocks are tangible personal property purchased by Taxpayer at retail for use in its construction contracts and are therefore subject to use taxes under Section 202(b) of the Tax Code, unless Taxpayer paid sales taxes on these items. 72 P.S. § 7202(b). Taxpayer did not pay sales taxes on the purchases of nuts, bolts, washers and guardrail blocks at issue here. (Ex. 6.)
72 P.S. § 7204(57) (emphasis added). Although Section 204 is titled "Exclusions from tax," because it excuses from taxation items that are otherwise taxable under Section 202, Section 204(57) is a tax exemption, not an exclusion from taxation, and is strictly construed against Taxpayer. Crawford Central School District, 888 A.2d at 621; Plum Borough School District, 860 A.2d at 1157-58 n.4.
The Commonwealth does not dispute that the nuts, bolts, washers and guardrail blocks at issue here were used by Taxpayer in constructing and installing guardrail systems for PennDOT or other entities to which the BME exemption applies. The question before us is whether these items fall within the definition of BME.
Section 201(pp) of the Tax Code defines BME as "[g]eneration equipment, storage equipment, conditioning equipment, distribution equipment and termination equipment" of ten specified types, including "control system limited to energy management, traffic and parking lot and building access." 72 P.S. § 7201(pp). This definition of BME also specifically provides:
The term shall include boilers, chillers, air cleaners, humidifiers, fans, switchgear, pumps, telephones, speakers, horns, motion detectors, dampers, actuators, grills, registers, traffic signals, sensors, card access devices, guardrails, medial devices, floor troughs and grates and laundry equipment, together with integral coverings and enclosures, whether or not the item constitutes a fixture or is otherwise affixed to the real estate, whether or not damage would be done to the item or its surroundings upon removal or whether or not the item is physically located within...
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