Hales Sand & Gravel, Inc. v. Audit Div. of State Tax Com'n of Utah

• Decision Date: 12 November 1992
• Docket Number: No. 910008,910008
• Parties: 20 UCC Rep.Serv.2d 136 HALES SAND & GRAVEL, INC., Petitioner, v. AUDIT DIVISION OF the STATE TAX COMMISSION OF UTAH, Respondent.
• Court: Utah Supreme Court

Page 887

842 P.2d 887

20 UCC Rep.Serv.2d 136

HALES SAND & GRAVEL, INC., Petitioner, v. AUDIT DIVISION OF the STATE TAX COMMISSION OF UTAH, Respondent.

No. 910008.

Supreme Court of Utah.

Nov. 12, 1992.

David Nuffer, Lyle R. Drake, E. Scott Awerkamp, St. George, for Hales Sand and Gravel.

R. Paul Van Dam, Brian L. Tarbet, Salt Lake City, for State Tax Com'n.

ZIMMERMAN, Justice:

This is a proceeding to review a sales tax deficiency assessment by the Utah State Tax Commission. Hales Sand and Gravel, Inc., petitions for review of the Commission's order requiring Hales to pay sales tax on transportation costs incurred in the delivery of building materials to its customers. We affirm the Commission's deficiency assessment but reverse the negligence penalty it assessed Hales for nonpayment.

Because a party seeking review of an order of an administrative agency must demonstrate that the agency's factual determinations are not supported by substantial evidence, we state the facts and all legitimate inferences drawn therefrom in the light most favorable to the agency's findings. Zissi v. State Tax Comm'n, 842 P.2d 848, 852 (1992); First Nat'l Bank of Boston v. County Bd. of Equalization of Salt Lake County, 799 P.2d 1163, 1165 (Utah 1990). We state the facts in this case accordingly.

Hales is a Utah corporation with its principal office in Redmond, Utah. Its primary business involves retail sales of sand, gravel, asphalt, and concrete. Purchasers may pick these materials up themselves; however, during the period at issue, approximately 95 percent of Hales' gravel purchasers and 70 percent of its asphalt purchasers had Hales deliver their orders. When a customer elected to have the materials delivered, Hales either delivered the materials in its own trucks or arranged for transportation by a common carrier and billed the customer for the carrier's charges. If Hales delivered the material itself, its transportation charges were commensurate with those a common carrier would have charged.

Before March 1, 1987, Hales collected and remitted sales tax on the total charge for materials and transportation. After March 1, 1987, Hales recorded and invoiced material and transportation charges separately, collecting and remitting tax only on charges for materials, not on transportation charges. Hales employed this bifurcated method of record keeping and invoicing for all its sales, including sales to JTN Construction, Inc., a Utah corporation that three of Hales' four shareholders established to perform federal contracts. ¹ Nor did Hales collect or remit sales tax for the "small-batch charges" it added to concrete batches that were too small to absorb the costs of delivery.

After an audit of Hales' records for the period of January of 1985 to December of 1987, the Auditing Division of the Utah State Tax Commission determined that under section 59-12-103(1)(a) and (b) of the Code, Hales should have collected and remitted sales taxes on its transportation charges after March 1, 1987, including the charges for small batches and for delivery to JTN. See Utah Code Ann. § 59-12-103(1)(a), (b). The total deficiency assessed was $128,792.49, which included a negligence penalty of $9,712.82. See id. §§ 59-1-401(3)(a), -12-110(5).

Hales contested the assessment, claiming that its transportation charges were exempt from sales tax. The Commission rejected Hales' claim, reasoning as follows: First, the Commission decided that Hales did not qualify for a tax exemption under section 59-12-104, which exempts "intrastate movements of freight and express or street railway fares" from Utah's sales and use taxes. See id. § 59-12-104(18) (1987) (amended 1991) (current version at § 59-12-104(17)). The Commission interpreted the provision as applying only to common carriers. Second, the Commission decided that under its rule 865-19-71S, Hales did not pass title to its gravel, sand, concrete, and asphalt until it delivered the materials to its customers. This rule provides in relevant part that unless otherwise agreed, title passes on delivery when a sales contract requires delivery at a particular place. See Utah Admin.R. 865-19-71S. The Commission concluded that since Hales completed its performance only upon delivery, its transportation costs should be considered part of the price of the sale and the entire transaction should be subject to sales tax. See Utah Code Ann. § 59-12-103(1)(a), (b). Because Hales had collected sales tax only on the purchase price of its materials, the Commission assessed Hales sales tax for the transportation costs.

The Commission also considered two related matters. First, Hales claimed that it should not have had to collect or remit sales tax for the small-batch charges it added to concrete orders that were too small to absorb delivery costs. The Commission disagreed, finding that the small-batch charges were essentially nothing more than transportation charges, which therefore were subject to sales tax. Second, Hales argued that the Commission should credit it for taxes it had paid on sales to JTN that were made before March 1, 1987, because the Utah Department of Transportation had determined that Hales and JTN were the same entity for the purposes of federal labor law. Again the Commission disagreed, finding that Hales and JTN were separate legal entities and that their transactions were subject to sales tax. In sum, the Commission assessed Hales $41,739.95 for total sales tax due and $9,712 as a negligence penalty. ²

Before our court, Hales challenges all aspects of the Commission's order. See id. § 78-2-2(3)(e)(ii). Before examining Hales' claims, we note the applicable standards of review. This review presents questions of both law and fact. As provided by the Utah Administrative Procedures Act ("UAPA"), we grant deference to an agency's factual findings and will overturn those findings only if the petitioner marshals the facts and shows that in light of the record as a whole, the agency's findings are not supported by substantial evidence. See id. § 63-46b-16(4)(g); First Nat'l Bank of Boston, 799 P.2d at 1165. On the other hand, we grant no such deference to the agency's interpretation or application of law, which we review for correctness. ³ Utah Code Ann. § 63-46b-16(4)(d); Morton Int'l, Inc. v. Auditing Div., 814 P.2d 581, 588 (Utah 1991); Savage Indus. v. Utah State Tax Comm'n, 811 P.2d 664, 669-70 (Utah 1991). With these standards in mind, we turn to the merits of this case.

We begin with Hales' first contention--that the Commission erred when it limited the section 59-12-104(18) tax exemption to common carriers. That section reads as follows:

The following sales and uses are exempt from the taxes imposed by this chapter:

...;

(18) intrastate movements of freight and express or street railway fares[.]

Utah Code Ann. § 59-12-104(18). Hales argues that the provision's plain language exempting intrastate "movements of freight" is not limited to common carriers but should extend to all transportation costs. We disagree.

In construing a statute, we view it as a comprehensive whole, not as an unrelated collection of provisions. See Silver v. Auditing Div., 820 P.2d 912, 914 (Utah 1991); Amax Magnesium Corp. v. Utah State Tax Comm'n, 796 P.2d 1256, 1258 (Utah 1990); Peay v. Board of Ed. of Provo City Schools, 14 Utah 2d 63, 66, 377 P.2d 490, 492 (Utah 1962). Applying this principle to the statute before us, we look first to section 59-12-103, which imposes the sales tax from which Hales seeks exemption. This section taxes, inter alia, amounts paid to "common carriers" for "all" transportation. Utah Code Ann. § 59-12-103(1)(b). While the section 59-12-104(18) exemption for intrastate transportation of freight does not mention common carriers, it is a logical inference that the legislature imposed the general tax on common carriers in section 59-12-103(1)(b) and then sought to limit its application to common carriers in section 59-12-104(18).

Other provisions in the statutes have a similar structure of a general imposition of tax followed by specific limitations. For example, although section 59-12-103 taxes "meals sold," id. § 59-12-103(1)(e), section 59-12-104 exempts airline food and certain vending machine food sales from the "meals sold" tax, id. § 59-12-104(3), (4). This pattern supports the inference that the legislature intended section 59-12-104(18) to do nothing more than limit the tax specifically imposed on common carriers.

Although we generally construe taxing statutes in favor of the taxpayer and against the taxing authority, we construe statutes providing tax exemptions strictly against the taxpayer. Parson Asphalt Prods., Inc. v. Utah State Tax Comm'n, 617 P.2d 397, 398 (Utah 1980). We therefore construe section 59-12-104(18) against Hales. Because the construction that limits the exemption to common carriers finds logical support in the structure of the statute, we reject Hales' broader gloss. We hold that section 59-12-104(18)'s sales tax exemption is limited to common carriers. Utah Code Ann. § 59-12-104(18). Because Hales is not a common carrier, it is not entitled to the benefits of the exemption.

We next turn to Hales' contention that even without the exemption, its transportation charges were not subject to sales tax. The provision at issue is section 59-12-103(1)(a), which reads as follows:

(1) There is levied a tax on the purchaser for the amount paid or charged for the following:

(a) retail sales of tangible personal property made within the state[.]

Id. § 59-12-103(1)(a). Hales claims that its asphalt, sand, concrete, and gravel sales were completed at its pit or plant and that therefore any transportation charges accrued after the sales were complete. In other words, it argues that title to the merchandise passed at the point of sale instead of at delivery and that it had no obligation to collect and remit sales tax on the transportation charges.

Hales' argument...