Howard Elec. and Mechanical, Inc. v. Department of Revenue of State of Colo., 87SC338

• Decision Date: 13 March 1989
• Docket Number: No. 87SC338,87SC338
• Citation: 771 P.2d 475
• Parties: HOWARD ELECTRICAL AND MECHANICAL, INC., Petitioner, v. The DEPARTMENT OF REVENUE OF the STATE OF COLORADO, a Department of the State, and Alan Charnes, Executive Director of the Department of Revenue, Respondents.
• Court: Colorado Supreme Court

Page 475

771 P.2d 475

HOWARD ELECTRICAL AND MECHANICAL, INC., Petitioner, v. The DEPARTMENT OF REVENUE OF the STATE OF COLORADO, a

Department of the State, and Alan Charnes,

Executive Director of the Department of

Revenue, Respondents.

No. 87SC338.

Supreme Court of Colorado,

En Banc.

March 13, 1989.

Rehearing Denied March 27, 1989.

As Modified on Second Denial of Rehearing

April 17, 1989.

Melvin Coffee & Associates, P.C., Melvin A. Coffee, Rhonda G. Fellers, Denver, for petitioner.

Duane Woodard, Atty. Gen., Charles B. Howe, Chief Deputy Atty. Gen., Richard H. Forman, Sol. Gen., Larry A. Williams, First Asst. Atty. Gen., Denver, for respondents.

VOLLACK, Justice.

Howard Electrical and Mechanical, Inc. appeals from Howard Electrical & Mechanical, Inc. v. Department of Revenue 748 P.2d 1321 (Colo.App.1987), in which the court of appeals affirmed that part of the district court's judgment that affirmed the Department of Revenue's holding that Howard was liable for Regional Transportation District (RTD) taxes. The court of appeals reversed that part of the judgment which held that collection of RTD taxes for the taxable years 1976, 1977 and 1978 was barred by the statute of limitations. We affirm the court of appeals ruling in part, reverse in part, and remand to the court of appeals with directions to reinstate the district court's judgment.

I.

The underlying events are not in dispute; the parties have stipulated to the following facts. Howard Electrical and Mechanical, Inc. (Howard) is an electrical and mechanical engineering contractor that provides contracting services, including labor and materials, to third parties for construction of specific job projects. For a number of years Howard has held a sales tax license that permits it to purchase tangible personal property at retail prices without paying sales tax at the time of purchase.

In 1973 the General Assembly enacted the Regional Transportation District (RTD) Act, sections 32-9-101 through -161, 13 C.R.S. (1973), giving RTD the power to levy a sales tax on "every transaction or other incident [occurring in the RTD district] with respect to which a sales tax is now levied by the state." § 32-9-119(2), 13 C.R.S. (1973). The RTD Act became effective in 1974.

From January 1976 through December 1982, Howard purchased building materials and supplies in the RTD district. When it made these purchases Howard did not pay Colorado sales tax and did not pay RTD tax. The vendor did not collect Colorado sales tax at the time of purchase because Howard displayed a valid sales tax license. Howard used these materials in the construction of buildings to fulfill its construction contracts. On Howard's yearly tax returns it reported these purchases as subject to Colorado use tax under sections 39-26-201 to -211 and paid that tax. Howard did not pay any RTD tax on these purchases at the time of purchase.

In May 1979 the Department of Revenue (Department) issued notices of deficiency ¹ to Howard in the approximate amount of $250,000. The alleged deficiency arose from Howard's failure to pay RTD tax on tangible personal property purchased in 1976, 1977 and 1978, for use in fulfilling its construction contracts. Howard disputed the applicability of the RTD tax, and a hearing was held at the Department. The Department Deputy Director ruled that the purchases were retail sales and that Howard was liable for both Colorado sales tax and RTD sales tax at the time the materials were purchased from the vendor.

Howard appealed the hearing officer's ruling finding that it was liable for the unpaid RTD tax, and the district court conducted a de novo review. The district court held that C.R.S. section 32-9-119(2) explicitly authorized imposition of an RTD sales tax and implicitly authorized an RTD use tax. For this reason, the district court found Howard liable for an RTD use tax on these transactions. The district court also held that the statute of limitations barred the Department from collecting the RTD tax for 1976, 1977 and 1978.

On appeal, the court of appeals affirmed that part of the district court's order authorizing the assessment of RTD use tax under section 32-9-119(2). The court of appeals reversed that part of the order finding that collection of RTD tax for the years 1976 through 1978 was barred by the statute of limitations. Howard filed a petition for writ of certiorari in this court and we granted certiorari to address two issues. The first issue is whether Howard is liable for payment of RTD tax on tangible personal property purchased in the RTD district and used in fulfilling its construction contracts. The second issue is whether the court of appeals correctly held that the notice of deficiency entered by the Department of Revenue tolled the applicable statute of limitations or, alternatively, was itself an assessment.

II.

We first decide whether the court of appeals correctly affirmed the district court's ruling that Howard is liable for payment of an RTD use tax on tangible personal property it purchased in the RTD district and used to fulfill its construction contracts. Resolution of this question depends on our interpretation of section 32-9-119(2) in the context of the Sales and Use Tax Statute.

Article 9 of title 32 is the "Regional Transportation District Act." Section 32-9-119(2)(a) of the RTD Act gives

the [RTD] board ... the power to levy uniformly throughout the district a sales tax at the rate of six-tenths of one percent upon every transaction or other incident with respect to which a sales tax is now levied by the state, pursuant to the provisions of article 26 of title 39, C.R.S.

(1988 Supp.) (emphasis added). The same subsection also provides:

(2)(c) Sales tax levied pursuant to this subsection (2) shall be collected, administered, and enforced as follows:

(I) The collection, administration, and enforcement of said sales tax shall be performed by the executive director of the department of revenue in the same manner as the collection, administration, and enforcement of the state sales tax imposed under article 26 of title 39, C.R.S., ...

(1988 Supp.) (emphasis added).

Article 26 of title 39, expressly incorporated in these provisions of the RTD Act, is titled "Sales and Use Tax." Sections 39-26-101 through -126 (Part 1) concern Sales Tax, sections 39-26-201 through -211 (Part 2) concern Use Tax, and Part 2 is, by definition, supplementary to Part 1. § 39-26-203(1), 16B C.R.S. (1982).

A tax statute, like any other statute, must be construed "to give consistent, harmonious and sensible effect to all its parts." J.A. Tobin Constr. Co. v. Weed, 158 Colo. 430, 435, 407 P.2d 350, 353 (1965). A sales tax is a tax on a purchase, whereas "[a] use tax is a levy upon the 'privilege of storing, using, or consuming in this state ... tangible personal property purchased at retail.' " IBM v. Charnes, 198 Colo. 374, 377, 601 P.2d 622, 624 (1979) (quoting § 39-26-202). A use tax is considered supplementary to, not separate from, sales tax. Id.; Matthews v. Department of Rev., 193 Colo. 44, 46, 562 P.2d 415, 417 (1977). Use tax is "a complement to the sales tax designed to form a comprehensive tax system.... In theory it would appear from the statute that the tax is in reality a tax upon the right to use property upon which a sales tax has not been paid." Kentucky v. City of Elizabethtown, 435 S.W.2d 78, 79-80 (Ky.App.1968).

Statutes must be construed as a whole. Jaeger v. Colorado Ground Water Comm'n, 746 P.2d 515, 521 (Colo.1987). Vendors are liable for the payment of sales tax. If a sales tax has not been collected by a vendor, however, the purchaser is liable for the use tax. Tobin, 158 Colo. at 435, 407 P.2d at 353. "[T]he components of use tax liability are (1) tangible personal property (2) purchased at retail (3) without prior payment of sales or use tax and (4) use or consumption in Colorado." Tri-State Generation & Transmission Ass'n, Inc. v. Department of Rev., 636 P.2d 1335, 1337 (Colo.App.1981); §§ 39-26-202(1), -203(1), 16B C.R.S. (1982 & 1988 Supp.). The use tax is supplementary to the sales tax rather than separate from it. Matthews v. Department of Rev., 193 Colo. 44, 46, 562 P.2d 415, 417 (1977). Liability for use tax depends on the use of tangible personal property rather than ownership of the property. Tri-State, 636 P.2d at 1337. While use of tangible personal property may constitute a taxable event, only tangible personal property purchased at retail is subject to use tax. C.F. & I. Steel Corp. v. Charnes, 637 P.2d 324, 330 (Colo.1981).

Applying the four components of use tax liability to the facts presented here, we first note that the stipulation describes Howard's purchases as "retail purchases" in the RTD district. Because this was a retail purchase and the purchase occurred in the RTD district, the first component is met. Second, the stipulation also acknowledges that this was a purchase of tangible personal property, so the second component is met. The third requirement is that there was no prior payment of sales or use tax. No Colorado sales tax was paid at the time of purchase. Howard reported the purchases as subject to Colorado use tax on its combined retail sales tax returns and paid Colorado use tax. There was no RTD tax collected at the time of purchase and no RTD tax paid on Howard's tax returns, so for purposes of the RTD tax at issue here, no sales or use tax has been paid. Finally, the tangible personal property must be used or consumed in Colorado. The stipulation stated that the purchased materials "would either be installed in job projects also located within the RTD District, or would be directly delivered to plaintiff within the RTD District." We therefore conclude that the four components of use tax liability are met.

In an earlier case, we analyzed the general "Sales and Use Tax" section and reached this conclusion:

The entire chapter clearly indicates a legislative intent to impose a tax in...