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

• Decision Date: 23 July 1987
• Docket Number: No. 85CA1449,85CA1449
• Citation: 748 P.2d 1321
• Parties: HOWARD ELECTRICAL AND MECHANICAL, INC., Plaintiff-Appellant Cross-Appellee, 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, Defendants-Appellees Cross-Appellants. . I
• Court: Colorado Court of Appeals

Page 1321

748 P.2d 1321

HOWARD ELECTRICAL AND MECHANICAL, INC., Plaintiff-Appellant Cross-Appellee, 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, Defendants-Appellees

Cross-Appellants.

No. 85CA1449.

Colorado Court of Appeals,

Div. I.

July 23, 1987.

Rehearing Denied Aug. 20, 1987.

Certiorari Granted (Howard) Jan. 25, 1988.

Melvin Coffee & Associates, P.C., Melvin A. Coffee, Theodore H. Merriam, Denver, for plaintiff-appellant cross-appellee.

Duane Woodard, Atty. Gen., Charles B. Howe, Chief Deputy Atty. Gen., Richard H. Forman, Sol. Gen., Larry A. Williams, Asst. Atty. Gen., Denver, for defendants-appellees cross-appellants.

VAN CISE, Judge.

Plaintiff, Howard Electrical and Mechanical, Inc. (Howard), appeals the judgment of the district court which affirmed the determination of the executive director of the Department of Revenue (department) that Howard was liable for Regional Transportation District (RTD) taxes. The department cross-appeals that portion of the judgment which held that the statute of limitations barred collection of RTD taxes from Howard from 1976 to 1978. We affirm in part and reverse in part.

Howard is a construction contractor and purchases building materials and supplies for use in construction. Since 1962, Howard has held a sales tax license, which permits it to purchase tangible personal property without paying sales tax on it at the time of purchase. See § 39-26-102(9) and (19), C.R.S. (1982 Repl.Vol. 16B); § 39-26-103(1)(a), C.R.S. (1986 Cum.Supp.); § 39-26-104(1)(a), C.R.S. (1982 Repl.Vol. 16B); see also Department of Revenue Regulation 26-105.1, 1 Code Colo.Reg. 201-4.

In 1974, the Regional Transportation District Sales Tax Act went into effect, authorizing a sales tax on tangible personal property purchased within the RTD district. See Colo.Sess.Laws 1973, ch. 285, § 2; § 32-9-119(2), C.R.S. (1986 Cum.Supp.). The department subsequently notified sales tax licensees that they could not use their sales tax licenses to avoid paying RTD sales taxes on tangible personal property purchased within the RTD district and consumed by them.

From January 1976 through December 1982, Howard purchased building materials and supplies within the RTD district. Howard did not pay RTD sales taxes to the vendor on its purchases of these materials, which were used in the construction of buildings. On its yearly tax returns, Howard reported these purchases as subject to state use tax pursuant to § 39-26-201, et seq., C.R.S. (1982 Repl.Vol. 16B), and paid that tax. However, it paid neither state sales taxes pursuant to § 39-26-101, et seq., C.R.S. (1982 Repl.Vol. 16B), nor RTD sales taxes on these purchases.

In May 1979, and again in August 1983, the department issued notices of deficiencies to Howard, claiming $252,869.04 in unpaid RTD sales taxes, plus interest of $92,920.51. Howard appealed the assessment of deficiencies to the department. After a hearing, the department determined that Howard was liable for the assessed amount of RTD sales taxes and interest thereon, and was not entitled to a vendor's fee. See Department of Revenue Special Regulation-Contractors, 1 Code Colo.Reg. 201-5.

Howard sought review in the district court, which conducted a trial de novo under § 39-21-105(2)(b), C.R.S. (1982 Repl.Vol. 16B). After the parties stipulated to the facts, the district court granted partial summary judgment for the department, holding that § 32-9-119(2)(a), C.R.S. (1986 Cum.Supp.), which authorizes RTD to levy a sales tax on transactions subject to state sales tax, also authorizes an RTD use tax, for which Howard was liable and which § 32-9-119(2)(c)(I), C.R.S. (1986 Cum.Supp.) authorized the department to collect.

In a subsequent order, the trial court determined that Howard was liable for $150,343.01 in RTD use taxes from December 1979 to December 1982, but that the statute of limitations barred collection of RTD taxes from January 1976 to December 1978; that the department could collect interest of $24,045.87 on RTD use taxes; and that Howard was not entitled to a vendor's fee.

I.

Howard first contends that the trial court erred in holding that § 32-9-119(2) authorizes the assessment of an RTD use tax. We disagree.

Section 32-9-119(2)(a) provides, in pertinent part, that the RTD board of directors:

"for and on behalf of the district ... shall have 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."

Section 32-9-119(2)(c)(I) provides, in pertinent part:

"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....."

Section 39-26-101, et seq., C.R.S. (1982 Repl.Vol. 16B) is entitled "Sales and Use Tax." Part 1, §§ 39-26-101 through 39-26-126, concerns sales taxes; part 2, §§ 39-26-201 through § 39-26-211, concerns use taxes, and is declared to be supplementary to part 1. Section 39-26-203(1), C.R.S. (1982 Repl.Vol. 16B); Matthews v. State, 193 Colo. 44, 562 P.2d 415 (1977). Sales and use taxes are not separate taxes and should not be viewed in isolation from each other. See Matthews v. State, supra. As our supreme court stated in J.A. Tobin Construction Co. v. Weed, 158 Colo. 430, 407 P.2d 350 (1965):

"The entire chapter clearly indicates a legislative intent to impose a tax in the amount levied upon purchases of tangible personal property at retail, such tax to be either in the nature of an addition to the sales price and collected by the seller if he is a licensed vendor as defined in the act, or a tax to be paid by the consumer when the seller of the merchandise is not a 'retailer' or 'vendor' as those terms are defined by the statute."

The obligation for payment of the tax is upon the consumer whether the tax is called a "sales" tax or a "use" tax. J.A. Tobin Construction Co. v. Weed, supra. Hence, under the language of § 32-9-119(2)(a) permitting an RTD tax to be levied on every transaction subject to a sales tax pursuant to "article 26 of title 39, C.R.S.," the power to levy a use tax supplementary to the sales tax is included by implication. See § 32-9-104, C.R.S. (RTD statutes are to be liberally construed to effect intended goals).

A use tax is a levy upon "the privilege of storing, using, or consuming in this state any articles of tangible personal property purchased at retail." Section 39-26-202, C.R.S. (1982 Repl.Vol. 16B); International Business Machines Corp. v. Charnes, 198 Colo. 374, 601 P.2d 622 (1979). The 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. Fifteenth Street Investment Co. v. People, 102 Colo. 571, 81 P.2d 764 (1938); Tri-State Generation & Transmission Ass'n, Inc. v. Department of Revenue, 636 P.2d 1335 (Colo.App.1981).

If the buyer's ultimate disposition of the property cannot be known at the time of purchase, the purchase is not irrevocably classified as either wholesale or retail at the time of the initial transaction. International Business Machines Corp. v. Charnes, supra. Thus, a purchase originally characterized as "wholesale" may later be designated as "retail" in light of subsequently occurring events, such as when the purchaser itself uses the property. See International Business Machines Corp. v. Charnes, supra.

Use tax liability depends on use, not ownership. Tri-State Generation & Transmission Association, Inc. v. Department of Revenue, supra. By using the materials in the buildings it constructed, Howard "used" the materials for use tax purposes. See Fifteenth Street Investment Co. v. People, supra; Tri-State Generation & Transmission Association, Inc. v. Department of Revenue, supra. Hence, although Howard's original purchase of building materials and supplies appeared to be wholesale, and thus exempt from sales tax at the time of purchase, the wholesale transactions were transformed into retail ones upon Howard's ultimate election to dispose of the materials by using them in its own business operations. See International Business Machines Corp. v. Charnes, supra.

Here, the vendors of materials had no duty to collect the sales taxes because they were shown a valid sales tax license by the purchaser, Howard. However, since Howard was the ultimate consumer of the materials, each sale remained a taxable transaction under article 26 of title 39, C.R.S., and was therefore also subject to the RTD tax pursuant to § 32-9-119(2)(a). Thus, the trial court correctly determined that the materials purchased were subject to an RTD use tax.

There is a strong presumption that taxation is the rule and that exemption is the rare exception. Security Life & Accident Co. v. Heckers, 177 Colo. 455, 495 P.2d 255 (1972); Southwest Catholic Credit Union v. Charnes, 665 P.2d 626 (Colo.App.1982). The taxpayer who claims an exemption has the burden to establish clearly the right to that exemption. Security Life & Accident Co. v. Heckers, supra. Here, Howard has not met that burden.

Howard would have this court believe that, as the ultimate consumer, it is liable for neither RTD sales tax nor RTD use tax. However, because it did not pay RTD taxes at the time it purchased the materials, such taxes became due when it used them. It is, therefore, fully liable for the assessed delinquent RTD taxes, and whether the tax is characterized as a "use" tax or as a "sales" tax is immaterial. See J.A. Tobin Construction Co. v. Weed, supra.

We also disagree with Howard's contention that the trial court erred...