Moore v. Pleasant Hasler Construction Company

• Decision Date: 09 October 1937
• Docket Number: Civil 3850
• Citation: 72 P.2d 573,50 Ariz. 317
• Parties: THAD M. MOORE, FRANK LUKE and D.C. O'NEIL, as Members of and Constituting the State Tax Commission of Arizona, and FRANK E. FRASER, as Director of the Sales Tax Division of the State Tax Commission of Arizona, Appellants, v. PLEASANT HASLER CONSTRUCTION COMPANY, a Cororation, Appellee
• Court: Arizona Supreme Court

72 P.2d 573

50 Ariz. 317

THAD M. MOORE, FRANK LUKE and D.C. O'NEIL, as Members of and Constituting the State Tax Commission of Arizona, and FRANK E. FRASER, as Director of the Sales Tax Division of the State Tax Commission of Arizona, Appellants, v. PLEASANT HASLER CONSTRUCTION COMPANY, a Cororation, Appellee

Civil No. 3850

Supreme Court of Arizona

October 9, 1937

APPEAL from a judgment of the Superior Court of the County of Maricopa. J. C. Niles, Judge. Judgment reversed and cause remanded for a new trial.

Mr. Joe Conway, Attorney General, Mr. J. B. Sumter, his Special Assistant, and Mr. W. E. Polley, his Assistant, for Appellants.

Messrs Kibbey, Bennett, Gust and Smith & Rosenfeld, for Appellee.

OPINION

ROSS, J.

This action was brought by the Pleasant Hasler Construction Company against the State Tax Commission and Frank E. Fraser as director of the Sales Tax Division to secure a declaratory judgment as to the proper construction of some of the provisions of chapter 77, Laws of 1935, known as the "excise revenue act of 1935." The plaintiff, before bringing the action, had contracted with the State Highway Department to build for the state of Arizona two steel bridges and approaches on the state's right of way known as highway No. 60, agreeing to furnish all labor and materials, for which the state had agreed to pay it a lump sum. The State Tax Commission, whose duty it is to collect the taxes due the state under the said Excise Revenue Act had demanded of the plaintiff that it pay a tax of 2 per cent. on the gross contract price it was to receive for constructing said bridges and approaches, it being its contention that the transaction constitutes a sale at retail of the personal property, such as steel, cement, sand and gravel, corrugated metal pipe, etc., entering into the construction of the bridges and taxable under the law.

Plaintiff contending under its contract with the state it was not a seller at retail of such tangible personal property to the state, but was itself the ultimate consumer, brought this action to secure the court's determination of the question. The respective contentions were presented by the plaintiff's complaint and the defendants' answer. The court sustained a demurrer to defendants' answer and, the latter having elected to stand thereon and not to amend, judgment was entered in favor of plaintiff, from which judgment the defendants have appealed.

The question is a new one in this jurisdiction. It involves a construction of the pertinent provisions of said chapter 77. This chapter by its terms imposes an annual privilege tax upon the business activities of both natural and artificial persons in the following words (in article 2):

"Sec. 2. Imposition of the Tax. From and after the effective date of this act, there is hereby levied and shall be collected by the tax commission... annual privilege taxes measured by the amount or volume of business done by the persons on account of their business activities, and in the amounts to be determined by the application of rates against values, gross proceeds of sales, or gross income, as the case may be, in accordance with the following schedule: ...

"(d) At an amount equal to two per cent. of the gross proceeds of sales or gross income from the business upon every person engaging or continuing within this state in the following businesses:

"1.Selling any tangible personal property whatsoever at retail, except bonds and stock."

Whether appellee should pay a 2 per cent. tax on the contract price of the bridges is the issue. It should if the materials, such as cement, steel, nails, etc., were "sold," as that word is used in the act, to the state for consumption. It should not if appellee purchased said materials for consumption itself and not for resale. In the latter case it would pay no tax, and since, as we know from common knowledge, such materials are not produced or manufactured in this state, or at most only a small portion of them, but are shipped in from the outside, no tax whatever would be paid, the sale to the contractor not being made in the state.

The following definitions will be of aid in determining the question:

"(d) The term 'sale' or 'sales' includes the exchange of properties as well as the sale thereof for money, every closed transaction constituting a sale....

"(f) The term 'gross income' means the gross receipts of a taxpayer derived from trades, business, commerce or sales and the value proceeding or accruing from the sale of tangible personal property, or service, or both, and without any deduction on account of losses.

"(g) The term 'business' when used in this article shall include all activities or acts engaged in (personal and corporate), or caused to be engaged in with the object of gain, benefit or advantage either direct or indirect, but shall not include casual activities or sales.

"(h) The term 'gross proceeds of sales' means the value proceeding or accruing from the sale of tangible personal property without any deduction on account of the cost of property sold, expenses of any kind, or losses." Section 1, art. 2.

The trial court, when it sustained the demurrer to appellants' answer, accepted appellee's construction of the law, that is, that a building or construction contract wherein and whereby the contractor agrees to furnish all labor and material and to build or erect on the premises of the owner a completed bridge or structure for a lump sum, sells the owner the finished bridge or structure and not the tangible personal property put into it. Otherwise stated, that while the concrete, steel, pipe, etc., are furnished by the contractor they are not sold within the meaning of the law to the owner, the only thing sold being the finished structure. This conclusion is reached by this course of reasoning: Under the Uniform Sales Act (sec. 2805, Rev. Code of 1928), and under the common law (23 R.C.L. 1186, § 2), the definition of a sale being practically the same in both, "A sale of goods is an agreement whereby the seller transfers the property in the goods to the buyer for a consideration called the price" (sec. 2805, supra), and since no price was put upon the materials entering into the bridges, there was no sale of such materials within the meaning of that word as used in the Uniform Sales Act or the common law.

It is also said that the owner acquires the title to the materials by accession; that the materials remain the property of the contractor until they are affixed to the realty, and that the title does not pass until they become fixtures; that is, that the materials change their character from tangible personal property to realty before the owner acquires title thereto and consequently there is no sale of tangible personal property.

Appellee also contends that it is the ultimate consumer.

There are cases both pro and con on the vital questions, but under statutes, we believe, differing from ours in many and perhaps vital respects. State v. Christhilf, 170 Md. 586, 185 A. 456, 457, sustains the views of appellee. It was there held that the contractor furnishing materials and labor for a lump sum in a road construction or building was the ultimate consumer of the materials entering therein. Also that the materials entering such structures were not sold to the owner as tangible personal property but that the owner became such by accession. The court said:

"The state and amici curiae in their briefs urge this court to adopt the construction put on the Illinois Emergency Tax Act (Smith-Hurd Ann. St., c. 120, § 440 et seq.) in Bradley Supply Company v. Ames, 359 Ill. 162, 194 N.E. 272, 275, where it was said: 'The definition of a "sale at retail" as "any transfer of the ownership of, or title to, tangible personal property," is broad enough to cover the transfer of title made by a contractor who attaches tangible personal property to real estate in accordance with a contract. It is clearly a transfer of title for a valuable consideration.' Much as we respect that court, we cannot agree with the view that there is a transfer of title to so many feet of lumber, kegs of nails, thousands of brick, perches of stone, cubic yards of concrete, or other items of materials entering into a lump sum contract, for a complete job or structure, which, when erected on the customer's land, is as much real property as the land itself and is by no sort of definition or reasoning 'tangible personal property.' State v. J. Watts Kearny & Sons, 181 La. 554, 160 So. 77; 23 R.C.L. 1233, Sales, § 49.

"It is the contractor or builder who is the ultimate user or consumer of the materials which in one of these cases are converted and fabricated into a building and in the other into a road."

State v. J. Watts Kearny & Sons, 181 La. 554, 160 So. 77, 79, was a case involving a different kind of question, but in the course of the opinion the court described the nature of the contractor's relation to such a transaction as follows:

"His undertaking is to deliver to his obligee some work or edifice or structure, the construction of which requires the application of skill and labor to these materials so that, when he finishes his task, the materials purchased are no longer to be distinguished, but something dif f erent has been wrought from their use and union. The contractor has not resold but has consumed the materials. Sales to contractors are sales to consumers, and, for this very reason, the Legislature did not include contractors and subcontractors in the term 'dealers for re-sale,' as used in section 7 of Act No. 205 of 1924, but has placed them in an entirely different classification in section 24 of the act."

The statutes construed in these cases were excise revenue acts, as here.

The...