Sturtz v. Iowa Dept. of Revenue

• Decision Date: 21 August 1985
• Docket Number: No. 84-1890,84-1890
• Citation: 373 N.W.2d 131
• Parties: Harold D. STURTZ, Appellee, v. IOWA DEPARTMENT OF REVENUE, Appellant.
• Court: Iowa Supreme Court

Page 131

373 N.W.2d 131

Harold D. STURTZ, Appellee, v. IOWA DEPARTMENT OF REVENUE, Appellant.

No. 84-1890.

Supreme Court of Iowa.

Aug. 21, 1985.

Thomas J. Miller, Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., and Thomas M. Donahue, Asst. Atty. Gen., for appellant.

John W. Holmes of Beecher, Beecher, Holmes & Rathert, Waterloo, for appellee.

Considered by REYNOLDSON, C.J., and UHLENHOPP, HARRIS, McGIVERIN, and SCHULTZ, JJ.

UHLENHOPP, Justice.

This appeal presents a question of the applicability of the Iowa sales or the Iowa use tax under the facts of the case. See Iowa Code chs. 422, div. IV, 423 (1981).

Pittsville Homes, Inc., manufactures modular homes in Wisconsin. The homes are built in halves lengthwise. When the halves are joined at the building site the home can be twenty-four, twenty-six, or twenty-eight feet wide, depending on the widths of the halves. The halves are finished at the factory with wiring, plumbing, wall paneling, and cabinets. They are then jacked up and Pittsville's truck-transporters are backed under the halves for delivery to the site. At the site a crane lifts off each half and lowers it onto a prepared foundation, the roofs are joined, and the floor joists are bolted together.

Pittsville entered into a contract with Harold D. Sturtz of Waterloo, Iowa, appointing him wholesale distributor. Under the agreement, Sturtz sold modular homes to customers in the Waterloo area on a detailed order form which contained the specifications. The price between Sturtz and his customer was determined by those two; the price Pittsville charged Sturtz was determined by Pittsville. Under the arrangement Pittsville sold the modular structures to Sturtz, and Sturtz sold them to his customers giving them bills of sale. Each order form going to Pittsville contained information about the ultimate customer including his method of financing, and each order was subject to approval by Pittsville before construction began. Sturtz arranged for the crane at the site to lift the homes off Pittsville's trucks. About once annually Sturtz bought a home from Pittsville, called a "spec" home, and placed it on a lot of his own, evidently for demonstration.

Pittsville did not collect Iowa sales tax on any of its sales of homes to Sturtz, nor did Sturtz pay Iowa use tax in connection with the homes. The question presented is whether the Pittsville-Sturtz transactions are subject to Iowa sales tax or to Iowa use tax.

The department audited Sturtz's books, and assessed him Iowa use tax on the homes. Sturtz protested. After hearing, a department hearing officer entered a proposed order that Iowa sales tax is applicable to Pittsville's sales to Sturtz and Iowa use tax is not applicable. On review the department director found that Sturtz is a contractor, and held that Iowa use tax is applicable and Iowa sales tax is inapplicable. On judicial review the district court held with the hearing officer. The department appealed to this court, and Sturtz cross-appealed. The controlling facts are not in dispute; the appeal involves interpretation of the sales and use tax statutes. We give weight to the department's interpretation of revenue statutes, but this court is the final arbiter of their meaning. Iowa State Education Ass'n v. PERB, 369 N.W.2d 793 (Iowa 1985).

I. The sales and use tax statutes are found in chapter 422, division IV, and chapter 423 respectively of the Iowa Code (1981). As to the sales tax, section 422.43 provides in pertinent part in its first paragraph:

There is hereby imposed a tax of three percent upon the gross receipts from all sales of tangible personal property, consisting of goods, wares, or merchandise, except as otherwise provided in this division, sold at retail in the state to consumers or users....

Subsections (2), (3), and (5) of section 422.42 provide in pertinent part:

2. "Sales" means any transfer, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, for a consideration.

3. "Retail sale" or "sale at retail" means the sale to any consumer or to any person for any purpose, other than for processing or for resale of tangible personal property....

....

5. Retailer includes every person, engaged in the business of selling tangible goods, wares, merchandise or taxable services at retail....

Section 422.42(9) provides so far as pertinent:

Sales of building materials, supplies and equipment to owners, contractors, subcontractors or builders, for the erection of buildings or the alteration, repair or improvement of real property, are retail sales in whatever quantity sold....

As to the use tax, section 423.2 provides:

An excise tax is imposed on the use in this state of tangible personal property purchased for use in this state, at the rate of three percent of the purchase price of the property. The excise tax is imposed upon every person using the property within this state until the tax has been paid directly to the county treasurer or the state department of transportation, to a retailer, or to the department as hereinafter provided. An excise tax is imposed on the use in this state of services enumerated in section 422.43 at the rate of three percent. This tax is applicable where services are rendered, furnished, or performed in this state or where the product or result of the service is used in this state. This tax is imposed on every person using the services or the product of the services in this state until the user has paid the tax either to an Iowa use tax permit holder or has paid the tax to the department of revenue.

Section 423.1(1) provides in pertinent part:

1. "Use" means and includes the exercise by any person of any right or power over tangible personal property incident to the ownership of that property, except that it shall not include processing, or the sale of that property in the regular course of business....

Section 423.4(1) provides so far as pertinent:

The use in this state of the following tangible personal property is hereby specifically exempted from the tax imposed by this chapter:

1. Tangible personal property, the gross receipts from the sale of which are required to be included in the measure of the tax imposed by division IV of chapter 422, and any amendments made or which may hereafter be made thereto.

This court explained the interplay between the sales and use tax statutes as follows in Dain Manufacturing Co. v. Iowa State Tax Comm'n, 237 Iowa 531, 534, 22 N.W.2d 786, 788 (1946):

The purpose of the use-tax law is indirectly to tax sales that cannot be directly taxed under the Iowa sales-tax law. Since sales of property designed for use in Iowa cannot be taxed if consummated outside the state, our legislature has resorted to the plan (not uncommon in recent years) of taxing the use of such property in the state. The tax is on the use but it presupposes a prior sale. The tax serves the double purpose of producing revenue that otherwise might not be available, and of furnishing some measure of protection to Iowa dealers from competition with outside vendors not subject to liability for sales tax. See discussion in Henneford v. Silas Mason Co., 300 U.S. 577, 581, 57 S.Ct. 524, 526, 81 L.Ed. 814, quoted in Zoller Brewing Co. v. State Tax Commission, 232 Iowa 1104, 1106, 5 N.W.2d 643, and Id., Iowa, 6 N.W.2d 843. The law is at the same time apparently drawn with the purpose of avoiding double taxation. See Code, sections 6943.104 (subsections 1 and 4) and 6943.125....

Under section 423.4(1) and the...