White Oak Corp. v. Department of Revenue Services

• Decision Date: 21 January 1986
• Citation: 503 A.2d 582,198 Conn. 413
• Court: Connecticut Supreme Court
• Parties: WHITE OAK CORPORATION v. DEPARTMENT OF REVENUE SERVICES.

Page 582

503 A.2d 582

198 Conn. 413

WHITE OAK CORPORATION v. DEPARTMENT OF REVENUE SERVICES.

Supreme Court of Connecticut.

Argued Nov. 12, 1985.

Decided Jan. 21, 1986.

Richard K. Greenberg, Asst. Atty. Gen., with whom, on brief, were Joseph I. Lieberman, Atty. Gen., and Robert L. Klein, Asst. Atty. Gen., for appellant (defendant).

David J. Heinlein, Hartford, with whom, on brief, was Yolanda Sefcik, West Hartford, for appellee (plaintiff).

Before PETERS, C.J., and ARTHUR H. HEALEY, SHEA, SANTANIELLO and CALLAHAN, JJ.

CALLAHAN, Justice.

The defendant, the department of revenue services, has appealed from a judgment rendered in favor of the plaintiff White Oak Corporation, a highway construction contractor. The sole issue on appeal is whether the Appellate Court erred when it sustained the judgment of the trial court which held that the plaintiff was not liable for the sales and use tax assessed by the defendant on certain services and rentals. That decision was based on a conclusion that the services and rentals in question were resold to the state and therefore exempt from the Connecticut sales and use tax. White Oak Corporation v. Department of Revenue Services, 2 Conn.App. 165, 166, 476 A.2d 639 (1984); see General Statutes §§ 12-411(9), (10), (12) and 12-410(1), (2), (4). We find error.

The parties have stipulated to the following facts: From March 1, 1976, through February 28, 1979, the plaintiff contracted with the state department of transportation (hereinafter DOT) to construct various highways and bridges. Under the terms of each of the contracts, the plaintiff was obligated to provide watchmen, trafficmen and flagmen at such locations and for such periods as ordered by the state engineer, who was an employee of the DOT. The plaintiff, pursuant to these contracts, purchased the services of watchmen, trafficmen and flagmen from various private agencies and police departments, for which it paid a total of $280,020.13. When it purchased these services it issued resale certificates to the private agencies and the police departments. The DOT paid the plaintiff $272,468.58 for these services, an amount in accord with the schedule of prices provided in each contract. Also pursuant to its various contractual obligations, the plaintiff rented highway flashers for a total of $27,383.17, for which it issued resale certificates. In accordance with contract provisions, the DOT paid the plaintiff $21,355.50 for these rentals. The issuance of a resale certificate by the plaintiff relieved its suppliers of liability for the sales and use tax and imposed liability for the tax on the plaintiff only if it made use of the service or property. General Statutes §§ 12-411(9), (10), (12) and 12-410(1), (2), (4).

The defendant assessed a tax deficiency of $13,735.11 on the plaintiff based on the purchase price of the services of the watchmen, trafficmen and flagmen and on the rental price of the highway flashers. The plaintiff petitioned for an oral hearing under General Statutes (Rev. to 1979) § 12-418(2). ¹ On February 25, 1980, a conference was held relative to the plaintiff's petition for a reassessment of the sales and use tax deficiency. On March 11, 1980, the defendant confirmed its assessment for the following reasons: "The services of watchmen service, trafficmen and flagmen are taxable in full. The services are rendered in performance of the contract provision and do not constitute a resale of [sic] a governmental agency.... The tax on the rental of the flasher [sic] was properly assessed. The transaction does not constitute a resale to a governmental agency."

Pursuant to General Statutes § 12-422, ² the plaintiff appealed the defendant's assessment of a tax deficiency to the Superior Court. The parties submitted a stipulation of facts to Hon. Howard W. Alcorn, state trial referee, acting as a trial court, who rendered judgment for the plaintiff. White Oak Corporation v. Department of Revenue Services, 39 Conn.Sup. 234, 475 A.2d 343 (1982). He concluded that "the plaintiff's purchase of the services of watchmen and traffic officers and the rental of lighting equipment was not a 'use' of those items by the plaintiff but rather it was a sale of those items to the state, a tax exempt agency. General Statutes § 12-421(a). Consequently, the plaintiff is not liable for a sales and use tax on those items." Id., 239. The defendant then appealed to the Appellate Court. In a per curiam opinion the Appellate Court, relying upon the opinion of the trial court, found that there was no error committed below. White Oak Corporation v. Department of Revenue Services, 2 Conn.App. 165, 476 A.2d 639 (1984).

We therefore must decide whether the Appellate Court was correct when it upheld the decision of the trial court. That court identified the issue before it to be "whether the trial court erred in finding that the services in question and the rental of equipment were resold to the state and were therefore exempt from the use tax." Id., 166, 476 A.2d 639. In an appeal, after certification from the judgment of the Appellate Court, "the focus of our review is not the actions of the trial court, but the actions of the Appellate Court. We do not hear the appeal de novo." State v. Torrence, 196 Conn. 430, 433, 493 A.2d 865 (1985). We will only consider those issues which have been raised by the petition for certification. In the present case, therefore, we need to determine only whether the Appellate Court erred in upholding the decision of the trial court that the services and rentals in question were sold by the plaintiff to the DOT rather than being used by the plaintiff. If the Appellate Court is correct in its conclusion, the plaintiff is exempt from tax because the sales and use tax is not imposed on tangible personal property or services held for resale or subsequently sold to the state of Connecticut. General Statutes §§ 12-410, 12-411 and 12-412(1).

Pursuant to General Statutes (Rev. to 1977) § 12-408(1), a sales tax is "imposed on all retailers at the rate of seven per cent of the gross receipts of any retailer from the sale of all tangible personal property ... sold at retail or ... from ... [t]he rendering of any service described in any of the subparagraphs (A) to (M), inclusive, under subdivision (j) of said subsection (2) of section 12-407...." The terms "sale" and "selling" under these statutes are defined, in pertinent part, to mean and include "(j) the rendering of certain services for a consideration ..." among which are "(C) ... agencies providing personnel services" and "(E) ... patrol work, watchmen and armored car services" and "(k) the leasing or rental of tangible personal property of any kind whatsoever...." General Statutes (Rev. to 1977) § 12-407(2). Also, General Statutes § 12-411(1) imposes a use tax on the "storage, acceptance, consumption or any other use in this state of tangible personal property purchased from any retailer for storage, acceptance, consumption or any other use in this state or the acceptance or receipt of any services constituting a sale...." The liability for this use tax is on "[e]very person storing, accepting, consuming or otherwise using in this state services or tangible personal property purchased from a retailer...." General Statutes § 12-411(2).

The difference between a sales and a use tax is that generally a sales tax is imposed on items acquired within the state and a use tax is imposed on items acquired outside the state for use within this state. Fusco-Amatruda Co. v. Tax Commissioner, 168 Conn. 597, 600, 362 A.2d 847 (1975). Although the record does not disclose the source of the services and property acquired by the plaintiff, on the stipulated facts it is not necessary to distinguish between a sales and a use tax in order to determine the plaintiff's tax liability.

Under General Statutes § 12-411(9), ³ it is presumed, for the purposes of the use tax that any tangible personal property or service sold for delivery in this state is for use in this state and therefore subject to tax unless the person making the sale proves the contrary. There is also a presumption, for the purpose of the sales tax, that all gross receipts are subject to the tax until the contrary is established. General Statutes § 12-410(1). The seller is relieved of his burden of proving nontaxability in either instance if the purchaser gives him a certificate that the service or tangible personal property is held for resale. General Statutes §§ 12-411(9), (10) and 12-410(1), (2). It is clear that the plaintiff held a valid sales and use tax permit under § 12-409 and was authorized to issue resale certificates. General Statutes §§ 12-410(2) and 12-411(10).

The plaintiff claims that it is exempt from the sales and use tax because the services of the watchmen, trafficmen and flagmen were purchased and the highway flashers were rented with the intent to resell them to the state, as evidenced by the issuance of the resale certificates, and were, in fact, resold to the state, a tax exempt entity. Under General Statutes §§ 12-411(12) and 12-410(4), however, a purchaser who gives a resale certificate is subject to a tax if he makes any use of the service or property "other than retention, demonstration or display while holding it for sale in the regular course of business." Therefore, if the plaintiff used the services or property rather than reselling them to the state, the plaintiff would be liable for the use or sales tax. The basic issue addressed by the Appellate Court was whether the items involved became, under the contracts between the parties, contracts for services or contracts to sell the items to the state.

Generally, taxing statutes are strictly construed. Caldor, Inc. v. Heffernan, 183 Conn. 566, 571, 440 A.2d 767 (1981); Naylor v. Brown, 166 Conn. 581, 587, 353 A.2d 709 (1974). "Any statute creating a tax exemption must likewise be strictly construed against the party...