BILL ROBERTS, INC. v. McNAMARA

MARCUS, Justice.

On August 29, 1985, following an audit performed by a representative of the Louisiana Department of Revenue and Taxation (department), Bill Roberts, Inc. (corporation), a Louisiana corporation in the business of performing electrical contracting services, was assessed the sum of $38,325.10 in back sales taxes for the period of January 1, 1982 through March 31, 1985.

The corporation was also assessed for interest and penalties in the amount of $10,936.31 and $9,579.39, respectively, for a total assessment of $58,840.80. The assessment was based upon purchases by the corporation of equipment and supplies to be used in construction contracts with various governmental agencies. The corporation appealed to the Board of Tax Appeals (board) by filing a petition for a redetermination of the assessment pursuant to La. R.S. 47:1431,1 contending that the final consumers of the supplies and equipment were governmental agencies to which sales tax does not apply or the purchases were made by the corporation as an agent for tax exempt governmental agencies. After due proceedings, the board rendered judgment in favor of the department and against the corporation, dismissing its petition. By motion of the corporation, the judgment of the board was amended to delete the assessment of $9,579.39 in penalties. Thereafter, the corporation sought judicial review of the board's decision in the district court which affirmed the judgment of the board. The corporation suspensively appealed. The court of appeal found that the corporation, not the governmental agencies, was the final consumer of the supplies and equipment and that the corporation was not an agent for the tax exempt agencies. However, it reversed on the ground that the record at the hearing before the board did not support the department's determination that the tax was due.2 Upon application by the department, we granted certiorari to determine the correctness of that decision.3

The issues presented are (1) whether a contractor who purchases equipment and supplies for use on construction contracts with governmental agencies should be liable for sales tax and (2) whether the record supports the department's assessment of the sales tax in the instant case.

The pertinent provisions of the sales tax statutes are as follows:

La.R.S. 47:302(A) provides:

La.R.S. 47:305.29 provides:

William B. Roberts, Jr., president of the corporation, testified before the board that the corporation has been in the business of performing electrical contracts for approximately twenty years and has paid sales tax on the purchase of materials and supplies for all contracts with the exception of those obtained from parish, municipal or state agencies. Roberts and the department agreed that the assessment was based solely on supplies and equipment purchased by the corporation for use on contracts with governmental agencies. Roberts testified that when performing services pursuant to contracts with governmental agencies, the corporation would receive bid forms and purchase orders from the agencies which specifically stated that sales tax was not to be included in the bids or that the agencies were exempt from paying sales tax. When these forms were presented to the wholesalers from whom the supplies were purchased for the projects, the wholesalers did not charge sales tax. The equipment and supplies were usually shipped directly to the project sites. Pursuant to the contracts, the corporation was responsible for installing the materials.

The corporation argues that it does not owe sales tax on these purchases because the agencies are the final consumers or users of tangible personal property and thus would be responsible for the sales tax but for the exemption under La.R.S. 47:305.29. Alternatively, even if the corporation were the consumer, it was purchasing as an agent for the agencies which are tax exempt entities. In any event, the department is estopped because the corporation relied on statements made by the agencies in bid forms or purchase orders not to include sales tax in its bids.

The contractor or builder of an immovable has been found to be the ultimate consumer of the building materials that go into constructing the immovable. Claiborne Sales Co. v. Collector of Revenue, 233 La. 1061, 99 So.2d 345 (1957); State v. J. Watts Kearney & Sons, 181 La. 554, 160 So. 77 (1934). The equipment and supplies purchased by the contractor are "tangible personal property." La.R.S. 47:301(10) and (16). Therefore, the contractor as the purchaser and consumer of the building materials used in construction of the immovable owes a sales tax on the purchase. Claiborne Sales Co. v. Collector of Revenue, supra; Concordia Parish School Board v. J.A. Russ, 491 So.2d 1368 (La.App. 3d Cir.), writ denied, 496 So.2d 350 (La.1986). In the instant case, Bill Roberts, Inc., as an electrical contractor, was responsible for purchasing electrical supplies and materials and performing the labor on construction projects for governmental agencies. As a result, the corporation was the consumer of the materials and supplies and owed sales tax on the purchases it made.5

Next, the corporation contends that it was acting as an "agent" for the governmental entities when it purchased materials and supplies pursuant to their contracts. As agent for the owners, the corporation would be exempt from paying sales tax. The board agreed that if the corporation could establish an agency relationship on behalf of the governmental entities, then the corporation would be exempt from taxation. Exemptions from taxation are to be strictly construed against the person claiming the exemption and they must be clearly and affirmatively established. Cajun Electric Power Cooperative, Inc. v. McNamara, 452 So.2d 212 (La. App. 1st Cir.), writ denied, 458 So.2d 123 (La.1984). In the instant case, the corporation relied solely upon the bid forms and purchase orders to establish an agency relationship between the corporation and the various agencies. The board found the evidence insufficient but left the record open to allow the corporation an opportunity to prove an agency relationship; however, no evidence was ever presented to supplement the record. Accordingly, we agree with the board, as affirmed by the courts below, that the corporation did not prove that its purchases were made as agent for the tax exempt entities.

Lastly, the corporation contends that, relying upon language on invoices and purchase orders stating that the contractor "should not include sales tax in the bids" or that "the state agencies are exempt from taxation," it purchased the materials and supplies without paying sales tax and did not include sales tax in the cost passed on to the agencies. Accordingly, the state is now estopped from assessing back sales taxes on these purchases. In St. Pierre's Fabrication & Welding, Inc. v. McNamara, 495 So.2d 1295 (La.1986), we held that even when erroneous information is given the taxpayer by a department agent, the state may collect the tax provided the language of the statute imposing the tax is clear and unambiguous as applied to the taxpayer. In the instant case, the applicable statutes are clear and unambiguous. La.R.S. 47:302(A) imposes a tax on a sale at retail of tangible personal property. La. R.S. 47:301(10)(a) defines retail sale as a sale to a consumer of tangible personal property. La.R.S. 47:305.29 exempts purchases by parish, municipal and state agencies. As previously found, the corporation was the consumer in the sale at retail under La.R.S. 47:302(A) and 47:301(10)(a) and the purchases were not tax exempt under La.R.S. 47:305.29. Although the language on the bid forms, invoices or purchase orders may have been misleading, the state is not estopped from collecting back sales taxes against the corporation.

Having concluded that the corporation is liable for sales tax on materials and equipment purchased by it for use on projects for governmental agencies, we must next determine whether the record supports the assessment by the Collector of Revenue against the corporation in the instant case.

Roberts testified before the board that on August 29, 1985, after an audit, he was assessed the sum of $38,325.10 in back taxes and $10,936.31 in interest for the period of January 1, 1982 through March 31, 1985.6 The auditor had furnished the corporation with a list of over four hundred contracts with various governmental agencies. It was contended that sales tax was due and not paid on purchases made pursuant to these contracts. Roberts introduced into evidence at the hearing before the board several bid forms and purchase orders representative of the over four hundred contracts with the various agencies. He also introduced into evidence the state sales tax return. The parties agreed that the sales tax at issue applied to purchases made pursuant to contracts with tax exempt governmental agencies.

The only evidence produced by the department was the testimony of Ms. Vernita Nelson, a reviewing auditor with the department. She did not perform the audit or produce the audit in evidence. She testified that the auditor reviewed over four hundred contracts and that the auditor's file contains documentation supporting a determination of whether or not taxes were due on sales made pursuant to each contract.

La.R.S. 47:1431 provides:

The Board of Tax Appeals was created as an independent agency in the executive branch of state government to act as an appeal board to hear and decide questions of law and fact arising from disputes between taxpayers and the Collector of Revenue when a taxpayer appeals to the board "for a redetermination of the assessment or a determination of the alleged overpayment." The board shall in each case heard by it "make findings of fact and make and file a written decision or judgment thereon." La.R.S. 47:1410. Judicial review by the district court of decisions of the board is afforded by La.R.S. 47:1434 which provides that "the original transcript of the record, together with all exhibits and evidence thereto attached ... shall be the basis for any action on review and the decision of the district court shall be rendered upon the said record as made up before the board."

In the instant case, Bill Roberts, Inc., as taxpayer, and after having been assessed by the department for back sales taxes, sought a "redetermination of the assessment" before the board. The department did not introduce in evidence the audit, the contracts which were reviewed during the audit, the official notice to the taxpayer of the collector's determination of the tax,7 or the assessment.8 The testimony of Ms. Nelson, a reviewing auditor in the department, did not mention the amount of the assessment.9 Thus, the record was devoid of evidence establishing the correctness of the amount of the assessment against the corporation. We are aware that the corporation did not contest the amount of the assessment at the hearing but only the fact that it owed any sales tax on materials and supplies purchased pursuant to contracts with tax exempt agencies. Nonetheless, the department was obligated to furnish sufficient evidence to establish the correctness of the assessment. Under ordinary circumstances, we would affirm the judgment of the court of appeal finding that the record did not support the department's determination that the tax was due. However, since the amount of the assessment was not at issue at the hearing before the board, we consider that the fair and proper action under the circumstances is to remand the case to the board to afford the department an opportunity to present evidence to support the assessment against Bill Roberts, Inc. La. Code Civ.P. art. 2164.

DECREE

For the reasons assigned, the judgment of the court of appeal is reversed and the case is remanded to the Board of Tax Appeals for further proceedings consistent with our views expressed herein.

LEMMON, J., dissented, assigned reasons and would grant rehearing.

ON REHEARING

CALOGERO, Justice, concurring in the rehearing denial.

I concur in the denial of rehearing, although I am now inclined to believe that we may have erred on original hearing by remanding the case to the Board of Tax Appeals for a new hearing. Instead of a remand, we probably should have reinstated the district court's judgment in favor of the Secretary (and against plaintiff, the taxpayer), for the amount of the assessment, for the following reasons.

The only issue which the plaintiff raised before the Board was the applicability of the exemption contained in La.R.S. 47:305.29. He did not challenge the amount of the assessment. After the Board ruled against the plaintiff on that issue, plaintiff sought review of that ruling by the district court, pursuant to the procedure set forth by La.R.S. 47:1431-1438. La.R.S. 47:1434 provides that when the taxpayer seeks judicial review of a Board decision in the district court, he must file a petition "setting forth specifically any errors which may have been committed by the board in reaching its decision or judgment." When plaintiff sought review from the district court in this case, it raised only the issue of the applicability of the exemption. See plaintiff's Petition for Judicial Review, R. at 2-5. Plaintiff did not challenge the amount of the assessment (in the district court), or argue that the State presented insufficient evidence of the amount due at the hearing before the Board.

That being the case, the district court ruled on the only issue presented to it for review, the applicability or non-applicability of the exemption. Therefore, the court of appeal probably erred when it reversed the trial court's judgment on a legal ground that was not assigned as error by the taxpayer to the trial court as required by La.R.S. 47:1434.1 Consequently, this Court should have reversed the court of appeal's judgment and reinstated the trial court's judgment.2

However, the state has not applied for rehearing. It is therefore not entitled to have our judgment on original hearing modified in its favor.3

The only rehearing application before us was filed by the plaintiff taxpayer, who urges that the State is not entitled to a second chance on remand to present evidence to support the assessment. For the same reasons noted above which prompt me to conclude that the State was probably entitled to more relief than it actually received in our Court on original hearing (i.e., a judgment in its favor for the amount of the tax, as opposed to a remand for further evidence), I am of the view that the State, at the least, is entitled to another opportunity to present evidence. For that reason I agree that plaintiff's application for rehearing should be denied.