STATE OF WISCONSIN
TAX APPEALS COMMISSION
PAUL BUGAR TRUCKING, INC.
W2944 State Hwy. 98, Box 190
Loyal, WI 54446,
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708-8907,
|DOCKET NO. 01-S-175
DECISION AND ORDER
DON M. MILLIS, COMMISSION CHAIRPERSON:
This matter came before the Commission for trial on March 19, 2002, in Wausau. Both parties have submitted post-hearing briefs. Petitioner is represented by Ruder, Ware & Michler, S.C., by Attorney Steven M. Anderson. Respondent is represented by Attorney Robert C. Stellick, Jr.
Based upon the evidence received at trial, the submissions of the parties, and the entire record in this matter, the Commission hereby finds, concludes, and orders as follows:
FINDINGS OF FACT
1. Petitioner is a corporation in the business of selling and supplying aggregates, gravel, and other stone products to contractors in central Wisconsin.
2. During the period under review,(1) petitioner had operations at four parcels in central Wisconsin, each of which were owned by unrelated property owners. With respect to each parcel, petitioner entered into a royalty agreement with the property owner to extract aggregate from the parcel.
Abbotsford Bypass Project
3. Ames Construction, Inc. ("Ames"), is a corporation with offices in Colorado, Arizona, Utah, and Minnesota. Ames is in the business of building roadways and highways.
4. At some point in time, Ames became involved in a contract with the Wisconsin Department of Transportation ("DOT") to construct a bypass on Highway 29 around Abbotsford ("Bypass Project"). Construction occurred during the years of 1997 through 1999.
5. In May or June of 1998, Ames entered into an oral contract with petitioner under which petitioner was to provide breaker run, base course, and sand for the Bypass Project. Breaker run consists of small stone that is placed at the very bottom of the excavated roadway. Base course is the material that is placed on top of the breaker run.
6. Because of the uncertainty of subsurface conditions and the possibility of change orders, Ames wanted a supply of breaker run and base course at all times. Therefore, Ames and petitioner agreed that petitioner would maintain a separate pile of breaker run and a separate pile of base course at its quarry near Unity in Marathon County ("Unity Quarry").
7. Ames agreed to purchase the breaker run and base course as it was placed in the respective piles. However, petitioner did not charge Ames for the breaker run and base course until it was actually removed from the Unity Quarry, in either petitioner's trucks or trucks owned by or contracted to Ames.
8. Sand supplied by petitioner came from a separate quarry and was not stockpiled by petitioner for Ames. Sand was only excavated by petitioner when requested by Ames.
9. In all cases, when trucks came to be loaded with breaker run, base course or sand, petitioner's employees operating equipment at the respective quarry loaded the material onto the trucks. After being loaded, each truck was weighed, and Ames was billed for the difference between the truck's loaded weight and its tare weight.
10. Within weeks after the agreement was made, the DOT required that Ames use a larger size breaker run for certain portions of the Bypass Project. As a result, petitioner agreed to maintain a second pile of the larger breaker run for Ames at the Unity Quarry.
11. At the time the initial agreement was made, Ames estimated that it would purchase 15,000 to 20,000 tons of breaker run from petitioner. However, a few weeks later, Ames realized that it would need significantly more breaker run than was originally anticipated. Ames informed petitioner of the need for additional breaker run. To meet the increased demand, petitioner operated 24 hours per day, seven days a week for several weeks during the summer of 1998.
12. At the outset, the agreement provided that Ames would arrange for transportation of the breaker run and base course from the Unity Quarry to the Bypass Project site through the use of its own trucks and trucks from Lorentz Trucking, a Minnesota trucking company with which Ames had a contract.
13. As the need for more breaker run became apparent, Ames determined that if it used its own trucks or those of Lorentz Trucking to transport all of the additional breaker run, it would interfere with Ames' hauling operations at the Bypass Project site. Ames, therefore, entered into an agreement with petitioner under which petitioner would transport the breaker run and base course from the Unity Quarry to the Bypass Project site when petitioner had trucks available.
14. At the end of the 1998 construction season, approximately 7,000 to 8,000 tons of breaker run remained in Ames' segregated piles at the Unity Quarry. Even though there was little prospect that Ames would need the breaker run stockpiled at the Unity Quarry after the close of the 1998 construction season, petitioner did not bill Ames for the remaining 7,000 to 8,000 tons of breaker run.
15. As events unfolded, Ames needed the remaining breaker run stockpiled at the Unity Quarry to complete the Bypass Project in 1999. Petitioner billed Ames for the remaining breaker run after it was delivered to Ames.
16. Petitioner collected sales tax on the purchase price of the breaker run, base course, and sand it sold to Ames. Petitioner did not collect sales tax on the amounts it charged to Ames for transporting these products from its quarries to the Bypass Project site. Petitioner issued separate invoices to Ames, one for the product sold and one for transportation services provided to Ames.
17. All agreements between petitioner and Ames were oral.
18. During June of 1999, petitioner provided 72.25 hours of transportation services to Ames and was paid $4,046 for these services. These transportation services involved moving items at the Bypass Project site under Ames' direction and were unrelated to any product sold by petitioner.
Services for MSE Excavating Contractors
19. On July 7, 1997, petitioner provided 18.5 hours of transportation services for MSE Excavating Contractors and was paid $864 for these services. These transportation services involved moving items at a construction site and were unrelated to any product sold by petitioner.
20. Under the date of February 8, 2001, respondent issued a sales and use tax assessment against petitioner in the principal amount of $42,720.86 (plus interest and penalties of $11,748.75). The basis for the assessment was the failure of petitioner to collect sales tax for the transportation of its products to Ames and to other customers during the period under review.
21. Under the date of February 14, 2001, petitioner filed a petition for redetermination with respondent. Petitioner also paid a portion of the assessment on February 26, 2001.
22. Under the date of October 12, 2001, respondent denied the petition for redetermination. At the time of the denial, respondent asserted that petitioner owed $17,355.41 in tax and $5,299.77 in interest.
23. Petitioner filed a timely petition for review with the Commission.
24. At trial, respondent conceded that the amounts charged by petitioner for transportation unrelated to the sale of petitioner's products described in Finding Nos. 18 and 19 were not subject to the sales tax.
CONCLUSIONS OF LAW
1. The amounts charged by petitioner to transport breaker run, base course, and sand that it sold to Ames is subject to the sales and use tax because physical possession did not transfer to the seller or the seller's agent until it was delivered to the Bypass Project site. Wis. Stat. § 77.51(14r).
2. The $4,046 received from Ames and the $864 received from MSE Excavating Contractors was received for transportation services that are not subject to the sales tax and, therefore, should be removed from the measure of tax in the assessment.
APPLICABLE WISCONSIN LAW
Section 77.51 Definitions. Except where the context requires otherwise, the definitions given in this section govern the construction of terms in this subchapter.
* * *
(14r) A sale or purchase involving transfer of ownership of property shall be deemed to have been completed at the time and place when and where possession is transferred by the seller or the seller's agent to the purchaser or the purchaser's agent, except that for purposes of this subsection a common carrier or the U. S. postal service shall be deemed the agent of the seller, regardless of any f.o.b. point and regardless of the method by which freight or postage is paid.
(15)(a) Except as provided in par. (cm), "sales price" means the total amount for which tangible personal property is sold, leased or rented, valued in money, whether paid in money or otherwise, without any deduction on account of any of the following:
* * *
3. The cost of transportation of the property prior to its purchase.
* * *
(b) "Sales price" shall not include any of the following:
* * *
3. Transportation charges separately stated, if the transportation occurs after the purchase of the property is made.
* * *
The statutory scheme to determine when transportation costs are included in the sales price for purposes of the sales tax is deceptively simple. Transportation costs are not deducted from the sales price if the transportation occurred prior to purchase. Wis. Stat. § 77.51(15)(a)3. Sales price does not include the cost of transportation if it is stated separately and if transportation occurs after the purchase of the property. Wis. Stat. § 77.51(15)(b)3. The issue that controls this case is, when did the purchase of breaker run, base course, and sand occur?
Section 77.51(14r) is designed specifically to answer this question. For purposes of the sales and use tax, the purchase is completed when possession of tangible personal property is transferred by the seller or the seller's agent to the buyer or the buyer's agent.(2) Petitioner argues that possession was transferred to Ames when the breaker run and base course was stockpiled. To claim otherwise, petitioner argues, would disregard the terms of the oral contract between petitioner and Ames. However, that is exactly what statutes like section 77.51(14r) do. This statute provides that for purposes of the imposition of the sales and use tax, the purchase occurs when possession is transferred, regardless of what the parties agree.
In this case, physical possession of breaker run, base course, and sand remained with petitioner. These products were stored at petitioner's quarries and could be loaded only by petitioner's employees.
Petitioner argues, however, that under the oral contract with Ames, petitioner became Ames' agent for purposes of transporting the breaker run, base course, and sand. Therefore, according to petitioner, once the breaker run, base course, and sand were placed in petitioner's trucks, physical possession was transferred to Ames. This is because petitioner, according to this argument, became the "buyer's agent" for purposes of section 77.51(14r).
The factual record is devoid of any assertion that the oral contract included the appointment of petitioner as Ames' agent. Rather, petitioner argues that the mere fact that Ames contracted for petitioner's services is tantamount to appointing petitioner as its agent. Such an argument would lead to an absurd result in which the use of a common carrier or the U.S. Post Office would always be deemed to be the seller's agent, but that the seller itself could--by agreement of the parties--automatically become the buyer's agent simply by agreeing to transport the products to the buyer. Regardless of the agreement of the parties, as long as the seller is in physical possession of the product, section 77.51(14r) dictates that the purchase has not occurred.
Petitioner also cites the Commission's decisions in Trierweiler Construction and Supply Co., Inc. v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶400-296 (WTAC 1997), and Rhinelander Paper Co., Inc. v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶400-270 (WTAC 1996). In each case, the Commission held that the sales and use tax base does not include transportation costs paid by the buyer of tangible property to a third party who is not seller of the tangible property. The only application of these cases to the facts presented here would be if respondent had sought a use tax assessment against Ames for the amounts it paid to Lorentz Trucking to transport breaker run, base course, and sand from petitioner's quarries to the Bypass Project site. The holdings of these cases would dictate that such amounts would not be subject to the use tax because they are not part of the sales price.
Respondent's action on the petition for redetermination is modified consistent with Conclusion of Law No. 2 and, as modified, is affirmed.
Dated at Madison, Wisconsin, this 10th day of April, 2003.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Commission Chairperson
Thomas M. Boykoff, Commissioner
Upon re-reading its April 10,2003 Decision and Order, the Commission determined that Conclusion of law No. 1 should be corrected to read:
Dated at Madison, Wisconsin this 9th day of May, 2003.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Commission Chairperson
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"