STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TRITON CONSTRUCTION COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 77-1067

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Michael R.N. McDonnell, Hearing Officer for the Division of Administrative Hearings, at 9:00 a.m., on October 12, 1977, in the Hillsborough County Courthouse Annex, Third Floor, Room 21, Tampa, Florida.

APPEARANCES

For Petitioner: Charles R. Talley, Esquire, For Respondent: Edwin J. Stacker, Esquire,

Petitioner (hereafter Triton) challenges Respondent's (hereafter DOR) determination of sales taxes due under Chapter 212, Florida Statutes, in connection with Triton's production of asphalt and concrete. Triton contends that (a) it is not liable for the sales tax assessed in connection with its production of asphalt used in site development because it did not "manufacture" the product as contemplated by applicable law, and (b) that it is not liable for the sales taxes assessed in connection with its production of concrete because the assessment was based upon Triton's "market" valuation of the concrete rather than the actual cost. Conversely, DOR contends that Triton is indeed a "manufacturer" of asphalt and that the concrete assessment was properly made based upon the financial records of Triton made available to DOR.

FINDINGS OF FACT

1. Triton is a Florida corporation located in Brooksville Florida, which performs land development and construction work for Gulf Coast Diversified Corporation, owned by the same people who own Triton.

   
   

2. Triton owns an asphalt "hatching" plant which mixes sand and aggregate with liquid asphalt which is then used as paving material. All asphalt so mixed was used by Triton and no outside sales were made.

   
   

3. Gulf Coast Diversified Corporation contracted with Triton for site development of certain realty. The contract included the construction of roads and parking lots. The contract price was computed on a lineal foot basis for the roads and on a square yard basis for parking lots. Triton, using the asphalt mixed in its batching plant, completed the work contracted for.

4. In addition, Triton contracted with Gulf Coast Diversified Corporation for sewer construction which included the construction of manholes fabricated from concrete batched by Triton. No concrete was ever sold to any other outsiders. The cost of the concrete was included in the overall contract price and was not separately itemized.

   
   

5. Triton's books of account show concrete sales in the amount of

   $168,569.36 during the audit period. This figure reflects a $20.00 per yard "market" value of concrete which Triton picked up in its books for its own internal accounting purposes. The figure represents some 8,428 yards of concrete actually sold. For sales tax purposes, Triton valued the concrete at about $13.74 per yard, a figure established by DOR in a previous audit, and remitted 4 percent of the total value of $115,835.25 of the State of Florida.

   
   

6. During the audit, DOR noted that 4 percent of the bookkeeping entry for concrete sales was $6,742.77, while only $4,633.41 was received as sales tax. Consequently DOR assessed Triton an additional $2,109.36 plus penalties and interest. The difference, however, reflects only differential per yard valuation of the concrete and not additional concrete yardage.

   
   

   CONCLUSIONS OF LAW

   
   

7. As to the concrete, DOR seeks to tax an alleged additional yardage rather than to impose a greater valuation of the concrete produced. However, the evidence establishes conclusively that the correct tax has already been paid and that the valuation used in Triton's bookkeeping entry does not indicate additional untaxed concrete yardage. Accordingly, the assessment regarding concrete sales is erroneous.

   
   

8. As to the asphalt, DOR seeks to invoke the provisions of Rule 12A- 1.51(5), F.A.C., which provides:

   
   

   Contractors who operate manufacturing plants which make items of tangible personal property for their own con- sumption and use in the performance of contracts for the construction or improvement of real property are sub-

   ject to tax upon the manufactured cost of such items. This includes the cost of all materials as well as the cost of labor, power, transportation and other plant expenses.

   
   

9. Triton urges that the mixing of sand and aggregate with liquid asphalt does not constitute the manufacturing or making of items of tangible personal property. Hence argues Triton, it is not subject to tax upon the manufactured cost of the asphalt.

   
   

10. In support of its interpretation of the applicable rule, DOR cites Section 212.06(b), Florida Statutes, which imposes a tax upon:

    
    

    Any person who manufactures, produces, compounds, processes or fabricates in any manner tangible personal property for his own.

11. The controlling issue then is whether the mixing of asphalt with aggregate and sand constitutes either "manufacturing, producing, compounding, processing or fabricating tangible personal property." It is concluded that this issue must be answered in the negative.

    
    

12. The legislative intent contemplates that the resulting product (tangible personal property) be produced from ingredients which are changed in the essential character of their component parts thereby creating a product not previously existing.

    
    

13. DOR's interpretation would lead to an absurd result, for the mere mixing of paint pigmentation, mortar or other commonly used mixtures in the improvement of real property would constitute the production of taxable tangible personal property. True "manufacture" is represented for example in the production of grill work from raw materials, Harvey v. Green, 85 So.2d 829 (Fla. 1956); prefabrication of concrete piling from raw materials, Green v. Reed Construction Corporation, 91 So.2d 634 (Fla. 1956); production of prefabricated steel from raw materials, Whitehead & Kales Company v. Green, 113 So.2d 734 (Fla. 1st DCA 1959); the manufacture of shelving from raw materials, Kings Bay Yacht and Country Club v. Green, 173 So.2d 513 (Fla. 1st DCA 1965)

    
    

14. The language in the above-quoted statute and rule is at best doubtful in the context of the instant case. Doubtful language in taxing statutes should be resolved in favor of the taxpayer. United States Gypsum Company v. Green,

110 So.2d 409 (Fla. 1959). Accordingly, it is

RECOMMENDED that the challenge to the sales tax assessment be sustained. DONE and ENTERED this 20th day of February, 1978, in Tallahassee, Florida.

MICHAEL R. N. MCDONNELL

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

Charles R. Talley, Esquire 616 First National Bank

Building

Tampa, Florida 33602

Edwin J. Stacker, Esquire Assistant Attorney General The Capitol, LL04 Tallahassee, Florida 32304

Docket for Case No: 77-001067

Orders for Case No: 77-001067