v. ) CASE NO. 89-4627
Respondent. )
Pursuant to notice, a formal hearing was held in this case on May 16, 1991, in Tallahassee, Florida, before the Division of Administrative Hearings, by its designated Hearing Officer, Diane K. Kiesling.
For Petitioner: Benjamin K. Phipps
For Respondent: Lealand L. McCharen
Mark T. Aliff
The ultimate issue is whether the Petitioner, Heede Southeast, Inc., (Heede) is liable for state sales tax for the transportation, erection, and dismantling of construction equipment leased by Heede to various customers.
The Department of Revenue presented the testimony of Richard H. Wright and had Exhibits 1-4 admitted in evidence. Heede presented the testimony of Ira Schmidt and had Exhibits 1 and 2 admitted in evidence. Additionally, the parties filed a Joint Stipulation as to Amount in Controversy.
After two extensions of time, the parties filed their proposed findings of fact and conclusions of law on September 5, 1991. All proposed findings of fact and conclusions of law have been considered. A specific ruling on each proposed finding of fact is made in the Appendix attached hereto and made a part of this Recommended Order.
Heede is in the business of leasing tower cranes as a distributor for Linden Tower Crane Company. It has been in this business for many years. In the early 1980's, Heede began subcontracting for the transportation, erection, and dismantling of the cranes it leased.
Linden tower cranes are the "climbing cranes" found on all modern high- rise construction sites. They are initially installed by being mounted on a concrete pad and attached by bolts. During construction the crane is frequently "climbed" as the building construction goes up. The cranes are used for many functions as part of the construction process, including placing concrete forms and pouring cement.
The crane does not become a permanent part of the building, but is dismantled and removed after construction, leaving the concrete pad and bolts at the site. It does not become a part of the building as tangible personal property affixed to or incorporated into the real property. These cranes are like other forms of construction equipment utilized in the erection of high-rise buildings.
At issue here are seven Equipment Rental Agreements for separate jobs (Respondent's Exhibit 1) and seven corresponding sets of invoices relating to the freight-in (transportation from Heede's equipment yard), erection, dismantling, and freight-out (Respondent's Exhibit 2).
Both parties relied on a summary of those invoices and charges, which is set forth below for ease of reference.
NOTE: The chart attachment is in an unscanable format and therefore not shown in paragraph 5. of this Recommended Order. It is available for review from the Division's Clerk's Office.
The audit period began after the first construction job, number 3050, had commenced so that only the dismantling and freight-out charges were covered by the audit. Similarly, the audit ended before the final two jobs were completed, job numbers 3090 and 3099. Therefore only the freight-in and erection portion of those invoices were subject to this audit.
The parties filed a Joint Stipulation as to Amount in Controversy and therein stipulated that the amount in controversy is:
Tax |
| $12,071.77 |
Penalty |
| $ 3,015.01 |
Interest | through |
|
5/20/91 |
| $ 5,762.65 |
TOTAL |
| $20,849.43 |
Daily interest continues to accrue at $3.97 per day.
This Joint Stipulation was signed by the Department of Revenue and expressed in writing what the parties had agreed on throughout the proceedings, namely that the freight charges were not subject to tax based on the holding in Florida Hi-Lift v. Department of Revenue, 571 So.2d 1364 (1st DCA 1990). However, as will be discussed further in the Conclusions of Law supra, the Department, for the first time in its Memorandum of Law in Support of
Respondent's Proposed Recommended Order, now seeks to be relieved from its stipulations and to include the freight charges in calculation of the tax due.
The seven Equipment Rental Agreements are essentially similar in form. Attached to each is a separate typed sheet identified at the top as "Equipment Rental Agreement Continued" and also as "Additional Agreement Continued." With the exception of job number 3090, each of the printed forms provides on its face:
Said equipment shall be shipped to Lessee at
, on or about the
day of , 19 , freight or delivery charges Collect from Port of Entry or from see additional agreement [or see attachment].
On the second page of the Equipment Rental Agreement, entitled Conditions of Lease, paragraph 13 provides:
13. TRANSPORTATION--The Lessor shall at its own expense load the equipment for transit to the Lessee and unload it upon its return.
The Lessee shall at its own expense do all other loading, unloading, installing, dismantling and hauling and shall pay all transportation charges from and to Lessor's shipping and receiving points; provided, however, unless otherwise agreed, that the Lessee shall not pay return transportation charges greater than those necessary to return the equipment to the point from which it was originally shipped to the Lessee.
The "Additional Agreement Continued" attached to each Equipment Rental Agreement essentially contains the following additional paragraphs:
Lessor will freight to and from the project, erect, climb, dismantle, and remove the crane from the project.
Tower crane operator to be furnished by lessee during erection, climbing, and dismantling.
We hereby propose to furnish labor and material complete in accordance with the above agreement for the sum of [sum inserted].
Ira Schmidt, the Comptroller and Secretary/Treasurer and a shareholder of Heede, explained how the books and records of Heede are maintained and what is intended by the Additional Agreement. His testimony was uncontroverted and is accepted as fact. According to Schmidt, Heede leases the tower crane under a separate rental agreement which requires the lessee to transport, erect and dismantle and return the crane to Heede's yard. Numerous parties can bid for the performance of the transportation, erection, dismantling and freight-out at the time the crane is leased. Heede is one of those bidders. Heede generally gets the subcontract for the transportation, erection, dismantling, and freight-
out because it has a trained crew that can perform the work less expensively on the Linden cranes.
The cranes are loaded onto the convoy of trucks at Heede's yard by Heede personnel as part of the Rental Agreement. If Heede is the successful bidder for the subcontract, it pays the carrier for transportation to the job site and its crew travels by separate transportation to the site, arranging to meet the truck convoy on arrival. Arrangements are made to lease a truck crane from another subcontractor who provides an operator. With the use of the truck crane, Heede's crew then proceeds to erect and test the tower crane. After instructing the contractor's crane operator, the equipment is turned over to the contractor.
After the job is completed, the Heede crew, again with the assistance of the subleased truck crane, dismantles and loads the tower crane equipment on a truck convoy to be returned to Heede's yard in Charlotte, North Carolina. On arrival, Heede personnel unload the truck convoy.
The freight-in and freight-out costs in all seven of the transactions are F.O.B. Heede's yard, but all such freight charges on these particular rentals are paid by Heede as part of the Additional Agreement subcontract total charge. These freight charges are reflected by separate bills and invoices as shown in the sets of invoices found in Respondent's Exhibit 2.
Heede has rented cranes to contractors who have subcontracted with others for the transportation, erection, dismantling, and freight-out. Heede has also bid on and been awarded the subcontract to transport, erect, dismantle and freight-out cranes that were not leased to the contractor by Heede.
Job number 3090 is somewhat different in the handling of the transportation portion of the Rental Agreement and Additional Agreement. The lessee in job 3090 and job 3075 was the same. Job 3075 involved the lease of the tower crane at the Caribbean Condominiums in Daytona Beach, Florida, until October, 1987. Job 3090 involved the lease of the tower crane at the Ashley Condominiums in Daytona Beach, Florida, beginning in November, 1987. Because the lessee and the specific tower crane were the same, it would have been ridiculous to transport the crane to Heede's yard in North Carolina and then transport it back to Daytona Beach. The lessee deleted the transportation provisions in the Rental Agreement for job 3090 and entered into a subcontract with Heede for the transportation and erection of the crane at the new site. The transportation charges were then divided between the two jobs as shown in the separate invoices for these two jobs.
The transportation charges for job 3090 are included in the parties stipulation as to the amount in controversy because of the deletion of the transportation provisions in that Rental Agreement and because the crane was not
F.O.B. Heede's yard. The $675.00 freight charge for job 3090 is included in the tax assessment which the Department seeks and in the stipulated amount in controversy.
The stipulated tax amount in controversy represents the tax allegedly due on the freight charge for job 3090 and for the erection and dismantling charges arising from the subcontracts, which includes the costs actually incurred by Heede (trucking and truck crane and operator) and the charges for labor, hotel, food, gas, truck expenses, insurance, and estimated profit.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties to and subject matter of these proceedings. Section 120.57(1) and Section 120.575, Florida Statutes.
Heede's position is that the freight charges are paid by the lessee based on F.O.B. point of origin or lessor's yard and are therefore not subject to sales tax pursuant to Florida Hi-Lift v. Department of Revenue, 571 So.2d 1364 (1st DCA 1990). Heede further maintains that the erection and dismantling charges are not subject to sales tax because they are a charge for services as part of a separate subcontract and are not part of the lease transaction.
The Department took the position that the transportation charges were not subject to taxation based on Florida Hi-Lift and it reached various stipulations accordingly. However, in its Memorandum of Law filed after the hearing as part of its proposed recommended order, the Department seeks to be relieved of its previous stipulations and argues that the transportation charges are part of the transaction and are therefore not F.O.B. point of origin at Heede's yard. The Department also asserts that the freight-in, erection, dismantling, and freight-out are all services that are part of the same lease transaction, thus including all those charges within the sales price subject to taxation.
The critical question is whether the sales price includes the charges for transportation, erection and dismantling, or whether those charges are for services rendered under a separate subcontract not part of the sales price.
Section 212.02(16)(a), Florida Statutes (1989), makes it clear that the term "sales" includes a lease or rental. This proposition was also reaffirmed in Florida Hi-Lift. Section 212.05, Florida Statutes (1989), provides in relevant part:
It is hereby declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state . . . or who rents or furnishes any of the things or services taxable under this chapter . . . .
For the exercise of such privilege, a tax is levied on each taxable transaction or incident, which tax is due and payable as follows:
(a)1.a. At the rate of 6 percent of the sales price of each item or article of tangible personal property when sold at retail in this state, computed on each taxable sale for the purpose of remitting the amount of tax due the state, and including each and every retail sale.
The "sales price" for each taxable transaction is defined in Section 212.02(17):
(17) "Sales price" means the total amount paid for tangible personal property, including and services that are a part of the sale . . . .
Heede does not dispute that the total contract price stated in the Rental Agreement is subject to taxation and it has collected and paid to the state the appropriate tax on each of those rental amounts. The question is whether the charges specified in the Additional Agreements are part of the sale or are a separate transaction.
A careful analysis of Florida Hi-Lift provides assistance in answering this crucial question. Florida Hi-Lift involved another company which rented tower cranes. The rental agreement was a single document which stated the fixed price for the rental of the equipment, the terms of delivery of F.O.B. lessor's location, and the charges for a list of Options, including delivery and pickup of the equipment. The rental agreement and the invoice are incorporated into one transaction and the rental fees and transportation fees were listed on the same invoice. As found in that case
The lease agreement sets a fixed price for the rental of the equipment and allows the customer to pick up the equipment with the customer's own conveyance, hire a carrier to pick up the equipment, or request the equipment be picked up and delivered by Petitioner's conveyance. The customer pays for the transportation of the equipment by whichever method of transportation is selected. The rental charge is unaffected by the mode of transportation selected by the lessee.
The Hearing Officer concluded and the court quoted with approval as follows:
Here there is no dispute that the terms of the lease provide that the lease is f.o.b. lessor's premises and, therefore, possession is transferred at lessor's place of business. When the lessee contracts with the Petitioner to transport the leased equipment to lessee's
job site, Petitioner is performing the service as a contract carrier employed by the lessee who at this point in time is the shipper.
The fact that the Petitioner is performing two roles tends to muddy the waters unless these roles are kept separate. As lessor he transfers possession of the equipment at lessor's place of business to the lessee who then contracts with Petitioner to transport the equipment to lessee's job site. During this transportation period the lessee has responsibility for the safety of the
equipment vis a vis the lessor and the
carrier has responsibility for the safety of the equipment until it reaches its destination vis a vis the shipper (lessee).
* * *
From the evidence presented it is concluded that possession of the equipment being leased is transferred to the lessee when the equipment is loaded on the carrier's vehicle at the premises of the lessor whether the carrier is Petitioner, some other carrier or the lessee. As carrier Petitioner contracts with the lessee to transport the equipment from the premises of the lessor to the site selected by the lessee. Since this transporting charge is separate and apart from the lease charges and legal possession of the property is in the lessee the minute it is loaded on the carrier's vehicle, the charges for the transportation are not subject to sales tax. . . .
The mere fact that Petitioner charged the lessee both rental fees and transportation fees on the same invoice is not determinative of the propriety of assessing a sales tax on the transportation charges, although this appears to have been a major factor insofar as the auditor was concerned.
Finally, as noted by the court in Florida Hi-Lift,
In the instant case, the terms of the lease provide that the lease is f.o.b. lessor's premises, and therefore, possession is transferred at lessor's place of business. The customer selects the means of transpor- tation, is responsible for the transportation charges, separate and apart from the rental
price, and those charges are not deducted from the rental price. Therefore . . . the trans- portation charges are not taxable.
We find no statutory authority for DOR's impo- sition of sales tax on transportation charges as part of the gross proceeds of these rental transactions. The case is not, as contended by DOR, one of the taxpayer seeking an exemp- tion from a lawful tax, but is rather a challenge to the validity of the tax. The rule governing here requires strict construc- tion of taxing statutes against the taxing authority. Any ambiguity in the provisions of the tax statute must be resolved in favor of the taxpayer. [Citations omitted]
Rule 12A-1.045(2), Florida Administrative Code, was the rule applied in Florida Hi-Lift, and is the rule applicable here to the transportation charges. It states:
(2) If the seller contracts to sell tangible personal property f.o.b. origin, the title to the property passes at such point to the buyer and the buyer pays the transportation charges, the transportation services are rendered to the buyer and are not a part of the taxable selling price. . . .
Under the holding in Florida Hi-Lift and the facts of this case, it can only be concluded that the transportation charges here are not taxable. This is particularly so since the Rental Agreement and the Additional Agreement are not the same document and the invoices for the transportation are separate from the charges for the rental price. These documents and invoices are much more clearly separated in this case than in Florid Hi-Lift.
While it is inappropriate to allow the Department to renege on its stipulations regarding the non-taxability of the transportation charges, it really is of no consequence because the transportation charges are clearly not a part of the sales price.
The same principles apply when determining the taxability of the erection and dismantling services. The taxable sales price includes any services that are a part of the sale or lease. Section 212.02(17) and Rule 12A- 1.016(2). The Department's argument that each of these rental transactions is the subject of a single integrated contract must be rejected. Put quite simply, if the single rental agreement/invoice described in Florida Hi-Lift did not constitute an integrated contract, then the expressly separate Additional Agreement and separate invoices for these services cannot arguably be considered an integrated single rental agreement. The facts of this case show that the transportation, erection, dismantling and freight-out charges set forth in the Additional Agreement are separate and apart from the Rental Agreement and rental charge. Possession of the crane passes to the lessee when it has been loaded on the truck convoy for delivery to the job site. The lessee can contract with Heede or with another subcontractor for the erection and dismantling of the crane, or the lessee can perform these services itself. These services are separate from the Rental Agreement as were the transportation charges in Florida Hi-Lift. Heede is in fact filling three separate roles in its dealings under these seven transactions. Heede is the lessor of the equipment F.O.B. its yard in North Carolina; it is the carrier which subcontracts to transport the equipment to and from the job site; and it is the installation and removal subcontractor which provides erection and dismantling at the job site. Each of these roles arises under a separate transaction and cannot be considered to be part of the total sales price paid by the lessee to the lessor as part of the rental transaction.
Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Revenue enter a Final Order and therein reverse and deny the assessment, penalties and interest, against Heede Southeast, Inc., for the transportation, erection and dismantling services which were not a taxable part of the rental transaction.
RECOMMENDED this 4th day of October, 1991, in Tallahassee, Florida.
DIANE K. KIESLING
of October, 1991.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 89-4627
The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case.
Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, Heede Southeast, Inc.
Specific Rulings on Proposed Findings of Fact Submitted by Respondent, Department of Revenue
J. Thomas Herndon Executive Director Department of Revenue
Bengamin K. Phipps Attorney at Law
Lealand L. McCharen Assistant Attorney General Department of Legal Affairs Tax Section, The Capitol Tallahassee, FL 32399-1050
All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
