STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LAWRENCE NALI CONSTRUCTION )

CO., INC., )

)

Petitioner, )

)

vs. ) CASE NO. 76-1823

)

DEPARTMENT OF REVENUE, )

STATE OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice, at Cocoa, Florida, on August 3, 1977, before the undersigned Hearing Officer.

APPEARANCES

For Petitioner: Andrew A. Graham, Esquire

653 Brevard Avenue Post Office Box 1907 Cocoa, Florida 32933

For Respondent: Daniel C. Brown, Esquire

Assistant Attorney General Department of Legal Affairs The Capitol

Tallahassee, Florida 32933 ISSUE PRESENTED

Petitioner's alleged liability for sales tax, interest and penalty under Chapter 212, Florida Statutes.

At the hearing, petitioner filed an amended petition without objection by respondent. Paragraph 4 thereof enlarged the original petition to allege a lack of statutory authority for adoption of Department of Revenue Rule 12A-1.51, Florida Administrative Code. Paragraph 13 of a stipulation by the parties also alleged invalidity of the stated rule. After the Hearing Officer stated that any such rule challenge must be filed in the manner provided by Section 120.56, Florida Statutes, for administrative consideration, petitioner withdrew the aforesaid paragraphs of the amended petition and stipulation. Paragraphs 6 and

7 of the amended petition raised constitutional issues as to the proposed tax assessment and respondent moved to strike the said paragraphs. The motion was granted due to lack of jurisdiction of the Hearing Officer over such matters, without prejudice to the right of petitioner to challenge the constitutionality of any applicable statute or rule in an appropriate judicial forum.

FINDINGS OF FACT

1. The parties stipulated to certain facts, legal issues, and their respective contentions, as follow:

   
   

   "1. At all times pertinent to this action, Petitioner Lawrence Nali Construction Company, Inc., was a Florida Corporation licensed and doing business in the State

   of Florida.

   
   

2. At all times pertinent to this action,

   Respondent Department of Revenue, State of Florida, was an agency of the State of Florida exercising duties relating to the

   assessment and collection of sales and use taxes pursuant to Chapter 212, Florida Statutes.

   
   

3. Respondent conducted an audit of tran- sactions involving Petitioner for the period November 1, 1972, through October 31, 1975.

   
   

4. As a result of that audit, Respondent claims that as of September 17, 1976, the Petitioner had a balance due to the Depart- ment of Revenue of $17,383.58 in taxes, interest and penalties. The assessment indicating the above amount is attached as Exhibit A.

   
   

5. Petitioner is in agreement that if the assessment is upheld, Petitioner owes to the Respondent the amount of $17,383.58 plus interest calculated to date of payment to Respondent.

   
   

6. The tax assessment in this case is based upon two factual situations:

   
   

   1. Petitioner, manufactured and installed asphaltic concrete from raw material at a rate certain per ton determined by bid, as an improvement to the real property of political entities consisting of cities, towns, municipalities, counties, school boards, junior colleges and others. Petitioner also hauled the asphalt to the job cite (sic) at a fixed ton/mile rate determined by bid.

      
      

   2. Petitioner, as a subcontractor, manu- factured and installed asphaltic concrete from raw material at a rate certain per ton determined by bid, as an improvement

   to the real property of political entities above described. The general

   contractor contracted with the political entities in various fashions but the Petitioner's duties were always the same and included manufacture, installation and hauling of asphaltic concrete based

   on a rate certain per ton and per ton mile.

   
   

7. The issue in this case is whether the Respondent is correct in contending that the Petitioner must pay a sales and use tax

   on the produced asphalt which it uses in the performance of the construction contract jobs described in paragraph 6.

   
   

8. It is agreed by the parties that no sales or use tax was remitted, by the Petitioner

   on the produced asphalt.

   
   

9. It is agreed by the parties that no sales or use tax was paid by the instant customers to the Petitioner.

   
   

10. It is Respondent's contention that, pursuant to the above-cited rules, the Peti- tioner is required to pay sales or use tax on the produced asphalt which is used to construct real property pursuant to a con- tract described in Rule 12A-1.51(2)(a), F.A.C.

    
    

11. It is Petitioner's contention that the above-cited rules do not apply in the instant case since the customers involved in the instant fact situations are political

    subdivision or because the transaction was of the type described by Rule 12A-1.51(2)(d), F.A.C.

    
    

12. Petitioner is entitled to rely on the earlier 1967 audit by Respondent because neither Petitioner's method of doing business, nor the law, has changed materially since 1967. Respondent agrees that this is an

issue but fails to agree that Petitioner is so entitled to rely."

1. All purchase orders or invitations for bid received by petitioner from political subdivisions stated that the entity was exempt from federal and state sales taxes and that such taxes should not be included in the bid. Typical bid forms entitled "Specifications for Asphaltic Concrete" called for a lump-sum price per ton for delivery and placement of the material by the vendor plus a sum per ton per mile for transportation costs. No breakdown of amounts for the cost of materials and cost of installation is reflected in the bid documents. (Testimony of Cowan, Cook, Exhibits 3, 7 (late filed))

   
   

2. Respondent audited petitioner's operations in 1967 and, although it had had previous transactions with governmental entities prior to that date, no

   assessment for back taxes was issued for failure to pay sales tax on such transactions nor was petitioner advised to do so in the future by state officials. After 1967, petitioner did not seek information from respondent concerning the subject of sales tax. As a consequence of the 1967 audit, petitioner believed that it was unnecessary to charge or pay sales tax on such transactions with political subdivisions. (Testimony of Cowan, Cook)

   
   

3. As of April 1, 1977, Brevard County had a population of over 250,000. Although it is a large county in terms of size, respondent has only two auditors in the sales tax division to cover the entire county. (Testimony of Alberto, Cowan, Exhibit 4)

   
   

   CONCLUSIONS OF LAW

   
   

4. The ultimate question for determination in this case is whether petitioner must pay state sales tax on the asphalt which it produced, delivered, and installed on real property of state political subdivisions or other political entities.

   
   

5. Section 212.05, F.S., provides that the sales tax is a privilege tax which is levied on each taxable transaction, and subsection 212.12(11) provides that the end consumer or last retail sale shall be the sale intended to be taxed. Subsection 212.07(1) provides that the tax shall be collected from the purchaser or consumer. Subsection 212.02(3)(a) identifies a consumer as one who purchases tangible personal property for any purpose other than resale in the form of tangible personalty.

   
   

6. The above statutory provisions are implemented by Rule 12A-1.51, F.A.C., which concerns sales to or by contractors who repair, alter, improve and construct real property. The parties herein have recognized the applicability of the rule to the instant factual situation with petitioner claiming that subparagraph (2)(d) applies and respondent asserting that subparagraph (2)(a) is controlling. The rule reads pertinently as follows:

   
   

   12A-1.51 Sales to or by contractors who repair, alter, improve and construct real property.

   
   

   1. The method by which contractors or sub- contractors arrive at the total contract price charged for repair, alteration, improvement and construction of real property or for a combination of work on both real and personal property must be determined for the purpose

      of ascertaining whether the receipts from sales made to or by them are taxable.

      
      

   2. Such contractors may include, among others, building, electrical, plumbing, heating, painting, decorating, ventilating, paper hanging, sheet metal, bridge, road, landscape or roofing contractors and they may use one of the following methods in arriving at the total contract price:

      1. Contracts in which the contractor or subcontractor agrees to furnish materials and supplies and necessary services for a lump

         sum;

         * * *

         (d) Contracts in which the contractor or subcontractor repairs, alters, improves or constructs real property and wherein he agrees to sell specifically described and itemized materials and supplies at an agreed price or at the regular retail price and to complete the work either for an additional agreed price or on the basis of time consumed.

         
         

         When a contractor or subcontractor uses materials and supplies in fulfilling either a lump sum, cost plus, fixed fee, guaranteed price of any kind of contract except one falling in class (d) above, he becomes the ultimate consumer thereof. The person or dealer who sells such materials and supplies to such contractor or subcontractor is making sales at retail and is required to collect the tax from him based upon the receipts

         from such sales.

         
         

         In cases falling in class (d) above, the contractor or subcontractor is deemed to be selling tangible personal property at an agreed retail price and shall collect tax from his purchaser based upon the amount of the receipts from such sales, excluding installation charges if separately stated. A dealer selling to such contractor or subcontractor must obtain a resale certifi- cate in lieu of tax.

         
         

7. The effect of the above portions of the rule is that if a lump-sum contract is involved, the contractor rather than the property owner is deemed to be the end consumer because he agrees to provide the owner with altered or improved realty and it is this finished product that is being purchased. In such cases, tangible property purchased or manufactured by the contractor and incorporated in the project is consumed by the contractor for its own purpose in providing a final product of improved realty and the contractor is liable for the sales tax. Subparagraph 2(d), on the other hand, provides that if a contractor "breaks out" the price for materials or supplies used and itemizes separately his service or installation charges, he is deemed to be a retailer. In such cases, the owner of the property is considered to be the end consumer or final retail purchaser and thus liable for the sales tax.

   
   

8. In this case, it is clear that the political subdivisions contracted for an improvement to realty in the form of asphalt surfaces on roads. The contractual documents show that lump-sum contracts were utilized with no separate itemization of the materials, i.e., asphaltic concrete, used on the various contracts. Thus, the case falls within the purview of Rule 12A- 1.51(2)(a) and petitioner is considered to be the ultimate consumer of the materials and supplies used in fulfilling the contracts. He is thus liable for the asserted sales taxes thereon. See Green v. Reed Construction Company, 91 So.2d 634 (Fla. 1956)

9. Petitioner contends that the contracts herein primarily involved sale of tangible personal property rather than having as their primary purpose the repair, alteration and improvement or construction of real property; and that therefore the test to determine the character of such contracts, as set forth in Kings Bay Yacht and Country Club, Inc., v. Green, 173 So 2d 509 (Fla. 1st DCA 1965), is applicable. Petitioner's view is deemed incorrect because the test established by the Court in that case dealt with a situation where a contractor agreed to furnish labor and materials in connection with improvement to real property and, also agreed to provided specified items of tangible personal property. Such is not the case here.

   
   

10. It is true that if subparagraph (2)(d) of Rule 12A-1.51 were applicable, the transactions in question would be exempt from tax under the provisions of subsection 212.08(6), F.S., which exempts sales of tangible personal property to political subdivisions of the state. The exemption, however, does not apply in cases of "sales of tangible personal property made to contractors. . . when such tangible personal property goes into or becomes a part of public works owned by such government or political subdivision thereof .

    . . ." Since it has been determined above that the sales in this case were, in effect, made to the contractor under Rule 12A-1.51(2)(a), the exemption does not apply.

    
    

11. Finally, petitioner claims that respondent is estopped from asserting the proposed taxes because (a) a prior audit conducted by respondent in 1967 did not result in assertion of taxes under identical situations to those in this case and (b) the directions received by petitioner from the political subdivisions in invitations for bid directed the bidder not to include sales tax in his bid amount. Neither of the grounds are sufficient to establish estoppel under the circumstances. Assuming that the state failed to collect sales taxes due for the audit period, such an omission does not involve a misrepresentation as to a material fact which is a requisite to establish any claim of estoppel. Greenhut Construction v. Henry A. Knott, Inc. 247 So 2d 517 (Fla. 1st DCA 1971) Neither do the bid instructions which stated that the political subdivision is exempt from federal and state sales tax constitute a misrepresentation. Accordingly, the doctrine of estoppel is inapplicable.

RECOMMENDATION

That the petitioner Lawrence Nali Construction Company, Inc. be held liable for sales tax, penalty, and interest under Chapter 212, Florida Statutes, as set forth in respondent's proposed assessment.

DONE and ENTERED this 9th day of September, 1977, in Tallahassee, Florida.

THOMAS C. OLDHAM

Hearing Officer

Division of Administrative Hearings

530 Carlton Building Tallahassee, Florida 32304

COPIES FURNISHED:

Daniel Brown, Esquire Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Andrew A. Graham, Esquire Post Office Box 1657 Cocoa, Florida 32922

Docket for Case No: 76-001823

Orders for Case No: 76-001823