vs. ) CASE NO. 82-2012
Respondent. )
Pursuant to notice this cause came on for formal administrative hearing before P. Michael Ruff, duly designated Hearing Officer of the Division of Administrative Hearings, on February 23, 1983, in Miami, Florida.
For Petitioner: Lloyd S. Marks, Esquire
This is a suit involving the Petitioner's contest of the Respondent's assessment of sales and use taxes against the Petitioner, Structural Homes, Inc., pursuant to an audit performed by the Respondent for a period March 1, 1977 through February 29, 1980, with the result that a tax deficiency was assessed amounting to $11,619.86, including penalties and interest, on the deficiency. The assessment, or $8,389.49 of it, including penalties and interest, relates to a tax the Department attempts to levy on the fabrication of completed homes or portions thereof (modules) at the Petitioner's factory. A tax was assessed on rental of the plant building from the Petitioner's landlord in the amount of $533.19, including penalties and interest, and a use tax on purchases by the Petitioner of materials generally from out-of-state vendors where no tax had been paid, which assessment amounts to $2,697.18, including penalties and interest. After a number of conferences and exchanges of correspondence between the parties, a revised notice of assessment was issued by the Department to which the Petitioner objected by filing a petition for an administrative hearing. The parties alleged that there were no disputed issues of material fact and reaffirmed this lack of factual dispute at the outset of the hearing. The cause proceeded as a formal hearing pursuant to Section 120.57(1), Florida Statutes (1981) by agreement, however.
The Petitioner presented one witness, the president of the petitioner corporation. The Respondent presented one witness and five exhibits, all of
which were admitted into evidence. At the conclusion of the hearing, the parties requested time to submit briefs or proposed findings of fact and conclusions of law, which were timely submitted on March 29, 1983, concomitantly waiving the requirements of Rule 28-5.402, Florida Administrative Code.
The issue to be resolved concerns whether the houses or housing modules are products fabricated at the Petitioner's plant from materials which the Petitioner substantially alters in the fabrication process, thus creating a distinct item of tangible personal property, subject to taxation, before being "attached to realty" on the buyer's lot.
Structural Homes, Inc., the Petitioner, is in the business of constructing prefabricated, custom-built homes at its plant in Florida City, Florida. These homes are primarily sold to customers in the Florida Keys. The homes consist of a prefabricated steel frame, which Structural Homes purchases, constituting the skeleton of the house. The frame is modular and is delivered, generally, a minimum of two modules, or sections, for the typical home because of building code requirements related to minimum square footage, which necessitates using two frame units to build a legally minimal size house. The frames are delivered from the supplier to the Structural Homes' plant in Florida City, where employees of Structural Homes' plant in Florida City, house around the skeleton consisting of adding frame walls, paneling, exterior siding walls, plumbing and flooring. The customer is given the opportunity during the assembly or construction of the home to select all tile, carpeting and other floor covering materials. The work at the job site, before construction of the home, consists primarily of only digging and installing the foundation, including anchor bolts for anchoring the house upon when it is delivered to the job site. The homes are assembled at the plant and then moved to the lot for bolting down to the foundation. One module or unit of such a house requires one trip by truck to deliver to the job site. Thus, there must be at least two trips to deliver the two units used to construct a house of the minimal 750 square foot size. Thus, the house is assembled almost solely at the Petitioner's plant and delivered in several trips to the job sited and bolted down. Although many more trips are necessary from the Petitioner's facility to the job site that involve various items of finish labor and construction, for all intents and purposes the house is, to a great degree, assembled at the plant and then delivered to the job site.
At the job site, the house is bolted down to its foundation, carpet or other finish floor covering is put in and the plumbing, which was "roughed in" or "stubbed in" at the foundation at the job site, is connected with plumbing already installed in the house modules at the Petitioner's plant. In effect then, the only work done at the job site is foundation preparation, site erection of the completed modules, and connection of utility services, which are done at the lot.
Pursuant to the Department's audit, it was determined that the bulk of the assessment, $8,389.49, including penalties and interest, related to tax on the fabrication of the completed homes at the factory. There was also a tax assessed on rental of the plant building from the Petitioner's landlord in the amount of $533.19, including penalties and interest, as well as a use tax on purchases by the Petitioner of materials generally from out-of-state vendors where no tax was paid, which assessment originally amounted to $2,697.18.
After negotiations between the parties, the Department ultimately issued its revised notice of assessment, which culminated in the instant administrative proceeding. The parties stipulated at the hearing that there were no disputed issues of material fact, but pursuant to agreement, elected to proceed formally before the undersigned anyway.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of these proceedings. Section 120.57 (1), Florida Statutes (1981).
The Respondent contends that delinquent sales and use and taxes are due on various transactions involving the modular houses, pursuant to Chapter 212, Florida Statutes. Specifically, the taxes are sought to be levied on fabricated materials used by the Petitioner in the manufacture of those homes. The Respondent additionally takes the position that Chapter 212 gives it the power to tax fabricated materials and the Petitioner takes the position that those items of alleged taxation are at least implicitly exempt on the basis of its theory of the legislative intent behind the subject statute, as indicated by the Legislature's later specific exemption enacted to apply to the subject types of products and transactions. The Petitioner did not challenge the unpaid rental tax, nor the unpaid use tax on purchases (other than supplying to the auditor, during the audit process, evidence that it had paid some of them, which amounts the Department of Revenue has agreed are no longer due). The Petitioner offered no other evidence that the remainder of those taxable items were paid or lawfully exempted. Section 120.575(2), Florida Statutes (1982), provides that the Department's burden of proof shall be limited to a showing that the assessment was made and the factual and legal grounds upon which the assessment was made. Section 212.07(9), Florida Statutes, and Rules 12A-1.171, 1.24, 1.51, 1.06, and l.91, Florida Administrative Code, provide the legal basis for the Department's factual determination to assess the use tax of $2,697.18. Section 212.031, Florida Statutes, and Rule 12A-1.70, Florida Administrative Code, provide the legal basis for the Department's election to assess, pursuant to the audit, the rental tax of $513.19.
The sole issue genuinely in dispute herein concerns whether the tax on fabrication of the modular home units, levied pursuant to Section 212.06(1)(b), Florida Statutes, and Rule 12A-1.24, Florida Administrative Code, was properly assessed. Section 212.06(1)(b), Florida Statutes (1979), in effect during the time period to which the assessment relates, states as follows:
Any person who manufacturers, produces, compounds, processes or fabricates in any manner tangible personal property for his own use shall pay a tax upon the cost of the product manufactured, produced, com pounded, processed or fabricated without any deduction there from on account of the cost of material used, labor or service costs or transportation charges, notwith standing the provisions of s. 212.02(5)
defining "cost price." However, fabrication labor shall not be taxable when a person
is using his own equipment and his own personnel, for his own account, as a pro ducer, subproducer, or coproducer of video
tapes or motion pictures prepared for show ing on screens or through television, for either theatrical, commercial, advertising, or educational purposes.
Additionally, Rule 12A-1.24, Florida Administrative Code, (also in force for the audit period) states:
12A-1.24 Fabrication of tangible personal property for others.
The producing, fabricating, processing, printing or imprinting of tangible personal property is taxable.
The total charge for manufacturing a
part in the shop from stock is fully taxable.
Material which is cut, threaded, shaped, bent, polished, welded, sheared, punched, drilled, machined or in some way has work performed on it which changed its original state is considered to have been fabricated and is taxable.
Charges for labor, replacement parts, materials and supplies used by dealers to adjust, apply, alter, install, maintain, re model or repair tangible personal property belonging to others are fully taxable.
On July 1, 1982, the Legislature amended Section 212.06(1)(b) so as to include therein the express exemption of the fabrication process related taxes sought to be imposed herein on the Petitioner. Section 212.06(1)(b), Florida Statutes (1982), as amended, now reads:
Except as otherwise provided, any person who manufactures, produces, compounds, pro
cesses, or fabricates in any manner tangible personal property for his own use shall pay
a tax upon the cost of the product manufactured, produced, compounded, processed, or fabricated without any deduction therefrom on account of the cost of material used, labor or service costs, or transportation charges, notwith
standing the provisions of s. 212.02(5) defining "cost price." However, fabrication labor shall not be taxable when a person is using his own equipment and his own personnel, for his own account, as a producer, subproducer, or co producer of video tapes or motion pictures prepared for showing on screens or through television, for either theatrical, commercial, advertising, or educational purposes. Persons who manufacture factory-buildings for their own use in the performance of contracts for the con struction or improvement of real property shall pay a tax only upon the persons' cost price of items used in the manufacture of such buildings. (e.s.)
The Petitioner's sole legal position in this proceeding is predicated on its contention that this amendment expressly exempting the Petitioner and the Petitioner's construction and sales of housing involved herein from a fabrication tax "was placed in the statute to clarify the existing law and that therefore the law has always been that Petitioner was exempt from the taxes in question." (Petition, paragraph 4.) This argument that at least an implicit exemption existed prior to the July 19, 1982, amendment quoted above is legally erroneous inasmuch as Section 212.21(21), Florida Statutes, provides:
It is hereby declared to be the specific legislative intent to tax each and every sale, admission, use, storage, consumption
or rental levied and set forth in this chapter, except as to such sale, admission, use, storage, consumption, or rental, as shall be specifically exempted therefrom by this chapter, subject to the conditions appertaining to such exemption. . . (e.s.)
Therefore, in order for the exemption the Petitioner says always, at least implicitly, existed to have had any effect, it would have had to been "specifically exempted" from the class or set delineated in the above section regarding each and every "use" and "subject to the conditions appertaining to such exemption." This eliminates any possibility of an inherent or implied exemption. Since the audit period involved herein ended prior to the effective date of the above-quoted section (July 1, 1982), the fabrication tax must be deemed to be properly due. Since Section 212.06(1)(b) contains certain express exemptions at the time in question, during the audit period, the well excepted doctrine of statutory construction, expressio unius est exclusio alterius would dictate that no implied exemption existed during the audit period in question.
There is no question that the evidence of the Petitioner's own witness reveals that the Petitioner manufactures the homes at its plant in Florida City from materials it purchases from various suppliers and then transports the modular homes or modular units to the buyer's lot for erection on the site on a pre-prepared foundation as part of its performance of its contract with the buyer to provide him with a house on his lot. The point is that the Petitioner, in engaging in that operation, has substantially altered products obtained from the suppliers and produced a new product of tangible personal property at its own plant for sale to the buyer, with essentially all fabrication being done by the Petitioner and his laborers on his own premises with raw materials purchased elsewhere.
Section 212.02(12), Florida Statutes, defines tangible personal property as meaning and including personal property which can be seen, weighed, measured or touched in any manner. The situation is much the same as that pertaining to mobile homes. Clearly mobile homes are tangible personal property and only become realty after they become attached to realty and not before. Section 220.015, Florida Statutes (1979), and Rule 12A-1.07(40), Florida Administrative Code. There is no question, given the evidence in this record that the homes manufactured at his plant by the Petitioner are not realty until permanently attached to the foundation at the buyer's home site.
Additionally, Rule 12A-1.51(5), Florida Administrative Code, which was in effect during the audit period which is the subject of this proceeding, states as follows:
Contractors who operate manufacturing
plants which make items of tangible personal property for their own consumption and use in the performance of contracts for the construc tion 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.
Clearly, the Petitioner is such a contractor as described in the above rule. The Petitioner completes the modules at its factory for placement on the buyer's lot. In effect, it is using a fabricated module to improve realty, and the module becomes subject to the tax upon the point of being manufactured and commingled with the general mass of personal property in this State, all of which is prior to its being affixed to realty. See, U.S. Steel Corp. v. Dickinson, 272 So.2d 497 (Fla. 1972).
In effect, the Petitioner seeks to have the 1982 amendment to Section 212.06(1)(b), quoted above, applied retroactively, which was clearly not the legislative intent involved in its enactment and such should not be allowed in the case. In particular, where taxing statutes are amended, the general rule is that the amendment operates prospectively only, unless the Legislature clearly manifests an otherwise contrary intention that a retroactive effect should be given such an amendment. State, Department of Revenue v. Swinscoe, 376 So.2d 1 (Fla. 1976); State ex rel. Riverside Bank v. Green, 101 So.2d 505 (Fla. 1958);
31 Fla. Jur., Taxation, ss52, 55. Section 4 of Chapter 82-206, Laws of Fla., amending s212.06(1)(b), Florida Statutes (1930), reads:
This act shall take effect July 1, 1982.
Accordingly, there is an express legislative intent that after July 1, 1982 (but not before), the Petitioner and the Petitioner's activity, which is the subject of the case at bar, did indeed become exempt from tax imposed by Section 212.06(1)(b). Prior to that date however, the Petitioner was and remains liable for the taxes assessed pursuant to the assessment involved herein.
Having considered the foregoing Findings of Fact and Conclusion of Law, and the evidence in the record, it is therefore
That a Final Order be entered upholding the tax assessment involved herein and that the subject taxes, penalties and interest are due.
DONE and ORDERED this 1st day of August, 1983, in Tallahassee, Florida.
P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building
Filed with the Clerk of the Division of Administrative Hearings this 2nd day of August, 1983.
1/ This $2,697.18 relates to purchases by the Petitioner from vendors where no tax was paid by Petitioner. The testimony of the audit supervisor shows that the auditor (since deceased) scheduled these purchases by invoice number, date of purchase and item purchased. Certain items were voluntarily deleted by the auditor after he was shown evidence by the Petitioner that the tax had indeed been paid on those items. Other than those items, for which Respondent agreed proof of payment was shown, no proof was produced by the Petitioner at the hearing that the remaining items in the use tax category were paid.
Lloyd S. Marks, Esquire 14411 South Dixie Highway Suite 202, King Bay Offices Miami, Florida 33176
Jeff Keilbasa, Esquire Department of Legal Affairs The Capitol - Room LL04 Tallahassee, Florida 32301
