Title: Sublette County School Dist. No. 1 v. State Bd. of Equalization, State of Wyo.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Sublette County School Dist. No. 1 v. State Bd. of Equalization, State of Wyo.1989 WY 59770 P.2d 218Case Number: 88-144Decided: 03/06/1989Supreme Court of Wyoming
SUBLETTE 
COUNTY SCHOOL DISTRICT NO. 1 AND BANCROFT CONSTRUCTION, APPELLANTS 
(PLAINTIFFS),

 
 
v.

 
 
STATE BOARD 
OF EQUALIZATION, STATE OF WYOMING, APPELLEE 
(DEFENDANT).

 
 
Appeal from 
the District Court, LaramieCounty, Edward L. Grant, 
J.

 
 
Gerald R. 
Mason of Mason & Twichell, P.C., Pinedale, for appellants.

 
 
Joseph B. 
Meyer, Atty. Gen., Peter J. Mulvaney, Deputy Atty. Gen., Michael L. Hubbard, and 
Robert J. Walters, Asst. Attys. Gen., Cheyenne, for appellee.

 
 
Before CARDINE, C.J., and THOMAS, URBIGKIT, MACY 
and GOLDEN, JJ.

 
 

GOLDEN, 
Justice.

 
 
[¶1.]     This appeal challenges 
the state's imposition of a sales or use tax upon contractors who both provide 
and install materials under construction contracts with political subdivisions 
of the State of Wyoming. Sublette County School District No. 1 
(school district) asserts that taxing those contractors effectively imposes a 
tax upon the governmental entity in contravention of both legislative intent and 
constitutional provisions granting tax-exempt status to the governmental entity. 
The trial court denied the school district declaratory and injunctive relief, 
granting a summary judgment in favor of the State Board of Equalization 
(Board).

 
 
[¶2.]     We 
affirm.

 
 
[¶3.]     In late summer, 1985, 
the school district began a nearly $10 million project for the construction on 
school district land of a new elementary school, a new gymnasium and cafeteria 
complex, and a new auditorium. Using a construction management arrangement,1 the school district contracted on 
August 8, 1985, with Dixon-Watson Associates, Inc.,2 to be the project's construction 
manager with responsibilities to oversee construction and protect the school 
district's interests by coordinating and scheduling the various subcontractors' 
supplying of construction materials and actual constructing of the 
facilities.

 
 
[¶4.]     Pursuant to that 
construction management agreement and on behalf of the school district, 
Dixon-Watson invited bids on the project, advising bidders to exclude Wyoming sales and use 
taxes from their estimates of construction material costs. That advice conformed 
to the school district's interpretation of W.S. 39-6-405 and 39-6-505 (May 1985 
Repl.), which exempt from sales and use taxes all purchases made by the state or 
any of its subdivisions.3

 
 
[¶5.]     Based on their 
submitted bidding forms, on which they were required to separate bids regarding 
materials from bids relating to labor and installation, certain contractors were 
awarded contracts to supply only materials. The remaining contractors, including 
Bancroft Construction, were awarded contracts for both materials and 
installation of those materials. Consistent with the instructions of 
Dixon-Watson, none of the bids for materials included an allowance for sales or 
use tax. The school district paid contractors who were providing both materials 
and installation according to periodic billings that included separate charges 
for installation services and material purchases.

 
 
[¶6.]     On June 13, 1986, the 
school district contacted the Board regarding the tax responsibilities of the 
various contractors on the project. The Board responded on June 26, 1986, and 
informed the school district that contractors supplying only materials or only 
labor were exempt from sales or use taxes. However, the Board asserted that 
those contractors who were supplying materials and who had also contracted to 
install those materials were liable for those taxes in accordance with W.S. 
39-6-601 and 39-6-602 (May 1985 Repl.).4 

 
 
[¶7.]     The school district 
determined that it was obligated by its contractual covenants of good faith and 
fair dealing to allow change orders to affected contractors to compensate them 
for this unexpected tax liability. The ultimate cost to the school district was 
about $146,000. The school district brought suit to recover the additional funds 
expended and for declaratory and injunctive relief on October 9, 1986, arguing 
that it bore the ultimate economic burden of a tax upon its contractors and 
alleging that such a burden was inconsistent with its constitutional and 
statutory status as a tax exempt political subdivision of the state. The school 
district and the Board filed cross motions for summary judgment concerning the 
question of law raised by the school district and stipulated that no genuine 
issue of material fact remained for the trial court to 
decide.

 
 
[¶8.]     The trial court 
observed that property purchases by governmental subdivisions, such as the 
school district, had been both constitutionally and statutorily exempted from 
taxation. It also recognized that statutory provisions taxing government 
contractors who also provide labor on the property sold appeared inconsistent 
with those exemptions. The trial court resolved this apparent ambiguity by 
determining that the constitution and statutes only prohibited the imposition of 
a legal liability upon governmental entities for the direct payment of a tax. 
They did not, however, prohibit the imposition of such liability upon third 
parties who might pass the economic burden of the tax to those who deal with 
them. Thus, the trial court determined that the legal incidence of a tax 
represents an obligation or liability of the taxpayer which is rationally 
distinct from merely carrying the economic burden of that tax. The court then 
denied the school district's summary judgment motion and granted summary 
judgment for the Board.

 
 
[¶9.]     The school district 
argues on appeal that, notwithstanding the rationality of the Board's position, 
it fails to conform with the legislative intent of the sales and use tax 
statutes. The school district further argues the rationality of that position is 
not determinative of whether the challenged tax is unconstitutional. If the 
school district is correct in its first contention, we need not reach its 
constitutional challenge. Therefore, we first address the structure of the sales 
and use tax statutes and the parties' respective positions regarding the proper 
construction of those statutes.

 
 
[¶10.]  Purchasers who, within Wyoming, take title to or 
the possession of tangible personal property, for their use and not for 
subsequent resale, owe sales tax on that transaction. W.S. 39-6-404(a)(i) (May 
1985 Repl.) (a purchaser is responsible for tax on retail sales); W.S. 
39-6-402(a)(ii) and (iii) (May 1985 Repl.) (defining "retail sale" and "sale"). 
A transaction contemplated by the Selective Sales Tax Act of 1937 requires the 
involvement of a vendor licensed to conduct business within Wyoming. W.S. 39-6-403(a) 
(May 1985 Repl.) (requiring every vendor to obtain a license); W.S. 
39-6-402(a)(ix) (May 1985 Repl.) (defining "vendor").

 
 
[¶11.]  Wyoming's Use Tax Act of 1937 was intended as 
a complement to the sales tax. County 
of Natrona v. Casper Air Service, 536 P.2d 142, 146 (Wyo. 1975). While the use 
tax, like our sales tax, does not apply to purchases for subsequent resale, it 
does apply to certain retail sales not covered by the sales tax statutes. W.S. 
39-6-505(a)(i) (May 1985 Repl.) (exempting transactions taxable under sales tax 
statutes); W.S. 39-6-504(b) and (c) (May 1985 Repl.) (use tax liability for 
storing, using, or consuming tangible personal property except where purchased 
for resale). The use tax applies to sales resulting in a "use" in Wyoming, regardless of whether title or possession 
transferred elsewhere and regardless of whether the vendor was doing business in 
Wyoming. 
Inherent in both taxes, however, is the notion that tax liability lies with the 
purchaser who enjoys the benefits of ownership, possession, or use of the 
purchased property. 

 
 
[¶12.]  As previously noted, an exception to this 
scheme has been created by exempting governmental entities from tax liability 
where those entities are the final users of the purchased property. The school 
district argues that as a tax-exempt final user of construction materials 
supplied by contractor "A" and installed by contractor "B", it is likewise a 
tax-exempt final user of construction materials supplied by contractor "C", even 
though those materials were installed pursuant to its independent labor contract 
with "C". That is, the school district asserts that the legislature intended its 
exempt status to be a specific exception to the general tax liability of 
purchasers and final users under the sales and use tax statutes. Conversely, the 
Board contends the taxing of contractors who install the materials they have 
provided should be viewed as a specific exception to the general tax-exemption 
for governmental entities.

 
 
[¶13.]  From the viewpoint of public policy, both 
positions exhibit merits which the legislature might have found compelling. The 
school district's position regarding the uniform treatment of government 
purchases makes a great deal of sense when one considers that, as recipients of 
state revenues, these entities are now required, in effect, to pass a 
significant part of their funding back into the state's general coffers. We 
cannot say, however, that such a facially illogical process serves no purpose in 
the legislature's efforts to finance statewide capital improvements and service 
the debts thereby created.

 
 
[¶14.]  On the other hand, the Board's position 
sensibly differentiates between a retailer whose profit depends solely on 
purchases for resale and a contractor whose profit depends both on the resale of 
material and his use of that material. We will not seek to justify the Board's 
position by saying that the "use" component of the contractor's dual 
profit-making activity is his primary function. Rather, we note that the 
legislature may have considered potential problems with permitting a contractor 
to control the billing of those separate activities while holding his client 
primarily liable for the tax on those activities. For instance, the contractor 
may bill his labor costs as a cost of materials and increase the tax on 
materials accordingly, while failing to remit the collected tax to the state. 
His client, who will undoubtedly pay the increase, has no means of determining 
that he has overpaid and no means of determining whether the tax was paid to the 
state. To hold that client liable for the tax in such circumstances would be 
patently unfair. The legislature might have decided that the secondary tax 
liability of the contractor/vendor gave the Board insufficient control over such 
conduct. By deeming the contractor the final user, however, tax liability would 
be placed on both the contractor and his vendor. Any failure of the contractor 
to remit tax payments would then adversely affect the vendor on whom he depends, 
tending to further prevent such misconduct.

 
 
[¶15.]  Both parties, therefore, offer a 
reasonable resolution of the ambiguity which the trial court found to exist in 
the use tax statutes. Neither party, however, has clearly established the 
legislature's intended resolution of that ambiguity. The only evidence of 
legislative intent presented to the trial court was the inaction of the 
legislature in the face of an Attorney General's opinion and the Board's own 
rules, both of which had long advanced the Board's position. Some further 
indication of legislative intent would undoubtedly aid our evaluation of the 
correctness of either party's position. "[C]ourts may try to determine 
legislative intent by looking at the legislative history of a statute." State v. 
Stovall, 648 P.2d 543, 546 (Wyo. 1982). Though not often the case in 
Wyoming, the 
legislative history of these apparently conflicting statutes sufficiently 
demonstrates the legislative intent, if not the legislative purpose, relating to 
these statutes.

 
 
[¶16.]  Wyoming's Selective Sales Tax Act of 1937 
exempted from that tax all not-for-resale sales to political subdivisions of the 
state. W.S. 39-292 (1957). That exemption survives today as W.S. 39-6-405 (May 
1985 Repl.). Similarly, provisions of W.S. 39-312 (1957), specifically exempted 
from use tax all property used in performing public works contracts prior to 
April 1, 1935, thereby implying that the tax would apply in such cases after 
that date. Morrison-Knudson Co., Inc. v. State Board of Equalization, 58 
Wyo. 500, 135 P.2d 927, 932 (1943). No comparable provision exists in today's statutes. 
Instead, 1963 Wyo. Sess. Laws, Ch. 183, imposed a use tax upon all contractors, 
whether they provided labor or materials or both, while deleting that portion of 
§ 39-312 that implied the nonexempt status of public works contractors.5 To this point in our analysis it is 
uncertain whether the legislature intended by that act to reestablish an 
exemption for public works contractors, or whether it instead intended to more 
clearly establish the tax liability of all contractors.

 
 
[¶17.]  That uncertainty vanishes upon examining 
the process by which 1981 Wyo. Sess. Laws, Ch. 57 § 1, came into being.6 That act was originally introduced 
as House Bill 431. After the first reading of that bill an attempt was made in 
committee to amend it, making construction contractors the purchasing agents of 
those governmental entities with whom they had contracted, and thereby 
eliminating those contractors' liability for sales and use taxes. The proposed 
amendment died in committee and was returned to the full House in its original 
form. The Bill was then passed without substantial change. House Journal 406-407 
(1981). Thus, it is clear that the Legislature intended no exemption to apply to 
contractors who supply both labor and materials to exempt political subdivisions 
of the state. The trial court properly accepted the statutory construction 
advanced by the Board.

 
 
[¶18.]  Though the legislature clearly intended 
to tax such contractors, the question remains whether it had the power to 
thereby place an indirect tax burden upon a governmental entity apparently 
exempted from that burden by the Wyoming Constitution. The school district 
argues that, regardless of whether construction materials have been purchased 
from a mere supplier or from a supplier who also installs those materials, such 
materials become the property of the school district. Since that property was to 
be used primarily for a governmental purpose, the school district asserts, it is 
exempt from taxation under Wyo. Const. art. 15, § 12.7

 
 
[¶19.]  The Board argues that the constitutional 
provision does not apply because the materials are not school district property. 
The Board reaches this conclusion by asserting that an installation contractor 
does not actually purchase those materials for resale, and that the contractor 
is the final owner, user, and consumer of those materials, as materials. Citing authority from 
other jurisdictions to support this contention, the Board would have us follow 
decisions which distinguish materials that become fixtures from materials which 
are attached to realty with less permanence. In the former instance, the 
material remains the property of the contractor; only the completed structure 
becomes the property of his client. In the latter instance, ownership transfers 
immediately. We observe that such a distinction has arisen only under statutory 
schemes which differ substantially from that of Wyoming's, and we decline to adopt the 
distinction here.

 
 
[¶20.]  The trial court appears to have ignored 
this aspect of the Board's argument, concentrating instead on the Board's 
alternative assertion that excise taxes such as sales and use taxes are levied 
against something other than property, thereby rendering the constitutional 
provision inapplicable. The trial court found support for that position in 
United 
States v. New 
Mexico, 455 U.S. 720, 102 S. Ct. 1373, 71 L. Ed. 2d 580 (1982). In that case, the Court discussed the particular characteristic of 
excise taxes which permitted a state to tax materials used on federal 
construction projects, notwithstanding the tax immunity enjoyed by federal 
property under the Supremacy Clause. The Court held that contractors on those 
projects may be subjected to state sales and use taxes even though they purchase 
material for the United 
States in such a manner that title to the 
property vests immediately in the federal government. Likewise, the government's 
title to the final product constructed does not preclude taxing the contractor 
for the materials used in that construction. Such was the case, the Court 
explained, because excise taxes do not tax the ownership of property; rather, 
they tax the contractor's use of the property in connection with his commercial, 
profit-making activities, an independently taxable activity apart from 
ownership. 455 U.S.  at 734-35, 102 S. Ct.  at 1382-83, 
71 L. Ed. 2d  at 591-92. The Arizona Court of Appeals, in J.C. Penney Co. v. 
Arizona Dept. of Revenue, 125 Ariz. 469, 610 P.2d 471 (1980), similarly upheld 
an excise tax imposed upon private parties, though the eventual burden of those 
taxes fell upon the state. In that case, a state constitutional provision, 
similar to Wyoming's, created a tax exemption for 
property of the state and its political subdivisions. The resulting tax 
imposition was constitutionally permissible, that court held, because the 
constitutional exemption referred only to property taxes and not excise taxes. 
Id. 610 P.2d  
at 475.

 
 
[¶21.]  Our prior decisions, though they fail to 
explicitly adopt the reasoning of these cases, imply our agreement with that 
reasoning. While admitting that Wyoming cannot 
collect sales and use taxes from the United States, it is well-established 
that contractors on federal construction projects in this state are nevertheless 
subject to such taxes. United Pacific Insurance Co. v. Wyoming Excise Tax Division, Department of Revenue and 
Taxation, 713 P.2d 217, 221-22 (Wyo. 1986). Although the application of our 
state constitution was not at issue in that case, we note that the property of 
both Wyoming and the United States is 
exempted from taxation by Wyo. Const. art. 15, § 12. If we were now to hold that 
contractors on state construction projects are constitutionally exempt from 
taxation, contractors on federal projects must enjoy a similar benefit. However, 
the "well-established" principles referred to in United Pacific were not 
advanced without regard for their legitimacy under the Wyoming Constitution. 
Implicit in our disposition of that case was our long-established understanding 
that "[t]axes * * * on the privilege of doing business, are to be distinguished 
from property taxes, and * * * constitutional restrictions on property taxes are 
ordinarily inapplicable * * *." City of Sheridan 
v. Litman, 32 Wyo. 14, 228 P. 628, 630-31 
(1924).

 
 
[¶22.]  The plain language of Wyo. Const. art. 
15, § 12, limits its applicability to property taxes. The tax at issue here is 
clearly an excise tax upon a taxpayer's profit-making activities. Although the 
Board cannot destroy the school district's statutory exemption from sales and 
use tax by imposing upon the school district the legal liability for direct 
payment of such taxes, it may impose that liability on a nonexempt entity. That 
is exactly what has occurred. We hold the actions of the Board to be consistent 
with legislative intent and the Wyoming Constitution.

 
 
[¶23.]  AFFIRMED.

 
 
FOOTNOTES

 
 

1 Under the 
construction management arrangement, the school district, as owner, is like a 
prime contractor who directly subcontracts with third parties for both supplying 
of construction materials and performing of actual 
construction.

 
 

2 Dixon-Watson 
Associates, Inc., was also retained by separate agreement on August 8, 1985, to 
be the project architect.

 
 

3 W.S. 39-6-405 
provides, in pertinent part:

 
 
(a) The following 
sales or leases are exempt from the excise tax imposed by this 
article:

 
 
* * 
* * * *

 
 
                        
(xi) Sales to the state of Wyoming or its political 
subdivisions;

 
 
* * 
* * * *

 
 
                        
(xv) Sales which the state of Wyoming is 
prohibited from taxing under the laws or constitutions of the 
United States or Wyoming.

 
 
W.S. 39-6-505 
provides, in pertinent part:

 
 
            
(a) The following purchases or leases are exempt from the excise tax 
imposed by this article:

 
 
* * 
* * * *

 
 
                        
(iii) Purchases which the state of Wyoming is prohibited from taxing under the laws or 
constitutions of the United 
States or Wyoming;

 
 
* * 
* * * *

 
 
            
(v) Purchases made by the state of Wyoming or its political 
subdivisions.

 
 

4 W.S. 39-6-601 
provides, in pertinent part:

 
 
            
(a) As used in this article:

 
 
                        
(i) "Contractor" means any general or prime contractor or 
subcontractor;

 
 
                        
(ii) "General or prime contractor" means:

 
 
                        
(A) Any person who agrees with the owner or lessee of real property in 
this state to perform services or furnish materials and services for the 
construction,                     
alteration, improvement or repair of real property in this 
state;

 
 
* * 
* * * *

 
 
                        
(vi) "Subcontractor" means any person who agrees with another contractor 
to perform any part of that contractor's obligation for furnishing services or 
                        
furnishing materials and services for the construction, alteration, 
improvement or repair of real property in this state.

 
 
W.S. 39-6-602 
provides, in pertinent part:

 
 
            
(a) Any contractor who furnishes tangible personal property under 
contract or in the development of real property is the consumer or user of the 
tangible personal     
property within the meaning of the sales and use tax laws of Wyoming.

 
 

5 The general tax 
exemption for sales to political subdivisions of the state remained a part of § 
39-312 despite the deletion of the "public works" clause.

 
 

6 That act, in 
establishing the present form of W.S. 39-6-601 and 602, amended prior statutes 
by imposing use tax liability only on those contractors who provide both labor 
and materials.

 
 

7 Art. 15, § 12 
provides:

 
 
The property of the 
United States, the state, counties, cities, towns, school districts and 
municipal corporations, when used primarily for a governmental purpose, and 
public libraries, lots with the buildings thereon used exclusively for religious 
worship, church parsonages, church schools and public cemeteries, shall be 
exempt from taxation, and such other property as the legislature may be general 
law provide.