Title: Memorial Hosp. of Laramie County v. Department of Revenue and Taxation, State of Wyo.

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Memorial Hosp. of Laramie County v. Department of Revenue and Taxation, State of Wyo.1991 WY 9805 P.2d 276Case Number: 90-1Decided: 01/24/1991Supreme Court of Wyoming

MEMORIAL HOSPITAL OF LARAMIECOUNTY, Appellant 
(Plaintiff),

 
 
v.

 
 
DEPARTMENT OF 
REVENUE AND TAXATION, STATE OF WYOMING, Appellee 
(Defendant).

W. Perry 
Dray and Niki Esmay 
Heller, Dray, Madison & Thomson, P.C., for appellant.

Joseph B. Meyer, Atty. Gen., 
Michael L. Hubbard, Sr. Asst. Atty. Gen., for appellee.

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

THOMAS, Justice.

 
 

[¶1.]     In Sublette County 
School District No. 1 v. State Board of Equalization, 770 P.2d 218 
(Wyo.1989), this court held that the exemptions from the sales tax set forth in 
§ 39-6-405, W.S.1977 (May 1985 Repl.),1 and the use tax set forth in § 
39-6-505, W.S.1977 (May 1985 Repl.),2 were not available in an instance 
in which a contractor who had supplied the materials upon which the tax was 
assessed also had contracted to install those materials and that § 39-6-602(a), 
W.S.1977 (May 1985 Repl.),3 made that contractor subject to the 
sales tax as a "consumer or user" of the tangible personal property. The issue 
in this case is whether the rule pronounced in Sublette should apply to 
require the payment of sales taxes by a contractor in an instance in which the 
contractor sold the materials directly to a tax exempt institution, Memorial 
Hospital of Laramie County (Memorial), and then installed those materials 
pursuant to a separate contract for labor services made between the contractor 
and a contract manager employed by Memorial to oversee the project. The district 
court ruled that whenever the installation of materials in a construction 
project is actually accomplished by the same firm that supplied the materials, 
the sales tax for the materials must be paid by the contractor that installed 
them. The court held that this rule pertains even though those materials were 
sold directly to the tax exempt institution, Memorial in this instance, and the 
contract for labor was entered into between the seller and the contract manager 
for Memorial. In effect, the district court treated the contract manager as the 
agent of Memorial and concluded that the situation was not distinguishable from 
Sublette with respect to imposition of the sales tax. We agree with the 
ruling of the district court, and we affirm its judgment in favor of the 
Department of Revenue and Taxation of the State of Wyoming.

 
 

[¶2.]     In its Brief of 
Appellant, Memorial presents the questions in this way:

"1. Whether Sublette County School 
District No. 1 v. State Board of Equalization, 770 P.2d [218] 223 
(Wyo.1989), controls the disposition of this case.

 
 
"2. Whether materials and supplies 
purchased by Memorial Hospital of Laramie County (a political subdivision of the 
State of Wyoming) from vendors who eventually installed those same materials and 
supplies pursuant to a separate labor and services contract with a Construction 
Manager, are exempt from taxation under the Sales and Use Tax laws of the State 
of Wyoming, as a sale to and a purchase by a political subdivision of the State 
of Wyoming."

The Department of Revenue and Taxation 
of the State of Wyoming (Department) consolidates the question 
in the following statement of the issues: 

 
 
"Is a contractor who furnishes 
materials and services in the development of real property exempt from Wyoming 
sales or use taxes on its purchase of the materials because the materials are 
furnished to the owner through a separate contract?"

 
 

[¶3.]     This case was before 
this court in a previous appeal on the question of the jurisdiction of the 
district court to decide the controversy, and the essential facts are 
articulated in Memorial 
Hospital of Laramie County v. Department of Revenue and 
Taxation of the State of Wyoming, 770 P.2d 223, 224-25 
(Wyo.1989):

"On March 12, 1986, the hospital 
entered into a construction management agreement with Fru-Con Construction 
Corporation to build an addition to its facilities. That agreement established 
certain procedures for letting bids and purchasing materials which were designed 
to avoid the costs of sales and use taxes on construction materials. The 
hospital believed such procedures were consistent with advice received through 
its previous communications with the department. Accordingly, during the bidding 
process the hospital and Fru-Con structured certain material acquisitions as 
direct purchases by the hospital. However, due to the broad authority granted 
Fru-Con to subcontract for labor on the project, three distinct situations were 
created with respect to contractors supplying materials: (1) some contractors 
supplied only materials through a direct contract with the hospital; (2) others 
supplied both materials and labor through a single subcontract with Fru-Con; (3) 
still others supplied materials through a direct contract with the hospital 
while providing labor relating to those materials through a separate labor 
subcontract with Fru-Con. The hospital advised suppliers in the third class that 
such transactions for materials were exempt from sales and use taxation. 
[Footnote omitted.]

"On January 25, 1988, the department 
notified one member of this class of suppliers, [Kelley] Company, Inc. ( 
[Kelley] ), that the materials it had supplied and installed were subject to 
taxation. The hospital subsequently paid the tax assessed against [Kelley] under 
protest. Before payment, however, the hospital filed a claim for injunctive and 
declaratory relief, alleging that its tax-exempt status precluded such a tax on 
property purchased for its own use. The hospital further alleged that it would 
be contractually required to reimburse all vendors situated similarly to 
[Kelley]. At a hearing on June 23, 1988, the trial court dismissed the 
hospital's suit for lack of subject matter jurisdiction, characterizing that 
suit as a challenge to the taxability of the individual suppliers, and 
indicating that such issues were more properly the province of the 
administrative agency."

 
 

[¶4.]     In performing its 
obligations to Memorial in connection with the construction of the "Healthbuild 
2000" project, Fru-Con was to "furnish efficient business administration and 
superintendence and to use its best efforts to complete the Project in an 
expeditious and economical manner consistent with the interest of the Owner." 
The intention of the parties was that Fru-Con, as construction manager, would 
obtain the services and supplies needed to complete the project and, in carrying 
out its responsibilities, would solicit bids from various contractors. In 
soliciting certain bids, Fru-Con requested the bidders to separate material 
costs and labor costs even though the bid would be submitted on a lump sum basis 
excluding sales or use taxes. Following submission of such a bid by Kelley, 
Kelley sold materials directly to Memorial pursuant to a contract made with 
Memorial. Later, it entered into a separate labor contract with Fru-Con to 
install those same materials. Because of the separate contracts with Memorial 
and Fru-Con, Memorial contends that the transaction is distinguishable from that 
found in Sublette and does not result in any tax liability to 
Kelley.

 
 

[¶5.]     Before the construction 
project was commenced, Memorial attempted to resolve the tax question by 
consultation between its attorneys and the Department. The Department, referring 
to Chapter III, § 22(b), Rules and Regulations of the Wyoming State Tax 
Commission, explained that sales taxes could be avoided by a direct purchase by 
a tax-exempt entity. Chapter III, § 22, Rules and Regulations of the WyomingState Tax Commission, 
provided:

 
 
"Section 22. Materials and Supplies 
Sold to Owners, Contractors and Repairmen. 

 
 
"Sales of materials and supplies to be 
used in the construction and improvements to real property are taxable sales, 
whether sold to the owner or contractor.

 
 
"a. When a contractor enters into a 
contract to furnish the materials and services to construct or repair 
improvements to real property, sales tax on the materials shall be collected by 
the vendor.

"b. When materials to be used by a 
contractor in making improvements or repairs to real property are paid for 
directly by agencies of the federal government or the State of Wyoming and its political 
subdivisions, the purchases are exempt from sales tax." 

 
 
The Department did not furnish any 
advice as to how those sales and purchases that are alluded to in Section 22(b) 
could, or should, be structured.

 
 

[¶6.]     On July 3, 1985, the 
same day that the Department's letter explaining the application of Chapter III, 
§ 22(b), Rules and Regulations of the Wyoming State Tax Commission, was mailed 
to Memorial's attorneys, the Wyoming State Tax Commission adopted Chapter III, § 
23(b), Rules and Regulations of the Wyoming State Tax Commission. That section 
was adopted as a replacement for Section 22 quoted above, and it provided: 

 
 
"Section 23. Materials and Supplies 
Sold to Owners, Contractors and Repairmen.

 
 
"Sales of materials and supplies to be 
used in the construction of improvements to real property are taxable sales, 
whether sold to the owner or contractor. 

 
 
"(a) When a contractor enters into a 
contract to furnish services or materials and services to construct, alter, 
improve or repair real property, he is the consumer of all equipment, material 
and supplies purchased to perform his contract and must pay sales or use tax to 
the vendor or directly to the Department.

 
 
"(b) Contractors performing for exempt 
entities, such as governmental entities and churches, are subject to the sales 
or use tax on all equipment, materials and supplies purchased by the contractor 
to perform their contract."

The Department did not advise 
Memorial of this change, and Memorial proceeded to follow its own interpretation 
of Section 22(b).

 
 

[¶7.]     On January 25, 1988, 
the Department, invoking Chapter III, § 23(b), Rules and Regulations of the 
Wyoming State Tax Commission, issued a determination that Kelley, a 
subcontractor working on the "Healthbuild 2000" project, owed sales tax on the 
materials that it had purchased from a third party and had then sold to 
Memorial. The Department relied upon the installation of those materials for the 
benefit of Memorial pursuant to an agreement entered into between Fru-Con and 
Kelley. The tax assessment was based upon Kelley's cost and not upon the prices 
paid by Memorial. Memorial paid the tax on behalf of Kelley in accordance with 
its representation to its subcontractors that their materials purchases would be 
tax exempt. Memorial made the payment under protest, however, and it also filed 
a complaint for declaratory judgment alleging that the Department's 
interpretation of the taxing statutes and of Chapter III, § 23(b), Rules and 
Regulations of the Wyoming State Tax Commission, was 
incorrect.

 
 

[¶8.]     Initially, the district 
court dismissed the complaint for want of subject matter jurisdiction. When 
Memorial appealed the dismissal, this court held that the district court had 
jurisdiction to decide the case, and the case was remanded for further 
proceedings consistent with our holdings in Sublette. Memorial. After a 
trial on the merits, the district court ruled that the tax imposed on Kelley 
Company was valid, and it entered its judgment to that effect. Memorial now 
appeals that ruling.

 
 

[¶9.]     It is clear that when a 
contractor purchases materials and resells them to a tax-exempt institution, it 
is not required to pay sales or use taxes if the installation of those materials 
is performed by another contractor. Sections 39-6-405 and 39-6-505, W.S.1977 
(May 1985 Repl.);4Sublette; 
Memorial. Memorial is a political subdivision of the state, and it is exempt 
from the payment of sales or use taxes. Sections 39-6-405(a)(xi) and 
39-6-505(a)(v), W.S.1977 (May 1985 Repl.); Memorial. In Sublette, 
we explained that the situation in which the contractor supplies materials to 
the institution and also contracts to install those materials is different, and 
the contractor is responsible for the payment of the taxes. See Section 
39-6-602, W.S.1977 (May 1985 Repl.). Under those circumstances, the contractor 
is considered to be the user or consumer of the materials and owes the tax on 
the amount that it paid for them. Section 
39-6-602, W.S.1977 (May 1985 Repl.), Sublette. In this 
instance, Kelley sold the materials to Memorial, and Kelley then installed them 
even though the installation was pursuant to a labor contract made with Fru-Con. 
The transaction is not distinguishable in substance from that found in 
Sublette, and Kelley is liable for sales or use 
taxes.

 [¶10.]  
There is nothing in either the statutes or the cases interpreting those 
statutes that provides for a distinction in an instance in which the 
installation contract is not entered into directly or exclusively with the 
purchaser of the materials. Fru-Con was Memorial's construction manager, and we 
recognize that its role was that of an agent. We perceive its actions to be 
substantially the same as if they were accomplished directly by Memorial. See 
Winkler v. Andrus, 594 F.2d 775 (10th Cir.1979). In this regard, we attach 
significance to the stipulated facts quoted by the district 
court:

"10. The construction Manager (Fru-Con), in 
conjunction with MHLC's Administrator, reviewed the bids which were solicited in 
stages over a several month period. 

 
 
"11. Bids for materials and for 
installation of materials were requested to be made on a 'lump sum' basis, 
although within the bid form, the bidder was requested to further separate bids 
for materials costs from bids for labor costs. The parties do not stipulate to a 
particular definition of 'lump sum.' Bidders corresponding to Bid Package # 6 
were given the option to specify whether their bids were contingent on 
acceptance of both bids for cost of materials and cost of labor. Most bidders 
elected to require that both bids be accepted if either bid was accepted. 

 
 
"12. MHLC, based upon the analysis and 
advice of Fru-Con, selected businesses from which to acquire 
materials."

 
 

[¶11.]  
The fact that materials that are sold are billed and received on one 
purchase order and the services for installation are billed on another purchase 
order, even when billed to an agent, as in this case, is of no substantial 
consequence to the tax burdens. The controlling factor is whether the contractor 
installs the materials that it sells. Memorial contends that the circumstances 
of this case are sufficiently distinguishable from those in Sublette as 
to make this case a discrete one and, as a result, the taxes assessed were 
imposed erroneously. We cannot agree with Memorial's arguments. The cases are 
not identical but, in substance, they are much more alike than they are 
different. We do not choose to elevate the form of the transaction over the 
substance of the result by ruling otherwise.

 [¶12.]  
This case and Sublette both involve a situation in which a 
contractor sold materials to a tax-exempt institution and later installed the 
same materials. These are the factors that are decisive. There is no legal 
significance to be attached to the arrangement by which the contractor sold the 
materials directly to the institution and then installed them under a separate 
services contract made with an agent of the institution. Certainly, those facts 
are not sufficient to distinguish the case from one in which the provision of 
the materials and the furnishing of labor is performed under one 
agreement.

 [¶13.]  
Acceptance of the view of the law that Memorial asserts would negate the 
teachings of Sublette by providing a simple mechanism pursuant to which 
any contractor dealing with a tax-exempt entity could avoid sales or use taxes 
by simply contracting separately with an agent acting as a surrogate for the 
tax-exempt institution. That result is not consistent with the ruling of 
Sublette, and this case originally was remanded "for proceedings 
consistent with our decision in Sublette * * *." Memorial, 770 P.2d  at 227. In light of the previous decisions in Sublette and 
Memorial, Memorial's second issue merges into the first, and no separate 
treatment of that issue is required.

 
 

[¶14.]  
We conclude that this case is, in fact, controlled by Sublette, 
and we hold that the Department's interpretation of the taxing statutes and of 
Chapter III, § 23(b), Rules and Regulations of the Wyoming State Tax Commission, 
is correct. The judgment of the district court ruling that sales and use taxes 
properly are imposed on Kelley Company, even though ultimately paid by Memorial, 
is affirmed.

 
 
FOOTNOTES

 1Section 39-6-405, 
W.S.1977 (May 1985 Repl.), states, 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; * * 
*."

 
 

2Section 39-6-505, 
W.S.1977 (May 1985 Repl.), states, 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; * * 
*."

 
 

3Section 39-6-602, 
W.S.1977 (May 1985 Repl.), 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."

 
 

4The pertinent 
statutory provisions found in the current statutes are not different from those 
set forth in the May 1985 Replacement in effect when Sublette County School 
District No. 1 v. State Board of Equalization, 770 P.2d 218 (Wyo.1989), was 
decided.

 
 
URBIGKIT, C.J., filed a dissenting 
opinion.

URBIGKIT, Chief Justice, 
dissenting.

 
 

[¶15.]  
I respectfully disagree with the majority in declaration that our prior 
case of Sublette County School Dist. No. 1 v. State Bd. of Equalization, 
State of Wyoming, 770 P.2d 218 (Wyo.1989) controls resolution of this 
case.

 
 

[¶16.]  
I perceive that the state agency changed the taxation rules and this 
court misinterpreted the law in order to collect sales tax from the Memorial 
Hospital of Laramie County remodeling construction project. In result, we expect 
the users of the hospital to unnecessarily subsidize the state and other levels 
of government which receive some apportioned share of sales tax collections.1 The legislature could place that burden on 
local units of government, like the county hospital here, but I perceive this 
court as the entity that creates the burden by statutory extension and factual 
misinterpretation. Additionally, I observe that the discriminatory results 
within the construction industry make no practical sense.2

 
 

[¶17.]  
In analysis of the State's taxation of the reconstruction of the county 
hospital as a county agency project, we start with the Wyoming Constitution, 
which 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 by general law 
provide.

 
 
Wyo.Const. 
art. 15, § 12.

 
 
In indicated compliance with the 
constitutional limitations, the legislature, in enactment of the sales and use 
tax statutes, provided the exceptions previously quoted in the majority opinion 
found in W.S. 
39-6-405 and 39- 
6-505 which exclude application of sales and use taxes to purchases 
by the state or its political subdivisions. Neither the State nor this majority 
seem to doubt that the county hospital comes within the benefits of the 
constitution and the applicable statutes.

 
 

[¶18.]  
The trail now gets less defined and more muddied when we consider 
regulations adopted by the Wyoming Tax Commission upon which this court now 
apparently imposes state taxation on local governmental agency purchases for a 
hospital construction. At the time Memorial Hospital of Laramie County finalized 
its construction plans, after consultation with the Department of Revenue and 
Taxation personnel, there was a Tax Commission regulation which clearly 
validated the tax-free status of this transaction and 
provision:

Section 22. Materials and Supplies 
Sold to Owners, Contractors and Repairmen. Sales of materials and supplies 
to be used in the construction of improvements to real property are taxable 
sales, whether sold to the owner or contractor. 

 
 
a. When a contractor enters into a 
contract to furnish the materials and services to construct or repair 
improvements to real property, sales tax on the materials shall be collected by 
the vendor.

 
 
b. When materials to be used by a 
contractor in making improvements or repairs to real property are paid for 
directly by agencies of the federal government or the State of Wyoming and its political 
subdivisions, the purchases are exempt from sales tax. 

 
 
Rules and Regulations of the WyomingState Tax Commission, ch. III, § 22 
(1980).

 
 

[¶19.]  
That regulation was amended on the same day that Tax Commission personnel 
in correspondence approved this particular construction project operation. While 
validating the plan, the rules were, without notice to the county hospital then 
or later, changed to provide:

Section 23. Materials and Supplies 
Sold to Owners, Contractors and Repairmen. Sales of materials and supplies 
to be used in the construction of improvements to real property are taxable 
sales, whether sold to the owner or contractor. 

 
 
(a) When a contractor enters into a 
contract to furnish services or materials and services to construct, alter, 
improve or repair real property, he is the consumer of all equipment, material 
and supplies purchased to perform his contract and must pay sales or use tax to 
the vendor or directly to the Department. 

 
 
(b) Contractors performing for exempt 
entities, such as governmental entities and churches, are subject to the sale or 
use tax on all equipment, materials and supplies purchased by the contractor to 
perform their contract. 

 
 
Rules and Regulations of the WyomingState Tax Commission, ch. III, § 23 
(1985).

 
 

[¶20.]  
The difference may not be obvious, but the result is astounding. It did 
not say so, but the materials purchased and then made available for installation 
by the tax-free governmental entity became taxable if used by an installing 
subcontractor who had previously sold the materials to the governmental agency. 
Tax practice renovation and recapitulation did not end there since the 
application finally established by the Tax Commission was that the materials 
purchased by the exempt entity came to be taxable only if the installer had sold 
the materials to the hospital. A vendor who did not do any labor on installation 
remained tax free and the installer who sold no materials also remained tax 
free. It was the dual functioning subcontractor-supplier where taxable incident 
arose.

 
 

[¶21.]  
In the meantime, Memorial Hospital of Laramie County had structured its 
$15 million reconstruction project in accord with the tax agency advice to save 
taxes and minimize costs. Simplistically, a management contract was executed 
with a construction manager, Fru-Con Construction Corp., to act as a general 
contractor for all labor while Memorial Hospital of Laramie County, as owner, 
would purchase all materials as a tax-exempt agency.

 
 

[¶22.]  
Out of this careful tax plan, worked out in conjunction with the advice 
from the Tax Commission personnel, a change engendered by an unnoticed rule 
provides the difficulties which followed. In taxation application for the 
project when a material supplier did not provide labor, there was no problem. 
Also, if the particular subcontractor did not sell construction materials for 
the construction, there was no problem. However, if the subcontractor sold 
materials to the county hospital and performed labor for Fru-Con Construction 
Corp., the cost value of the materials which had been purchased by the 
tax-exempt agency became taxable to the installation 
subcontractor.

 
 

[¶23.]  
This flight of logic and strangely configured taxation practice imposed 
the tax on multi-activity subcontractors but not entities that were functional 
either as suppliers or as labor providers. The justification of all of this now 
comes for this majority's decision through the Sublette County School Dist. 
No. 1 case, which I consider to be clearly distinguishable. In Sublette 
County School Dist. No. 1, the multi-activity subcontractor had a dual 
function contract, each with the owner-governmental subdivision. The private 
construction entity contracted to supply materials to the governmental agency 
and to furnish installation and construction labor to the governmental agency. 
The dual functional contract, we then found, created a taxable status since the 
subcontractor used its own materials to comply with its contractor obligation, 
which essentially was a unitary responsibility as a material supplier and labor 
provider.

 
 

[¶24.]  
In this case, Memorial Hospital of Laramie County, in order to escape the 
Sublette County School Dist. No. 1 pitfall, arranged for completely 
separate contracts--one for sale of materials to be exempt in status as a direct 
purchase by the governmental agency and the other to be undertaken was by a 
general contractor to provide labor. That general contractor, Fru-Con 
Construction Corp., arranged for subcontractors to provide labor in a fashion no 
different than if it had simply hired all individual laborers 
itself.

 
 

[¶25.]  
I cannot perceive how Sublette County School Dist. No. 1 has any 
persuasive application to the more sophisticated arrangement undertaken by 
Memorial Hospital of Laramie County in this case. In first impedance, I cannot 
see how the material purchases by Memorial Hospital of Laramie County can be 
taxable under the Wyoming Constitution. Differentiating real estate taxes from 
excise taxes on personal property purchased to perform governmental functions 
cannot be anything but linguistic sophistry. The majority and I agree on this, 
although the majority rests with a statutory analysis of W.S. 39-6-405, 
39-6-505, and 39-6-602, while I start with the state constitution 
itself.

 
 

[¶26.]  
In introduction, contrary to the State's contention in appellee's brief, 
I find that first the Tax Commission and now this majority actually rewrite the 
state taxation statute. Matter of Voss' Adoption, 550 P.2d 481, 485 
(Wyo.1976); Natrona 
County v. Casper Air Service, 
536 P.2d 142, 144 (Wyo.1975). By misinterpretation and misapplication, a 
sales-use tax has been converted into a labor related taxable incident as a 
transaction tax measured for amount by the value of the materials used, 
but only arbitrarily applied for application to a limited class of 
subcontractors. This Wisconsin application is 
not followed by precedent found in other jurisdictions. See Wisconsin Dept. 
of Revenue v. Johnson and Johnson, 130 Wis.2d 187, 387 N.W.2d 91 (1986); and 
Rice Insulation, Inc. v. Wisconsin Dept. of 
Revenue, 115 Wis.2d 513, 340 N.W.2d 556 (1983). For Wyoming, this expansive 
alteration of the clearly worded statute is improper. Croxton v. Board of 
CountyCom'rs of NatronaCounty, 644 P.2d 780 (Wyo.1982); Department of 
Revenue and Taxation v. Irvine, 589 P.2d 1295 
(Wyo.1979).

 
 

[¶27.]  
I fail to gain any comfort from the middle-of-the-stream change by the 
Tax Commission of its rule adopted and effectuated without advice or notice as a 
justification for tax extension. If the purpose of the change was to reach 
governmental agency purchases of tangible personal property, it was void both in 
contravention of the constitution and in the absence of authority provided by 
state statute. Additionally, it was improper tax regulation and interim 
application. Hercules Powder Co. v. State Bd. of Equalization, 66 Wyo. 
268, 208 P.2d 1096, reh'g denied 66 Wyo. 268, 210 P.2d 824 (1949); 
United States v. Alabama G.S.R. Co., 142 U.S. 615, 12 S. Ct. 306, 35 L. Ed. 1134 (1892). See also Luckenbach S.S. Co. v. United States, 280 U.S. 173, 50 S. Ct. 148, 74 L. Ed. 356 (1930) and Logan v. Davis, 233 U.S. 613, 34 S. Ct. 685, 58 L. Ed. 1121 (1914). The citation provided in this majority opinion, 
Winkler v. Andrus, 594 F.2d 775 (10th Cir.1979), does not alter my 
perspective. That case, relating to inappropriate agency action and what was in 
effect stonewalling after a discovered mistake, cannot justify what was done 
here.

 
 

[¶28.]  
How then do we get to taxation under the majority's conclusion? It is 
apparently discerned that the labor contractor/construction manager is an 
"agent" and so its labor contracting becomes labor contracting of the 
governmental agency as the project owner. The technical facts of the taxation 
adaptation require restatement. The tax is imposed on the material supplier 
which sold the materials to the governmental agency on the basis that the 
supplier used those materials since it provided labor for the general contractor 
on the project. Essentially, the subcontractor does not care whether it is 
taxed or not since the tax burden is passed on as a price factor to the county 
hospital.

 
 

[¶29.]  
I object to this conclusion if for no other reason than it is not a 
valid, logical adaptation of construction operation. To illustrate the 
invalidity, if the county hospital purchases materials from Ajax Lumber and 
Fru-Con Construction Corp. uses Downtrodden Carpenter to install, the materials 
are not taxable. However, if Downtrodden Carpenter fails to create a straw man 
to sell materials and sells materials to Memorial Hospital of Laramie County and 
installs for Fru-Con Construction Corp., it renders the purchases taxable. Ajax 
Lumber, in selling is tax free because it did not use; Downtrodden Carpenter is 
tax free in using someone else's materials as long as it had not originally made 
the sale to the tax-exempt entity.

 
 

[¶30.]  
In the concept presented by this majority, a general contractor becomes 
an agent of the owner to create a taxable incident but not to maintain the 
tax-free status. It seems to me that any continuation of this logic would 
require taxation of all materials when the owner installs, but it has to install 
through subcontractors who are not suppliers to escape taxation. In the nature 
of fact, the owner, as an intangible governmental agency, cannot install since 
it requires hired entities or individuals to perform that service. They become 
agents and the arrangement becomes taxable.

[¶31.]  
It would seem that if a contractor or subcontractor acquires the 
materials for installation and consequent resale to the owner, a taxable event 
should occur. If the governmental exempt owner acquires the materials from 
whatever source separate from the labor contract, the acquisition and the 
installation should be tax free in compliance with both the constitution and the 
statutory exemptions. This case is not form but rather real substance in 
construction arrangement and, with the continual increase in sales and use tax, 
a substantial dollar question.3 It is suggested that the majority here 
elevates a figment of characterization over the practical function of 
contracting. The careful tax planning of the Memorial Hospital of Laramie County 
in conjunction with advice and review of the taxation authorities should not be 
eviscerated by the casual characterization of a construction company to be an 
agent to justify taxation of the material purchases by the governmental 
agency.

 
 

[¶32.]  
Consequently, I respectfully dissent.

 
 

FOOTNOTES

 
 

1The contract 
agreements with the contractors and subcontractors require the county hospital 
to repay any assessed sales or use tax cost which may be collectible because of 
this decision.

 
 

2Although the amount 
claimed for tax in the Kelley sale of materials for the hospital construction 
totaled only $764.99, the entire unexpected tax burden from this decision on the 
hospital construction project was estimated to total between $100,000 and 
$200,000. The exact sum does not appear to be stated in any documentation within 
this record.

 3The Wyoming sales and 
use tax, which is subject to nearly forty exemptions, and excluding special 
local option levies authorized for municipalities and the counties, is three 
percent of the sales price, W.S. 39-6-404, 39-6-405 
(sales tax); 39-6-504, 39-6-505 (use tax). The general distribution of the basic 
tax is sixty-three and one-third percent to the state general fund, one percent 
collection cost, and the balance to municipalities and counties on a situs of 
vendor allocation basis (until 6/30/91 when the state's share again increases to 
two-thirds) W.S. 39-6-411 (sales tax); 39-6-512 (use tax). Assuming a 
transactional tax cost from the county hospital construction of $100,000, the 
county government in general, and not the county hospital itself, would get back 
perhaps less than ten percent of the amount; the state would get slightly more 
than $64,000 as revenue; and the balance would go, subject to vendor situs 
question, to the city of Cheyenne, Wyoming. Special option taxes would produce a 
different result which are additional amounts above the basic three percent 
levy. The tax levied on the Kelley contract was five percent total, which 
inevitably means that county hospital patients will pay the tax for funding 
other instrumentalities of government. Inevitably, the state is taxing itself to 
redistribute state funds among different entities. Here, the county hospital 
patient pays the bill.