Opinion ID: 1315079
Heading Depth: 1
Heading Rank: 2

Heading: regulations on speculative builders

Text: At the time in controversy the then State Tax Department had promulgated legislative rules and regulations for consumers sales and service tax and use tax purposes. Consumers and Use Tax Regulations (C.U.T. Reg.) § 1.6(A)(3)(c) (1974) [7] provided, in material part: (c) Sales of property or services to persons engaged in this State in the business of contracting, manufacturing, transportation, transmission, communication, or in the production of natural resources [are exempt]. Said sales, to be exempt, must be confined to services, machinery, supplies and materials directly used or consumed in the businesses named in the preceding sentence. .... Persons in the business of contracting, manufacturing, transportation, transmission, communication, or in the production of natural resources may purchase tangible personal property and services to be used or consumed in the construction of or permanent improvement of real estate without imposition of consumers tax on such purchases. All other persons, including but not limited to speculative builders or persons constructing for resale, must pay consumers tax on purchases of tangible personalty and services to be used or consumed in the construction of or permanent improvement of real estate. (emphasis added) Similarly, C.U.T. Reg. § 3.27 (1974) stated as follows: Speculative Builders. Speculative or operative builders are engaged primarily in the construction or repair of real property for sale or rent and are deemed to be the ultimate consumers of all supplies, materials, or equipment used in the conduct of their business. Therefore, consumers tax is applicable to sales to such operative builders and services rendered for them, and use tax is applicable to their purchases from outside the State. (emphasis added) C.U.T. Reg. § 3.27 (1974) was identical to a prior regulation, C.U.T. Reg. § 1.99 (1964, 1969). [8] These regulations distinguish between speculative builders and those persons engaged in the business of contracting. Speculative builders are engaged in the business activity of constructing improvements to real property which they own, in accordance with their own specifications, that is, they do not have a realty improvement contract with another person, and they construct the real property improvements under these circumstances, with the intent of selling the improved realty eventually to other persons. The basic selling nature of a speculative builder's activities is also recognized in Bassett v. City of Tucson, 137 Ariz. 199, 200, 669 P.2d 976, 977 (Ct.App.1983), review denied (Ariz. Sept. 15, 1983). In contrast, contractors construct improvements to real property which other persons own, in accordance with the other persons' specifications, that is, the realty improvement work or work and materials are furnished in the fulfillment of a realty improvement contract with another person. See Koppers Co. v. Dailey, 167 W.Va. 521, 280 S.E.2d 248 (1981) (business and occupation tax case). The consumers sales and service tax exemption and the use tax exemption, addressed by these regulations, and set forth in, respectively, W.Va.Code, 11-15-9(6) [1974] and W.Va.Code, 11-15A-3(3) [1969], see supra note 5, are for certain purchases by persons engaged in certain businesses, including contracting businesses. The consumers sales and service tax and the use tax legislation at the time in controversy did not define contracting or any of the other businesses named in these exemptions. A contracting business was defined, however, by the related West Virginia business and occupation tax legislation at the time, specifically, W.Va.Code, 11-13-1 [1972], which provided (in the last paragraph thereof) as follows: `Contracting' shall include the furnishing of work, or both materials and work, in the fulfillment of a contract for the construction, alteration, repair, decoration or improvement of a new or existing building or structure, or any part thereof, or for the alteration, improvement or development of real property. (emphasis added) [9] This related statutory definition of contracting supports the regulations' exclusion of speculative builders from the sales and use tax exemptions for certain purchases to be used or consumed directly in contracting businesses because speculative builders do not work in the fulfillment of a contract for the improvement of real property; instead, they work for themselves. For the same reason the taxpayer's reliance upon Stolze Lumber Co. v. Stratton, 386 Ill. 334, 54 N.E.2d 554 (1944), is misplaced. That case involved actual contractors working under realty improvement contracts with the owners of the premises. Id. at 335-36, 54 N.E.2d at 555. In contrast, in the present case the taxpayer in its speculative building activities did not work under realty improvement contracts with the owners of the premises; instead, it worked for itself. [10] Furthermore, the rules of statutory construction support the regulations in question excluding speculative builders from the sales and use tax statutory exemptions for certain purchases to be used or consumed directly in contracting businesses. First, [w]here the language of the statute is of doubtful meaning or ambiguous, rules of construction may be resorted to and the construction of such statute by the person charged with the duty of executing the same is accorded great weight. Syl. pt. 4, Pennsylvania & West Virginia Supply Corp. v. Rose, ___ W.Va. ___, 368 S.E.2d 101 (1988) (upholding State Tax Department's interpretation of another sales tax/ use tax statutory exemption). The consumers sales and service tax and use tax exemption statutes in question were ambiguous because the sales and use tax legislation at the time in controversy did not define contracting. The then State Tax Department reasonably could rely upon the related West Virginia business and occupation tax statute's definition of contracting, which required the realty improvement work to be in the fulfillment of a contract[,] thereby excluding speculative builders, who work for themselves, not in the fulfillment of a contract for improvement of another person's realty. This long-standing administrative interpretation is reasonable and is entitled to great weight. [11] A second rule of statutory construction applicable here is set forth in syllabus point 5 of Pennsylvania & West Virginia Supply Corp. v. Rose, ___ W.Va. ___, 368 S.E.2d 101 (1988): `Where a person claims an exemption from a law imposing a license or tax, such law is strictly construed against the person claiming the exemption.' Syl. Pt. 2, State ex rel. Lambert v. Carman, State Tax Commissioner, 145 W.Va. 635, 116 S.E.2d 265 (1960). Consistent with the foregoing, this Court holds that the former consumers sales and service tax and use tax regulations excluding speculative builders from the former consumers sales and service tax and use tax statutory exemptions for purchases of services, machinery, supplies and materials directly used or consumed in the business of contracting, W.Va.Code, 11-15-9(6) [1974] and W.Va.Code, 11-15A-3(3) [1969], were valid and enforceable during the time they were in effect.