Sales and Use Tax Reassessment Tax Exempt Building Machinery and Equipment
Green Acres Contracting Co., Inc. v. Commonwealth, PICS Case No. 17-0976 (Pa. Commw. June 13, 2017) Jubelirer, J. (10 pages).
All the components of a guardrail system, except guardrail post as expressly carved out by statute, were exempt from use tax as building machinery and equipment because all components were included in the common definition of the tax-exempt category of "guardrails." Exemptions granted.
Green Acres Contracting Company, Inc. filed exceptions to the court's order affirming in part and reversing in part the Board of Finance and Revenue's order that granted in part and denied in part Green Acres' petition for reassessment of sales and use tax. Green Acres was a construction contractor engaged in installing highway guardrail systems for the Pennsylvania Department of Transportation. Green Acres used nuts, bolts, and washers to attach guardrail panels to each other, and used guardrail blocks to increase the force the system could withstand. Green Acres purchased these nuts, bolts, washers, and guardrail blocks without paying sales tax.
The tax code imposed a 6 percent use tax on tangible personal property "purchased at retail," and defined use "pursuant to a construction contract" as a use subject to the tax. However, tangible personal property used in a construction contract that was transferred to the commonwealth was exempt from state tax if it was building machinery and equipment, which was defined as "control systems limited to energy management, traffic and parking lot and building access," and specific included guardrails but not "guardrail posts". Thus, the tax code did not specify the tax status of nuts, bolts, washers, and guardrail blocks used in guardrail system construction.
Following a sales and use tax audit, the Department of Revenue issued an assessment of $413,145 plus interest, which included unpaid sales tax, unpaid use tax, and unpaid county use tax. Green Acres filed a petition for reassessment, seeking relief for the use tax imposed on the nuts, bolts, washers, and guardrail blocks it used in constructing guardrail systems, contending it was excluded as BME. The board of appeal denied Green Acres' requested relief, and the court later issued an order affirming the board's use tax assessment. The court had ruled that because the tax code did not list "guardrail systems" but only "guardrails" as BME it was the legislature's intent to exempt as BME only the horizontal rails of guardrails. The court further held that while nuts, bolts, and washers used to connect horizontal panels could be included as "guardrails," because Green Acres could not quantify the amount of nuts, bolts, and washers it used to connect horizontal panels it was not entitled to a reassessment.
In support of its exceptions, Green Acres argued that the court erred in concluding that only nuts, bolts, and washers used to connect horizontal panels were tax except, asserting that the term "guardrails" meant the entire guardrail system and not just horizontal panels, while "guardrail posts" were specifically carved out from the broader category of "guardrails." The court agreed, finding that the definitions and common usage of the term "guardrails" referred to the entire guardrail system, with only guardrail posts specifically carved out as taxable. The court ruled that the tax code did not differentiate between the nuts, bolts, washers, and guardrail blocks used to connect different parts of the guardrail system to one another, and accordingly granted Green Acres' exceptions.