BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
SINCLAIR OIL CORPORATION ) Docket No. 2008-05
FROM A SALES & USE TAX AUDIT )
ASSESSMENT THE DEPARTMENT )
EXCISE DIVISION OF THE DEPARTMENT )
OF REVENUE (LICENSE NO. 02-0-03911) )
IN THE MATTER OF THE APPEAL OF )
SINCLAIR OIL CORPORATION ) Docket No. 2008-06
FROM A SALES & USE TAX AUDIT )
ASSESSMENT THE DEPARTMENT )
EXCISE DIVISION OF THE DEPARTMENT )
OF REVENUE (LICENSE NO. 04-0-03134) )
IN THE MATTER OF THE APPEAL OF )
SINCLAIR OIL CORPORATION ) Docket No. 2008-56
FROM A SALES & USE TAX AUDIT )
ASSESSMENT THE DEPARTMENT )
EXCISE DIVISION OF THE DEPARTMENT )
OF REVENUE (LICENSE NO. 25-0-00361) )
FINDINGS OF FACT, CONCLUSIONS OF LAW, DECISION AND ORDER
APPEARANCES
John A. Sundahl and Kristin M. Nuss, of Sundahl, Powers, Kapp & Martin, LLC, for Sinclair Oil Corporation (Sinclair or Petitioner).
Karl D. Anderson, Senior Assistant Attorney General, for the Wyoming Department of Revenue (Department).
JURISDICTION
The Wyoming State Board of Equalization (Board) shall review final decisions of the Department on application of any interested person adversely affected. Wyo. Stat. Ann. §39-11-102.1(c); Wyo. Stat. Ann. §39-15-109(b). The taxpayer’s appeal must be filed with the Board within thirty days of the Department’s final decision. Rules, Wyoming State Board of Equalization, Chapter 2, § 5(a). Sinclair timely appealed the final decisions of the Department, and the Board has jurisdiction to decide these matters.
A hearing was held before the Board, consisting at that time of Alan B. Minier, Chairman,
Thomas R. Satterfield, Vice Chairman, and Thomas D. Roberts, Board Member, on
September 9 and 10, 2008. Steven D. Olmstead,
Board Member, reviewed the Board files,
the pleadings, the hearing transcripts and exhibits and participated in the decision.
STATEMENT OF THE CASE
These appeals challenge three separate Department excise tax decisions resulting from three sales and use tax audits conducted by the Wyoming Department of Audit (Audit) of Sinclair’s Wyoming businesses for the period February 1, 2003, through January 31, 2006. The separate appeals were consolidated by Board Order dated June 18, 2008.
We reverse the Department’s decision with respect to excise taxes related to work performed by nonresident contractors at Sinclair’s hotels in Cheyenne and west of Green River. We affirm the Department’s denial of Sinclair’s requested sales tax credits related to the purchase of materials incorporated into foundations for manufacturing machinery at its refineries in Casper and Sinclair.
CONTENTIONS AND ISSUES
Sinclair, in its prehearing pleadings, identified five issues of fact:
a. Is Sinclair an owner or contractor required to withhold retainage from non-resident subcontractors?
b. Are permanent steel buildings installed at Little America-Cheyenne and Little America West considered non-taxable real property; as well as the listed property that was repaired or to which improvements were made?
c. Are fuel dispensers real property?
d. If materials and parts are used for repairs or improvements to real property is the vendor/contractor hired by Sinclair liable for sales or use tax as the consumer of such tangible personal property?
e. Are concrete related purchases, rebar, and foundations for exempt machinery also exempt as adjunct or attachments necessary for the basic unit to accomplish its intended function, and whether such concrete related purchases are materials for the construction of machinery?
[Petitioner’s Issues of Fact and Law and Exhibit Index, pp. 1-2].
Sinclair also identified five issues of law:
a. Whether Sinclair is a general or prime contractor as defined in W.S. §39-16-301(a)(ii).
b. Whether permanent steel buildings that are permanently affixed and embedded on the real estate are real property as that term is defined in W.S. 39-15-101(a)(v).
c. Whether tax is due from the vendor/contractor, or from Sinclair, for tax on the materials used by the vendor/contractor to repair or improve real property under a labor and materials agreement.
d. Whether repairs to fuel dispensers that are buried and embedded, physically attached to the real property and adapted to the use of the real property with the intent to make the article a permanent part of the real property, are non-taxable repairs.
e.Whether the concrete related purchases for the refinery machinery constitute an adjunct or attachment necessary for the basic unit to accomplish its intended function and include materials for the construction of such machinery.
[Petitioner's Issues of Fact and Law and Exhibit Index, pp. 2-3].
The Department identified seven mixed issues of fact and law:
1)Did Sinclair, during the audit period, act as a “[g]eneral or prime contractor” under Wyo. Stat. § 39-15-301(a)(ii)(C)?
2)Did Sinclair, in its role as a general contractor, fail to fully comply with Wyo. Stat. § 39-15-303(b)(ii) which requires Sinclair to withhold 4% of its contract payment with any non-resident subcontractor?
3)Is Sinclair liable for any sales taxes due the State by the non-resident subcontractor under Wyo. Stat. § 39-15-301(b)(ii)?
4)Did the Department properly assess sales tax for the purchases of certain tangible personal property?
5)Is Sinclair entitled to claim a manufacturing machinery exemption under Wyo. Stat. § 39-15-105(a)(viii)(O) for concrete, rebar and other foundational expenses?
6)Did the Department property accounted [sic] for all tax credits due to Sinclair based upon a number of amended tax returns for 2005?
7)Did the Department correctly impose interest upon Sinclair?
[Wyoming Department of Revenue’s Issues of Fact and Law and Exhibit List, pp. 2-3].
The issues identified by the parties fall within one of two distinct areas of inquiry. First, whether Sinclair, as the owner of real property, was obligated to withhold a portion of its payments to nonresident contractors to insure sales taxes were paid for personal property incorporated into improvements or to pay the sales taxes due if it did not retain a portion of its payments to the nonresident contractors? Second, whether Sinclair is entitled to a credit for sales tax paid for materials incorporated into foundations used to support exempt manufacturing machinery? [See Stipulated Updated Summary of Uncontroverted Facts; Transcript Vol. I, pp. 14-15, 21-22].
FINDINGS OF FACT
1. Sinclair owns and operates a number of businesses in the State of Wyoming utilizing separate sales and use tax licenses. The businesses include two Little America Hotels and two refineries. [Transcript Vol. I, pp. 7-8, 110-111, 130; Exhibit, 503 p. 0005; Exhibit 516, p. 0072; Exhibit 530, p. 0172].
2. Audit conducted audits related to three separate sales and use tax licenses utilized by Sinclair for its business operations. [Transcript Vol. I, pp. 207-208]. The audits included the Little America Hotel located in Cheyenne, Wyoming (Little America Cheyenne), the Little America Hotel located west of Green River, Wyoming (Little America West), and the Sinclair refineries located in Sinclair, Wyoming (Sinclair Refinery), and Casper, Wyoming (Casper Refinery). [Exhibit 503, p. 0005; Exhibit 516, p. 00072; Exhibit 530, p. 0172].
3. The three audits were conducted concurrently at the request of Sinclair. [Transcript Vol. I, p. 208]. Tom Lindsay, as lead auditor, and two assistant auditors conducted the audits. [Transcript Vol I, p. 206-207]. The auditors sampled Sinclair’s sales invoices and reviewed one hundred percent (100%) of Sinclair’s fixed asset purchases. [Transcript Vol. I, pp. 207-208].
4. Based upon the findings of Audit, the Department issued assessments seeking additional excise tax payments from Sinclair related to materials used by nonresident contractors during construction activities at Sinclair’s various Wyoming properties. [Exhibit 500, p. 001; Exhibit 504, p. 007; Exhibit 513, p. 068; Exhibit 517, p. 074].
5. Board Docket Number 2008-05 is an appeal of the Department final audit assessment related to work performed by nonresident contractors at Little America Cheyenne. [Case Notice of Appeal, Docket No. 2008-05].
6. Board Docket Number 2008-06 is an appeal of the Department final audit assessment related to work performed by nonresident contractors at Little America West. [Case Notice of Appeal, Docket No. 2008-056].
7. Board Docket Number 2008-56 is an appeal of the Department’s decision denying credits claimed by Sinclair related to the refinery audit and sales tax paid on materials used to construct the foundations for the exempt machinery at the Sinclair and Casper refineries. Sinclair, during the course of the audits, raised a separate issue related to sales tax paid on material it purchased and used for constructing foundations for exempt manufacturing equipment installed at its two refineries. [Case Notice of Appeal, Docket No. 2008-56].
8. The claimed sales tax credits were addressed by the Department by separate assessment. [Exhibit 526, p. 167]. The Department did not give Sinclair credit for taxes it paid on concrete, grout, rebar, and gravel or other fill material used in the construction of foundations for the machinery installed at Sinclair’s refineries during the audit period. [See Exhibit 140, pp. 2975-2978].
A. Little America Cheyenne, Docket No. 2008-05
9. Sinclair, during the audit period, had a new metal building erected at Little America Cheyenne to house its laundry operations and golf carts. The prior laundry facility was small and hot, with equipment in need of replacement but difficult to replace because of the laundry facility’s location. Sinclair decided to construct a new building to provide a better working environment for workers, and to accommodate modern equipment. The new building included a laundry facility, a break room for employees, an office, and an area for golf cart storage and repair. [Transcript Vol. I, pp. 149, 151,166; Exhibit 143, pp. 2982-2987 (photographs of building)].
10. Sinclair’s in-house design or engineering staff developed the plans for the combined laundry and golf cart storage building in 2004. [Transcript Vol. I, pp. 149-153, 190-191; Exhibit 108, p. 90; Exhibit 143, pp. 2982-2987].
11. Sinclair provided its building plans to three metal building companies for bid. [Transcript Vol I, pp. 170-171, 173, 184]. Ultimately Utah System Builders, Inc. was selected to provide and erect the building to Sinclair’s specifications. [Exhibit 108, pp. 90-91; Transcript Vol. I, p. 170]. Utah System Builders did the detailed engineering drawings for the building. Other contractors were hired to complete the foundation and the mechanical work. [Exhibit 108, pp. 90-91; Transcript Vol. I, p. 192].
12. Prior to the start of construction, representatives of Sinclair distributed the drawings of the laundry and golf cart building to the City of Cheyenne departments involved in the permitting process. The contractors hired by Sinclair were, however, obligated to obtain the necessary permits and inspections. [Transcript Vol. I, pp. 172-173].
13. During the construction of the laundry and golf cart building, Sinclair had a supervisor present to insure that its rules, regulations, standards, specifications, and safety requirements were followed. [Transcript Vol. I, pp. 172, 176-177]. Sinclair did not tell the contractors how to complete the work. [Transcript Vol. I, p. 187]. Sinclair coordinated the work of the contractors using a schedule developed in conjunction with the contractors. [Transcript Vol. I, pp. 187-188].
14. Audit conducted a sales and use tax audit of Little America Cheyenne covering the period February 1, 2003, through January 31, 2006. [Exhibit 503, pp. 0005-0006; Exhibit 505, pp. 0046-0047]. The auditors identified various invoices related to the construction of the laundry and golf course building which did not indicate sales or use taxes had been paid by the nonresident contractors for materials used in the construction of the building. [Exhibit 504, pp. 007; Exhibit 508, pp. 054-055; Transcript Vol, I, pp. 217-221].
15. The various charges were classified in the audit as falling within the Wyoming statutes requiring an owner of the real property to withhold a portion of the payments to nonresident contractors to insure that sales or use tax was paid. [Transcript Vol. I, pp. 220].
16. At the hearing in this matter, only the overhead door specified by Sinclair for use in the laundry and golf cart building remained at issue in the Little America Cheyenne audit.
With the exception of the ‘overhead door’ charge, Sinclair has provided the Department with sufficient information to demonstrate that Utah System Builders, identified in the nonresident contractor retainage findings in the Little America-Cheyenne audit (SBOE Docket 2008-05), paid appropriate excise taxes. The Department maintains that Sinclair has not provided it with sufficient information that excise taxes were paid on the ‘overhead door’ charge. For all other work performed at Little America-West [sic] by Utah System Builders, the audit findings are withdrawn. The overhead door charge of Utah System Builders, Inc. for the laundry and golf course building remains in dispute.
[Stipulated Updated Summary of Uncontroverted Facts, ¶ 2. e., pp. 2-3; Transcript Vol. I, pp. 69; 88-90; Exhibit 108, pp. 95, 103; Exhibit 143, pp. 2981-2982].
17. There is no indication on the invoices for overhead door that sales tax was paid by either the nonresident contractor or Sinclair. [Transcript Vol. I, pp. 94, Vol. II, pp. 88-90; Exhibit 108, p. 95, 103].
18. The Department’s assessment related to the overhead door installed at the laundry and golf cart building originally sought to collect four percent (4%) of the purchase price from Sinclair based on a statutory provision requiring an owner to retain that percentage from an out-of-state contractor’s payments. During the hearing the Department asserted the correct amount due from Sinclair was the sales tax that would have been paid on the overhead door rather than the statutory retainage amount. [Transcript Vol. I, pp. 220-221].
B. Little America-West, Docket No. 2008-06
19. Audit also conducted a sales and use tax audit of Sinclair’s operations at Little America West. [Transcript Vol. I, pp. 209, 222-223; Exhibit 518, pp. 0117-0118]. During the course of the audit, various invoices related to the work being done on the guest rooms by nonresident contractors were identified. [Transcript Vol. I, pp. 212-217, 222-226; Exhibit 521; Exhibit 104, pp. 0039-0044].
20. The invoices indicated work performed by C&R Electric included installation of outlets, “stats”, and smoke detectors. [Transcript Vol. II, pp. 185-186; Exhibit 147, pp. 2999-3005]. The invoices did not show sales or use tax payments and no evidence was presented indicating C&R Electric had paid sales or use tax on the materials it used. [Transcript Vol. I, pp. 96-97; Exhibit 108, p. 115, Exhibit 104, pp . 0039-045; Exhibit 147, pp. 2999-3005; Exhibit 521, pp. 0127-0128].
21. Sinclair had a supervisor at Little America West during the remodel project to protect its interests. [Transcript Vol. I, pp. 193, 199-200].
22. The audit also identified work performed by Csesco installing fuel dispensers and new underground piping. [Transcript Vol I, pp. 54, 157-159; Exhibit 521, pp. 0127-0128, Exhibit 108, pp. 0133-0137, Exhibit 151, pp. 3023-3026]. The invoices indicate Csesco removed old dispensers, broke out concrete, installed underground piping and containment sumps and reset the dispensers. [Exhibit 108, pp. 0133-0135, Exhibit 151, pp. 3023-3025]. One Csesco invoice indicated work was done setting dispensers, wiring pumps, and calibrating dispensers. [Exhibit 106, p. 0074]. The fuel dispensers were installed to upgrade the fuel facilities at Little America West. [Transcript Vol. I, pp. 0195-0196].
23. Bill Gray, the excise tax manager for Sinclair, discussed some of the Csesco invoices in dispute. [Transcript Vol I. pp. 75, 85-86; Exhibit 150, p. 3021]. One invoice related to the repair of a diesel fuel line leak caused by a concrete form stake. [Transcript Vol. I, p. 0086; Exhibit 108, p. 0138; Exhibit 151, p. 3027, Exhibit 106, p. 73, Exhibit 151, p. 3027]. Another invoice related to the setting and calibration of the fuel dispensers. [Exhibit 106, p. 0074 ]. None of the Csesco invoices indicated sales tax was paid. A representative of Csesco advised Sinclair by email that a former employee’s standard procedure would have been to not apply sales tax to any of the invoices. [Transcript Vol. I, pp. 97-99; Exhibit 106, p. 0074; Exhibit 108, pp. 0130, 0133-0137].
24. The Department’s assessment related to Little America West originally sought to collect four percent (4%) of the invoiced material costs from Sinclair based on a statutory provision requiring an owner to retain that percentage from an out-of-state contractor’s payments. [Csesco line item entries, Exhibits 150, and 519]. During the hearing the Department asserted the correct amount due from Sinclair was the sales tax that would have been paid rather than the statutory retainage amount. [Transcript Vol. II, pp. 99-100, 180].
C. Sinclair Refinery and Casper Refinery, Docket No. 2008-56
25. Sinclair owns and operates refineries at Sinclair, and Casper, Wyoming. [Transcript Vol. I, pp. 110-111, 130].
26. Sinclair installed a hydrocracker unit at its Sinclair Refinery during the time period covered by the statutory sales tax exemption for manufacturing machinery, with construction completed on or after July 1, 2004. [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 1)f., 1) I.]. See Wyo. Stat. Ann. § 39-15-105(a)(viii)(O); Conclusions, ¶ 63. A list of the invoices which form the basis for Sinclair’s claimed credit related to the materials used in the construction of the hydrocracker foundation may be found at Exhibit 114. [Transcript Vol. I, pp. 64, 109; See Exhibits 120-126, pp. 0656-2917 of the actual invoices].
27. Dan Aneiros, manager of engineering for the Sinclair refinery, testified concerning the hydrocracker and its installation. [Transcript Vol. I, pp. 110-130]. After crude oil is first broken down into various components by the crude unit at the refinery, a portion of the components are sent to the hydrocracker unit. The hydrocracker unit further breaks down the components of the crude oil into saleable products such as diesel fuel, gasoline, and heavier products. [Transcript Vol. I, pp. 110-113]. The hydrocracker unit at the Sinclair refinery was placed on a space measuring 200 feet by 300 feet. [Transcript Vol. I, p. 120].
28. The equipment used in the refining process at the Sinclair refinery, including the hydrocracker unit, is designed to work on a foundation. [Transcript Vol. I, pp. 114-115].
29. Taking into consideration the soils where the hydrocracker unit was to be placed, the size, weight and movement of the unit, and environmental considerations including seismic activity and winds, a foundation was designed for the unit. [Transcript Vol. I, pp. 116-117].
30. Eleven feet of existing soil was removed from the site as unsuitable for placing a foundation. The soil was replaced with materials meeting engineering recommendations. [Transcript Vol. I, pp. 118-119]. Holes were drilled through the stabilized soils to bedrock, about 22 feet down, and then four feet into the bedrock so several hundred concrete piers, ranging in diameter from 18 inches to 36 inches, could be constructed. [Transcript Vol. I, pp. 119-120].
31. A pier cap, constructed with rebar and concrete, was poured on top of the piers to tie the piers together and provide a base for the hydrocracker unit. [Transcript Vol. I, pp. 122-123]. Finally, a pedestal with anchors was constructed out of concrete on top of the pier cap to provide the necessary elevation for the hydrocracker. [Transcript Vol. I, p. 122].
32. The hydrocracker unit was designed to be placed on the permanent foundation for the life of the unit. It would be unsafe to operate without the foundation. [Transcript Vol. I, p. 123].
33. Sinclair constructed the Number 2 reformer at its Casper Refinery during the time covered by the statutory sales tax exemption for manufacturing machinery with construction completed on or after July 1, 2004. [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 1) d, 1) I]. See Wyo. Stat. Ann. § 39-15-105(a)(viii)(O); Conclusions, ¶ 63. A list of the invoices which form the basis for Sinclair's claimed sales tax credit for materials used in the construction of the foundation for the reformer installed at the Casper Refinery may be found at Exhibit 140. [Transcript Vol I, pp. 64, 108-109. See Exhibits 117-119, pp. 0355-0655 for the invoices].
34. Jim Lolley, maintenance manager at the Sinclair’s Casper Refinery, testified concerning the Number 2 reformer and its installation at the Casper Refinery. [Transcript Vol. I, pp. 130-147].
35. As crude oil is refined, one of the products from the crude unit is unfinished gasoline, which has a very low octane. The Number 2 reformer at the Casper Refinery takes the low octane, long chain unfinished gasoline molecule and rearranges it into a shorter chain molecule, resulting in a higher octane gasoline molecule and hydrogen. [Transcript Vol. I, p.132]. The Number 2 reformer consists of three heaters, three reactors, eight pumps, one large tower, three drums, and numerous heat exchangers. [Transcript Vol. I, p. 137].
36. Because the Casper Refinery soils are a clay-type material covering natural sand and gravel, a spread footing was designed for the Number 2 reformer. In designing the unique footer for the reformer, the design engineer took into consideration the weight of the equipment, live loads, controls, wind load, dynamic loading, and differential settlement. [Transcript Vol. I, pp.137-139].
37. Based on a geotechnical engineering recommendations, the foundation site was excavated to a depth of five feet below grade, with areas of expansive soils removed an additional 12 to 24 inches and backfilled to the five feet level. The contractors then placed the forms for the spread footing and built a rebar grid with additional vertical rebar. After the spread footing was poured to a depth of 12 to 30 inches thick, the contractor built forms for legs or pedestals above ground to attach the equipment. The area around the legs or pedestals was then backfilled. The Number 2 reformer was attached to the pedestals and grout was used to keep the equipment plumb and level. [Transcript Vol. I, pp. 139-145].
38. It was necessary to engineer the best possible foundation for the Number 2 reformer to insure the safety of the employees and to avoid leaks and differential settlement. [Transcript Vol. I, pp 105-106].
39. Sinclair is a manufacturer classified under NAICS Code Manufacturing Section 324110, “Petroleum Refineries.” [Stipulated Updated Summary of Uncontroverted Facts, ¶ 1) b.]. Sinclair’s refining operations at its Casper and Sinclair refineries manufacture tangible personal property, including gasoline and diesel fuel. [Stipulated Updated Summary of Uncontroverted Facts, ¶ 1) c.]. See, Wyo. Stat. Ann. § 39-15-101(a)(xxi), (xxii); Conclusions ¶ 64.
40. The parties stipulated the Number 2 reformer at the Casper Refinery and the hydrocracker at the Sinclair Refinery are exempt manufacturing machinery under Wyo. Stat. Ann. § 39-15-105(a)(viii)(O). [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 1) e., 1) g.]. Conclusions ¶ 63.
41. Sinclair purchased concrete grout, rebar, and other materials for use in constructing the foundations for the Number 2 reformer at the Casper Refinery and hydrocracker at the Sinclair Refinery. [Stipulated Updated Summary of Uncontroverted Facts, ¶ 1) j.]. Sinclair paid excise taxes when the materials were purchased. [Transcript Vol. II, p. 148]. The materials purchased by Sinclair were incorporated into the foundations for both units. [Transcript Vol. I, pp. 125, 143].
42. The excise tax attributable to the concrete related purchases for the Sinclair Refinery totals $19,118.05. The excise tax attributable to the concrete related purchases for the Casper Refinery totals $6,388.68. [Stipulated Updated Summary of Uncontroverted Facts, ¶ 1) k.]. Sinclair made a claim for credit for the excise tax paid based on the manufacturing machinery exemption. [Transcript Vol. I, pp. 125-126, 167].
43. The Department does not dispute the invoice amounts of the excise tax paid by Sinclair related to the materials used in constructing the foundations. [Transcript Vol. II, pp. 102-103].
44. The Department views the materials used in the construction of the foundations as personal property when purchased by Sinclair. The Department concluded, however, the foundations were part of the real estate at the time the exempt machinery was installed and, therefore, Sinclair was not entitled to claim a manufacturing excise tax credit. [Transcript Vol. II, pp. 104-105, 144].
D. Miscellaneous
45. The parties’ Stipulated Updated Summary of Uncontroverted Facts contains a series of agreements on additional issues raised during these appeals, but settled prior to the Board hearing which require remand to the Department for modification of its assessments.
A. The nonresident contractor retainage finding identified in the Little America-Cheyenne audit, Docket No. 2008-05, for Performance Overhead Doors in the amount of $985.35 should not have been charged to Sinclair because Performance Overhead Doors is a Wyoming Company. [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 2. c].
B. The nonresident contractor retainage finding identified in the Little America West audit, Docket No. 2008-06, for Lowder Electric Co. in the amount of $84.00 should not have been charged to Sinclair because the charges were for labor only. [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 2.d].
C. With the exception of the overhead door charge of Utah System Builders, Inc. for the laundry and golf course building at Little America-Cheyenne, Docket No. 2008-05, all other nonresident contractor retainage findings should not have been charged to Sinclair. [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 2.e].
D. The nonresident contractor retainage finding identified in the Little America West audit, Docket No. 2008-06, for Rocky Mountain Mechanical in the amount of $66.00 should not have been charged to Sinclair and the payment remitted directly by Sinclair should remain a credit in the audit. [Stipulated Updated Summary of Uncontroverted Facts, ¶¶ 2.f].
46. During the hearing before the Board, the Department made two additional concessions which affect the findings of the audit and require a remand to the Department for correction.
A. The Department conceded that all of the contractor retainage findings for signage, identified as part of the audit appealed in Board Docket No. 2008-56, were made in error and should be withdrawn. [Transcript Vol II, pp. 237-238, 247; Exhibit 535; Department’s Post-Hearing Brief, p. 12].
B. The Department conceded that the HVAC charge from Trane for air conditioner repairs, identified as part of the Little America West audit appealed in Board Docket No. 2008-06, was misidentified and should be withdrawn. [Transcript Vol. II, pp. 93-94, 236; Exhibit 104, p. 49; Exhibit 521; Department’s Post-Hearing Brief, p. 12].
47. Any portion of the Conclusions of Law: Principles of Law or the Conclusions of Law: Application of Principles of Law set forth below which includes a finding of fact, may also be considered a Finding of Fact and, therefore, is incorporated herein by reference.
CONCLUSIONS OF LAW: PRINCIPLES OF LAW
48. Upon application of any person adversely affected, the Board must review final Department actions concerning state excise taxes and “[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act and its own rules and regulations of practice and procedure.” Wyo. Stat. Ann. § 39-11-102.1(c)(viii). The Board must “[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes, in accordance with the rules, regulations, orders and instructions prescribed by the department.” Wyo. Stat. Ann. § 39-11-102.1(c)(iv).
49. The Board’s Rules provide that:
[T]he petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action. … In proceedings involving the question of whether or not there is a taxable event under Wyoming law, the Petitioner shall have the burden of going forward and the Department shall have the ultimate burden of persuasion.
Rules, Wyoming State Board of Equalization, Chapter 2, § 20.
50. It is an elementary rule of statutory interpretation that all portions of an act must be read in pari materia, and every word, clause and sentence of it must be considered so that no part will be inoperative or superfluous. Also applicable is the oft-repeated rule it must be presumed the Legislature did not intend futile things. Hamlin v. Transcon Lines, 701 P.2d 1139, 1142 (Wyo. 1985). See also, TPJ v. State, 2003 WY 49, ¶ 11, 66 P.3d 710, 713 (Wyo. 2003).
51. “As we have often stated, our rules of statutory construction focus on discerning the legislature’s intent. In doing so, we begin by making an ‘inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection.’ Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo.1993) (quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 823 (1897)). We construe the statute as a whole, giving effect to every word, clause, and sentence, and we construe together all parts of the statute in pari materia. State Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo.1994).” Chevron U.S.A., Inc. v. Department of Revenue, 2007 WY 79, ¶ 15, 158 P.3d. 131, 136 (Wyo. 2007).
52. The Wyoming Supreme Court has previously summarized a number of useful precepts concerning statutory interpretation:
Statutes must be construed so that no portion is rendered meaningless. Interpretation should not produce an absurd result. We are guided by the full text of the statute, paying attention to its internal structure and the functional relation between the parts and the whole. Each word of a statute is to be afforded meaning, with none to be rendered superfluous. Further, the meaning afforded to a word should be that word’s standard popular meaning unless another meaning is clearly intended. If the meaning of a word is unclear, it should be afforded the meaning that best accomplishes the statute’s purpose. We presume that the legislature acts intentionally when it uses particular language in one statute, but not in another. If two sections of legislation appear to conflict, they should be given a reading that gives them both effect.
Rodriguez v. Casey, 2002 WY 111, ¶ 10, 50 P.3d 323, 326-327 (Wyo. 2002); quoted in Hede v. Gilstrap, 2005 WY 24, ¶ 6, 107 P.3d 158, 163 (Wyo. 2005)(citations omitted).
53. “The omission of words from a statute must be considered intentional on the part of the legislature. Words may not be supplied in a statute where the statute is intelligible without the addition of the alleged omission. Words may not be inserted in a statutory provision under the guise of interpretation. The Supreme Court will not read into laws what is not there.” Matter of Adoption of Voss, 550 P.2d 481, 485 (Wyo. 1976)(citations omitted).
54. “The phrase, ‘preponderance of the evidence,’ has been given various definitions by different courts but, according to McCormick et al. on Evidence 2nd Ed. H.B., s 339, p. 794, the most acceptable meaning seems to be proof which leads the trier of fact to find that the existence of the contested fact is more probable than its non-existence.” Scherling v. Kilgore, 599 P.2d 1352, 1359 (Wyo. 1979).
55. An excise tax is levied in Wyoming on the retail sale of tangible personal property within Wyoming, Wyo. Stat. Ann. § 39-15-103(a)(i)(A), or the storing, using or consuming of tangible personal property in Wyoming, Wyo. Stat. Ann. § 39-16-103(a)(i).
56. Wyoming Statute Annotated Section 39-15-101(a) contains the following pertinent definitions:
(v) "Real property" means land and appurtenances, including structures affixed thereto. An article shall be considered real property if:
(A) It is buried or embedded; or
(B) It is physically or constructively annexed to the real property; and
(C) It is adapted to the use of the real property; and
(D) Considering the purpose for which the annexation was made, one can reasonably infer that it was the intent of the annexing party to make the article a permanent part of the real property.
* * *
(vii) "Sale" means any transfer of title or possession in this state for a consideration including the fabrication of tangible personal property when the materials are furnished by the purchaser ...
* * *
(ix) "Tangible personal property" means all personal property that can be seen, weighed, measured, felt or touched, or that is in any other manner perceptible to the senses. "Tangible personal property" includes electricity, water, gas, steam and prewritten computer software; and includes any controlled substances as defined by W.S. 35-7-1002(a)(iv) which are not sold pursuant to a written prescription of or through a licensed practitioner as defined by W.S. 35-7-1002(a)(xx);
57. Additional statutory definitions related specifically to the furnishing of tangible personal property by a contractor for work on real property are:
(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; or
(B) Any person who acts in behalf of the owner or lessee of real property in this state to arrange for the furnishing of services or the furnishing of materials and services for the construction, alteration, improvement or repair of real property in this state; or
(C) Any person who owns or leases real property in this state for the purpose of developing that property and in the development thereof alters or makes improvements to the property or contracts for the alteration or improvement of the property.
(iii) "Nonresident general or prime contractor" means any general or prime contractor who has not been a bona fide resident of the state of Wyoming for at least one (1) year prior to bidding upon a contract;
(iv) "Nonresident subcontractor" means any subcontractor who has not been a bona fide resident of the state of Wyoming for at least one (1) year prior to bidding upon a contract;
(v) "Sales tax" means the excise tax imposed by the Selective Sales Tax Act of 1937;
(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;
(vii) "Surety bond" means a bond or undertaking executed by a surety company authorized to do business in the state;
(viii) "This article" means W.S. 39-15-301 through 39-15-311;
(ix) "Use tax" means the excise tax imposed by the Use Tax Act of 1937.
Wyo. Stat. Ann. § 39-15-301(a).
58. The obligations of a contractor or subcontractor with respect to excise taxes for tangible personal property used in a construction project in Wyoming are:
(b) Taxpayer. The following shall apply:
(i) 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 tax laws of Wyoming;
(ii) Any subcontractor who contracts with a general or prime contractor is liable for sales taxes as a general or prime contractor. The general or prime contractor shall withhold three percent (3%), plus the increased rate under W.S. 39-15-104(b) if the tax under that section is in effect, of the payments due a nonresident subcontractor arising out of the contract entered into between both contractors. The contractor shall withhold the payments until the subcontractor furnishes him with a certificate issued by the department showing all sales taxes accruing by reason of the contract between them have been paid. The department may demand the withholdings at any time to satisfy the sales tax liability of the subcontractor and any balance shall be released by the department to him. If a contractor fails to withhold payments or refuses to remit them upon demand by the department he is liable for any sales taxes due the state by the nonresident subcontractor;
(iii) To secure payment of sales taxes by nonresident prime contractors, each nonresident contractor shall file with the department of revenue a surety bond or legal security equal to three percent (3%), plus the increased rate under W.S. 39-15-104(b) if the tax under that section is in effect, of the payments due under the contract or an amount determined by the department. The bond shall be conditioned upon the payment of all sales taxes which become due and payable to this state under the contract or in the real property development. This bond requirement does not apply for a nonresident contractor who has furnished a surety bond as provided by W.S. 39-15-306(b)(v).
Wyo. Stat. Ann. § 39-15-303(b). (The following cases discuss a contractor’s obligation for payment of excise taxes in various situations. See: Memorial Hospital of Laramie County v. Department of Revenue and Taxation, state of Wyoming, 805 P.2d 276 (Wyo. 1991); Sublette County School Dist. No. 1 v. State Bd. Of Equalization, 770 P.2d 218 (Wyo. 1989); United Pacific Insurance co. v. Wyoming Excise Tax Division, Department of Revenue and Taxation, 713 P.2d 217 (Wyo. 1986)).
59. The statutory retention and bonding requirements may be found at Wyo. Stat. Ann. §§ 39-15-303(b); 39-15-306(b). The purpose of these requirements is insure the payment of sales tax on materials used by nonresident contractors or subcontractors. If a contractor fails to withhold the required percentage of payments, the contractor is liable for any sales tax due the state from the nonresident subcontractor. Wyo. Stat. Ann. § 39-15-303(b)(ii); Conclusions ¶ 58.
60. The issue of whether a real property owner is obligated to pay sales tax related to work performed on its real property was addressed by the Wyoming Supreme Court in 1980.
With respect to the use tax assessed on the printing press, § 39-335.1(b) and (c)(ii), W.S.1957, 1975 Cum. Supp., were in effect during the pertinent time period and provided:
“For the purpose of this act [§§ 39-335.1 to 39-335.7], unless otherwise clearly indicated, the following terms shall be construed to mean:
* * *
“(b) ‘Contractor’ means and includes any general or prime contractors or subcontractors.
“(c) ‘General or prime contractor’ means and includes (i) any person who contracts, either orally, in writing or by purchase order, with the owner, lessee or other person having authority to enter into a contract involving the premises or property which is the subject matter of the contract, to perform services or furnish materials or both for the construction, alteration, improvement or repair of any real or personal property or project in this state, or (ii) any person who owns or leases real estate in this state for the purpose of developing such real estate other than for his own residency, and in the development thereof, contracts, alters or makes improvements thereon.” [FN6] [FN6. Now § 39-6-601(a)(i) and (a)(ii)(A) and (B), W.S.1977.]
The appellant contends that the appellee is a contractor making improvements of real estate under the provisions of § 39-335.2, W.S.1957, 1975 Cum. Supp.:
“Any contractor who furnishes tangible personal property under contract or in the development of real estate owned or leased by him for purposes other than his residency, shall be deemed to be the consumer or user of such tangible personal property within the meaning of the sales and use tax laws of this state. * * *”
The district judge opined and held in his decision letter that appellant correctly found as a matter of fact that the appellee leased the building in which the press was located. However, he considered the conclusion inescapable that the lease was for the purpose of developing the real estate in order to provide a business residence for the appellee. The district court continued:
“* * * It would seem more reasonable to the Court that when discussion in the statute by way of defining liability for tax talks in terms of development of real estate that the intent of the Legislature in enacting such provision is to encompass those situations where real estate is developed for the purpose of subdivision, sale or leasing to others as a business. Doubts as to the construction of the revenue statute must be resolved in favor of the tax payer and against the taxing power. The State Board of Equalization vs. Stanolind Oil and Gas company [54 Wyo. 521], 94 P.2d 147 (Wyo.). Here the purpose of the press is to assist the petitioner in publishing a newspaper, rather than in any purpose of developing real estate. Finally it should be noted that reasonably the press should be considered a fixture that's indicated in a Memoranda submitted by the petitioner at page 14. The Court finds that the board's conclusion that the petitioner was a contractor pursuant to § 39-335.1(b) W.S.1957 as amended is contrary to law and not supported by substantial evidence.”
We agree. The appellant's view is unrealistic. Tax statutes should have a practical construction. We hold that the printing press was not subject to payment of a use tax.
State Board of Equalization v. Cheyenne Newspapers, Inc., 611 P.2d 805, 812-813 (Wyo. 1980) (Hereinafter Cheyenne Newspapers).
61. Development is defined as:
1. A human-created change to improved or unimproved real estate, including buildings or other structures, mining, dredging, filing, grading, paving, excavating, and drilling. 2. A activity, action, or alteration that changes undeveloped property into developed property.
Black’s Law Dictionary 482 (8th ed. 1999).
62. Development is also defined as:
1. a developing or being developed 2. a step or stage in growth, advancement, etc. 3. an event or happening 4. a thing that is developed; specif. a number of structures on a large tract of land, built by a real-estate developer.
Webster’s New World College Dictionary 394 (4th ed. 2002).
63. For the period from July 1, 2004, through December 31, 2010, the Wyoming Legislature exempted the purchase of manufacturing machinery from excise tax. The statute granting the exemption for manufacturing machinery provides:
(a) The following sales or leases are exempt from the excise tax imposed by this article:
* * *
(viii)For the purpose of exempting sales of services and tangible personal property as an economic incentive, the following are exempt:
(O)Until December 31, 2010, the sale or lease of machinery to be used in this state directly and predominantly in manufacturing tangible personal property, if the sale or lease:
(I)Is to a manufacturer classified by the department under the NAICS code manufacturing sector 31 - 33;
(II)Does not include noncapitalized machinery except machinery expensed in accordance with section 179 of the Internal Revenue Code; and
(III)Is completed in the case of a sale, or executed in the case of a lease, on or after July 1, 2004.
Wyo. Stat. Ann. § 39-15-105(a)(viii)(O). See Wyo. Stat. Ann. § 39-16-105(a)(viii)(D) for the complementary use tax exemption.
64. The following statutory definitions are applicable to Sinclair’s manufacturing machinery exemption claim:
(xix) "Directly and predominantly in manufacturing" means an item manufactured from inventoried raw or prepared material beginning at the point at which raw or prepared material is moved from plant inventory on a contiguous plant site and ending at a point at which manufacturing has altered the raw or prepared material to its completed form, including packaging, if required. Machinery used during the manufacturing process to move material from one direct production step to another in a continuous flow and machinery used in testing during the manufacturing process shall be deemed to be used directly and predominantly in manufacturing;
(xx) “Machinery” means all tangible personal property eligible for a sales tax exemption pursuant to W.S. 39-15-105(a)(viii)(O) used to produce an article of tangible personal property. The term includes both the basic unit and any adjunct or attachment necessary for the basic unit to accomplish its intended function, the materials for the construction or repair of the machinery, and machine tools;
(xxi) “Manufacturing” means the operation of producing a mew product, article, substance or commodity different from and having a distinctive nature, character or use from the raw or prepared material;
(xxii) "NAICS" means the Northern American Industry Classification System manual of 2002 that organizes establishments into industries on the basis of the activity in which they are primarily engaged;
Wyo. Stat. Ann. § 39-15-101(a)(xix), (xx), (xxi) & (xxii). See Wyo. Stat. Ann. § 39-16-101(a)(xiii), (xiv), (xv), & (xvi) for the complementary use tax definitions.
CONCLUSIONS OF LAW: APPLICATION OF PRINCIPLES
65. Sinclair filed timely appeals from the Department’s final decisions. The Board thus has jurisdiction to hear and decide the issues presented in these consolidated appeals.
Little America Cheyenne and Little America West
66. The remaining issues in the Little America Cheyenne and Little America West appeals relate to the liability of Sinclair, as the real property owner, for payment of excise tax for materials incorporated by nonresident contractors in construction work at Sinclair’s two hotels. Findings, ¶¶ 4-6, 9-24.
67. Excise taxes are imposed on the retail sale, or the storage, use or consumption of tangible personal property in Wyoming. Wyo. Stat. Ann. §§ 39-15-103(a)(i); 39-16-103(a)(i). In contrast, the purchase of real property, or payments to contractors for improvements, alterations or repairs to real property, are not generally subject to sales or use tax. When a contractor is involved in the construction of improvements to real property, the contractor “is the consumer or user of the tangible personal property within the meaning of the sales tax laws of Wyoming." Wyo. Stat. Ann. § 39-15-303(b), Conclusions, ¶ 58.
68. To insure excise tax is paid on tangible personal property incorporated into real property, the Wyoming Legislature enacted specific statutory provisions imposing liability for payment of excise taxes on the contractor. Wyo. Stat. Ann. §§ 39-15-301 et seq. A real property owner is liable for payment of excise taxes on tangible personal property incorporated into his real property only if the owner falls within the definition of “general or prime contractor.” See Wyo. Stat. Ann. § 39-15-301(a)(iii); Conclusions, ¶ 57.
69. The applicable definition applicable states:
(ii) "General or prime contractor" means:
* * *
(c) Any person who owns or leases real property in this state for the purpose of developing that property and in the development thereof alters or makes improvements to the property or contracts for the alteration or improvement of the property.
Wyo. Stat. Ann. § 39-15-301(a)(ii)(C); Conclusions, ¶ 57.
70. The definition includes a real property owner as a contractor in only limited circumstances. The real property owner is liable as a contractor only if : 1) the person owns or leases the real property; 2) the ownership or lease is for the purpose of developing the real property; and 3) in the development thereof the person alters or makes improvements to the property or contracts for the alteration or improvement of the property. Wyo. Stat. Ann. § 39-15-301(a)(ii)(C); Conclusions, ¶ 57.
71. There is no dispute Sinclair is the owner of the real property at Little America Cheyenne and Little America West. Findings, ¶ 1. The first statutory condition is thus met.
72. There is also no a dispute Sinclair contracted for alterations or improvements at Little America Cheyenne and Little America West. Findings, ¶¶ 9-13, 16, 17, 20-23. The third statutory condition is thus met.
73. The sole issue for resolution is, therefore, whether Sinclair’s ownership of Little America Cheyenne and Little America West was for the purpose of developing real property. Wyo. Stat. Ann. § 39-15-301(a)(ii)(c), Conclusions, ¶ 57.
74. Sinclair contends it was not “developing” either Little America Cheyenne or Little America West, as the term is used in Wyo. Stat. Ann. § 39-15-301, and as interpreted by the Wyoming Supreme Court in Cheyenne Newspapers at 812-813 (Wyo. 1980). Conclusions, ¶ 60. Sinclair was therefore, not required to either retain a percentage of its payments to nonresident contractors or pay excise tax on the tangible personal property incorporated into the construction projects at its two properties. [Brief of Sinclair Oil Corporation, Petitioner, pp. 12-15].
75. The Department contends the first definition of development found in Black’s Law Dictionary, Conclusions, ¶ 61, supports its decision to impose a sales tax obligation on Sinclair for the construction materials used at Little America Cheyenne and Little America West. The Department also argues the Wyoming Supreme Court decision in Cheyenne Newspapers, Conclusions, ¶ 60, is no longer binding or of precedential value because of changes to the statutory definition of a general or prime contractor made subsequent to the opinion’s issuance. [Department’s Post-Hearing Brief, pp. 19-22].
76. The definition from Black’s Law Dictionary offered by the Department to support its position is not consistent with the Wyoming Supreme Court decision in Cheyenne Newspapers. Conclusions, ¶ 60. The Court’s decision explicitly adopts the following language of the District Court: “* * * It would seem more reasonable to the Court that when discussion in the statute by way of defining liability for tax talks in terms of development of real estate that the intent of the Legislature in enacting such provision is to encompass those situations where real estate is developed for the purpose of subdivision, sale or leasing to others as a business.” Cheyenne Newspapers at 812-813.
77. Notwithstanding the clarity of the Cheyenne Newspapers decision adopting the more limited definition of “developing”, see Conclusions, ¶ 61, second definition, and Conclusions, ¶ 62, fourth definition, the Department argues the Cheyenne Newspapers decision is no longer binding based on its perception of subsequent amendments to the statutory definition of “general or prime contractor.”
78. To fully understand the Department’s argument, it is necessary to compare the definition of “general or prime contractor” as it appeared at the time of the Wyoming Supreme Court decision in Cheyenne Newspapers, Conclusions, ¶¶ 60, 79, to the definition as it appeared at the time of the Sinclair audits, Conclusions ¶ 81.
79. The pertinent portion of the statutory definition applied by the Wyoming Supreme Court in Cheyenne Newspapers read at the time of that decision:
(c) "General or prime contractor" means and includes . . . (ii) any person who owns or leases real estate in this state for the purpose of developing such real estate other than for his own residency, and in the development thereof, contracts, alters or makes improvements thereon.
1963 Wyo. Sess. Laws, ch 183, § 1; Wyo. Stat. Ann. § 39-335.2, W.S.1957, 1975 Cum. Supp.; Wyo. Stat. Ann. § 39-6-601(a)(i) and (a)(ii)(A) and (B), W.S.1977. Cheyenne Newspapers, at 812.
80. The definition was amended in 1977 to read:
(ii)"General or prime contractor" means:
* * *
(B)Any person who owns or leases real property in this state for the purpose of developing same and in the development thereof contracts, alters or makes improvements thereon.
1977 Wyo. Sess. Laws, ch. 51, § 1; Wyo. Stat. Ann. § 39-6-601(a)(ii)(B).
81. The section was subsequently amended in 1981 to read:
(ii)"General or prime contractor" means:
* * *
(c)Any person who owns or leases real property in this state for the purpose of developing that property and in the development thereof alters or makes improvements to the property or contracts for the alteration or improvement of the property.
1981 Wyo. Sess. Laws ch. 57, § 1; Wyo. Stat, Ann. § 39-6-601. The 1998 recodification of Title 39 renumbered the section as § 39-15-301 but did not change the pertinent language of the section. 1998 Wyo. Sess. Laws ch. 5, § 1. Wyo. Stat. Ann. §§ 39-15-301, et seq.
82. Using overstrike for deletions and underline for additions made to the statutory language, the changes since the section was applied by the Wyoming Supreme Court in Cheyenne Newspapers are:
(c)(ii) "General or prime contractor" means and includes :
* * *
(ii) (c) Aany person who owns or leases real estate property in this state for the purpose of developing such real that property other than for his own residency, and in the development thereof, contracts, alters or makes improvements thereon to the property or contracts for the alteration or improvement of the property.
Conclusions, ¶¶ 79-81.
83. The Department acknowledged the only substantive change to the definition of “general or prime contractor” revealed by this exercise was the removal of the exception for a person constructing a residence (“other than for his own residency”). [Transcript Vol. II, pp. 177-178]. The remainder of the statutory amendments were grammatical rather than substantive.
84. The Department argues the deletion of “other than for his own residency” “demonstrates an intent to extend the scope of a general contractor to situations where a property owner chooses to adopt the responsibly (sic) of a coordinating general contractor for the property they own or lease. Given this fundamental change in the statute, the Department believes that the outcome of the Cheyenne Newspaper case would be completely different if the present statute was in place.” [Department’s Post-Hearing Brief, pp. 21-22].
85. The noted statutory change, however, equally supports a conclusion the exception for a person developing his “own residency” was no longer necessary in light of the Wyoming Supreme Court interpretation prior to the statutory change that the section applied to “‘those situations where real estate is developed for the purpose of subdivision, sale or leasing to others as a business.’” Cheyenne Newspapers, at 813.
86. Acceptance of the Department’s argument would also make the term “development” synonymous with “alters or makes improvements to the property or contracts for the alteration or improvement of the property,” and thus superfluous. The Department’s argument, therefore, must be rejected as contrary to the fundamental requirement of statutory interpretation that every word, clause and sentence of a statute must be considered so that no part will be rendered meaningless. Conclusions, ¶ 50; Hede v. Gilsap, 2005 WY 24, ¶ 6, 107 P.3d 158, 163 (Wyo. 2005).
87. We find nothing in the legislative changes to the definition of “general or prime contractor” to support the Department’s proposed interpretation. The amendments did not alter the requirement of Wyo. Stat. Ann. § 30-15-301(a)(II)(c) that the real property be owned “for the purpose of developing” as defined by Cheyenne Newspapers. Conclusions, ¶ 60.
88. Sinclair was not a “general or prime contractor” when it contracted for the construction of a laundry and golf cart facility to replace its outdated laundry facility Little America Cheyenne or to upgrade its guest rooms or fueling facility at Little America West. It was not developing its property as that term was defined by Cheyenne Newspapers. Sinclair, therefore, is not liable as a “general or prime contractor” for payment of the excise tax assessment related to the overhead door installed at the Little America Cheyenne laundry and golf cart building nor for the materials used in the Little America West room remodels and fuel dispenser installation. Findings, ¶¶ 16, 20, 22-23. The nonresident contractors who performed the work for Sinclair remain responsible for the payment of the sales or use tax on the materials as “the consumer or user of the tangible personal property within the meaning of the sales tax laws of Wyoming.” Wyo. Stat. Ann. § 39-15-303(b)(i).
Sinclair Refinery and Casper Refinery
89. The second issue as raised by Sinclair’s request for a sales tax credit made during the audit, is whether Sinclair was entitled to a credit for sales tax paid on the purchase of materials incorporated into the foundations for the Number 2 reformer at the Casper Refinery and the hydrocracker at the Sinclair refinery.
90. The parties stipulated: 1) Sinclair is a manufacturer classified under the NAICS code eligible for the manufacturing machinery sales tax exemption, Findings, ¶ 39; 2) Sinclair’s refineries manufacture tangible personal property, Findings, ¶ 39; and 3) the Number 2 reformer at the Casper Refinery and the hydrocracker at the Sinclair refinery qualify for the statutory manufacturing machinery sales tax exemption. Findings, ¶ 40. See Wyo. Stat. Ann. § 39-15-105(a)(viii)(O); Conclusions, ¶ 63.
91. Because of the size, complexity and operation of the manufacturing machinery installed at Sinclair’s two refineries, foundations had to be constructed. Without foundations, the hydrocracker and the Number 2 reformer would not safely and properly operate. Findings, ¶¶ 32, 38.
92. The statutory definition of machinery contains two sentences. The first sentence states “‘[m]achinery’ means all tangible personal property eligible for a sales tax exemption…used to produce an article of tangible personal property.” The second sentence clarifies that the exemption includes “both the basic unit and any adjunct or attachment necessary for the basic unit to accomplish its intended function, the materials for the construction or repair of machinery, and machine tools.” Wyo. Stat. Ann. § 39-15-101(a)(xx); Conclusions, ¶ 64.
93. Sinclair’s argument finds its factual basis in the testimony of Mr. Aneiros and Mr. Lolley that the hydrocracker installed at the Sinclair Refinery and the Number 2 reformer installed at the Casper Refinery required the engineering, design, and construction of foundations for both units to safely and properly function as integral parts of each refinery. Findings, ¶¶ 32, 38. Sinclair contends the materials used to construct the foundations, and the foundations themselves, are integral parts of both units, and, therefore, are exempt either as “materials for the construction and repair of the machinery, and the machinery tools” or as “any adjunct or attachment necessary for the basic unit to accomplish its intended function.” Wyo. Stat. Ann. § 39-15-101(a)(xx), Conclusions, ¶ 69; [Brief of Sinclair Oil Corporation, Petitioner, pp. 7-9].
94. The Department counters that Sinclair’s argument fails to take into consideration the limiting language contained in the first sentence of Wyo. Stat. Ann.§ 39-15-101(a)(xx) which defines machinery as “tangible personal property.” The Department argues the sales tax exemption did not apply to the materials used to construct the foundations since the materials were incorporated into the foundations which are real property. Wyo. Stat. Ann. § 39-15-301(a)(xx); [See Department’s Post-Hearing Brief, pp. 25-27].
95. The first sentence of the statutory definition of “machinery” establishes a threshold requirement to qualify for the sales tax exemption granted by Wyo. Stat. Ann. § 39-15-105(a)(viii)(O). The “machinery” must be “tangible personal property.” Wyo. Stat. Ann. § 39-15-101(a)(xx), Conclusions, ¶ 64. This requirement is applicable to the “machinery” whether it is the “basic unit” or “any adjunct or attachment necessary for the basic unit to accomplish its intended function, the materials for the construction or repair of the machinery, and machine tools.” Wyo. Stat. Ann. § 39-15-101(a)(xx), Conclusions, ¶ 64.
96. “Machinery” includes 1) the basic unit, 2) any adjunct or attachment necessary for the basic unit to accomplish its intended function, 3) the materials for the construction or repair of the machinery, and 4) machine tools. Wyo. Stat. Ann. § 39-15-101(a)(xx), Conclusions, ¶ 64.
97. The materials purchased by Sinclair, including concrete, rebar, and grout, were used to construct the foundations for the Number 2 reformer and the hydrocracker, not the units themselves. The materials were neither utilized for the construction of the machinery nor were they machine tools. The materials purchased by Sinclair can therefore only qualify for the sales tax exemption as “any adjunct or attachment necessary for the basic unit to accomplish its intended function.”
98. There is no question the foundations constructed at the Casper and Sinclair refineries were necessary for the Number 2 reformer and the hydrocracker to safely and properly function. Findings, ¶ 32, 38.
99. The Board recently discussed in detail the factors to be considered in determining whether property is real or personal in the context of the Wyoming sales and use tax statutes. In the Matter of the Appeal of Hanover Compression LP, State Board Docket No. 2006-122, August 24, 2007, 2007 WL 2462039 (Wyo. St. Bd. Eq.); aff’d State ex rel. Wyoming Dept. of Revenue v. Hanover Compression, LP, 2008 WY 138, 196 P.3d 781 (Wyo. 2008). From the detailed analysis set out in Hanover, it is clear that the foundations for the Number 2 reformer and the hydrocracker are real property for sales and use tax purposes. Hanover Compression, see id. at ¶¶ 69-124. Of particular relevance to this matter, the Board observed “[t]he concrete foundation is clearly “embedded” as that term is used in Wyo. Stat. Ann. § 39-15-101(a)(v)(A).” Hanover Compression, see id. at ¶ 92. The same conclusion must be reached for the foundations constructed by Sinclair. Findings, ¶¶ 28-32, 36-38. The foundations were real property as that term is defined for sales tax purposes by Wyo. Stat. Ann § 39-15-101(a)(v). Conclusions, ¶ 56.
100. Sinclair argues the materials purchased for the construction of the foundations were tangible personal property and, therefore, exempt from sales tax as an adjunct or attachment necessary for the basic unit to accomplish its intended function. Wyo. Stat. Ann. § 39-15-101(a)(xx), Conclusions, ¶ 69. We do not agree.
101. Sinclair essentially argues the phrase “the materials for the construction or repair of the machinery” be read as “the materials for the construction or repair of the machinery and any adjunct or attachment necessary for the basic unit to accomplish its intended function.” Wyo. Stat. Ann. § 39-15-101(a)(xx), Conclusions, ¶ 64. The statute as written is not ambiguous and is clearly intelligible. It is therefore neither necessary nor permissible to insert into a reading of the statute the additional language required to support Sinclair’s argument. Conclusions, ¶¶ 50-53; Matter of Adoption of Voss, 550 P.2d 481, 485 (Wyo. 1976).
102. The Department’s interpretation that the materials were used to construct an adjunct or attachment, the foundations, which are real property, is entitled to deference.
This Court has previously held that an agency's interpretation of the statutory language which the agency normally implements is entitled to deference, unless clearly erroneous. Buehner Block Co. v. Wyo. Dep't of Revenue, 2006 WY 90, ¶ 11, 139 P.3d 1150, 1153 (Wyo.2006). Moreover, this Court generally defers to the construction placed on a statute by the agency that is charged with its execution, provided that construction does not conflict with the legislature's intent. Qwest, ¶ 8, 130 P.3d at 511; see also Loberg v. State ex rel. Wyo. Workers' Safety & Comp. Div., 2004 WY 48, ¶ 9, 88 P.3d 1045, 1049 (Wyo.2004) (one measure of a statute's meaning is the interpretation placed on it by the agency charged with its administration); State ex rel. Sublette County Bd. of County Comm'rs v. State, 2001 WY 91, ¶ 16, 33 P.3d 107, 113 (Wyo.2001).
Wyoming Dept. of Revenue v. Exxon Mobil Corp., 2007 WY 112, ¶ 31, 162 P.3d 515, 526 (Wyo. 2007). Sinclair was not eligible to claim a manufacturing machinery exemption credit related to its purchase of materials used to construct the foundations for the Number 2 reformer and the hydrocracker at its Casper and Sinclair refineries.
ORDER
IT IS THEREFORE ORDERED the assessments by the Department of Revenue are remanded for correction with respect to those transactions identified in Facts, ¶ 45 of this decision where the parties have stipulated correction of the assessment is required and to those transactions identified in Facts, ¶ 46 of this decision where the Department has conceded correction of the assessment is required; and
IT IS FURTHER ORDERED the Department of Revenue assessments related to the overhead door at Little America Cheyenne identified in Facts, ¶ 16-18 of this decision and for the C&R Electric and Csesco charges for materials used at Little America West, identified in Facts, ¶ 20, and Facts, ¶¶ 22-24 of this decision, are reversed and remanded and the Department is directed to correct the assessments to remove the related amounts from the assessment; and
IT IS FURTHER ORDERED the Department of Revenue decision denying sales tax credits for the materials purchased to construct foundations for the Number 2 reformer and the hydrocracker at Sinclair’s Casper and Sinclair refineries is affirmed.
THIS SPACE INTENTIONALLY LEFT BLANK
Pursuant to Wyo. Stat. Ann. § 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.
DATED this 30th day of June, 2009.
STATE BOARD OF EQUALIZATION
_____________________________________
Thomas R. Satterfield, Chairman
_____________________________________
Thomas D. Roberts, Vice-Chairman
_____________________________________
Steven D. Olmstead, Board Member
ATTEST:
________________________________
Wendy J. Soto, Executive Secretary