Taxation--refund of sales and use tax--lumber, steel, and materials purchased out of state
A de novo review revealed that the trial court did not err by denying petitioner's request
under N.C.G.S. § 105-164.6 for refunds of use tax paid plus interest for lumber, steel, and other
materials purchased out of state and assembled in Pennsylvania and Ohio into building
components which were incorporated into prefabricated buildings constructed by petitioner in
North Carolina, because: (1) contrary to petitioner's argument, the statute does not contain the
limitation that the tangible personal property must be in the form in which it was purchased to be
taxable; (2) even assuming arguendo that the materials cease to exist when they become part of
the building components, the materials as incorporated into building components are still
tangible personal property; (3) the Legislature enacted the use tax so that builders could not gain
an advantage by purchasing materials outside the state, and the law thus requires that petitioner
pay tax on all tangible materials, wherever purchased, which are ultimately used in North
Carolina buildings; (4) although the use taxes in sections (a) and (b) of N.C.G.S. § 105-164.6 are
alternative stand alone provisions and petitioner has already been held to be subject to the use tax
in section (b), the Court of Appeals nevertheless noted that petitioner would also be subject to the
use tax under section (a) since the materials purchased by petitioner were used in North Carolina;
(5) contrary to petitioner's assertion, stipulations as to questions of law are generally held invalid
and ineffective, and not binding upon the courts, either trial or appellate; and (6) while decisions
from other jurisdictions may be instructive, they are not binding on the courts of this State.
Maupin Taylor, P.A., by Charles B. Neely, Jr., Nancy S.
Rendleman, and Kevin W. Benedict; and Law Offices of Abraham
Stanger, by Abraham M. Stanger, for petitioner-appellant.
Attorney General Roy A. Cooper, by Special Deputy Attorney
General Kay Linn Miller Hobart, for respondent-appellee.
McGEE, Judge.
Morton Buildings, Inc. (petitioner) is a construction
contractor in the business of producing, selling, and erecting
prefabricated warehouses and other buildings for use on farms andin industry in forty states. Petitioner seeks a tax refund for the
sales and use tax it paid on lumber, steel, and other materials
(collectively materials) purchased out of state. These materials
were assembled into trusses, columns, purlins, and metal panels
(collectively building components
(See footnote 1)
) in Pennsylvania and Ohio. The
building components were incorporated into buildings constructed in
North Carolina.
Petitioner purchased and stored the materials outside of North
Carolina. The materials were not purchased by petitioner for use
in any particular customer order, whether in or out of North
Carolina.
Pursuant to N.C. Gen. Stat. § 105-266.1, petitioner filed an
application with the North Carolina Department of Revenue (the
Department of Revenue) on 18 December 1996 for a refund of use tax
paid, plus interest, for the period of 1 November 1993 to 30 June
1996. Petitioner subsequently filed another application for the
period of 1 January 1997 to 31 August 1999. The Department of
Revenue denied petitioner's second refund request on 3 February
2000 and denied the first request on 31 January 2001.
Petitioner requested and received an administrative hearing by
the Secretary of Revenue (respondent), who denied petitioner's
requests for refunds in a final decision dated 24 May 2002.
Petitioner appealed this final decision to the Tax Review Boardpursuant to N.C. Gen. Stat. § 105-241.2. The Tax Review Board
sustained respondent's denial of petitioner's requests for refunds
and confirmed respondent's final decision on 18 March 2003.
Petitioner petitioned for judicial review of the Tax Review
Board's decision on 14 April 2003, pursuant to N.C. Gen. Stat. §
105-241.3. Petitioner argued that both respondent and the Tax
Review Board erred in the interpretation and application of N.C.
Gen. Stat. § 105-164.6. As statutory interpretation is an issue of
law, the trial court reviewed the decision de novo, and affirmed
the Tax Review Board's decision on 14 April 2004. Petitioner
appeals.
Petitioner's sole assignment of error is that the trial court
erred in failing to give effect to the plain language of N.C.G.S.
§ 105-164.6, which governs the imposition of use tax. In reviewing
an order from a trial court acting in an appellate capacity, our
scope of review is restricted to evaluating the trial court's order
for errors of law. Shackleford-Moten v. Lenoir Cty. DSS, 155 N.C.
App. 568, 572, 573 S.E.2d 767, 770 (2002) (citing ACT-UP Triangle
v. Commission for Health Services, 345 N.C. 699, 706, 483 S.E.2d
388, 392 (1997)), disc. review denied, 357 N.C. 252, 582 S.E.2d 609
(2003). "In those cases where the superior court [was] required to
employ a de novo standard of review of the agency's decision,
appellate review of the superior court's order requires that this
Court also review the agency's decision de novo." R.J. Reynolds
Tobacco Co. v. N.C. Dep't of Env't & Natural Res., 148 N.C. App.
610, 615, 560 S.E.2d 163, 167, disc. review denied, 355 N.C. 493,564 S.E.2d 44 (2002). The trial court employed a de novo review in
the present case, and petitioner raises questions of law;
therefore, we review the trial court's judgment de novo.
Petitioner first argues that the use tax does not apply to
petitioner's materials or building components, and the trial court
erred by ignoring the plain language of the sales and use tax
statute. We disagree. N.C. Gen. Stat. § 105-164.6(b) provides:
An excise tax at the general rate of tax set
in G.S. 105-164.4 is imposed on the purchase
price of tangible personal property purchased
inside or outside the State that becomes a
part of a building or other structure in the
State. The purchaser of the property is liable
for the tax.
N.C.G.S. § 105-164.6(b) (2003). Tangible personal property is
defined as "[p]ersonal property that may be seen, weighed,
measured, felt, or touched or is in any other manner perceptible to
the senses." N.C. Gen. Stat. § 105-164.3(46) (2003). Petitioner
does not dispute that it purchased materials, nor that the
materials petitioner purchased were tangible personal property.
Rather, petitioner argues that the materials did not become "part
of a building or other structure in the State." See N.C.G.S. §
105-164.6(b). Petitioner further argues that the materials were
"consumed" and "transformed" into building components outside of
North Carolina, and thus it was the building components that became
"part of a building or other structure in the State." See id.
Inherent to petitioner's argument is its belief that the statute
only taxes items of tangible personal property that are used "in
the form in which they were purchased[.]" Specifically, petitionerasserts that the materials "cease to exist upon their consumption
and transformation in the manufacture of building components[.]"
Thus, petitioner argues that since it did not purchase the building
components, and since the materials purchased by petitioner were
not incorporated into a building or structure in their unaltered
state, petitioner is not subject to the excise tax set forth in
N.C.G.S. § 105-164.6(b).
However, since the plain language of the statute is clear and
unambiguous, we are unpersuaded by petitioner's arguments. "'Where
the language of a statute is clear and unambiguous, there is no
room for judicial construction and the courts must give it its
plain and definite meaning, and are without power to interpolate,
or superimpose, provisions and limitations not contained therein.'"
State v. Camp, 286 N.C. 148, 152, 209 S.E.2d 754, 756 (1974)
(quoting 7 Strong, N.C. Index 2d Statutes § 5 (1968)) (emphasis
added). Contrary to petitioner's argument, the statute does not
contain the limitation that the tangible personal property must be
"in the form in which [it was] purchased" to be taxable. We do not
agree with petitioner that the materials "cease to exist" when they
are assembled into trusses, columns, purlins, and metal panels.
However, even assuming arguendo that the materials "cease to exist"
when they become part of the building components, the materials as
incorporated into building components are still tangible personal
property. Therefore, the statute applies to the materials
purchased by petitioner because the materials, which are tangible
personal property, became "part of a building or other structure inthe State." See N.C.G.S. § 105-164.6(b).
To hold otherwise would violate the purpose of the use tax.
Our Supreme Court has held that the General Assembly intended for
the use tax "to impose the same burdens on out-of-state purchases
as the sales tax imposes on purchases within the state." Pipeline
Co. v. Clayton, Comr. of Revenue, 275 N.C. 215, 223, 166 S.E.2d
671, 677 (1969); see also Robinson & Hale, Inc. v. Shaw, Comr. of
Revenue, 242 N.C. 486, 488, 87 S.E.2d 909, 910-11 (1955)
(discussing the predecessor statute to N.C.G.S. § 105-164.6 and
stating the statute "discloses a clear legislative intent to make
out-of-state purchases of building materials, other than those
expressly exempted, subject to the same burdens imposed by the
sales tax on purchases within the State"). In the present case,
the trial court properly concluded that "[t]he Legislature enacted
the use tax so that builders could not gain an advantage by
purchasing materials outside the state. The law thus requires that
[petitioner] pay tax on all tangible materials, wherever purchased,
which are ultimately used in North Carolina buildings." We affirm
the decision of the trial court.
Petitioner also argues that it is exempt from the use tax
imposed under section (a) of N.C.G.S. § 105-164.6, which provides:
"An excise tax . . . is imposed on the storage, use, or consumption
in this State of tangible personal property purchased inside or
outside the State for storage, use, or consumption in the State[.]"
Specifically, petitioner argues that section (a) does not apply
because petitioner's raw materials are not stored, used, orconsumed in North Carolina. Petitioner contends that while it
purchased the raw materials, the raw materials are not only stored
outside North Carolina, but that they are "used," "consumed," and
"transformed" into building components outside of North Carolina.
Petitioner asserts that "[i]t is the [b]uilding [c]omponents, a
manufactured product distinct from the [r]aw [m]aterials, that are
brought into the State."
Since the use taxes in sections (a) and (b) of N.C.G.S. § 105-
164.6 are alternative stand alone provisions, and since petitioner
is subject to the use tax in section (b) of N.C.G.S. § 105-164.6,
we need not review petitioner's argument that it is not subject to
the use tax set forth in section (a). Nevertheless, we note that
petitioner is also subject to the use tax under section (a) because
the materials purchased by petitioner were used in North Carolina.
"Use" is defined by N.C.G.S. § 105-164.3(49) (2003) as including:
the exercise of any right or power or dominion
whatsoever over tangible personal property by
a purchaser thereof and [including, but not
limited to] any withdrawal from storage,
distribution, installation, affixation to real
or personal property, or exhaustion or
consumption of tangible personal property by
the owner or purchaser thereof, but does not
include the sale of tangible personal property
in the regular course of business.
By incorporating the lumber and other materials petitioner
purchased into the buildings petitioner constructed in North
Carolina, petitioner exercised a right, power, and dominion over,
and therefore used the lumber and other materials. Petitioner is
subject to the use tax under both sections (a) and (b) of N.C.G.S.
§ 105-164.6. Petitioner next argues that the trial court erroneously
ignored stipulated facts. Specifically, petitioner argues that the
trial court erred in failing to distinguish between materials and
building components when the parties stipulated that the materials
were "consumed and transformed by [petitioner] in the manufacture
of finished [b]uilding [c]omponents[.]" Petitioner asserts that
because N.C.G.S. § 105-164.6 only applies to tangible personal
property that is purchased, the trial court erred when, despite
"[n]umerous references to 'manufacturing processes' or
'manufacture'" throughout the stipulations, it did not recognize
that the building components were not purchased but manufactured.
In support of its argument, petitioner cites Duke Power Co. v.
Clayton, Comr. of Revenue, 274 N.C. 505, 513, 164 S.E.2d 289, 295
(1968), which states: "'"manufacturing" has been defined as the
producing of a new article or use or ornament by the application of
skill and labor to the raw materials of which it is composed.'"
Id. (quoting 55 C.J.S. Manufactures, § 1 at 667 and 670 (1948)).
Petitioner further argues that, as the parties stipulated, the
materials were "consumed and transformed" into a different tangible
personal property, i.e., building components, because skill and
labor were applied to the materials "to create a different article
with a singular use." Petitioner further argues that because the
lumber and steel it purchased as materials lost their identities
when they were manufactured into trusses, purlins, and other
building components, the trial court erred in treating both the
materials and the building components as the same tangible personalproperty.
However, petitioner ignores that "[s]tipulations as to
questions of law are generally held invalid and ineffective, and
not binding upon the courts, either trial or appellate." State v.
Prevette, 39 N.C. App. 470, 472, 250 S.E.2d 682, 683 (citing 73 Am.
Jur. 2d Stipulations § 5 (1974); 5 Am. Jur. 2d Appeal and Error §
712 (1962)), disc. review denied, 297 N.C. 179, 254 S.E.2d 38
(1979); see also Carringer v. Alverson, 254 N.C. 204, 208, 118
S.E.2d 408, 411 (1961). Whether the materials purchased by
petitioner were "manufactured" into building components is a
question of law. Hart v. Gregory, 218 N.C. 184, 193, 10 S.E.2d
644, 650 (1940) (stating "whether [particular] acts constituted the
'manufacture or production of lumber' was a question of law for the
court to decide"). Similarly, whether the materials were "consumed
and transformed" is a question of law, and the parties'
stipulations as to these words are not binding on the trial court
or our Court.
"Manufacture implies a change, but every change is not
manufacture, but every change in an article is the result of
treatment, labor, and manipulation. But something more is
necessary[.] . . . There must be transformation; a new and
different article must emerge, having a distinctive name, character
or use." Anheuser-Busch Brewing Ass'n v. United States, 207 U.S.
556, 562, 52 L. Ed. 336, 338 (1908) ("A cork put through the
claimant's process [of preparing the encasement of the beer] is
still a cork."). Though petitioner claims that it transforms thelumber, steel and other materials into a different article by a
different name, that being "building components," we are not
persuaded that these building components have a distinct character
or use. As the trial court found, petitioner constructs trusses in
the following manner:
[T]he lumber for the upper and lower chords of
the truss are run through a machine that cuts
the chords to the proper lengths and to the
proper angles at both ends of each board.
Lumber webbing, which is attached between the
upper and lower chords, is also cut to the
correct length and to the correct angles. The
boards for the trusses (chords and webs) are
then positioned "face-up" on a fixture table
and metal gusset plates are positioned at each
joint. The metal gusset plates are made by
[petitioner] from rolled steel. The gusset
plates are then stitched into position with a
pneumatic gun nailer. The truss is then
repositioned "face-down" and additional metal
gusset plates are positioned onto the joints
on that side of the truss. The truss is then
put through a roller press which imbeds the
metal gusset plates into the wooden chords and
webs.
The above rudimentary process may change the form of the materials
purchased by petitioner, but it is difficult to discern how the
building components are a different article with a "distinctive
. . . character and use." See Anheuser-Busch Brewing Ass'n, 207
U.S. at 562, 52 L. Ed. at 338; see also Morton Bldgs. v. Vermont
Dep't of Taxes, 705 A.2d 1384, 1388 (1997). Cf. In re
Clayton-Marcus Co., 286 N.C. 215, 224, 210 S.E.2d 199, 205 (1974)
(concluding that Clayton-Marcus Co. had "manufactured" swatch books
because they were "new and different article[s] from the fabrics
. . . contained therein"). The trial court did not err in noting
that although the parties had stipulated to the word "manufacture,"the term "assembly" was more descriptive.
Similarly, although the parties stipulated that the materials
purchased by petitioner were "consumed" in petitioner's manufacture
process, the trial court did not err in concluding that the
materials "were not 'consumed' in the way the word is normally
understood." If the statute "contains a definition of a word used
therein, that definition controls[.]" Clayton-Marcus Co., 286 N.C.
at 219, 210 S.E.2d at 203. However, nothing else appearing, "words
must be given their common and ordinary meaning[.]" Id. at 219,
210 S.E.2d at 202-03. As the Sales and Use Tax Act does not define
"consume," the trial court properly applied the "common and
ordinary meaning" of the term. The trial court did not err in
noting:
"Consume" is defined as "to expend or use up,"
or "to destroy totally; ravage." The American
Heritage Dictionary of the English Language
(4th ed. 2000). The [m]aterials were not
destroyed or expended; they were used by
[petitioner] to make [b]uilding [c]omponents
that were then brought into North Carolina and
incorporated into [petitioner's] buildings.
Accordingly, we affirm the trial court's decision as to the
questions of law in the parties' stipulations.
Finally, petitioner argues that the trial court improperly
rejected the weight of authority from other jurisdictions.
Petitioner argues that it has "previously litigated this very issue
in a number of other jurisdictions throughout the United States"
and that seven out of ten courts "have rendered final decisions in
favor of" petitioner. However, petitioner does not cite any
authority for its argument as to why the trial court erred, andthis argument is thus abandoned pursuant to N.C.R. App. P.
28(b)(6). Furthermore, while decisions from other jurisdictions
may be instructive, they are not binding on the courts of this
State. See Virmani v. Presbyterian Health Services Corp., 350 N.C.
449, 465, 515 S.E.2d 675, 686 (1999).
Affirmed.
Judges HUNTER and STEELMAN concur.
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