I respectfully disagree with the majority in declaration that our prior case of Sublette County School Dist. No. 1 v. StateBd. of Equalization, State of Wyoming, 770 P.2d 218 (Wyo. 1989) controls resolution of this case.
I perceive that the state agency changed the taxation rules and this court misinterpreted the law in order to collect sales tax from the Memorial Hospital of Laramie County remodeling construction project. In result, we expect the users of the hospital to unnecessarily subsidize the state and other levels of government which receive some apportioned share of sales tax collections.1 The legislature could place that burden on local units of government, like the county hospital here, but I perceive this court as the entity that creates the burden by statutory extension and factual misinterpretation. Additionally, I observe that the discriminatory results within the construction industry make no practical sense.2
In analysis of the State's taxation of the reconstruction of the county hospital as a county agency project, we start with the Wyoming Constitution, which provides:
The property of the United States, the state, counties, cities, towns, school districts and municipal corporations, when used primarily for a governmental purpose, and public libraries, lots with the buildings thereon used exclusively for religious worship, church parsonages, church schools and public cemeteries, shall be exempt from taxation, and such other property as the legislature may by general law provide.
Wyo.Const. art. 15, § 12.
In indicated compliance with the constitutional limitations, the legislature, in enactment of the sales and use tax statutes, provided the exceptions previously quoted in the majority opinion found in W.S. 39-6-405 and 39-6-505 which exclude application of sales and use taxes to purchases by the state or its political subdivisions. Neither the State nor this majority seem to doubt that the county hospital comes within the benefits of the constitution and the applicable statutes.
The trail now gets less defined and more muddied when we consider regulations adopted by the Wyoming Tax Commission upon which this court now apparently imposes state taxation on local governmental agency purchases for a hospital construction. At the time Memorial Hospital of Laramie County finalized its construction plans, after consultation with the Department of Revenue and Taxation personnel, there was a Tax Commission regulation which clearly validated the tax-free status of this transaction and provision:
Section 22. Materials and Supplies Sold to Owners, Contractors and Repairmen. Sales of materials and supplies to be used in the construction of improvements to real property are taxable sales, whether sold to the owner or contractor.
a. When a contractor enters into a contract to furnish the materials and services to construct or repair improvements to real property, sales tax on the materials shall be collected by the vendor.
b. When materials to be used by a contractor in making improvements or repairs to real property are paid for directly by agencies of the federal government or the State of Wyoming and its political subdivisions, the purchases are exempt from sales tax.
Rules and Regulations of the Wyoming State Tax Commission, ch. III, § 22 (1980).
That regulation was amended on the same day that Tax Commission personnel in correspondence approved this particular construction project operation. While validating *Page 282 the plan, the rules were, without notice to the county hospital then or later, changed to provide:
Section 23. Materials and Supplies Sold to Owners, Contractors and Repairmen. Sales of materials and supplies to be used in the construction of improvements to real property are taxable sales, whether sold to the owner or contractor.
(a) When a contractor enters into a contract to furnish services or materials and services to construct, alter, improve or repair real property, he is the consumer of all equipment, material and supplies purchased to perform his contract and must pay sales or use tax to the vendor or directly to the Department.
(b) Contractors performing for exempt entities, such as governmental entities and churches, are subject to the sale or use tax on all equipment, materials and supplies purchased by the contractor to perform their contract.
Rules and Regulations of the Wyoming State Tax Commission, ch. III, § 23 (1985).
The difference may not be obvious, but the result is astounding. It did not say so, but the materials purchased and then made available for installation by the tax-free governmental entity became taxable if used by an installing subcontractor who had previously sold the materials to the governmental agency. Tax practice renovation and recapitulation did not end there since the application finally established by the Tax Commission was that the materials purchased by the exempt entity came to be taxable only if the installer had sold the materials to the hospital. A vendor who did not do any labor on installation remained tax free and the installer who sold no materials also remained tax free. It was the dual functioning subcontractor-supplier where taxable incident arose.
In the meantime, Memorial Hospital of Laramie County had structured its $15 million reconstruction project in accord with the tax agency advice to save taxes and minimize costs. Simplistically, a management contract was executed with a construction manager, Fru-Con Construction Corp., to act as a general contractor for all labor while Memorial Hospital of Laramie County, as owner, would purchase all materials as a tax-exempt agency.
Out of this careful tax plan, worked out in conjunction with the advice from the Tax Commission personnel, a change engendered by an unnoticed rule provides the difficulties which followed. In taxation application for the project when a material supplier did not provide labor, there was no problem. Also, if the particular subcontractor did not sell construction materials for the construction, there was no problem. However, if the subcontractor sold materials to the county hospital and performed labor for Fru-Con Construction Corp., the cost value of the materials which had been purchased by the tax-exempt agency became taxable to the installation subcontractor.
This flight of logic and strangely configured taxation practice imposed the tax on multi-activity subcontractors but not entities that were functional either as suppliers or as labor providers. The justification of all of this now comes for this majority's decision through the Sublette County School Dist. No. 1 case, which I consider to be clearly distinguishable. In SubletteCounty School Dist. No. 1, the multi-activity subcontractor had a dual function contract, each with the owner-governmental subdivision. The private construction entity contracted to supply materials to the governmental agency and to furnish installation and construction labor to the governmental agency. The dual functional contract, we then found, created a taxable status since the subcontractor used its own materials to comply with its contractor obligation, which essentially was a unitary responsibility as a material supplier and labor provider.
In this case, Memorial Hospital of Laramie County, in order to escape the Sublette County School Dist. No. 1 pitfall, arranged for completely separate contracts — one for sale of materials to be exempt in status as a direct purchase by the governmental agency and the other to be undertaken was by a general contractor to provide *Page 283 labor. That general contractor, Fru-Con Construction Corp., arranged for subcontractors to provide labor in a fashion no different than if it had simply hired all individual laborers itself.
I cannot perceive how Sublette County School Dist. No. 1 has any persuasive application to the more sophisticated arrangement undertaken by Memorial Hospital of Laramie County in this case. In first impedance, I cannot see how the material purchases by Memorial Hospital of Laramie County can be taxable under the Wyoming Constitution. Differentiating real estate taxes from excise taxes on personal property purchased to perform governmental functions cannot be anything but linguistic sophistry. The majority and I agree on this, although the majority rests with a statutory analysis of W.S. 39-6-405,39-6-505, and 39-6-602, while I start with the state constitution itself.
In introduction, contrary to the State's contention in appellee's brief, I find that first the Tax Commission and now this majority actually rewrite the state taxation statute.Matter of Voss' Adoption, 550 P.2d 481, 485 (Wyo. 1976);Natrona County v. Casper Air Service, 536 P.2d 142, 144 (Wyo. 1975). By misinterpretation and misapplication, a sales-use tax has been converted into a labor related taxable incident as atransaction tax measured for amount by the value of the materials used, but only arbitrarily applied for application to a limited class of subcontractors. This Wisconsin application is not followed by precedent found in other jurisdictions. SeeWisconsin Dept. of Revenue v. Johnson and Johnson,130 Wis.2d 187, 387 N.W.2d 91 (1986); and Rice Insulation, Inc. v.Wisconsin Dept. of Revenue, 115 Wis.2d 513, 340 N.W.2d 556 (1983). For Wyoming, this expansive alteration of the clearly worded statute is improper. Croxton v. Board of County Com'rs ofNatrona County, 644 P.2d 780 (Wyo. 1982); Department of Revenueand Taxation v. Irvine, 589 P.2d 1295 (Wyo. 1979).
I fail to gain any comfort from the middle-of-the-stream change by the Tax Commission of its rule adopted and effectuated without advice or notice as a justification for tax extension. If the purpose of the change was to reach governmental agency purchases of tangible personal property, it was void both in contravention of the constitution and in the absence of authority provided by state statute. Additionally, it was improper tax regulation and interim application. Hercules Powder Co. v. State Bd. ofEqualization, 66 Wyo. 268, 208 P.2d 1096, reh'g denied 66 Wyo. 268, 210 P.2d 824 (1949); United States v. Alabama G.S.R. Co.,142 U.S. 615, 12 S.Ct. 306, 35 L.Ed. 1134 (1892). See alsoLuckenbach S.S. Co. v. United States, 280 U.S. 173,50 S.Ct. 148, 74 L.Ed. 356 (1930) and Logan v. Davis, 233 U.S. 613,34 S.Ct. 685, 58 L.Ed. 1121 (1914). The citation provided in this majority opinion, Winkler v. Andrus, 594 F.2d 775 (10th Cir. 1979), does not alter my perspective. That case, relating to inappropriate agency action and what was in effect stonewalling after a discovered mistake, cannot justify what was done here.
How then do we get to taxation under the majority's conclusion? It is apparently discerned that the labor contractor/construction manager is an "agent" and so its labor contracting becomes labor contracting of the governmental agency as the project owner. Thetechnical facts of the taxation adaptation require restatement.The tax is imposed on the material supplier which sold thematerials to the governmental agency on the basis that thesupplier used those materials since it provided labor for thegeneral contractor on the project. Essentially, the subcontractor does not care whether it is taxed or not since the tax burden is passed on as a price factor to the county hospital.
I object to this conclusion if for no other reason than it is not a valid, logical adaptation of construction operation. To illustrate the invalidity, if the county hospital purchases materials from Ajax Lumber and Fru-Con Construction Corp. uses Downtrodden Carpenter to install, the materials are not taxable. However, if Downtrodden Carpenter fails to create a straw man to sell materials and sells materials to Memorial Hospital of Laramie County and installs for Fru-Con Construction Corp., it *Page 284 renders the purchases taxable. Ajax Lumber, in selling is tax free because it did not use; Downtrodden Carpenter is tax free in using someone else's materials as long as it had not originally made the sale to the tax-exempt entity.
In the concept presented by this majority, a general contractor becomes an agent of the owner to create a taxable incident but not to maintain the tax-free status. It seems to me that any continuation of this logic would require taxation of all materials when the owner installs, but it has to install through subcontractors who are not suppliers to escape taxation. In the nature of fact, the owner, as an intangible governmental agency, cannot install since it requires hired entities or individuals to perform that service. They become agents and the arrangement becomes taxable.
It would seem that if a contractor or subcontractor acquires the materials for installation and consequent resale to the owner, a taxable event should occur. If the governmental exempt owner acquires the materials from whatever source separate from the labor contract, the acquisition and the installation should be tax free in compliance with both the constitution and the statutory exemptions. This case is not form but rather real substance in construction arrangement and, with the continual increase in sales and use tax, a substantial dollar question.3 It is suggested that the majority here elevates a figment of characterization over the practical function of contracting. The careful tax planning of the Memorial Hospital of Laramie County in conjunction with advice and review of the taxation authorities should not be eviscerated by the casual characterization of a construction company to be an agent to justify taxation of the material purchases by the governmental agency.
Consequently, I respectfully dissent.