CHARACTER OF PROCEEDING: On Appeal from the Ohio Board of Tax Appeals, Case No. 2008-M-501
The opinion of the court was delivered by: Hoffman, P.J.
Cite as Durabilt, Inc. v. Testa,
[Nunc pro tunc opinion. Please see original at 2011-Ohio-5374.]
JUDGES: Hon. William B. Hoffman, P.J. Hon. John W. Wise, J. Hon. Patricia A. Delaney, J.
(¶1) Plaintiff-appellant/Cross-appellee Durabilt, Inc. appeals the December 21, 2010 Decision and Order of the Board of Tax Appeals affirming the final order of the Tax Commissioner Appellee/ Cross-Appellant Joseph W. Testa, Tax Commissioner of Ohio. Appellee/Cross-appellant Tax Commissioner has filed a cross-assignment of error.
STATEMENT OF THE CASE AND FACTS
(¶2) Appellant/Cross-appellee Durabilt, Inc. (Durabilt) is in the business of constructing pole buildings. Appellee Tax Commissioner alleges Durabilt failed to pay a use tax, pursuant to findings of an audit for the period of July 1, 1995 to June 30, 2001. Appellant was issued a use tax assessment by Appellee Tax Commissioner of Ohio ("Tax Commissioner"). Durabilt filed a petition for reassessment challenging the assessment. Durabilt contends it is merely a seller of construction services, not a purchaser of materials.
(¶3) The Tax Commissioner issued a final determination rejecting Durabilt's petition on February 8, 2008. Durabilt then appealed the Tax Commissioner's final determination to the Board of Tax Appeals (BTA). On December 21, 2010, the BTA issued a Decision and Order affirming the Tax Commissioner, holding Durabilt was a consumer of materials used in the course of performing construction contracts.
(¶4) As part of its business operations in constructing pole buildings, Durabilt entered into a joint and mutual relationship with a material supplier, Holmes Lumber, by which Durabilt would provide construction services to the customer and Holmes would provide the construction materials.
(¶5) Pursuant to the business arrangement, the customer would contact Durabilt. Durabilt then created the building design, and entered into a contract with the customer. Durabilt would then place an order with Holmes Lumber according to the customer's needs. The contract was a "total package bid" wherein Durabilt would receive a deposit for its design and planning services, Holmes would receive a set price for the materials draw, and Durabilt would receive the final labor draw. The "total package" allowed Durabilt to bid the job at a price most likely not to be matched if a potential customer attempted to purchase the materials from an outside supplier. However, Holmes Lumber was not disclosed on the face of the contract between Durabilt and the customer.
(¶6) The contract signed by the customer required the full price for the job be paid in installments. A down payment was made on the execution of the contract, a second payment was made when materials were delivered, a third payment was made when the roof was felted, and the final payment was made on completion.
(¶7) The contract between Durabilt and the customer (designated as the "owner") states, "Unless otherwise arranged by Durabilt, the Owner shall make payments directly to Durabilt..." The contract does not instruct the customer to make any payments to Holmes Lumber. The contract further states, "After the project is complete, any excess materials delivered to the project remain the property of Durabilt." The contract sets forth several remedies for Durabilt in the event the customer fails to pay for the pole building, including but not limited to, filing a mechanic's lien. Holmes Lumber is not vested with any rights or remedies under the contract.
(¶8) Holmes Lumber extended Durabilt a line of credit as part of their business relationship, and Durabilt paid on the line of credit from time to time. In addition, Holmes Lumber discounted the materials sold as part of the pole buildings, giving Durabilt a competitive edge in the market for pole building construction. Durabilt approved the price quoted by Holmes Lumber for the materials.
(¶9) Additionally, Holmes Lumber possessed a power of attorney from Durabilt allowing Holmes to deposit checks for the materials directly into Durabilt's account. Often the price for the materials set forth in the contract exceeded the actual costs of the materials, and Holmes Lumber would credit the excess funds to Durabilt's account. Durabilt's corporate counsel, Eric Domer, testified the materials draw was always greater than the cost of the materials themselves, and Holmes would credit the excess funds to Durabilt's account. Tr. At 31-35.
(¶10) The construction materials were then delivered directly to the customer, at the customer's convenience. The customer signed a Holmes Lumber delivery slip. At the time of delivery, and would pay Holmes Lumber for the materials cost. Attorney Domer testified often the customer pays Durabilt directly for the materials, with "all the checks written to Durabilt regardless of whether they were material checks or labor checks..." Tr. at 42.
(¶11) The Tax Commissioner ultimately determined the contract between Durabilt and its customer was a construction contract, and Durabilt was a construction contractor, liable for the tax due on its purchases of materials from Holmes Lumber.
(¶12) The Board of Tax Appeals affirmed the assessment, and determined Durabilt to be a consumer of the building materials purchased from Holmes Lumber in its capacity as a construction contractor; ...