89-004627 Heede Southeast, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Friday, October 4, 1991.

Summary: Separately subcontracted transport, erection and dismantling not a taxable part of underlying lease of tower crane Freight On Board leasor's equipment yard.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HEEDE SOUTHEAST, INC., )

)

Petitioner, )

)

v. ) CASE NO. 89-4627

)

FLORIDA DEPARTMENT OF REVENUE, )

)

Respondent. )

__________________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on May 16, 1991,

in Tallahassee, Florida, before the Division of Administrative Hearings, by its

designated Hearing Officer, Diane K. Kiesling.

APPEARANCES

For Petitioner: Benjamin K. Phipps

Attorney at Law

802 First Florida Bank Tower

Tallahassee, Florida 32301

For Respondent: Lealand L. McCharen

Mark T. Aliff

Assistant Attorney Generals

Department of Legal Affairs

Tax Section, The Capitol

Tallahassee, Florida 32399-1050

STATEMENT OF ISSUES

The ultimate issue is whether the Petitioner, Heede Southeast, Inc.,

(Heede) is liable for state sales tax for the transportation, erection, and

dismantling of construction equipment leased by Heede to various customers.

PRELIMINARY STATEMENT

The Department of Revenue presented the testimony of Richard H. Wright and

had Exhibits 1-4 admitted in evidence. Heede presented the testimony of Ira

Schmidt and had Exhibits 1 and 2 admitted in evidence. Additionally, the

parties filed a Joint Stipulation as to Amount in Controversy.

After two extensions of time, the parties filed their proposed findings of

fact and conclusions of law on September 5, 1991. All proposed findings of fact

and conclusions of law have been considered. A specific ruling on each proposed

finding of fact is made in the Appendix attached hereto and made a part of this

Recommended Order.

FINDINGS OF FACT

1. Heede is in the business of leasing tower cranes as a distributor for

Linden Tower Crane Company. It has been in this business for many years. In

the early 1980's, Heede began subcontracting for the transportation, erection,

and dismantling of the cranes it leased.

2. Linden tower cranes are the "climbing cranes" found on all modern high-

rise construction sites. They are initially installed by being mounted on a

concrete pad and attached by bolts. During construction the crane is frequently

"climbed" as the building construction goes up. The cranes are used for many

functions as part of the construction process, including placing concrete forms

and pouring cement.

3. The crane does not become a permanent part of the building, but is

dismantled and removed after construction, leaving the concrete pad and bolts at

the site. It does not become a part of the building as tangible personal

property affixed to or incorporated into the real property. These cranes are

like other forms of construction equipment utilized in the erection of high-rise

buildings.

4. At issue here are seven Equipment Rental Agreements for separate jobs

(Respondent's Exhibit 1) and seven corresponding sets of invoices relating to

the freight-in (transportation from Heede's equipment yard), erection,

dismantling, and freight-out (Respondent's Exhibit 2).

5. Both parties relied on a summary of those invoices and charges, which

is set forth below for ease of reference.

NOTE: The chart attachment is in an unscanable format and therefore not shown

in paragraph 5. of this Recommended Order. It is available for review from the

Division's Clerk's Office.

6. The audit period began after the first construction job, number 3050,

had commenced so that only the dismantling and freight-out charges were covered

by the audit. Similarly, the audit ended before the final two jobs were

completed, job numbers 3090 and 3099. Therefore only the freight-in and

erection portion of those invoices were subject to this audit.

7. The parties filed a Joint Stipulation as to Amount in Controversy and

therein stipulated that the amount in controversy is:

Tax $12,071.77

Penalty $ 3,015.01

Interest through

5/20/91 $ 5,762.65

TOTAL $20,849.43

Daily interest continues to accrue at $3.97 per day.

8. This Joint Stipulation was signed by the Department of Revenue and

expressed in writing what the parties had agreed on throughout the proceedings,

namely that the freight charges were not subject to tax based on the holding in

Florida Hi-Lift v. Department of Revenue, 571 So.2d 1364 (1st DCA 1990).

However, as will be discussed further in the Conclusions of Law supra, the

Department, for the first time in its Memorandum of Law in Support of

Respondent's Proposed Recommended Order, now seeks to be relieved from its

stipulations and to include the freight charges in calculation of the tax due.

9. The seven Equipment Rental Agreements are essentially similar in form.

Attached to each is a separate typed sheet identified at the top as "Equipment

Rental Agreement Continued" and also as "Additional Agreement Continued." With

the exception of job number 3090, each of the printed forms provides on its

face:

Said equipment shall be shipped to Lessee at

_______________________, on or about the

_____ day of _________, 19__, freight or

delivery charges Collect from Port of Entry

or from see additional agreement [or see

attachment].

10. On the second page of the Equipment Rental Agreement, entitled

Conditions of Lease, paragraph 13 provides:

13. TRANSPORTATION--The Lessor shall at its

own expense load the equipment for transit to

the Lessee and unload it upon its return.

The Lessee shall at its own expense do all

other loading, unloading, installing,

dismantling and hauling and shall pay all

transportation charges from and to Lessor's

shipping and receiving points; provided,

however, unless otherwise agreed, that the

Lessee shall not pay return transportation

charges greater than those necessary to

return the equipment to the point from which

it was originally shipped to the Lessee.

11. The "Additional Agreement Continued" attached to each Equipment

Rental Agreement essentially contains the following additional paragraphs:

Lessor will freight to and from the project,

erect, climb, dismantle, and remove the crane

from the project.

Tower crane operator to be furnished by lessee

during erection, climbing, and dismantling.

We hereby propose to furnish labor and

material complete in accordance with the above

agreement for the sum of [sum inserted].

12. Ira Schmidt, the Comptroller and Secretary/Treasurer and a shareholder

of Heede, explained how the books and records of Heede are maintained and what

is intended by the Additional Agreement. His testimony was uncontroverted and

is accepted as fact. According to Schmidt, Heede leases the tower crane under a

separate rental agreement which requires the lessee to transport, erect and

dismantle and return the crane to Heede's yard. Numerous parties can bid for

the performance of the transportation, erection, dismantling and freight-out at

the time the crane is leased. Heede is one of those bidders. Heede generally

gets the subcontract for the transportation, erection, dismantling, and freight-

out because it has a trained crew that can perform the work less expensively on

the Linden cranes.

13. The cranes are loaded onto the convoy of trucks at Heede's yard by

Heede personnel as part of the Rental Agreement. If Heede is the successful

bidder for the subcontract, it pays the carrier for transportation to the job

site and its crew travels by separate transportation to the site, arranging to

meet the truck convoy on arrival. Arrangements are made to lease a truck crane

from another subcontractor who provides an operator. With the use of the truck

crane, Heede's crew then proceeds to erect and test the tower crane. After

instructing the contractor's crane operator, the equipment is turned over to the

contractor.

14. After the job is completed, the Heede crew, again with the assistance

of the subleased truck crane, dismantles and loads the tower crane equipment on

a truck convoy to be returned to Heede's yard in Charlotte, North Carolina. On

arrival, Heede personnel unload the truck convoy.

15. The freight-in and freight-out costs in all seven of the transactions

are F.O.B. Heede's yard, but all such freight charges on these particular

rentals are paid by Heede as part of the Additional Agreement subcontract total

charge. These freight charges are reflected by separate bills and invoices as

shown in the sets of invoices found in Respondent's Exhibit 2.

16. Heede has rented cranes to contractors who have subcontracted with

others for the transportation, erection, dismantling, and freight-out. Heede

has also bid on and been awarded the subcontract to transport, erect, dismantle

and freight-out cranes that were not leased to the contractor by Heede.

17. Job number 3090 is somewhat different in the handling of the

transportation portion of the Rental Agreement and Additional Agreement. The

lessee in job 3090 and job 3075 was the same. Job 3075 involved the lease of

the tower crane at the Caribbean Condominiums in Daytona Beach, Florida, until

October, 1987. Job 3090 involved the lease of the tower crane at the Ashley

Condominiums in Daytona Beach, Florida, beginning in November, 1987. Because

the lessee and the specific tower crane were the same, it would have been

ridiculous to transport the crane to Heede's yard in North Carolina and then

transport it back to Daytona Beach. The lessee deleted the transportation

provisions in the Rental Agreement for job 3090 and entered into a subcontract

with Heede for the transportation and erection of the crane at the new site.

The transportation charges were then divided between the two jobs as shown in

the separate invoices for these two jobs.

18. The transportation charges for job 3090 are included in the parties

stipulation as to the amount in controversy because of the deletion of the

transportation provisions in that Rental Agreement and because the crane was not

F.O.B. Heede's yard. The $675.00 freight charge for job 3090 is included in the

tax assessment which the Department seeks and in the stipulated amount in

controversy.

19. The stipulated tax amount in controversy represents the tax allegedly

due on the freight charge for job 3090 and for the erection and dismantling

charges arising from the subcontracts, which includes the costs actually

incurred by Heede (trucking and truck crane and operator) and the charges for

labor, hotel, food, gas, truck expenses, insurance, and estimated profit.

CONCLUSIONS OF LAW

20. The Division of Administrative Hearings has jurisdiction of the

parties to and subject matter of these proceedings. Section 120.57(1) and

Section 120.575, Florida Statutes.

21. Heede's position is that the freight charges are paid by the lessee

based on F.O.B. point of origin or lessor's yard and are therefore not subject

to sales tax pursuant to Florida Hi-Lift v. Department of Revenue, 571 So.2d

1364 (1st DCA 1990). Heede further maintains that the erection and dismantling

charges are not subject to sales tax because they are a charge for services as

part of a separate subcontract and are not part of the lease transaction.

22. The Department took the position that the transportation charges were

not subject to taxation based on Florida Hi-Lift and it reached various

stipulations accordingly. However, in its Memorandum of Law filed after the

hearing as part of its proposed recommended order, the Department seeks to be

relieved of its previous stipulations and argues that the transportation charges

are part of the transaction and are therefore not F.O.B. point of origin at

Heede's yard. The Department also asserts that the freight-in, erection,

dismantling, and freight-out are all services that are part of the same lease

transaction, thus including all those charges within the sales price subject to

taxation.

23. The critical question is whether the sales price includes the charges

for transportation, erection and dismantling, or whether those charges are for

services rendered under a separate subcontract not part of the sales price.

24. Section 212.02(16)(a), Florida Statutes (1989), makes it clear that

the term "sales" includes a lease or rental. This proposition was also

reaffirmed in Florida Hi-Lift. Section 212.05, Florida Statutes (1989),

provides in relevant part:

It is hereby declared to be the legislative

intent that every person is exercising a

taxable privilege who engages in the business

of selling tangible personal property at

retail in this state . . . or who rents or

furnishes any of the things or services

taxable under this chapter . . . .

(1) For the exercise of such privilege, a

tax is levied on each taxable transaction or

incident, which tax is due and payable as

follows:

(a)1.a. At the rate of 6 percent of the sales

price of each item or article of tangible

personal property when sold at retail in this

state, computed on each taxable sale for the

purpose of remitting the amount of tax due the

state, and including each and every retail sale.

25. The "sales price" for each taxable transaction is defined in Section

212.02(17):

(17) "Sales price" means the total amount

paid for tangible personal property,

including and services that are a part of

the sale . . . .

26. Heede does not dispute that the total contract price stated in the

Rental Agreement is subject to taxation and it has collected and paid to the

state the appropriate tax on each of those rental amounts. The question is

whether the charges specified in the Additional Agreements are part of the sale

or are a separate transaction.

27. A careful analysis of Florida Hi-Lift provides assistance in answering

this crucial question. Florida Hi-Lift involved another company which rented

tower cranes. The rental agreement was a single document which stated the fixed

price for the rental of the equipment, the terms of delivery of F.O.B. lessor's

location, and the charges for a list of Options, including delivery and pickup

of the equipment. The rental agreement and the invoice are incorporated into

one transaction and the rental fees and transportation fees were listed on the

same invoice. As found in that case

The lease agreement sets a fixed price for the

rental of the equipment and allows the

customer to pick up the equipment with the

customer's own conveyance, hire a carrier to

pick up the equipment, or request the

equipment be picked up and delivered by

Petitioner's conveyance. The customer pays

for the transportation of the equipment by

whichever method of transportation is

selected. The rental charge is unaffected by

the mode of transportation selected by the

lessee.

The Hearing Officer concluded and the court quoted with approval as follows:

Here there is no dispute that the terms of

the lease provide that the lease is f.o.b.

lessor's premises and, therefore, possession

is transferred at lessor's place of business.

When the lessee contracts with the Petitioner

to transport the leased equipment to lessee's

job site, Petitioner is performing the service

as a contract carrier employed by the lessee

who at this point in time is the shipper.

The fact that the Petitioner is performing two

roles tends to muddy the waters unless these

roles are kept separate. As lessor he

transfers possession of the equipment at

lessor's place of business to the lessee who

then contracts with Petitioner to transport

the equipment to lessee's job site. During

this transportation period the lessee has

responsibility for the safety of the

equipment vis a vis the lessor and the

carrier has responsibility for the safety of

the equipment until it reaches its

destination vis a vis the shipper (lessee).

* * *

From the evidence presented it is concluded

that possession of the equipment being leased

is transferred to the lessee when the

equipment is loaded on the carrier's vehicle

at the premises of the lessor whether the

carrier is Petitioner, some other carrier or

the lessee. As carrier Petitioner contracts

with the lessee to transport the equipment

from the premises of the lessor to the site

selected by the lessee. Since this

transporting charge is separate and apart

from the lease charges and legal possession

of the property is in the lessee the minute

it is loaded on the carrier's vehicle, the

charges for the transportation are not

subject to sales tax. . . .

The mere fact that Petitioner charged the

lessee both rental fees and transportation

fees on the same invoice is not determinative

of the propriety of assessing a sales tax on

the transportation charges, although this

appears to have been a major factor insofar

as the auditor was concerned.

Finally, as noted by the court in Florida Hi-Lift,

In the instant case, the terms of the lease

provide that the lease is f.o.b. lessor's

premises, and therefore, possession is

transferred at lessor's place of business.

The customer selects the means of transpor-

tation, is responsible for the transportation

charges, separate and apart from the rental

price, and those charges are not deducted from

the rental price. Therefore . . . the trans-

portation charges are not taxable.

We find no statutory authority for DOR's impo-

sition of sales tax on transportation charges

as part of the gross proceeds of these rental

transactions. The case is not, as contended

by DOR, one of the taxpayer seeking an exemp-

tion from a lawful tax, but is rather a

challenge to the validity of the tax. The

rule governing here requires strict construc-

tion of taxing statutes against the taxing

authority. Any ambiguity in the provisions of

the tax statute must be resolved in favor of

the taxpayer. [Citations omitted]

28. Rule 12A-1.045(2), Florida Administrative Code, was the rule applied

in Florida Hi-Lift, and is the rule applicable here to the transportation

charges. It states:

(2) If the seller contracts to sell tangible

personal property f.o.b. origin, the title to

the property passes at such point to the buyer

and the buyer pays the transportation charges,

the transportation services are rendered to

the buyer and are not a part of the taxable

selling price. . . .

29. Under the holding in Florida Hi-Lift and the facts of this case, it

can only be concluded that the transportation charges here are not taxable.

This is particularly so since the Rental Agreement and the Additional Agreement

are not the same document and the invoices for the transportation are separate

from the charges for the rental price. These documents and invoices are much

more clearly separated in this case than in Florid Hi-Lift.

30. While it is inappropriate to allow the Department to renege on its

stipulations regarding the non-taxability of the transportation charges, it

really is of no consequence because the transportation charges are clearly not a

part of the sales price.

31. The same principles apply when determining the taxability of the

erection and dismantling services. The taxable sales price includes any

services that are a part of the sale or lease. Section 212.02(17) and Rule 12A-

1.016(2). The Department's argument that each of these rental transactions is

the subject of a single integrated contract must be rejected. Put quite simply,

if the single rental agreement/invoice described in Florida Hi-Lift did not

constitute an integrated contract, then the expressly separate Additional

Agreement and separate invoices for these services cannot arguably be considered

an integrated single rental agreement. The facts of this case show that the

transportation, erection, dismantling and freight-out charges set forth in the

Additional Agreement are separate and apart from the Rental Agreement and rental

charge. Possession of the crane passes to the lessee when it has been loaded on

the truck convoy for delivery to the job site. The lessee can contract with

Heede or with another subcontractor for the erection and dismantling of the

crane, or the lessee can perform these services itself. These services are

separate from the Rental Agreement as were the transportation charges in Florida

Hi-Lift. Heede is in fact filling three separate roles in its dealings under

these seven transactions. Heede is the lessor of the equipment F.O.B. its yard

in North Carolina; it is the carrier which subcontracts to transport the

equipment to and from the job site; and it is the installation and removal

subcontractor which provides erection and dismantling at the job site. Each of

these roles arises under a separate transaction and cannot be considered to be

part of the total sales price paid by the lessee to the lessor as part of the

rental transaction.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

recommended that the Department of Revenue enter a Final Order and therein

reverse and deny the assessment, penalties and interest, against Heede

Southeast, Inc., for the transportation, erection and dismantling services which

were not a taxable part of the rental transaction.

RECOMMENDED this 4th day of October, 1991, in Tallahassee, Florida.

______________________________________

DIANE K. KIESLING

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

[phone]

Filed with the Clerk of the Division of

Administrative Hearings this 4th day

of October, 1991.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 89-4627

The following constitutes my specific rulings pursuant to Section 120.59(2),

Florida Statutes, on the proposed findings of fact submitted by the parties in

this case.

Specific Rulings on Proposed Findings of Fact

Submitted by Petitioner, Heede Southeast, Inc.

1. Each of the following proposed findings of fact is adopted in substance as

modified in the Recommended Order. The number in parentheses is the Finding of

Fact which so adopts the proposed finding of fact: 1(7); 3(5); 4(6); 7(9&10);

8(12); 9(16); 10(13&14); 11&12(2); 13(15); and 15(2).

2. Proposed findings of fact 2, 5, 6, and 14 are subordinate to the facts

actually found in this Recommended Order.

Specific Rulings on Proposed Findings of Fact

Submitted by Respondent, Department of Revenue

1. Each of the following proposed findings of fact is adopted in substance as

modified in the Recommended Order. The number in parentheses is the Finding of

Fact which so adopts the proposed finding of fact: (1) and 5(9).

2. Pproposed findings of fact 2, 3, 6, 7, 10, 12, and 13 are subordinate to the

facts actually found in this Recommended Order.

3. Proposed findings of fact 8 and 11 are irrelevant.

4. Proposed findings of fact 4 and 9 are unsupported by the credible, competent

and substantial evidence.

COPIES FURNISHED:

J. Thomas Herndon

Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, FL 32399-0100

Vicki Weber

General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, FL 32399-0100

Bengamin K. Phipps

Attorney at Law

802 First Florida Bank Tower

Tallahassee, FL 32301

Lealand L. McCharen

Assistant Attorney General

Department of Legal Affairs

Tax Section, The Capitol

Tallahassee, FL 32399-1050

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS:

All parties have the right to submit written exceptions to this Recommended

Order. All agencies allow each party at least 10 days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the final

order in this case concerning agency rules on the deadline for filing exceptions

to this Recommended Order. Any exceptions to this Recommended Order should be

filed with the agency that will issue the final order in this case.