ADMINISTRATIVE DECISION

STATE OF ARKANSAS DEPARTMENT OF FINANCE AND ADMINISTRATION OFFICE OF HEARINGS & APPEALS ADMINISTRATIVE DECISION IN THE MATTER OF ACCT. NO.: COMPENSATING USE TAX ASSESSMENT DOCKET NO.: 19-099 ($ ) 1 RAY HOWARD, ADMINISTRATIVE LAW JUDGE APPEARANCES This case is before the Office of Hearings and Appeals upon a written protest dated July 20, 2018, signed by, on behalf of, the Taxpayer. The Taxpayer protested an assessment of compensating use tax ( use tax ) resulting from an audit conducted by Paulette Brown, Tax Auditor Central Audit District of the Office of Field Audit, for the Department of Finance and Administration ( Department ). The audit period was April 1, 2015, through April 30, 2018 (Audit ID: ). An administrative hearing was held on October 23, 2018, at 11:00 a.m., in Little Rock, Arkansas. The Department was represented by Alicia Austin Smith, Attorney at Law, Office of Revenue Legal Counsel ( Department s Representative ). Present for the Department were the Tax Auditor and Matthew Crane Audit Supervisor. The Taxpayer was represented by, Attorney at Law ( Taxpayer s Representative ). Present for the Taxpayer were and ( Co-owners ). 1 The assessed amount includes tax ($ ) and interest ($ ). 1

ISSUE Whether the use tax assessment issued by the Department against the Taxpayer for the purchase of a 2 should be sustained? Yes. FINDINGS OF FACT/CONTENTIONS OF THE PARTIES The Taxpayer s Answers to Information Request provided, in pertinent part, as follows: Taxpayer purchased an trailer from a dealer located in. The trailer is registered in the State of as a trailer and licensed as a trailer for the purposes of interstate transport according to federal Department of Transportation (DOT) regulations. The trailer also meets all DOT requirements based on height, weight, width and length for a semitrailer. A photo of an trailer as drawn on the highway is attached hereto as Exhibit A. The used to pull the trailer is a with a gross loaded weight of just under pounds. Such is registered with the International Registration Plan (IRP) to be engaged in interstate commerce. The State's assessment against Taxpayer includes the assessment of Arkansas use tax on the full purchase price of the trailer described in Question (2) above. Taxpayer contends that only the first $1,000.00 of the sales price of the trailer is subject to the Arkansas use tax on account of the exemption provided by Rule GR-12(I) of the Arkansas Gross Receipts (Sales) Tax Rules: I. Only the first $1,000.00 of the sales price of a new or used semitrailer sold in this state or sold in another state for use in this state is subject to state tax. The gross proceeds in excess of $1,000.00 are exempt from tax. This exemption does not apply to local (city, town or county) tax.... 2 This was the only item, reflected on the schedule of out-of-state purchases, at issue in this case. The Co-owners stated that the entire amount of the assessment (See Footnote 1) has been paid. 2

Taxpayer and the State disagree as to whether the trailer is a semitrailer as such term is used in Rule GR-12(I). A semitrailer is defined in Ark. Code Ann S 26-52-436(a)(2) as follows: (2) "Semitrailer" means every vehicle with or without motive power, including a pole trailer, drawn by a truck tractor or a Class Six or Class Seven truck as defined by 27-14-601(a)(3)(F) and (G) that is registered with the International Registration Plan to be engaged in interstate commerce and designed for carrying property[.] [P. 1-2]. The Taxpayer s Representative restated the contentions set forth in the Taxpayer s Answers to Information Request and also contended that: (1) the issue is whether the is or is not a semitrailer; 3 (2) the is tangible personal property which would be subject to use tax but the purchase of the qualified for an exemption from tax (See Ark. Code Ann. 26-53-144 (Repl. 2014)); (3) the Department s position is that the Taxpayer purchased a trailer frame but the definition of semitrailer in Ark. Code Ann. 26-53-144 (Repl. 2014) is broad and not limited to box trailers or anything else; (4) the is a trailer but it is the same as any other trailer on the road; (5) the : is insured as a trailer; is registered as a trailer; has to meet all of the DOT regulations as a trailer; and is classified as a trailer by the DOT regulations; (6) the only difference between the and other trailer frames driving down the road (a flatbed or a box trailer) is that the is more expensive because of the ); (7) the serial number reflected on the Bill of Sale 4 is attached 3 The was no dispute that the would be subject to use tax if it does not qualify for the exemption from tax under Ark. Code Ann. 26-53-144 (Repl. 2014). 4 See Department Exhibit 5. 3

to the trailer frame 5 ; (8) Taxpayer Exhibit C P. 1-5 includes photographs of the ; (9) Taxpayer Exhibit D is a Record of Annual Inspection from the DOT; (10) Taxpayer Exhibit E is a direct lien receipt issued by the Department which indicates the Make is an and the Model is a trailer ( ) and the Body is a trailer ( ); (11) Taxpayer Exhibit F is semi-tag trailer registration from the State of ; (12) the is not distinguishable from any other semitrailer with additional components that are added to it; (13) the does have but it is all components of the trailer, just like the components of a semitrailer with a refrigeration unit added onto it or components added to a trailer to transport automobiles; (14) the is an trailer and the components that are part of the trailer are affixed to it and are not removable; (15) the components are not from the trailer, they are affixed to it; (16) when the trailer, it is really just the ; (17) there are that are ; (18) the into and and all of the other ( ) ; (19) the are not part of the Bill of Sale for the ; 6 and (20) the Bill of Sale for $ (Department Exhibit 5) is for the trailer that goes up and down the road and meets all of the DOT regulations. 5 See Taxpayer Exhibit B. 6 See Department Exhibit 5. 4

The Co-owners testified that: (1) all of the Taxpayer s, including the, are ; (2) with respect to the photographs depicted on Department Exhibits 8 and 9, the trailer a trailer ( ) by and through a ; (3) the is a unit, the and create a ; (4) to get the, it has to be pulled by a just like a semitrailer; (5) the is a semitrailer; (6) the to be pulled on highways legally; (7) the is registered, licensed, tagged, and insured as a trailer; (8) inside the body of the, there are some things as far as cargo and other cargo, related to a customer s needs, can be loaded into the up to a certain weight limit; (9) the can be a but Department Exhibit 9 includes that are not part of the which are transported ; (10) the was purchased in, registered in, and brought into Arkansas for use 7 and storage; (11) the Taxpayer s business provides a ; (12) 99% of the problems experienced with the are trailer-related; (13) the is required to be inspected every year as a semitrailer ; (14) when the trailer) until other items are added ; and (15) when the, the wheels and other trailer components are still part of it. 7 The is also used in other states. 5

The Department s Answers to Information Request provided, in pertinent part, as follows: In its Protest, the Taxpayer asserts that its purchase of a $ is exempt under the "semi-trailer" exemption. Arkansas law provides for a limited exemption for sales and use tax on semi-trailers. Ark. Code Ann. 26-53-144(c) provides that the "the gross receipts or gross proceeds derived from the sale of a new or used semitrailer in another state for use in this state are exempt from the Arkansas compensating use tax levied by this subchapter." Ark. Code Ann. 26-53-144 defines a semitrailer as: "every vehicle with or without motive power, including a pole trailer, drawn by a truck tractor or a Class Six truck as defined by 27-14-601(a)(3)(F) or a Class Seven Truck as defined by 27-14-601 (a)(3)(g) that is registered with the International Registration Plan to be engaged in interstate commerce and designed for carrying property." Ark. Code Ann. 26-53-144(a)(2). If the semi-trailer exemption were indeed relevant to this case, the Taxpayer has not met its burden of establishing entitlement to the exemption. But more importantly, the "semitrailer" exemption is not relevant to this case as the Taxpayer did not purchase a semitrailer. The Taxpayer purchased an. The purchase price included: " and all hardware for installation." The contract of sale did not mention a semi-trailer. The Taxpayer has not established that the purchase price even included a trailer of any type. Exhibit 5. When items are combined into a single charge, all items must be analyzed as a a single unit regarding taxability and not individually. Weiss v. Best Enterprises. Inc., 323 Ark. 712, 917 S.W.2d 543 (1996). See also GR-93. The contract of sale was not itemized. There is no applicable exemption to the Taxpayer's purchase of a. The Department correctly assessed compensating use tax against the Taxpayer for the Taxpayer's purchase of an. The Taxpayer owes compensating use tax on the full purchase price of the mobile stage. [P. 5-6]. The Department s Representative contended that: (1) the Taxpayer has not proven entitlement to the semitrailer exemption; (2) the Taxpayer purchased a not a semitrailer; (3) to the extent that the was attached to a trailer frame, there was no itemization of the items of tangible 6

personal property purchased by the Taxpayer; and (4) there was no breakdown of the cost of the semitrailer (if it was a semitrailer). The Tax Auditor presented testimony consistent with the contentions in the Department s Answers to Information Request and also testified that: (1) she was aware of a tax exemption for semitrailers at the time of the Taxpayer s audit; (2) she does not normally deal with semitrailers since the Motor Vehicle Section usually handles those cases; (3) she consulted with people in the Motor Vehicle Section about items purchased by the Taxpayer which may not qualify for a tax exemption (such as reviewed, the Taxpayer purchased a ); (4) according to documents she not a semitrailer used for hauling; (5) Department Exhibit 2 is a letter she sent to the Taxpayer regarding use tax; (6) the list of the Taxpayer s out-of-state purchases is located on pages 2 and 3 of Department Exhibit 3 and refers to the as a ; (7) Department Exhibit 5 is a document reflecting the terms of sale of the for the total price of $ ; (8) Department Exhibit 6 describes the ; (9) Department Exhibit 7 8 includes information which came from the manufacturer of the and provides that a ; and (10) the Taxpayer purchased a and was tangible personal property (if the Taxpayer had purchased only a semitrailer, it would have been an exempt transaction). With respect to the semitrailer tax exemption, the Audit Supervisor testified that: (1) if the Taxpayer had presented an itemized invoice breaking out 8 The Tax Auditor also authenticated Department Exhibits 8 15. 7

the purchase price for a semitrailer, the amount paid for a semitrailer would be exempt; (2) the exemption requires that a semitrailer be designed for carrying property; (3) the ramps and hydraulic lifts on a trailer used to haul motor vehicles, in his opinion, would be part of the semitrailer since the trailer is used for hauling cars; and (4) in this case, there is a trailer frame and he is not sure there is. follows: CONCLUSIONS OF LAW Standard of Proof Ark. Code Ann. 26-18-313(c) (Supp. 2017) provides, in pertinent part, as The burden of proof applied to matters of fact and evidence, whether placed on the taxpayer or the state in controversies regarding the application of a state tax law shall be by preponderance of the evidence. A preponderance of the evidence means the greater weight of the evidence. Chandler v. Baker, 16 Ark. App. 253, 700 S.W.2d 378 (1985). In Edmisten v. Bull Shoals Landing, 2014 Ark. 89, at 12-13, 432 S.W.3d 25, 33, the Arkansas Supreme Court explained: A preponderance of the evidence is not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other. The Department bears the burden of proving that the tax law applies to an item or service sought to be taxed, and a taxpayer bears the burden of proving entitlement to a tax exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(d) (Supp. 2017). Statutes imposing a tax or providing a tax exemption, 8

deduction, or credit must be reasonably and strictly construed in limitation of their application, giving the words their plain and ordinary meaning. Ark. Code Ann. 26-18-313(a), (b), and (e) (Supp. 2017). If a well-founded doubt exists with respect to the application of a statute imposing a tax or providing a tax exemption, deduction, or credit, the doubt must be resolved against the application of the tax, exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(f)(2) (Supp. 2017). Tax Assessment Subject to the applicability of an exemption, deduction, or a credit, use tax is imposed on sales of tangible personal property or taxable services made by outof-state vendors/sellers to in-state purchasers for storage, use, or consumption in this state. 9 Ark. Code Ann. 26-53-102(25)(A) (Supp. 2017) defines tangible personal property as personal property that may be seen, weighed, measured, felt, or touched or is in any other manner perceptible to the senses. As reflected on pages 2 and 3 of Department Exhibit 3, the items purchased by the Taxpayer (including the ) were tangible personal property. Consequently, the Department satisfied its burden of proof regarding taxability. Under the facts and circumstances of this case, the Taxpayer s reliance on the semitrailer exemption (Ark. Code Ann. 26-53-144 (Repl. 2014)) is misplaced. While a trailer was clearly a component of the, 10 the Taxpayer also purchased other taxable items of tangible personal property and components for the. As reflected in Department Exhibit 5, the sales price of 9 See Ark. Code Ann. 26-53-101 et seq. (Repl. 2014 & Supp. 2017). 10 See Taxpayer Exhibits B, C, D, E, and F and Department Exhibits 5, 6, 7, and 10. 9

$ included the and all parts including but not limited to, the and all hardware for installation. As illustrated in the case of Weiss v. Best Enterprises, Inc., 323 Ark. 712, 917 S.W. 2d 543 (1996), if a taxable item and a nontaxable item are combined on the same invoice, the entire invoice amount is subject to tax unless the nontaxable item is separately stated on the invoice. Consequently, even if the Taxpayer could prove entitlement to the semitrailer exemption, 11 the entire sales price of $ is subject to tax since the trailer is not separately stated. 12 The Department correctly assessed use tax on the Taxpayer s purchase of the. Interest and Penalty Interest was properly assessed upon the tax deficiencies for the use of the State s tax dollars. See Ark. Code Ann. 26-18-508 (Repl. 2012). No penalty was assessed against the Taxpayer. DECISION AND ORDER The use tax assessment is sustained. 13 The file is to be returned to the appropriate section of the Department for further proceedings in accordance with this Administrative Decision and applicable law. Pursuant to Ark. Code Ann. 26-18-405 (Supp. 2017), unless the Taxpayer requests in writing within twenty (20) days of the mailing of this decision that the Commissioner of Revenues revise the decision of the Administrative Law Judge, this Administrative Decision 11 In her closing argument, the Department s representative contended that the Taxpayer could not prove entitlement to the semitrailer exemption because the Taxpayer is not engaged in interstate commerce (which she asserted means the transport of goods across state lines ). 12 In light of this determination, the issue of whether the was designed for carrying property will not be addressed. 13 See Footnote 2. 10

shall be effective and become the action of the agency. The revision request may be mailed to the Assistant Commissioner of Revenues, P.O. Box 1272, Rm. 2440, Little Rock, Arkansas 72203. A revision request may also be faxed to the Assistant Commissioner of Revenues at (501) 683-1161 or emailed to revision@dfa.arkansas.gov. The Commissioner of Revenues, within twenty (20) days of the mailing of this Administrative Decision, may revise the decision regardless of whether the Taxpayer has requested a revision. Ark. Code Ann. 26-18-406 (Supp. 2017) provides for the judicial appeal of a final decision of an Administrative Law Judge or the Commissioner of Revenues on a final assessment or refund claim denial; however, the constitutionality of that code section is uncertain. 14 OFFICE OF HEARINGS & APPEALS DATED: January 8, 2019 14 See Board of Trustees of Univ. of Arkansas v. Andrews, 2018 Ark. 12. 11