IN THE MATTER OF THE APPEAL OF KOSS CONSTRUCTION CO., INC./KOSS MATERIALS CO., L.L.C. FROM AN ORDER OF THE DIVISION OF TAXATION ON ASSESSMENT OF SALES TAX
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
Now the above-captioned matter comes on for consideration and decision by the Court of Tax Appeals of the State of Kansas. The Court heard oral arguments July 2, 2008 on competing motions for summary judgment. Koss Construction Co., Inc. ("Koss Construction") and Koss Materials Co., L.L.C. ("Koss Materials"), referred to collectively as "Taxpayers, " appeared by and through their attorney of record, Mark A. Burghart. The Kansas Department of Revenue (the "Department") appeared by and through its attorney of record, John Michael Hale.
The Court has jurisdiction of the subject matter and the parties, as an appeal was properly and timely filed pursuant to K.S.A. 74-2438.
Summary Judgment Standards
Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. K.S.A. 60-256(c). The purpose of summary judgment is to eliminate delay in legal disposition where there is no real issue of material fact. Timi v. Prescott State Bank, 220 Kan. 377, 386, 553 P.2d 315 (1976).
In summary judgment proceedings the movant has the burden of demonstrating that there are no genuine questions of material fact and that he is entited to judgment as a matter of law, which is a strict burden. See Saliba v. Union Pacific R.R., 264 Kan. 128, 131, 955 P.2d 1189, 1192 (1998). The party opposing summary judgment must, in turn, respond with specific evidence to demonstrate that a genuine issue of material fact remains for trial. Id.
On March 28, 2008, the parties filed a joint statement of stipulated facts ("Joint Stipulations"). The parties agreed to the Joint Stipulations only for purposes of the instant appeal, reserving the right to dispute the relevancy of each fact stipulated.
The Department sets out in its lead brief 17 statements of fact which it asserts are uncontrovered. Taxpayers set out in their lead brief 32 statements of fact which they assert are uncontroverted. Of the 49 statements of fact asserted by the parties together, 38 are based on the Joint Stipulations and 11 are based on affidavit testimony. The Department attempts to controvert none of Taxpayers' factual statements. Taxpayers attempt to controvert four of the Department's factual statements (¶¶ 5, 8, 10 and 14.)
Upon review of the papers submitted by the parties, the Court finds as follows. Each fact conceded is uncontroverted for purposes of these motions for summary judgment. In regard to those facts not conceded, the Department's factual statement 5, which is not accompanied by a citation to the record, is uncontroverted, except as modified or supplemented by the Joint Stipulations. The Department's factual statement 8, as well as Taxpayers' response, speak to the interpretation of written agreements without reference to facts outside the four corners of those documents. Thus, factual statement 8, and Taxpayers' response, are arguments, not factual statements, and will be considered as such. The Department's factual statement 10 is uncontroverted because it is not directly rebutted by Taxpayers. The Department's factual statement 14 contains a typographical error, as conceded by the Department.
Based on the foregoing, the Court concludes that the material facts are uncontroverted. They are as follows.
Koss Construction is a highway contractor incorporated in Iowa and headquartered in Topeka, Kansas. Koss Materials is a Kansas limited liability company wholly owned by Koss Construction. Koss Materials owns certain batch plants that include equipment used in the production of cement and asphalt products. When Koss Materials was formed in 2000, Koss Construction transferred certain assets to Koss Materials.
During the tax years in question, the two affiliate companies had common officers and directors, although they conducted separate annual shareholder and board of directors meetings. Koss Construction maintains an inventory of millings, which are sold at retail to third parties. Koss Materials sells some of its products directly to third parties. Koss Materials has no employees and does no installation of the products it manufactures or produces. Koss Materials' only activities involve the production of concrete and asphalt products at its batch plants. Koss Materials and Koss Construction have entered into an administrative services and overhead agreement, which states, inter alia, that the agreement does not constitute or involve a joint venture, partnership or profit-sharing arrangement.
The transactions at issue are governed by various contracts, all with similar language, executed by and between KDOT and Taxpayers. Taxpayers signed jointly as "Contractor." The contracts obligate Taxpayers to provide and furnish all labor and material required to perform and complete the highway construction projects. Nowhere in the contracts are there terms that apply to one Taxpayer but not the other. Nowhere in the contracts are there terms that address the provision of materials and the provision of labor as separate promises or obligations.
For the tax years in question, there are no invoices evidencing the sale of any products from Koss Materials directly to Koss Construction. There also are no invoices evidencing the sale of any products from Koss Materials to KDOT. At no time did KDOT take delivery or possession of the subject materials. Nor did KDOT provide, deliver or furnish the materials at its expense for incorporation into the highway projects. The Taxpayers never acted as agent for or on behalf of KDOT in connection with the purchase or sale of any of the construction materials. KDOT never provided an exemption certificate to either Taxpayer for the materials.
The Department conducted a retailers' sales tax audit of Koss Construction and Koss Materials for the period January 1, 2001 through December 31, 2003. The Department issued a Notice of Assessment on January 25, 2005, in which Koss Construction and Koss Materials were assessed $2, 739, 451. This assessment consisted of tax in the amount of $2, 161, 422; penalty in the amount of $216, 138; and interest in the amount of $361, 891.
A statement in the audit narrative identifies Koss Materials as a contractor not eligible for sales tax exemptions for ingredient and component parts and property consumed in production. On March 24, 2005, the Notice of Assessment was timely appealed to the Kansas Secretary of ...