Appeal from the Order of the Board of Finance and Revenue in case of In Re: Petition of Air Engineers, Inc., Docket No. RST-1006.
Patrick M. Reb, for appellant.
Paul S. Roeder, Deputy Attorney General, for appellee.
President Judge Bowman and Judges Crumlish, Jr., Mencer, Rogers, Blatt, DiSalle and Craig. Judges Wilkinson, Jr. and MacPhail did not participate. Opinion by Judge Mencer.
[ 40 Pa. Commw. Page 473]
Air Engineers, Inc. (Air Engineers) appeals from an order of the Board of Finance and Revenue (Board) sustaining an order of the sales-tax Board of Review which denied Air Engineers' petition for reassessment and sustained the use tax assessed by the Bureau of Sales and Use Tax. A partial stipulation of facts was filed by the parties, and additional testimony was taken at a hearing in this Court on June 28, 1978.
[ 40 Pa. Commw. Page 474]
Under Section 1104 of The Fiscal Code, Act of April 9, 1929, P.L. 343, as amended, 72 P.S. § 1104, appeals from the Board are heard de novo. We adopt the relevant and material facts in the partial stipulation as our findings of fact. We will briefly set forth in narrative form those facts material to the issue involved, as well as certain additional findings of fact based on testimony at the hearing.
Air Engineers is a mechanical contractor engaged in the designing, engineering, and installation of plumbing, heating, air-conditioning, and temperature-control systems. Air Engineers installs these systems in commercial, industrial, public, and church buildings. In addition, it sells at retail items from its warehouse location. During the years audited, its gross sales were approximately $3,500,000 annually, of which approximately 99 percent was attributable to construction contracts and 1 percent to retail sales, repair work, and warranty service work.
An audit of the books and records of Air Engineers was performed covering the period of January 1, 1970 to January 31, 1974 and an assessment lodged against Air Engineers for understatement of use tax in the sum of $109,792.29, together with penalty and interest. The penalty was abated by the sales-tax Board of Review.
On this appeal, Air Engineers raises the single question of whether or not the procedures utilized in the audit of its books and records were proper and disclosed necessary information to establish a use-tax deficiency.
Our review of this record leads us to find as a fact that the auditor here based the use-tax assessment on the figures shown in Air Engineers' general ledger account captioned "Purchases of Construction Materials." Further, we find that from the purchases in this
[ 40 Pa. Commw. Page 475]
account the auditor deducted all items covered by valid customer exemption certificates, purchases resold, and interim storage exemptions prior to March 4, 1971 and gave credit for purchases used internally for which tax had been paid.
Materials incorporated into realty by a contractor are subject to a use tax. Commonwealth v. Beck Electric Construction, Inc., 32 Pa. Commonwealth Ct. 229, 379 A.2d 626 (1977). Did the audit performed here disclose such use of materials by Air Engineers to the extent of the assessment? We conclude that it did so.
Section 271(d) of the Tax Reform Code of 1971 (Code),*fn1 Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7271(d), provides:
(d) Keeping of Separate Records. Any person doing business as a retail dealer who at the same time is engaged in another business or businesses which do not involve the making of sales taxable under this article, shall keep separate books and records of his businesses so as to show the sales taxable under this article separately from his sales not taxable hereunder. If any such person fails to keep such separate books and records, he shall be liable for tax at the rate designated ...