In Green Acres Contracting Company, Inc. v. Commonwealth, 81 F.R. 2013 (6/13/2017), the Commonwealth Court, en banc, reversed a decision issued by a three-judge panel of the court in August 2016 regarding the scope of the term “guardrails” in the statutory definition of exempt “building machinery and equipment” (“BME”). The panel had determined that nuts, bolts, washers and guardrail blocks used to attach guardrail panels to guardrail posts did not qualify as tax-exempt BME, and that the exemption was limited to nuts, bolts and washers used to connect horizontal guardrail panels. In responding to Exceptions filed by the taxpayer, the court ruled that these items are exempt BME when transferred pursuant to a contract performed for a tax-exempt entity. The rationale in the court’s recent decision was that the term “guardrails” refers to the entire guardrail system installed along a road or highway. Since “guardrail posts” are the only guardrail components carved out from the statutory exemption for “guardrails,” only the posts are ineligible for exemption as BME. The Commonwealth filed a Notice of Appeal with the Pennsylvania Supreme Court on July 11.
The sales tax statute does not specifically include “guardrail systems” in the definition of BME. Rather, the statute specifically provides that “guardrails” are BME (presumably as a traffic control system or part thereof) and specifically excludes “guardrail posts” from the BME exemption. The panel had interpreted this to mean that the exemption for “guardrails” applies only to the “horizontal rail itself,” including fasteners connecting horizontal guardrail panels to each other. Since the taxpayer was unable to quantify the amount or percentage of nuts, bolts and washers used to connect guardrail panels, as opposed to those used to attach panels to posts, the panel had denied the taxpayer’s refund claim.
The Commonwealth took the position that all nuts, bolts, washers and guardrail blocks should be excluded from the statutory exemption for “guardrails.” Significantly, even the panel that initially considered the case agreed that, while fittings “do not become exempt simply because they are used in installing equipment defined as BME or are used in conjunction with BME,” there was no legislative intent to “break down the internal components of equipment [such as guardrail] expressly defined as BME and designate some of those internal components as taxable.”
The court relied on relevant dictionary definitions and an evaluation of common usage of the term “guardrails,” including Federal and state publications, as support for its conclusion that the term “guardrails” in the sales tax statute refers to the entire guardrail system. Assuming the court’s recent decision is upheld on appeal, the rationale should benefit taxpayers claiming an exemption for components of other types of BME.