Guardrail Installation Items Are Exempt From Sales Tax

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Tax Policy

The Pennsylvania Commonwealth Court recently analyzed a statute to see whether “nuts and bolts” were exempt from sales tax. In this article, Cozen O'Connor's Joseph C. Bright and Heidi R. Schwartz discuss the “Green Acres Contracting” case which found that a guardrail system, including its nuts and bolts, is exempt from sales tax.

Joseph C. Bright Heidi R. Schwartz

By Joseph C. Bright and Heidi R. Schwartz

Joseph C. Bright is a member with Cozen O'Connor. Heidi R. Schwartz is an associate with Cozen O'Connor.

The Commonwealth Court en banc granted exceptions and held that nuts, bolts, washers and guardrail blocks used to install guardrails along a road or highway for the Commonwealth were excluded from Sales Tax. Green Acres Contracting Co., Inc. v. Commonwealth, No. 81 F.R. 2013 (Pa. Commw. June 13, 2017).

Nuts and Bolts

The taxpayer was a construction contractor that installed highway guardrails consisting of guardrail panels and guardrail posts. It used nuts, bolts, washers, and blocks to attach the guardrail panels to each other; it did not pay sales tax when it purchased the items. The taxpayer was audited and assessed tax. On appeal, the court held that the items were not subject to sales tax. The statute excludes from sales tax items defined as building machinery and equipment (BME) used in a construction contract for a governmental entity. 72 P.S. §7204(57). “Guardrails” are included in the definition of building machinery and equipment; “guardrail posts” are specifically excluded. The statute is silent as to the components used to connect the guardrails. 72 P.S. §7201(pp).

Guardrail System

The court rejected the commonwealth's argument that only the guardrail panels were excluded. The court considered the dictionary definitions and common usages of the term “guardrails,” including federal and state engineering publications that refer to guardrails as a system to perform safety functions. The court reasoned that the exclusion of guardrail posts implied that all other items used in constructing a guardrail were exempt, including the nuts, bolts, washers, and guardrail blocks.

The court overruled the prior panel decision. The panel had held that the General Assembly intended to exclude only the horizontal guardrail panels because the tax code defined “guardrails” as BME, not guardrail systems, and because “guardrail posts,” which are essential to a guardrail system, were excluded. In its exceptions, the taxpayer encouraged the court to re-examine the plain meaning of the word “guardrails,” as well as other evidence indicating that guardrails are a system. This reexamination led the court to take the inclusive view that all the components of the guardrails, except the posts, were intended to be exempt as BME.

This court's careful reexamination of the statutory language should provide a framework of analysis for future BME exemption cases.

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