N.C. Dep't of Revenue v. First Petroleum Servs., Inc.

N.C. Dep’t of Revenue v. First Petroleum Servs., Inc., 2018 NCBC 19.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
WAKE COUNTY 17 CVS 1663

N.C. DEPARTMENT OF REVENUE,

Petitioner,

v.
ORDER AND OPINION ON
FIRST PETROLEUM SERVICES, PETITION FOR JUDICIAL REVIEW
INC.,

Respondent.

1. This matter is an appeal in a contested tax case. The issue is whether

Respondent First Petroleum Services, Inc. (“First Petroleum”) must pay a use tax on

materials it purchased and used in fulfilling contracts to construct and install fuel

storage tanks and related equipment. The Office of Administrative Hearings held

that the relevant contracts were not subject to the use tax and granted summary

judgment in favor of First Petroleum. The North Carolina Department of Revenue

(“Department”) petitions for judicial review of that administrative final decision.

2. For the reasons given below, the Court REVERSES the decision of the

Office of Administrative Hearings and REMANDS with instructions to grant

summary judgment in favor of the Department.

North Carolina Department of Justice, by Assistant Attorney General
Andrew O. Furuseth, for Petitioner North Carolina Department of
Revenue.

Stevens Martin Vaughn & Tadych, by Michael J. Tadych, for Respondent
First Petroleum Services, Inc.

Conrad, Judge.
I.
BACKGROUND

3. Both parties moved for summary judgment before the Office of

Administrative Hearings. The material facts are undisputed.*

4. First Petroleum sells and installs petroleum fueling equipment. (See R.24;

R.263.) About half of First Petroleum’s business involves retail sales to customers

(such as sales of replacement parts). (See R.264–65.) The other half of its business

consists of contracts for construction and installation of fuel tanks, fueling islands,

and similar fuel storage and delivery systems. (See R.265–67.) The tax assessment

in this case concerns the latter.

5. The Department conducted a sales and use tax audit of First Petroleum for

the period April 1, 2009 to March 31, 2012. (See R.48.) Its review centered on eleven

contracts (“FPS Contracts”), each of which is similar in relevant respects. (See R.295

(describing contracts as “representative examples”); see also Pet. for Judicial Review

2 n.1, ECF No. 1.) The subject matter of each contract is the installation of a fuel

storage and delivery system on property owned by a governmental entity, such as a

municipality or federal agency. (See, e.g., R.334, 338, 361, 388–89, 406–07, 419.)

First Petroleum agreed to furnish the necessary labor, materials, and equipment to

perform its services, including supervision of the work and related site-management

services. (See, e.g., R.472, 519, 520, 646, 731–33, 906–07, 1228, 1244, 1249, 1277–78,

1518, 1522–23; see also R.314, 334–35; R.683.) It performed these activities subject

* The appeal record appears at ECF Nos. 21 through 31.
to compliance with detailed specifications provided by the primary contractor or the

property owner. (See, e.g., R.470–71, 473–98, 519, 521, 527–42, 840–41, 1239–54; see

also R.589–96.) The FPS Contracts also generally task First Petroleum with

responsibility for permits, fees, and taxes, as well as any liability for injuries or loss

on the job site. (See, e.g., R.472, 646, 737–38, 896–920, 1277, 1519–20, 1530; see also

R.335, 685.)

6. A representative contract concerns the construction and installation of a

gasoline storage and dispensing system at Fort Bragg, North Carolina. (See R.519.)

Serving as a subcontractor, First Petroleum agreed “to furnish all necessary labor

and material, tools, [and] equipment,” to “furnish and erect scaffolding,” and to

handle “all power transportation, hauling, loading and unloading, demolition, floor

cutting & patching and all other incidentals necessary for the compete installation”

of the system. (R.519; see also R.329.) The contract sets forth detailed instructions

regarding various system components, including materials to be used, drawings and

specifications, and procedures for requesting to deviate from the approved

specifications. (See R.473, 526, 547, 1528.) First Petroleum remained responsible for

all state taxes and any and all loss due to theft or other misappropriation. (See R.331–

32, 1530.)

7. As a result of the audit, the Department found that First Petroleum failed

to pay a use tax for the building materials that it purchased and then used to perform

the FPS Contracts. (See R.48.) The Department issued a proposed assessment of use

tax, penalties, and interest. (See R.49.)
8. In response, First Petroleum did not argue that it had, in fact, paid sales or

use tax on the materials used to perform the FPS Contracts. Rather, it argued that

it was not required to do so. First Petroleum opposed the use tax assessment on the

ground that the FPS Contracts were better characterized as retail sales of equipment,

not taxable uses of building materials. (See, e.g., R.24.) And it denied incurring any

sales tax liability because its customers (government entities) were exempt. (See,

e.g., R.24.)

9. The Department disagreed with both arguments. In its Notice of Final

Determination, the Department concluded that First Petroleum’s transactions were

not exempt from tax. In certain circumstances, items purchased by government

entities are exempt, but these exemptions “do not apply if the items were used by [a]

contractor in the performance of a contract.” (R.50 (citing 17 N.C. Admin. Code

07B.1701(a), (c) & 07B.4203).)

10. The Department further “determined that the [FPS Contracts] contained

the elements of a performance contract rather than a sales transaction.” (R.50.) In

reaching that conclusion, the Department relied on the use tax statute and its

regulations interpreting the statute. (See R.49 (citing N.C. Gen. Stat. § 105-

164.6(a)(1) & 17 N.C. Admin. Code 07B.2602(a)).) Having concluded that First

Petroleum was the consumer of the materials used to perform the FPS Contracts, the

Department upheld the proposed assessment for unpaid use tax.
11. First Petroleum timely filed a Petition for Contested Hearing in the Office

of Administrative Hearings. (See R.23.) The parties cross-moved for partial summary

judgment.

12. After a hearing, the Administrative Law Judge (“ALJ”) issued a Final

Decision granting First Petroleum’s motion and denying the Department’s. (See

R.19.) The ALJ based that decision on language in Sales and Use Tax Technical

Bulletin 31-1 (“Bulletin 31-1”), a publication provided by the Department pursuant

to its statutory authority to interpret the sales and use tax statutes. The ALJ

construed Bulletin 31-1 to mean that “the critical issue here involves the level of

control by parties to a construction contract.” (R.17 ¶ 84.) After reviewing the FPS

Contracts, the ALJ concluded that “the method, manner and means of completing”

the contracts “are within the control of the owner,” not First Petroleum. (R.14.) On

that basis, the ALJ concluded that “the ‘overall tenor’ of” the contracts “does not allow

[First Petroleum] to simply supply a finished product” and, therefore, that “the

subject contracts are not performance contracts” but are instead retail sales contracts

“as a matter of law.” (R.14.)

13. The ALJ also rejected the Department’s alternative request to change the

basis for its assessment to the sales tax in the event the materials used in performing

the FPS Contracts were determined not to be subject to the use tax. The ALJ

concluded that “the statute of limitations for making a separate assessment based on

the sales tax has long since passed.” (R.16 ¶ 77.) Accordingly, the ALJ held that no
additional tax was due for material purchased in connection with the FPS Contracts.

(See R.19.)

14. The Department filed its Petition for Judicial Review on February 9, 2017

and its opening brief on April 24, 2017. First Petroleum and the Department filed

their response and reply briefs, respectively, on June 29 and July 12, 2017. The Court

held a hearing on August 24, 2017, at which all parties were represented by counsel.

In response to a request from the Court at the hearing, the parties prepared an

electronic version of the record, which First Petroleum filed on October 12, 2017. This

matter is ripe for determination.

II.
STANDARD OF REVIEW

15. When a “trial court exercises judicial review of an agency’s final decision, it

acts in the capacity of an appellate court.” N.C. Dep’t of Env’t & Natural Res. v.

Carroll, 358 N.C. 649, 662, 599 S.E.2d 888, 896 (2004). “The nature of the error

asserted by the party seeking review dictates the appropriate manner of review.”

Dillingham v. N.C. Dep’t of Human Res., 132 N.C. App. 704, 708, 513 S.E.2d 823, 826

(1999); see also N.C. Gen. Stat. § 150B-51(c).

16. Here, the Department appeals the order of the Office of Administrative

Hearings granting summary judgment in favor of First Petroleum. “Appeals arising

from summary judgment orders are decided using a de novo standard of review.”

Midrex Techs. v. N.C. Dep’t of Revenue, 369 N.C. 250, 257, 794 S.E.2d 785, 791 (2016).

“De novo review requires a court to consider a question anew,” Smith v. Richmond

Cty. Bd. of Educ., 150 N.C. App. 291, 295, 563 S.E.2d 258, 263 (2002), and to “freely
substitute[] its own judgment for” that of the Administrative Law Judge, Carroll, 358

N.C. at 660, 599 S.E.2d at 895. “In reviewing a final decision allowing . . . summary

judgment, the court may enter any order allowed by . . . Rule 56.” N.C. Gen. Stat.

§ 150B-51(d).

17. It bears noting that the Final Decision includes a section labeled “Finding

of Facts.” (R.7–12.) Although neither party takes issue with this aspect of the Final

Decision, our courts “have on numerous occasions held that it is not proper to include

findings of fact in an order granting summary judgment.” Winston v. Livingstone

College, Inc., 210 N.C. App. 486, 487, 707 S.E.2d 768, 769 (2011). The ALJ’s

purported findings are therefore not binding in this appeal, and the Court does not

review them deferentially.

18. Rather, the Court must determine de novo whether “the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and that

any party is entitled to a judgment as a matter of law.” N.C. R. Civ. P. 56(c).

Summary judgment is appropriate if “the facts are not disputed and only a question

of law remains.” Wal-Mart Stores East v. Hinton, 197 N.C. App. 30, 37, 676 S.E.2d

634, 641 (2009) (quoting Carter v. West Am. Ins. Co., 190 N.C. App. 532, 536, 661

S.E.2d 264, 268 (2008)). In this appeal, because the material facts are undisputed, “a

summary disposition of the claims is proper and appropriate.” Technocom Bus. Sys.

v. N.C. Dep’t of Revenue, 2011 NCBC LEXIS 1, at *12 (N.C. Super. Ct. Jan. 4, 2011).
III.
ANALYSIS

19. The Department contends that the ALJ’s decision “allows the property at

issue to be untaxed,” contrary to the purpose of the sales and use tax statutes. (Pet’r’s

Br. 2 [“Dept. Br.”].) In its view, the materials used to perform the FPS Contracts

were subject to the use tax under the plain language of the governing statute and the

regulations interpreting the statute. (See Dept. Br. 12–18.) In the alternative, the

Department contends that, assuming the FPS Contracts were retail sales, the ALJ

should have permitted it to change the basis for its assessment from the use tax to

the sales tax. (See Dept. Br. 19–23.)

20. First Petroleum responds that the ALJ was correct on both counts. It

contends that the “sole issue” is whether the FPS Contracts “were ‘performance

contracts’ under” Bulletin 31-1 and that the ALJ correctly concluded they were not.

(Resp’t’s Br. 2, 6–21 [“Opp’n”].) First Petroleum also argues that the Department

based its assessment solely on the use tax, never changed the basis to the sales tax,

and cannot change the basis for the assessment now. (See Opp’n 21–25.)

21. For the reasons discussed below, the Court agrees with the Department that

First Petroleum incurred liability for use tax on materials it purchased and then used

to fulfill its contracts for the construction and installation of fuel storage and delivery

systems within North Carolina. As a result, the Court need not and does not decide

whether the Department has statutory authority to change the basis for its

assessment from the use tax to the sales tax.
A. The Department’s Assessment Was Correct.

22. The Sales and Use Tax Act imposes complementary sales and use taxes,

which “often bring about the same result” but “‘are assessments upon different

transactions and are bottomed on distinguishable taxable events.’” In re Assessment

of Taxes Against Village Publishing Corp., 312 N.C. 211, 214, 322 S.E.2d 155, 158

(1984) (quoting Atwater-Waynick Hosiery Mills, Inc. v. Clayton, 268 N.C. 673, 675,

151 S.E.2d 574, 576 (1966)). “A sales tax is assessed on the purchase price of property

and is imposed at the time of sale.” Colonial Pipeline Co. v. Clayton, 275 N.C. 215,

223, 166 S.E.2d 671, 677 (1969). It is “designed to be passed on to the consumer.”

Village Publishing Corp., 312 N.C. at 214, 322 S.E.2d at 158.

23. On the other hand, the “use tax is assessed on the storage, use or

consumption of property and takes effect only after such use begins.” Colonial

Pipeline, 275 N.C. at 223, 166 S.E.2d at 677. Its “purpose” is “to impose a use tax,

credited with any sales tax previously paid, upon the user of any tangible personal

property in this state.” Oscar Miller Contractor, Inc. v. N.C. Tax Review Bd., 61 N.C.

App. 725, 729, 301 S.E.2d 511, 513 (1983).

24. The texts of the sales and use tax statutes reflect these complementary

goals. In general, the State’s sales tax applies to a “retailer’s net taxable sales or

gross receipts.” N.C. Gen. Stat. § 105-164.4. A “sale” broadly includes the “transfer”

of tangible personal property “for consideration.” Id. § 105-164.3(36).

25. By contrast, the use tax applies to “[t]angible personal property . . .

purchased inside or outside this State for storage, use, or consumption in this State.”
Id. § 105-164.6. This “includes property that becomes part of a building or another

structure.” Id. The term “use” is broadly defined to “include[] withdrawal from

storage, distribution, installation, affixation to real or personal property, and

exhaustion or consumption of the property or service by the owner or purchaser.” Id.

§ 105-164.3(49).

26. The interpretive difficulty here arises from the fact that First Petroleum

uses construction materials by incorporating them into large-scale improvements on

real property but also transfers title to the completed job to the property owner. First

Petroleum views these transactions for consideration as retail sales. The

Department, on the other hand, contends that the use of construction materials in

the performance of contractual obligations makes First Petroleum a consumer of

those materials, not a retailer.

27. Precedent in this area, although not abundant, is instructive. Our courts

have traditionally treated contractors as the user of building materials when

constructing structures and other improvements on real property. Thus, the North

Carolina Supreme Court rejected the “ingenious” argument that “heating and

plumbing contractors who buy materials and supplies for use in fulfilling lump-sum

contracts” were engaged in the resale of those supplies. Atlas Supply Co. v. Maxwell,

212 N.C. 624, 626–27, 194 S.E. 117, 117–18 (1937). Rather, “[t]hey purchase the

materials and supplies, not for resale as tangible personal property, but for use in

producing the turn-key job”—that is, incorporating the materials into a functioning

heating or plumbing system. Id. at 627, 194 S.E. at 118 (emphasis added); compare
In re Rock-Ola Café, 111 N.C. App. 683, 685, 433 S.E.2d 236, 237 (1993) (holding that

bar snacks and matches offered by a restaurant to its customers “are not subject to a

use tax because the items were purchased [by the restaurant] for resale”).

28. Similarly, the North Carolina Court of Appeals held that lumber and related

materials used to construct warehouses and other buildings on farms were subject to

the use tax. See Morton Bldgs., Inc. v. Tolson, 172 N.C. App. 119, 120, 615 S.E.2d

906, 908 (2005). The case addressed an earlier, though similar, version of section

105-164.6, which imposed a use tax “on the purchase price of tangible personal

property purchased inside or outside the State that becomes a part of a building or

other structure in the State.” N.C. Gen. Stat. § 105-164.6(b) (2003). The Court of

Appeals reasoned that the plain language of the use tax statute applied to the

building materials at issue “because the materials, which are tangible personal

property, became ‘part of a building or other structure in the State.’” Morton Bldgs.,

172 N.C. App. at 123, 615 S.E.2d at 910. Furthermore, “[b]y incorporating the lumber

and other materials petitioner purchased into the buildings petitioner constructed in

North Carolina, petitioner exercised a right, power, and dominion over, and therefore

used the . . . materials.” Id. at 124, 615 S.E.2d at 910 (emphasis in original).

29. What flows from these cases is a reasonably defined standard for

distinguishing between a use and a sale, at least as those terms apply to the activities

of contractors. There is a clear difference, for example, between the transfer of

property for the purpose of eventual resale and the use of property to perform a turn-

key job. The former typically falls in the category of a retail sale, and the latter is
deemed a use. The distinction is especially clear when a contractor purchases

construction materials and then incorporates them into a building or other structure

in the course of performing the contract. Our courts have treated such activities as

the performance of a job (subject to the use tax) rather than the sale of the specific

materials at issue (subject to the sales tax).

30. This understanding of section 105-164.6 is further supported by the

Department’s interpretation of the statute, as stated in the North Carolina

Administrative Code and in published bulletins. “The interpretation of a revenue law

adopted by the agency charged with its enforcement is a significant aid to judicial

interpretation of the same provision.” Jefferson-Pilot Ins. Co., 161 N.C. App. 558,

560–61, 589 S.E.2d 179, 181 (2003). “An interpretation by the Secretary is prima

facie correct,” N.C. Gen. Stat. § 105-264(a), as well as “strongly persuasive” and

“entitled to due consideration,” Midrex Techs., 369 N.C. at 260, 794 S.E.2d at 793

(citation and quotation marks omitted).

31. During the relevant period, the Department consistently advised that

“[c]ontractors are considered the consumers of tangible personal property they use in

fulfilling contracts and are liable for payment of applicable statutory State and local

sales or use taxes on the property.” 17 N.C. Admin. Code 07B.2602(a) (2012)

(emphasis added); see also 17 N.C. Admin. Code 07B.2607. In Sales and Use Tax

Bulletin 31-1, which specifically addresses “Contractors and Building Materials,” the

Department repeated this guidance, advising that it deems contractors “to be
consumers of tangible personal property which they use in fulfilling performance

contracts.” N.C. Sales & Use Tax Bulletin § 31-1 [“Bulletin”] (emphasis added).

32. Bulletin 31-1 goes on to explain the factors that are relevant to determining

whether a transaction is a performance contract as opposed to a retail sale:

“In order to establish if a transaction constitutes a performance contract,
the tenor of the agreement is for the contractor to perform a job,
retaining the right to control the means, the method, and the manner of
accomplishing the desired result. A performance contract does not
provide for a sale of specific items; rather, the contractor agrees to
furnish the necessary materials, labor, and expertise to accomplish the
job. With a performance contract, responsibility for the job and title to
the materials purchased by the contractor remain with the contractor
until the job is completed and accepted by the purchaser/owner. The
contractor is liable for accidents or injury at the job site and loss or
damage due to vandalism, neglect, theft, and fire.”

See Bulletin § 31-1.

33. Thus, under the interpretation adopted by the Department, the general rule

is that contractors using tangible personal property to fulfill their contracts are the

users or consumers of that property. A “sale of specific items” is treated as a retail

sale. By contrast, the use of materials in the course of fulfilling an agreement “to

perform a job”—in which “the contractor agrees to furnish the necessary materials,

labor, and expertise to accomplish the job”—is a statutory use, subject to the use tax.

Put another way, the distinction drawn by the Department is the same distinction

drawn by Atlas Supply and Morton Buildings.

34. Here, under both the plain language of the statute and the governing

regulations, the undisputed evidence shows that First Petroleum’s activities fall on

the use side of the line. The FPS Contracts do not identify specific items for sale.

Rather, they define a scope of work—a job to be performed. First Petroleum agreed
to construct large-scale improvements to real property. To perform its obligations,

First Petroleum purchased necessary materials, incorporated those materials into

fuel storage and dispensing systems, and transferred to each property owner a

completed, functioning system. In doing so, First Petroleum “exercised a right,

power, and dominion over, and therefore used the . . . materials.” Morton Bldgs., 172

N.C. App. at 124, 615 S.E.2d at 910 (emphasis in original); see also id. at 123, 615

S.E.2d at 910 (“materials . . . became ‘part of a building or other structure in the

State’”); N.C. Gen. Stat. § 105-164.6(a)(1) (imposing use tax on tangible personal

property that becomes “part of a building or other structure” in North Carolina).

35. As a result, the Department’s assessment of use tax was correct. Summary

judgment in favor of the Department is appropriate.

B. The Final Decision’s Application of Bulletin 31-1 Was Erroneous.

36. The ALJ’s Final Decision reached a different conclusion solely on the basis

of language in Bulletin 31-1. This decision was erroneous for three reasons.

37. First, this dispute ultimately concerns a question of statutory

interpretation, for which the starting point must be the statute’s text and relevant

precedent. The Final Decision neglects both. It is noteworthy that First Petroleum,

in defending the Final Decision, does not address or distinguish Atlas Supply or

Morton Buildings. Nor does it cite any contrary case law treating the use of building

materials to perform a construction contract as a retail sale. In short, First Petroleum

provides no basis to conclude that the Final Decision’s reasoning is consistent with

precedent or the traditional application of sales tax and use tax in this context.
38. While briefly addressing the statute in its opposition brief, First Petroleum

insists “that often it is not clear whether a transaction at issue is a use or a sale” and

that “not every affixation of tangible personal property to real property is a taxable

use.” (Opp’n 5 n.2.) But to resolve this dispute, the Court need not decide whether

every affixation of tangible personal property results in a taxable use. (This case is

not about, for example, the sale of carpeting or a home appliance with ancillary

installation services, for which tax treatment may be different.) The issue is much

narrower: whether First Petroleum’s use of construction materials in erecting and

installing fuel structures on real property is a taxable use. The plain language of the

statute and the holdings of Atlas Supply and Morton Buildings confirm that it is, and

the Department’s administrative guidance is consistent with both.

39. Second, the ALJ failed to read Bulletin 31-1 as a whole. According to the

ALJ, Bulletin 31-1 “draws a distinction between those construction contracts in which

the contractor determines the method, manner and means of completing the final

project and those in which the owner determines the method, manner and means of

completing the final project.” (R.15 ¶ 69.) The ALJ treated this distinction as the

“critical issue,” (R.17 ¶ 84), and First Petroleum doubles down on the point, referring

to it as the “gravamen” or “ultimate test” for distinguishing between taxable sales

and taxable uses, (Opp’n 8).

40. This cramped interpretation is not supported by the language of Bulletin

31-1. Fairly construed, the Bulletin frames the inquiry as whether “the tenor of the

agreement is for the contractor to perform a job, retaining the right to control the
means, the method, and the manner of accomplishing the desired result.” (R.97

(emphasis added).) Bulletin 31-1 describes several factors to consider in making that

determination, including whether the contractor (i) “agrees to furnish the necessary

materials, labor, and expertise to accomplish the job”; (ii) retains “responsibility for

the job and title to the materials . . . until the job is completed and accepted”; and

(iii) “is liable for injury at the job site and loss or damage.”

41. It is undisputed these factors are met here. (See Opp’n 18–19 & n.11.) First

Petroleum agreed to furnish the necessary materials, labor, and expertise; title

remained with First Petroleum until the job was done; and First Petroleum was liable

for accidents, injuries, or loss. Furthermore, as discussed, there is no way to read the

contracts as a “sale of specific items” rather than a contract “to perform a job.” Taken

together, the factors deemed relevant by the Department in Bulletin 31-1 strongly

support its conclusion that First Petroleum agreed to perform a job, retaining the

right to control the means, method, and manner of performance.

42. Yet the ALJ held these factors were entitled to no weight on the ground that

the same “is true of virtually all construction contracts because the whole purpose of

the contract is for the contractor to build something for the owner.” (R.15 ¶ 68.) By

doing so, the ALJ read the relevant factors out of the Bulletin altogether, divorcing

the pertinent inquiry from the criteria that go into it. In the absence of a conflict with

the governing statute, however, the ALJ and this Court must apply the regulation as

written by the Department. No such conflict exists. The fact that certain factors

apply to “virtually all construction contracts” is not a stain on the Department’s
interpretation. It is consistent with longstanding precedent that treats the use of

materials in the performance of a construction contract as subject to the use tax. The

Department’s interpretation therefore deserves due consideration.

43. Third, even putting aside the factors identified in the Bulletin, the Court

agrees with the Department that First Petroleum retained control over the means,

manner, and method of carrying out its contracts. To be sure, First Petroleum was

required to comply with extensive “plans and specifications prepared by the owner’s

engineers and architects,” among other restrictions. (Opp’n 9.) But the question is

not whether the property owners exercised oversight as to the scope of work to be

performed. (See R.272.) It is instead whether First Petroleum took responsibility for

supplying the appropriate materials and expertise, supervising its workers, and

carrying out the job. The undisputed evidence shows that it did. (See, e.g., R.329,

519; see also R.1530 (“It is agreed that the Subcontractor is an independent

contractor.”).)

44. First Petroleum nevertheless argues that Bulletin 31-1 should be construed

in its favor because it is “poorly crafted” and “virtually impossible for taxpayers to

apply.” (Opp’n 20.) Not so. For the reasons discussed above, Bulletin 31-1 is

consistent with section 105-164.6 and appellate precedents applying the sales and

use tax laws. Read as a whole, and in light of existing precedent, Bulletin 31-1 is

neither ambiguous nor incapable of reasoned application. See Carolina Photography,

Inc. v. Hinton, 196 N.C. App. 337, 341, 674 S.E.2d 724, 727 (2009) (applying Sales

and Use Tax Technical Bulletin where consistent with precedent).
C. The Department’s Alternative Arguments Are Moot.

45. The Department also contends that the ALJ erred for two additional

reasons. It argues, first, that the ALJ improperly prohibited the Department from

changing the basis of its proposed assessment from the use tax to the sales tax.

Second, the Department contends that the ALJ awarded relief to First Petroleum

beyond what was requested in its petition for administrative review. Having

concluded that the ALJ erred in granting summary judgment in favor of First

Petroleum and in denying the Department’s motion for summary judgment, the Court

need not address these alternative arguments.

IV.
CONCLUSION

46. For these reasons, the Court REVERSES the Final Decision and

REMANDS with instructions to enter partial summary judgment in favor of the

Department. On remand, the Office of Administrative Hearings shall determine the

amount of tax due.

This the 23rd day of February, 2018.

Adam M. Conrad
Adam M. Conrad
Special Superior Court Judge
for Complex Business Cases