State Tax Comm'n v. Holmes & Narver, Inc
In State Tax Comm'n v. Holmes & Narver, Inc., 113 Ariz. 165, 548 P.2d 1162 (1976), the taxpayer entered into a contract involving the construction, design and engineering of three plants. Id. at 166, 548 P.2d at 1163. Although one contract was entered into for both the construction and design and engineering services, the parties itemized and separately billed for the design and engineering services. Id. at 167, 548 P.2d at 1164.
The taxpayer attempted to pay a transaction privilege tax on the construction costs but not on the design and engineering services (when services were performed out of state); however, the State collected taxes on both accounts. Id. The trial court determined that the design and engineering services were not taxable, since they were performed out of state. Id.
On appeal, our supreme court agreed, finding the situation similar to that in Goodyear Aircraft Corp. v. Arizona State Tax Comm'n, 1 Ariz. App. 302, 402 P.2d 423 (1965):
"The tax is on the contracting business, not merely on the form of a series of contracts performed in the pursuance of that business. Here the business is two-fold: design and engineering, and construction. Where it can be readily ascertained without substantial difficulty which portion of the business is for non-taxable professional services (design and engineering), the amounts in relation to the company's total taxable Arizona business are not inconsequential, and those services cannot be said to be incidental to the contracting business, the professional services are not merged for tax purposes into the taxable contracting business and are not subject to taxation." Id. at 169, 548 P.2d at 1166.