By Erica Horn and Maddie Schueler
In Shinin’ B Trailer Sales, LLC v. Department of Revenue, No. 2014-CA-001097-MR (Ky. App. Sept. 4, 2015) (to be published), the Kentucky Court of Appeals affirmed an order of the Franklin Circuit Court holding that horse trailers with living quarters qualified for a statutory exemption from sales tax. Shinin’ B Trailer Sales, LLC (“Shinin’”), which sells horse and livestock trailers, was audited by the Kentucky Department of Revenue (the “KDOR”) for tax years 2008 through 2010. Following the audit, the KDOR issued an assessment to Shinin’ based upon the sale of twenty-one horse trailers with living quarters containing a kitchen, bathroom, seating area, storage area and sleeping facilities. All of the trailers had a load capacity over 1,000 pounds and were designed to be drawn by a truck. In addition, all of the trailers had a rear portion containing horse stalls and space for horse-related items. Twenty of the trailers were designed to carry three or four horses, and one of the trailers could carry six horses.
Shinin’ argued the trailers were exempt from sales tax under KRS § 139.470(21), which provides for an exemption for “[g]ross receipts from the sale of a semi-trailer as defined in KRS 189.010(12) and trailer as defined in KRS 189.010(17)[.]” KRS § 189.010(12) defines “semitrailer” as “a vehicle designed to be attached to, and having its front end supported by, a motor truck or truck tractor, intended for the carrying of freight or merchandise and having a load capacity of over one thousand (1,000) pounds.” “Trailer” is defined by KRS § 189.010(17) as “any vehicle designed to be drawn by a motor truck or truck-tractor, but supported wholly upon its own wheels, intended for the carriage of freight or merchandise and having a load capacity of over one thousand (1,000) pounds.”
Although the parties agreed the vehicles at issue had a load capacity of over 1,000 pounds and were designed to be drawn by a “motor truck or truck tractor”, the KDOR argued the vehicles were not “intended for the carriage of freight or merchandise” for two reasons: (1) horse trailers with living quarters are not objectively intended for a primary purpose as freight vehicles, and (2) the transportation of horses in such vehicles is neither freight nor merchandise as used in the statute. As to the first point, the KDOR claimed the presence of living quarters made it impossible for the trailers to be used only or primarily for carrying freight or merchandise. The court rejected this argument, noting that dictionary definitions of the word “intend” or “intended” focus on the purpose for which an item is designed. The court found there was no question the trailers were intended to transport horses, and the living quarters and storage space were included to further that purpose. The court noted that under the rules of statutory construction, a court is not at liberty to add other limiting language to the statute, such as “only”, “primarily”, or “exclusively”, that the General Assembly chose not to include.
As to its Second contention, the KDOR argued the carriage of horses in the trailers was not “freight” within the meaning of the statute. The KDOR claimed the term “freight” requires the property being transported be commercial in nature. Because the trailers included living quarters, the KDOR argued the trailers were designed for the recreational carriage of horses as opposed to a commercial use. The court disagreed, noting that the statutory definitions require the trailers be “intended for the carriage of freight or merchandise.” The court noted that while the word “merchandise” has a commercial connotation, the word “freight” is defined by Webster’s Dictionary as “[g]oods carried by a vessel or vehicle, especially by a commercial carrier…” and by Black’s Law Dictionary as “[g]oods transported by water, land, or air; CARGO.” The court found that by including both terms, the General Assembly clearly intended for the words to have different meanings, and the definition of “freight” may include the transportation of goods for non-commercial purposes.
Thus, the court held the horse trailers fell within the plain meaning of the statutory exemption and were exempt from sales tax pursuant to KRS § 139.470(21).