Effective Date: July 1, 1995

Re:  Summary of 1995 Sales Tax Legislation

The 1995 Legislature passed the following bills affecting the sales tax portion of the Utah Code, Sections 59-12-102 through 59-12-105.

Home Medical Equipment Sales Tax Exemption
House Bill 56, effective July 1, 1995, provides for an exemption from sales tax for sales or rentals of "home medical equipment and supplies" when they are:

(1) purchased or leased by, for, or on behalf of a home patient (this does not require exclusive home use); and
(2) used personally and exclusively by the patient in the treatment of a disease, injury, or illness.
"Home medical equipment and supplies" means equipment and supplies that are:
(1) prescribed or authorized in writing by a licensed physician;
(2) used exclusively to serve a medical purpose;
(3) generally not useful in the absence of illness or injury;
(4) appropriate for home use; and
(5) listed as eligible for payment under Title 18 or Title 19 of the federal Social Security Act.

"Home medical equipment and supplies" does not include equipment and supplies purchased by, for, or on behalf of any hospital, clinic, doctor, nurse, or other health professional for use in professional practice.

The seller of the medical equipment and supplies is required to maintain on file an exemption certificate, form TC-721, completed by the purchaser, certifying that the conditions necessary for qualification of the exemption have been met.

Authorized Carrier Sales Tax Exemption
House Bill 120, effective July 1, 1995, provides for an exemption from sales tax for sales of vehicles to authorized carriers. This statutory exemption supersedes Tax Commission rule R865-19S-97.

Vehicles, for purposes of this exemption, include aircraft, locomotives, freight cars, railroad work equipment, or other railroad rolling stock, as well as motor vehicles with a gross vehicle weight of 26,001 pounds or more.

The bill defines an authorized carrier as follows:

(1) In the case of vehicles operated over public highways, the holder of credentials indicating that the vehicle is a qualified vehicle under both the International Registration Plan (IRP) and the International Fuel Tax Agreement (IFTA), and is or will be operated pursuant to both plans.
(2) In the case of aircraft, the holder of a Federal Aviation Administration operating certificate or air carrier's operating certificate.
(3) In the case of locomotives, freight cars, railroad work equipment, or other rolling stock, the holder of a certificate issued by the United States Interstate Commerce Commission.

The exemption applies to all sales of vehicles to authorized carriers, regardless of the interstate use of the vehicle sold. Prior to the passage of this bill, Tax Commission rule R865-19S-97 required that the purchased vehicle be used exclusively in interstate commerce.

The seller of the exempt property is required to maintain on file an affidavit from the purchaser certifying that the purchaser is an authorized carrier. The affidavit must show the purchaser's IRP and IFTA account numbers, operating certificate, air carrier's operating certificate, or ICC authorization number, as appropriate.

Public Schools Construction Projects Sales Tax Exemption
House bill 274 expands the sales tax exemption for certain purchases of construction materials effective January 1, 1996.

Beginning January 1, 1996, construction materials purchased by or on behalf of public elementary and secondary schools will be exempt from the sales tax. The construction materials must be clearly identified and segregated, and they must be installed or converted into real property owned by the school.

Treatment of Sale and Leaseback Financing
Effective July 1, 1995, Senate Bill 17 provides that certain lease payments in a sale-leaseback agreement are not subject to sales tax.

Under the provisions of Senate Bill 17, lease payments are not subject to sales tax if the purchaser pays sales tax on its initial purchase of tangible personal property, and then enters into a sale-leaseback transaction by which title to that property is transferred by the purchaser-lessee to a lessor. In addition, the following conditions must be satisfied:

(1) the transaction must be intended as a form of financing for the property to the purchaser; and 
(2) the purchaser must capitalize the property for financial accounting purposes and account for the lease payments as payments made under a financing arrangement.

Agricultural Sales Tax Exemptions
Senate Bill 43 makes several changes to the agricultural exemptions from sales tax. The changes, effective July 1, 1995 are as follows:

(1) The bill clarifies that the exemption for sprays and insecticides used to control insects, diseases, and weeds in the commercial production of agricultural produce and animal products does not extend to sprays and insecticides used in the processing of the products.
(2) All sales of hay are exempt from sales tax.
(3) Hand tools used in a manner incidental to farming are exempt from sales tax if their purchase price exceeds $250. Prior to the passage of this bill, these hand tools were exempt from sales tax if their purchase price exceeded $100.
(4) The exemption for seasonal sales of garden, farm, or other agricultural produce is limited to locally grown produce sold during the harvest season, at locations where only locally grown produce is sold.

Manufacturing Sales Tax Exemption
The 1995 Legislature passed two bills dealing with the manufacturing exemption - Senate Bill 89 and Senate Bill 105. Both bills become effective July 1, 1995.

Senate Bill 89 modifies the penalty for failure to report the amount of sales or uses of manufacturing and farming equipment exempt from sales tax. Instead of disallowing the exemptions (the law prior to passage of Senate Bill 89), the Tax Commission shall impose a penalty equal to 10 percent of the tax that would have been paid if the exemption had not applied.

In addition, the bill states that the penalty shall not be imposed if an amended return containing the amount of the exemption is filed with the Tax Commission prior to receiving notice of the Tax Commission's intent to perform an audit.

Senate Bill 105 provides that "normal operating replacements" of machinery and equipment purchased or leased by a manufacturer are eligible for exemption from sales tax. The exemption from sales tax for normal operating replacements is phased in as follows:

(1) beginning July 1, 1996, 30 percent of the exemption shall be allowed;
(2) beginning July 1, 1997, 60 percent of the exemption shall be allowed; and 
(3) beginning July 1, 1998, 100 percent of the exemption shall be allowed.

Manufactured and Mobile Homes Sales Tax Exemption
Senate Bill 289 provides for a sales tax exemption of 45 percent of the sales price of new manufactured or mobile homes and an exemption of 100 percent of the sales price of used manufactured or mobile homes. The exemption becomes effective July 1, 1995, and is scheduled to be repealed on July 1, 2000.

To qualify for this exemption, a home must meet the definition for either a manufactured or mobile home found in Title 58, Chapter 56, Utah Uniform Building Standards Act.

To ask questions about this Tax Bulletin, please call Taxpayer Services at (801) 297-2200 or call toll-free 1-800-662-4335. To submit questions in writing, mail to Taxpayer Services, 210 North 1950 West, Salt Lake City, UT 84134. Those who have impaired hearing may call the Telecommunications Device for the Deaf (TDD) at (801) 297-2020.

Notice of Move
The State Tax Commission has moved to new offices. Please address all mail to the Utah State Tax Commission, 210 North 1950 West, Salt Lake City, UT 84134. The Tax Commission's toll-free line, 1-800-662-4335, remains the same. The Salt Lake metro area number has changed to (801) 297-2200.