00-0002
Sales Tax
Signed 8/22/01
BEFORE
THE UTAH STATE TAX COMMISSION
____________________________________
PETITIONER, ) FINDINGS
OF FACT,
) CONCLUSIONS OF LAW,
Petitioner, ) AND
FINAL DECISION
)
v. ) Appeal No. 00-0002
) Account
No. D62574
TAXPAYER SERVICES DIVISION OF )
THE UTAH STATE TAX ) Tax Type: Sales
Tax
COMMISSION, )
) Judge: Davis
Respondent. )
_____________________________________
Presiding:
G. Blaine Davis, Administrative Law Judge
Pam Hendrickson, Commission Chair
Palmer DePaulis, Commissioner
Marc B. Johnson, Commissioner
Appearances:
For Petitioner: PETITIONER REP, from
the law firm of COMPANY A
PETITIONER
REP 2, from the law firm of COMPANY A
PETITIONER REP 3, from the law firm of
COMPANY A
PETITIONER REP 4, from PETITIONER
For Respondent: Mr. Clark Snelson, Assistant Attorney
General
Ms. Julie Halvorsen, from the Taxpayer
Services Division
Mr. Brett Wilding, from the Taxpayer
Services Division
STATEMENT
OF THE CASE
This
matter came before the Utah State Tax Commission for a Formal Hearing on July
11, 2001. Based upon the
evidence and testimony presented at the hearing, the Tax Commission hereby
makes its:
FINDINGS
OF FACT
1. On April
29, 1994, Petitioner filed an application with the Department of Environmental
Quality (DEQ) to exempt sales and use tax on the costs of a pollution control
facility.
2. On September
6, 1994 and December 5, 1995, the DEQ Divisions of Water Quality and Air
Quality granted the exemption and issued certificates of approval for the
projects.
3. Between July
1, 1995 and May 31, 1999, Petitioner's contractor purchased numerous items of
tangible personal property for the facility, and paid sales and use tax on all
of such purchases.
4. When
construction of the facility was completed, the contractor reported to
Petitioner the amount of sales tax paid on the project.
5. On August
13, 1999, Petitioner filed a request for refund with the Taxpayer Services
Division of the Utah State Tax Commission. Petitioner requested a refund of the tax, plus interest from
the various dates the tax was paid between 1995 and 1999.
6. The Division
granted the refund of sales tax, together with interest from 30 days after the
day on which the claim for refund was filed. The refund of sales tax and interest as allowed and approved
by the Division have been paid to Petitioner.
7. The Division
did not approve the request for refund of the interest which would have accrued
between the date of payment of the sales tax and 30 days after the date of filing
the request for refund.
8. In limiting
the interest to the amount paid beginning 30 days after the day on which the
claim for refund was filed, the Division relied upon the provisions of Utah
Code Ann. '19-2-124(2)(e)(ii), and Utah
Administrative Code Rule R865-19S-83.
9. The
overpayment of sales and use tax for which the refund was made, was not paid to
the Commission for investment purposes.
10. Following
the hearing, on July 25, 2001, Petitioner filed a Post-Hearing Brief and an
Affidavit of XXXXX. On July 27,
2001, Respondent filed its Objection to Petitioner's Post-Hearing Brief and
Motion to Strike. On August 2,
2001, Petitioner filed Petitioner's Response to Respondent's Objection to
Petitioner's Post-Hearing Brief and Motion to Strike.
11.
Petitioner's Post-Hearing Brief substantially argues and elaborates on
arguments which were raised at the hearing. Such briefs are routinely received by the Commission, and
there is no reason to strike the brief.
12. The
Affidavit of XXXXX provides further detail and explanation of why Petitioner
did not earlier file a claim for refund and his explanation of how Petitioner
arrived at the process it used.
That additional detail and explanation is supportive of other testimony
which was given at the hearing.
However, because Respondent was not afforded the opportunity to
cross-examine XXXXX, there would be a good reason to strike the Affidavit. Nevertheless, because the Commission
determines the presence of the Affidavit in the record does not affect the
decision of the Commission, the Motion's to Strike the Post-Hearing Brief and
the Affidavit are both denied.
The relevant portions of Utah Code Ann. '19-2-124 were adopted by the 1999 Legislature to become
effective May 3, 1999, and provide:
(ii) If a person files a claim for a
refund of taxes under Subsection (2)(d)(ii) paid on a purchase of tangible
personal property or services used in the construction of or incorporated into
a pollution control facility that was certified under Section 19-2-125 at the
time of the purchase, interest shall accrue to the amount of the refund granted
by the State Tax Commission:
(A) at the rate prescribed in Section 59-1-402;
and
(B) beginning 30 days after the day on which the
person files a claim for a refund under Subsection (2)(d).
Utah
Code Ann. §59-12-110(1)(d) provides:
The Commission may not credit or refund
to the taxpayer interest on an overpayment under Subsection (1)(c) if the
Commission determines that the overpayment was made for the purpose of
investment.
Prior to May 3, 1999, Utah Code Ann. '19-2-124 did not have a provision relating to the payment of
interest.
Utah Administrative Code Rule R865-19S-83
provides:
A.
Since certification of a pollution control facility may not occur until
a firm contract has been entered into or construction has begun, tax should be
paid on all purchases of tangible personal property or taxable services that become
part of a pollution control facility until the facility is certified, and
invoices and records should be retained to show the amount of tax paid. Upon verification of the amount of tax
paid for pollution control facilities and verification that a certificate has
been obtained, the Tax Commission will refund the taxes paid on these
purchases.
1.
Claims for refund of tax paid prior to certification must be filed
within 180 days after certification of a facility. Refund claims filed within this time period will have
interest added at the rate prescribed in Section 59-1-402 from the date of the
overpayment.
2.
If claims for refund are not filed within 180 days after certification
of a facility, it is assumed the delay was for investment purposes, and
interest shall be added at the rate prescribed in Section 59-1-402 however,
interest will not begin to accrue until 30 days after receipt of the refund
request.
B.
After the facility is certified, qualifying purchases should be made
without paying tax by providing an exemption certificate to the vendor.
1.
If sales
tax is paid on qualifying purchases for certified pollution control facilities,
it will be deemed that the overpayment was made for the purpose of
investment. Accordingly, interest,
at the rate prescribed in Section 59-1-402, will not begin to accrue until 30
days after receipt of the refund request.
C.
In the event part of the pollution control facility is constructed under
a real property contract by someone other than the owner, the owner should
obtain a statement from the contractor certifying the amount of Utah sales and
use tax paid by the contractor and the location of the vendors to whom tax was
paid, and the owner will then be entitled to a refund of the tax paid and
included in the contract.
D.
The owner shall apply to the Tax Commission for a refund using forms
furnished by the Tax Commission.
The claim for refund must contain sufficient information to support the
amount claimed for credit and show that the tax has in fact been paid.
E.
The owner shall retain records to support the claim that the project is
qualified for the exemption.
This rule became effective May 17, 1993,
and was in effect at all times relevant to this proceeding.
DISCUSSION
The
only issue in this proceeding is whether Petitioner was entitled to be paid
interest on its tax refund:
a.
beginning on the date the sales tax from the project was remitted to the
Utah State Tax Commission; or
b. beginning 30 days after the day on
which the claim for refund was filed with the Utah State Tax Commission.
The
requirement to pay interest in Utah and the rate and terms of such interest
payments are normally established by either a contract between the parties or a
statute adopted by the legislature.
However, even in the absence of a contract or a statute, the courts will
normally allow interest on overdue debts.
In Vali Convalescent and Care Institutions v. Division of Health Care
Financing, 797 P 2d 438 (Utah Ct.App. 1990) the Utah Court of Appeals
stated:
The law in Utah, including where the debt
is owed by a governmental entity, is to allow "interest on overdue debts
even where no statute so provides."
. . . .
The policy reason for this rule "is
that because of the delay, the debtor has the beneficial use of monies that do
not belong to it, while the creditor is denied the beneficial use of those same
monies to which it is legally entitled."
. . . .
We hold that the general rule allowing
interest on overdue debts, even those owed by an arm of the state, applies in
this case.
(Citations omitted).
Nevertheless,
in this case, there has never been any question regarding whether or not
interest was to be paid. The only
question is the starting date for the calculation of such interest.
In
Vali, supra, the Utah Court of Appeals announced the general rule that
interest should be paid "on overdue debts even where no statute so
provides." There are three
reasons why the general rule enunciated in Vali, supra, does not require
a decision in Petitioner's favor.
First, there was no debt that was overdue. The statute, Utah Code Ann. '19-2-124,
presumes there is no debt from the state to Petitioner until a claim for refund
has been filed, and the debt does not become "overdue" until 30 days
after the claim for refund has been filed. Therefore, the statute does provide for interest to be paid
from the time the debt becomes "overdue." Accordingly, all interest on the "overdue debt"
has been paid.
Second,
the holding of the Utah Court of Appeals in Vali, supra, only applied
the so-called "general rule" to cases where "no statute so provides." In this case there is a statute which
specifically provides for interest, and it specifically provides the starting
date for the payment of interest as "beginning 30 days after the day on
which the person files a claim for refund. . . ." The Division has strictly complied with
the provisions of that statute.
The statute was in effect before the refund claim was filed.
Third,
there are public policy reasons to apply interest only prospectively on
government debt. In the Vali
case, in footnote 13, the court states:
For policy reasons, it is sometimes
ordered that interest held to accrue on particular classes of government debt
will accrue only prospectively from the decision so holding. See Boards of Educ. v. Salt Lake County
Comm'n, 749 P.2d 1264, 1267-68 (Utah 1988); Board of Educ. v. Salt Lake County,
659 P.2d 1030, 1037 (Utah 1983).
No such argument was advanced by DOH at the administrative level, the
trial court, or on appeal.
That footnote is consistent with the
general policy regarding the payment of tax refunds stated in Utah Code Ann. '59-1-402(4), which has been in force since 1993, and states:
(4)(a) If any overpayment of tax or fee
administered by the commission is refunded within 90 days after the last date
prescribed for filing the return of such tax or fee, no interest shall be allowed
on the overpayment.
(b)
If the return is filed after the last date prescribed for filing the
return, no interest shall be allowed on the overpayment if the overpayment is
refunded within 90 days after the date the return is filed.
(c)
If a refund of an overpayment is requested, and if interest may be
calculated in accordance with this section, interest shall be calculated
forward from the preparation date of the refund document to allow for
processing.
Petitioner
argues that because the relevant portions of Utah Code Ann. '19-2-124 were not effective until May 3, 1999, the right to
a refund on the sales tax was vested and they were entitled to interest, as a
matter of law, on the sales tax refund.
Petitioner has also suggested the time really began to run either in
1994 when it filed the applications, or in 1994 and 1995 when it received
approval from the Department of Environmental Quality. However, there is no Utah law that
supports such theories. Both Utah
Code Ann. ''19-2-124 and 59-1-402(4) are
determinations of the legislature based upon a theory that interest does not
begin to accrue until after a reasonable processing time following the filing
of a claim for refund. Once U.C.A.
§19-2-124 was in effect, the Tax Commission and Petitioner were both bound by
the statute and the rules.
Rule
R865-19S-83 provided procedures for Petitioner to follow to avoid paying the
tax in the first instance or to gain an immediate refund. The rule was in effect at the time of
the purchases and required claims for refund to be filed within 180 days after
certification of a facility, and then interest would be paid from the date of
the overpayment. However,
"after a facility is certified, qualifying purchases should be made
without paying tax by providing an exemption certificate to the
vendor." Petitioner did not
provide "an exemption certificate to the vendor" and did not see that
"qualifying purchases" were "made without paying tax."
Petitioner
has represented it did comply with the requirement to provide exemption
certificates for the purchases which were made by the company. However, for purchases made by someone
other than the company, Petitioner represented it relied upon subparagraph C of
Rule R865-19S-83. If subparagraph
C applies, it would have permitted Petitioner to "obtain a statement from
the contractor certifying the amount of Utah sales and use tax paid by the
contractor and the location of the vendors to whom tax was paid, and the owner
will then be entitled to a refund of the tax paid and included in the
contract."
In
this instance, it is not necessary for the Commission to determine whether the
subparagraph C procedure followed by Petitioner was the correct or incorrect
procedure. Petitioner did follow
the procedure from subparagraph C for the purchases which were not made using
exemption certificates. That
subparagraph provides that if that procedure is followed, "the owner will
then be entitled to a refund of the tax paid and included in the contract. All of the sales and use tax payments
made in the manner provided in subparagraph C have now been refunded to
Petitioner. Subparagraph C only relates to refund of the sales tax. It does not in any way alter the
beginning interest accrual date established in Utah Code Ann. §19-2-124 of
"30 days after the day on which the person files a claim for refund . . .
."
In
its Post-Hearing Brief, Petitioner says, "When Section 19-2-124 is set
aside, subsection C of Rule 83 supports payment of interest to PETITIONER.
The
Commission specifically does not "set aside" Section 19-2-124. Therefore, if it is necessary to
"set aside" the statute before subsection C becomes important, then
that point is never reached in this proceeding.
Later
in the brief, Petitioner says, "a careful reading of this rule supports
PETITIONER 's actions in paying tax and seeking a refund and in not allowing
its real property contractors to issue exemption certificates on its behalf.
Notwithstanding
some contrary language in the Order from the Initial Hearing, after a better
explanation in the Formal Hearing of Petitioner's actions, the Commission does
not find or infer that there was anything improper in the actions taken by
Petitioner. There is an argument
that Petitioner should have done some things differently, and there is an
argument that Petitioner did everything exactly as required by Rule 83. Whether Petitioner was right or wrong
to follow Subsection C does not now matter in this proceeding. Petitioner did follow Subsection C, and
Rule 83 requires the 'refund of the tax paid and included in the
contract." Respondent has
refunded "the tax paid and included in the contract." Accordingly, whether or not Petitioner
should have followed Subsection C is not relevant at this time. Petitioner has received everything
granted to it if Subsection C was the provision which it should have
followed. Subsection C does not
affect the payment of interest or the date on which such interest should
commence.
Utah
Code Ann. '19-2-124 is very clear that if the
pollution control facility was certified at the time of the purchase, interest
does not begin to accrue until 30 days after the day on which the claim for
refund is filed. All such interest
has been allowed and paid by Respondent.
There
was also considerable discussion regarding Utah Code Ann. §59-12-110(1)(d)
which prohibits the payment of interest if the Commission determines a tax
overpayment was "for the purpose of investment", and Rule R865-19S-83
which presumes that "claims for refund . . . not filed within 180 days
after certification of a facility, . . ." and "sales tax . . . paid
on qualified purchases for certified pollution control facilities . . . ."
will be deemed to be made for investment purposes.
The
witnesses testified the payment of the sales and use taxes on the pollution
control facilities at issue in this proceeding were not paid for investment
purposes. There is no evidence the
payments of such taxes were for investment purposes. The Commission has not premised any portion of its
decision upon whether or not the payments of such taxes were for investment
purposes, and it will re-examine whether the rule should make such a
presumption. The Commission has
relied almost exclusively upon the provisions of Utah Code Ann. §19-2-124.
There
was also argument by Petitioner that Respondent is applying §19-2-124, supra,
retroactively. In support of that
argument, Petitioner suggests:
1.
Utah Code
Ann. §68-3-3 provides that "no part of these revised statutes is
retroactive, unless expressly so declared." This is supported by Cache County v. Property Tax
Division of the Utah State Tax Comm'n, 922 P.2d 758, 767 *Utah 1996). Petitioner reasons that the Legislature
did not make an express statement of retroactivity in U.C.A. §19-2-124, so the
Commission cannot apply the statute retroactively.
2.
The
"interest provisions of the bill (§19-2-124) should only apply to cases
initiated after May 3, 1999, or to the portions of cases that continued
thereafter." (Petitioner's Post-Hearing Brief)
3.
Because the
DEQ certification and tax payment were made before the effective date of U.C.A.
§19-2-124, denying interest payments is improper retroactive application of the
law.
4.
Petitioner
cites Irvine v. Salt Lake County, 785 P.2d 411 (Utah 1989) and its
statement that "the substantive law to be applied throughout an action is
the law in effect at the date the action was initiated." It is then argues that "the action
was initiated in 1994 with the State of Utah's certification of PETITIONER 's
facility and the law in effect at that time must be applied." (Petitioner's Post-Hearing Brief).
In response to the first argument that §68-3-3 provides that statutes are not retroactive unless expressly so declared, the Commission has specifically found that the statute is limited to claims filed for refund, and the Commission determines the statute is intended to apply to claims for refund filed after the effective date of the statute. (The Division has not applied limitation on payment of interest to any claims for refund filed prior to the effective date of the statute.) Therefore, the statute is not retroactive.
With respect to the second argument that the "interest provisions of the bill (§19-2-124) should only apply to cases initiated after May 3, 1999, or to the portions of cases that continued thereafter" the Commission agrees. However, this case was initiated by the filing of a claim for refund after May 3, 1999. This case was not initiated by any action taken by Petitioner prior to May 3, 1999.
With respect to the third argument that the DEQ certification and payment of the taxes occurred before the effective date of the statute, and therefore denying interest payments is improper retroactive application of the law, the Commission disagrees. The Legislature has determined that the payment of interest should begin "30 days after the day on which the person files a claim for refund." The Legislature has also, therefore, determined the date of certification by DEQ and the date of payment of interest do not play any role in the date on which payment of interest will commence.
With respect to the fourth argument that this action was initiated in 1994 with the DEQ certification and the law in effect at that time must be applied, the Commission also disagrees. The response to the third argument above also responds to this argument.
The
Commission concludes that §19-2-124 is not a retroactive statute, but even if
it is retroactive, it is only a procedural statute which is still
constitutional.
DECISION
AND ORDER
Based
upon the foregoing, the Tax Commission determines that Petitioner is not
entitled to the payment of any additional interest on its claim for refund on
the construction of the pollution control facilities. It is so ordered.
DATED
this 22nd day of August, 2001.
_________________________________
G. Blaine Davis
Administrative Law Judge
BY ORDER OF THE UTAH STATE TAX
COMMISSION:
The
Commission has reviewed this case and the undersigned concur in this decision.
DATED
this 22nd day of August, 2001.
Pam Hendrickson R.
Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc
B. Johnson
Commissioner Commissioner