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
) Judge: Davis
G. Blaine Davis, Administrative Law Judge
Pam Hendrickson, Commission Chair
Palmer DePaulis, Commissioner
Marc B. Johnson, Commissioner
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.
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.
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