BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 00-1024
v. ) Account No. #####
AUDITING DIVISION OF ) Tax Type: Sales Tax
THE UTAH STATE TAX )
COMMISSION, ) Presiding: Davis
G. Blaine Davis, Administrative Law Judge
For Petitioner: PETITIONER REP, Representative for Petitioner
For Respondent: Ms. Susan Barnum, Assistant Attorney General
Mr. Bert Ashcroft, from the Auditing Division
Mr. Scott Smith, from the Auditing Division
STATEMENT OF THE CASE
This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5, on January 22, 2001.
Respondent issued an audit report on Petitioner's business assessing additional sales and use taxes. Some of the issues in that audit report have been resolved by agreement between Petitioner and Respondent. One additional issue involving an exemption certificate on one particular sale still remains unresolved, and Petitioner will try to obtain the exemption certificate for that sale. If Petitioner obtains an acceptable exemption certificate, no tax will be imposed on that sale. If they do not obtain such an exemption certificate, then Petitioner has agreed to pay the tax on that sale.
A further issue involves accounting matters for certain sales, and if those sales are picked up in the next audit period, then no tax will be imposed, but if those sales were not accounted for in the subsequent audit period, then Petitioner has agreed to pay the tax.
The issues presented for resolution in the Initial Hearing are, first, whether certain amounts received by Petitioner, and shown on the invoices as either "sales tax" or "sales tax and fees" in excess of the legally required amount of sales tax must be remitted to the Tax Commission; and second, whether the purchase of furniture purchased to enhance the appearance of model homes is subject to sales and use tax.
Petitioner produces manufactured homes which are subsequently transported to a parcel of property for installation. Pursuant to Utah Code Ann. '59-12-104(37)(a), "%%%%% of the sales price of any new manufactured home" is exempt from sales and use tax.
When Petitioner purchased the materials which were used to construct the manufactured homes, it correctly paid use tax on the purchase of such materials.
When Petitioner sold its manufactured homes on the invoices of %%%%% of such sales it showed an amount as "sales tax". In approximately %%%%% of those invoices, the amount shown as "sales tax" was exactly the amount that should have been charged if the entire sale was subject to sales tax. For the other %%%%% of such sales, it is unknown how the amount of such "sales tax" was determined. As a result of that practice, Petitioner received approximately $$$$$ of "sales tax" in excess of the legally required amount of sales tax on %%%%% of the sale (%%%%% of the sale minus the %%%%% exemption pursuant to statute).
On %%%%% of the sales of Petitioner, the invoices contained a line which said "sales tax and fees." On those sales, approximately %%%%% of the "sales tax and fees" was identical with the amount that would have been due if sales tax was charged on the entire amount of the sale. On the other %%%%% of such sales, it is unknown how the amount of "sales tax and fees" was determined. Based upon such sales, Petitioner received approximately $$$$$ more than it would have been required to collect and pay if the sales tax had been properly applied to only %%%%% of such sales and the other %%%%% was treated as exempt from sales and use tax.
No "fees" are specifically identified on the invoices, and Petitioner does not allege that there were any particular "fees" that were supposed to be reimbursed by such amounts on the invoices.
Most of the homes manufactured by Petitioner are transported to a parcel of land and are attached to that land by Petitioner. The position of Petitioner is that such activities make it a real property contractor, and exclude it from being a vendor under the terms of the statutes and rules applicable to sales tax transactions.
At least two manufactured homes were sold by Petitioner as tangible personal property, and were not attached to the land by Petitioner.
The Tax Commission issues a consumer sales tax number called an "H" number for contractors who have no retail sales. The Commission issues a regular retail sales number for retailers. Petitioner has been issued a regular retail sales tax number, not an "H" number for contractors who do not have retail sales.
To promote sales during the audit period, Petitioner used some of its manufactured homes as model homes and furnished those homes with furniture to demonstrate the appearance of such homes as they might appear with people living in them. The model homes and furniture in those homes are still in use in those homes, and none of the furniture has been sold. Petitioner is not regularly engaged in the business of selling furniture.
Utah Code Ann. '59-12-104(37)(a) exempts %%%%% of the sales price of any new manufactured home from sales and use tax.
Utah Administrative Code, Rule R865-19S-4.A provides:
"Vendors shall not in any way waive the collection or imposition of the tax. Invoices and receipts shall show the tax collected as a separate item. Vendors are required to remit to the Tax Commission all funds in possession and are guarantors of all amounts required to be collected."
Utah Administrative Code, Rule R865-19S-4.B provides:
"If vendors collect an excess amount of tax, they must either refund such excess to their customers or remit it to the Tax Commission. However, vendors may first offset undercollections of tax on sales against any excess tax collected in the same quarterly reporting period. Vendors may not offset underpayment of tax on purchases, whether the purchases are from in state or out of state sources."
Utah Code Ann. '59-12-102(33)(a) provides as follows:
"'Vendor' means any person receiving any payment or consideration upon a sale of tangible personal property or any other taxable transaction under Subsection 59-12-103(1), or to whom the payment or consideration is payable."
Utah Administrative Code Rule R865-19S-82.A provides:
"Tangible personal property purchased by a wholesaler or a retailer and held for display, demonstration or trial in the regular course of business is not subject to tax. Examples of this are a desk bought by an office supply firm and placed in a window display, or an automobile purchased by an auto dealer and assigned to a salesman as a demonstrator.
Utah Code Ann. '59-12-107(2)(f) states:
"If any vendor, during any reporting period, collects as a tax an amount in excess of the lawful state and local percentage of total taxable sales allowed under this part and Part II, Local Sales and Use Tax Act, the vendor shall remit to the Commission the full amount of the tax imposed under this part and Part II, Local Sales and Use Tax Act, plus any excess."
Regarding the amounts received in excess of the legally required sales tax rate, an amount totaling approximately $$$$$, Petitioner makes two arguments. First, Petitioner claims it is not a "vendor" as defined in the statute because it maintains it is a real property contractor and is not a seller of tangible personal property. Second, Petitioner argues that the $$$$$ of additional monies received as "sales tax and fees" was really for fees and not sales tax, and therefore it does not fall within Rule R865-19S-4 requiring customers to remit the excess amount to the Tax Commission.
In this matter, the Commission does not accept the arguments presented by Petitioner. The Petitioner may or may not be a real property contractor, but Petitioner is a vendor. Those terms are not mutually exclusive. Petitioner has been issued a regular retail sales tax number for retailers, and clearly has some retail sales. Petitioner is included in the statutory definition of vendor because it is an entity which receives any payment or consideration upon a sale of tangible personal property. Further, it is the entity "to whom the payment or consideration is payable." To be a vendor, it is not necessary that all of their sales be subject to sales and use tax. When sales and use tax is being collected, the person or entity to which "the payment or consideration is payable" is a vendor.
In addition, Rule R865-19S-4 requires that invoices and receipts must show the tax collected as a separate item, and then requires that the amounts collected must be remitted to the Tax Commission. In this case, Petitioner has shown on the invoices the amounts of sales tax which it has passed on and imposed upon the purchasers of its products. Those amounts are not stated separately as either sales tax or fees. Where the consuming public would reasonably interpret the representations of Petitioner to impose such charges as sales tax, and where any fees to be imposed are not separately stated and there is no explanation for such additional fees, the Commission finds that such amounts were received as sales tax. Therefore, under the statutes and rules, Petitioner must remit to the Tax Commission all amounts collected as sales tax, even if the tax included the words "and fees".
With respect to the furniture used in the model homes, the position of Petitioner is that it is exempt from tax because the furniture is held for display or demonstration of the model home. The position of Respondent is that the furniture is subject to tax "because the regular course of business" of Petitioner is not the display and sale of furniture, and it has, in fact, never sold any furniture. Therefore, Respondent maintains the furniture is for the use of Petitioner, and is subject to sales and use tax.
Utah Administrative Code Rule R865-19S-82.A provides:
"Tangible personal property purchased by a wholesaler or a retailer and held for display, demonstration or trial in the regular course of business is not subject to tax.
Examples of this are a desk bought by an office supply firm and placed in a window display, or an automobile purchased by an auto dealer and assigned to a salesman as a demonstrator."
The referenced authority for this rule is Utah Code Ann. '59-12-104, which is the statutory provision for exemptions from sales tax. There are fifty (50) separate exemptions listed in that statute, but the only parts of that statute which could provide a basis for an exemption on "personal property purchased by a wholesaler or a retailer and held for display, demonstration or trial in the regular course of business" are subparagraphs 24 and 26. These subparagraphs exempt: "(24) property stored in the state for resale," and "(26) property purchased for resale in this state, in the regular course of business. . . ."
If the only statutory provisions allowing the exemption in the rule for property "held for display, demonstration or trial in the regular course of business" are the "resale" provisions, then the only "display, demonstration or trial" property for which there is a statutory exemption is that which is purchased or held for resale.
Accordingly, if the property purchased for use in the model homes of Petitioner was not for resale, then it was not "purchased by a wholesaler or a retailer and held for display, demonstration or trial in the regular course of business." Any other interpretation of the rule would cause the rule to exceed the rule-making authority of the Commission.
DECISION AND ORDER
Based upon the foregoing, the Commission determines that the funds received by Petitioner as either "sales tax" or "sales tax and fees" as shown on the invoices was received as sales tax, and all of such taxes are required to be remitted to the Tax Commission. The Commission also determines that the furniture which was purchased by Petitioner for the model homes was not purchased for resale, and was therefore not "personal property purchased by a wholesaler or a retailer and held for display, demonstration or trial in the regular course of business. The furniture purchased for the model homes was subject to sales and use tax at the time it was purchased. The audit assessment by Respondent is sustained, and the Petition for Redetermination is denied. It is so ordered.
This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Failure to request a Formal Hearing will preclude any further appeal rights in this matter.
DATED this 30th day of March , 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 30th day of March , 2001.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson