01-1368

Property Tax/Locally Assessed

Signed 5/14/02

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

) FINDINGS OF FACT, CONCLUSIONS

PETITIONER, ) OF LAW, AND FINAL DECISION

)

Petitioner, ) Appeal No. 01-1368

)

v. )

) Tax Type: Property Tax/Locally Assessed

BOARD OF EQUALIZATION OF ) Personal Property

SALT LAKE COUNTY, ) Tax Year: 2000 & 2001

STATE OF UTAH, )

) Judge: Phan

Respondent. )

_____________________________________

Presiding:

Bruce Johnson, Commissioner

Jane Phan, Administrative Law Judge

Appearances:

For Petitioner: PETITIONER REP

For Respondent: RESPONDENT REP, Manager, Personal Property, Salt Lake County

RESPONDENT REP 2, Auditor

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on March 12, 2002. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is personal property tax.

2. The years in question are 2000 and 2001.

3. Petitioner is appealing Respondent's valuation of its personal property which was set for property tax assessment purposes. Respondent had audited the property for the 2000 year.

4. It was Petitioner's contention that a portion of the subject personal property, which had been purchased from COMPANY A ("COMPANY A"), should be based on its actual purchase price of $$$$$. Petitioner did not dispute Respondent's valuation for the property which Petitioner had owned prior to its December 1999 acquisition of the COMPANY A personal property.

5. Respondent's value for the portion of property Petitioner acquired from COMPANY A was substantially higher than the purchase price.

6. In 1996 COMPANY A entered the Utah market. At two separate COMPANY A retail locations Petitioner became a sub-tenant of COMPANY A. Petitioner sold PRODUCT on one side of the establishment and COMPANY A sold its PRODUCT on the other side. Each business had its own tables, chairs, signs, menus, dishes and utensils. Petitioner had referred to this relationship as a strategic alliance. There was no shared ownership or control between the two businesses. COMPANY A had many stores and franchises nationwide. Petitioner was a local company.

7. In 1998 COMPANY A began pulling out of the Utah market. Petitioner took over the lease on the two locations which it had shared with COMPANY A and Petitioner began to operate COMPANY A as a franchise. However, eventually an agreement was reached between Petitioner and COMPANY A whereby the franchise relationship was discontinued and Petitioner purchased all of COMPANY A’s equipment, furnishings and fixtures. The terms of the purchase were listed in a letter of agreement dated December 29, 1999.

8. Pursuant to the letter of agreement and the Bill of Sale, which was dated December 31, 1999, Petitioner acquired all of COMPANY A's personal property and fixtures including goods, machinery and equipment, furnishings, fixtures, furniture and merchandise that was located at or affixed to three COMPANY A restaurant establishments and one commissary. Two of the restaurant establishments were the ones where Petitioner had been operating its PETITIONER business jointly with the COMPANY A establishment. The purchase price for all these items listed in the bill of sale was $$$$$. The price was allocated by the parties as being $$$$$ for each restaurant location and $$$$$ for the commissary.

9. The purchase agreement specifically required Petitioner to remove all COMPANY A signs within 30 days.

10. In its audit, Respondent did consider the purchase price of the COMPANY A assessment and relied on it as the value of the "equipment" in the audit, although with a 30% mark up for freight, tax and installation costs. This results in a value of $$$$$ for the "equipment" at each restaurant location and a value of $$$$$ for the "equipment" at the commissary. Respondent argues that the 30% adjustment is necessary because the Tax Commission rule requires the cost of shipping and installation to be included in the value of the personal property.

11. However, in this instance, the personal property purchased from at least two of the restaurant locations was purchased in place and was already operational. The Commission concludes that the shipping, installation, engineering and assembly costs are all included in the purchase price of these items because they were purchased installed, to be used in place. The items purchased from the third restaurant location and commissary are apparently not being used and are being stored. If they are moved and installed or sold and then moved and installed so that they are operational then the shipping, installation and other costs noted in the rule need to be added. However, under the facts presented, the Commission disagrees with adding to the sales price the additional 30% for shipping and installation costs.

12. In addition to the purchase price, plus the 30% for shipping and handing, which Respondent listed on the audit as "equipment," Respondent added a number of items that had been on COMPANY A's personal property affidavits for prior tax years. For example at the ADDRESS 1 location, in addition to an entry of $$$$$ for the "equipment," the audit includes: BB: Furniture/Fixtures $$$$$; BB:Short Life Property $$$$$; BB Electric Equipment $$$$$; BB Signage $$$$$; and BB. Signage $$$$$$. The explanation given in the audit for these items is that they were fixed assets from COMPANY A's personal property affidavit. However, from the purchase letter dated December 29, 1999, the Bill of Sale executed on December 31, 1999, and the testimony of Petitioner's representative, all items of property at the specified restaurant locations or commissary, whether equipment, fixtures or furniture, were included in the purchase price. Petitioner purchased every item of COMPANY A's personal property left at each location with the one purchase agreement. However, Respondent's value is based on the supposition that the purchase price of $$$$$ for each restaurant location and $$$$$ for the commissary was for the equipment only, not the other items of personal property.

13. The Commission does not accept Respondent's position because there is no evidence that there was an additional purchase agreement covering the personal property other than the equipment, and the bill of sale indicates that it covered all items at the locations. Either all items of COMPANY A's personal property at each location were transferred to Petitioner in the one agreement, or they were not transferred. If they had not been transferred they would still belong to COMPANY A, not Petitioner.

14. Respondent's audit double counts all the audit items listed with the preface of BB for each restaurant and commissary location. If Respondent is to rely on the purchase price, Respondent can not add an additional amount for items already included in the purchase price.

15. Petitioner did present another comparable sale as well as market information which supported its position that the subject property was overvalued.

16. Respondent presented evidence which indicated that other XXXXX personal property tax assessments were significantly higher than the amount requested by Petitioner at the hearing.

APPLICABLE LAW

1. The Tax Commission is required to oversee the just administration of property taxes to ensure that property is valued for tax purposes according to fair market value. Utah Code Ann. '59-1-210(7).

2. To prevail, the Petitioner must (1) demonstrate that the County's original assessment contained error, and (2) provide the Commission with a sound evidentiary basis for reducing the original valuation to the amount proposed by Petitioner. Nelson V. Bd. Of Equalization of Salt Lake County, 943 P.2d 1354 (Utah 1997).

3. For short and long lived trade fixtures as well as machinery and equipment, taxable value is calculated by applying the percent good factor against the "acquisition cost" of the property. The "acquisition cost" means all costs required to put an item into service, including purchase price, freight and shipping costs, installation, engineering, erection or assembly costs and excise and sales tax. "Acquisition Cost" may correspond to the cost new for new property, or cost used for used property. Utah Admin. Rule R884-24P-33.

CONCLUSIONS OF LAW

1. Petitioner has provided evidence of a lower value for the subject property.

2. When personal property is acquired already fully installed, assembled, engineered and erected to be used in place, the cost of the shipping, installation, engineering, erection and assembly are all included in the purchase price.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that the total market value of the subject personal property including both the equipment originally owned by PETITIONER and the COMPANY A equipment for each of the tax years 2000 and 2001 are as follows:

ADDRESS 2 $$$$$

ADDRESS 3 $$$$$

ADDRESS 1 $$$$$

ADDRESS 4 $$$$$

The County Auditor is ordered to adjust the assessment records as appropriate in compliance with this order.

DATED this 14^th day of May , 2002.

__________________________________

Jane Phan

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 14^th day of May , 2002.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner