01-1380

Sales Tax

Signed 7/10/02

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal No. 01-1380

) Account No. #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Sales Tax

COMMISSION, ) Tax Year: 2000

)

Respondent. ) Judge: Davis

_____________________________________

Presiding:

G. Blaine Davis, Administrative Law Judge

Appearances:

For Petitioner: No one appeared

For Respondent: Mr. Laron Lind, Assistant Attorney General

Ms. Shelly Robinson, from the Auditing Division

Ms. Heidi Reilly, from the Auditing Division

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on March 19, 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 sales tax.

2. The period in question is May 2000.

3. Petitioner, PETITIONER 1 ("PETITIONER 1") is a STATE Corporation which operates under the authority of the STATE Public Service Commission. Petitioner is not registered to do business in the State of Utah.

4. There is a separate company, PETITIONER 2 - Utah ("PETITIONER 2") which is a Utah Corporation registered to do business in Utah which operates under the authority of the Utah Public Service Commission.

5. PETITIONER 1 does not own any real property in Utah and it does not own substantial personal property within this state.

6. PETITIONER 2 Utah and PETITIONER 1 of STATE have common telephone transmission facilities that run across state lines, but ownership of the property in Utah is with PETITIONER 2 Utah, and ownership of the facilities in STATE is with PETITIONER 1 STATE.

7. PETITIONER 1 STATE has eight employees. Five of those employees work in CITY, Utah, and the other three employees are drivers who operate exclusively in STATE.

8. In May 2000, PETITIONER 1 STATE purchased a vehicle in Utah and took delivery of that vehicle in Utah. Petitioner signed a non-resident affidavit and then immediately transported the vehicle directly to STATE. The vehicle was registered and licensed in STATE and sales tax on the vehicle was paid to the State of STATE.

9. Following an audit of this purchase transaction, Respondent issued an assessment for sales tax in the amount of $$$$$$ plus $$$$$$ in penalties and $$$$$$ in interest.

10. In its answer to the Petition for Redetermination, the Respondent alleges that Petitioner is a Utah resident and subject to the Utah sales tax on the purchase of this vehicle.

11. PETITIONER 1 STATE has four (4) vehicles which are licensed and registered in the State of Utah, and it shares an office in CITY Utah with PETITIONER 2 Utah. In addition, five of the eight employees are officed in CITY, Utah. However, the vehicle at issue is used exclusively in STATE by employees of Petitioner who work exclusively in STATE.

APPLICABLE LAW

Utah Code Ann. §59-12-104, provides in relevant part:

The following sales and uses are exempt from the taxes imposed by this chapter:

(9) sales of vehicles of a type required to be registered under the motor vehicle laws of this state which are made to bona fide nonresidents of this state and are not afterwards registered or used in this state except as necessary to transport them to the borders of this state;

Utah Code Ann. §41-1a-202, relates to vehicle registration, and defines resident as follows:

(1) In this section:

(a) "Domicile" means the place:

(i) where an individual has a fixed permanent home and principal establishment;

(ii) to which the individual if absent, intends to return; and

(iii) in which the individual and his family voluntarily reside, not for a special or temporary purpose, but with the intention of making a permanent home.

(b)(i) "Resident" means any of the following:

(A) an individual who:

(I) has established a domicile in this state;

(II) regardless of domicile, remains in this state for an aggregate period of six months or more during any calendar year;

(III) engages in a trade, profession, or occupation in this state or who accepts employment in other than seasonal work in this state and who does not commute into the state;

(IV) declares himself to be a resident of this state for the purpose of obtaining a driver license or motor vehicle registration or

(V) declares himself a resident of Utah to obtain privileges not ordinarily extended to nonresidents, including going to school, or placing children in school without paying nonresident tuition or fees;

(B) any individual, partnership, limited liability company, firm, corporation, association, or other entity that:

(I) maintains a main office, branch office, or warehouse facility in this state and that bases and operates a motor vehicle in this state; or

(II) operates a motor vehicle in intrastate transportation for other than seasonal work.

(ii) "Resident" does not include any of the following:

(A) a member of the military temporarily stationed in Utah; and

(B) an out-of-state student, as classified by the institution of higher education, enrolled with the equivalent of seven or more quarter hours, regardless of whether the student engages in a trade, profession, or occupation in this state or accepts employment in this state.

(2) Registration under this chapter is not required for any:

(a) vehicle registered in another state and owned by a nonresident of the state or operating under a temporary registration permit issued by the division or a dealer authorized by this chapter, driven or moved upon a highway in conformance with the provisions of this chapter relating to manufacturers, transporters, dealers, lien holders, or interstate vehicles;

(b) vehicle driven or moved upon a highway only for the purpose of crossing the highway from one property to another;

. . . .

(f) motor vehicle not designed, used, or maintained for the transportation of passengers for hire or for the transportation of property if the motor vehicle is registered in another state and is owned and operated by a nonresident of this state;

(g) vehicle or combination of vehicles designed, used, or maintained for the transportation of persons for hire or for the transportation of property if the vehicle or combination of vehicles is registered in another state and is owned and operated by a nonresident of this state and if the vehicle or combination of vehicles has a gross laden weight of 26,000 pounds or less;

. . . .

(3) Unless otherwise exempted under Subsection (2), registration under this chapter is required for any motor vehicle, combination of vehicles, trailer, semitrailer, or vintage vehicle within 60 days of the owner establishing residency in this state.

Utah Code Ann. §41-1a-102(34) relating to motor vehicle registration, defines nonresident as follows:

(34) (a) "Nonresident" means a person who is not a resident of this state as defined by Section 41-1a-202, and who does not engage in intrastate business within this state and does not operate in that business any motor vehicle, trailer, or semitrailer within this state.

(b) A person who engages in intrastate business within this state and operates in that business any motor vehicle, trailer, or semitrailer in this state or who, even though engaging in interstate commerce, maintains any vehicle in this state as the home station of that vehicle is considered a resident of this state, insofar as that vehicle is concerned in administering this chapter.

Utah Administrative Code Rule R865-19S-98, provides in relevant part:

A. Definitions.

1. "Person" means any individual, firm, partnership, joint venture, association, corporation, estate, trust, business trust, receiver, syndicate, or any group or combination, acting as a unit.

. . . .

B. In order to qualify as a nonresident for the purpose of exempting vehicles from sales tax under Subsections 59-12-104(9) and 59-12-104(31), a person may not:

1. be a resident of this state. The fact that a person leaves the state temporarily is not sufficient to terminate residency;

2. be engaged in intrastate business and operate the purchased vehicle as part of the business within this state;

3. maintain a vehicle with this state designated as the home state;

4. except in the case of a tourist temporarily within this state, own, lease, or rent a residence or a place of business within this state, or occupy or permit to be occupied a Utah residence or place of business;

5. except in the case of an employee who can clearly demonstrate that the use of the vehicle in this state is to commute to work from another state, be engaged in a trade, profession, or occupation or accept gainful employment in this state;

6. allow the purchased vehicle to be kept or used by a resident of this state; or

7. declare residency in Utah to obtain privileges not ordinarily extended to nonresidents, such as attending school or placing children in school without paying nonresident tuition or fees, or maintaining a Utah driver's license.

C. A nonresident owner of a vehicle described in Section 59-12-104(9) may continue to qualify for the exemption provided by that section if use of the vehicle in this state is infrequent, occasional, and nonbusiness in nature.

D. A nonresident owner of a vehicle described in Subsection 59-12-104(32) may continue to qualify for the exemption provided by that section if use of the vehicle in this state does not exceed 14 days in any calendar year and is nonbusiness in nature.

Utah Code Ann. §59-7-101(11) & (12) provide:

(11) "Domestic corporation" means a corporation which is incorporated or organized under the laws of this state.

(12) "Foreign corporation" means a corporation which is not incorporated or organized under this laws of this state.

Utah Code Ann. §59-7-302(2) provides:

(2) "Commercial domicile" means the principal place from which the trade or business of the taxpayer is directed or manage.

Utah Code Ann. §59-10-103(1)(g)(h) & (k) provide:

(g) "Individual" means a natural person and includes aliens and minors.

(h) "Nonresident individual" means an individual who is not a resident of this state.

. . . .

(k) "Resident individual means:

(i) an individual who is domiciled in this state for any period of time during the taxable year, but only for the duration of such period; or

(ii) an individual who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate 183 or more days of the taxable year in this state. For purposes of this Subsection (1)(k)(ii), a fraction of a calendar day shall be counted as a whole day.

DISCUSSION

Petitioner did not appear, either in person or by telephone at the Formal Hearing. Therefore, it was necessary to determine the facts from the file, and representations of Respondent, and the Order from the Initial Hearing.

Sales of motor vehicles within this state are generally subject to sales tax. Such sales would, however, be exempt from sales tax if they "are made to bona fide nonresidents of this state and [the vehicles] are not afterwards registered or used in this state except as necessary to transport them to the borders of this state;" U.C.A. §59-12-104(9). All of the evidence is that the vehicle meets the second prong of the statute because it was never registered or used in this state except to transport it to the borders of this state. The vehicle was in fact, licensed and registered in the State of STATE. The issue then becomes whether PETITIONER 1-STATE meets the first prong of the statute as a "bona fide nonresident" of the State of Utah.

The position of Petitioner apparently is that the company is a bona fide nonresident of this state because it is incorporated in STATE, operates in STATE, owns almost all of its property in STATE, is regulated by the STATE Public Service Commission, and its business is in STATE.

The position of Respondent is that the company is not a bona fide nonresident of this state because it shares an office in CITY, Utah with PETITIONER 1 -Utah, because it has four (4) vehicles which are licensed and registered in the State of Utah, and because five (5) of the eight (8) employees of Petitioner are officed in CITY, Utah.

Respondent also apparently argued at the Initial Hearing that in 1995 Petitioner registered to do business in Utah and listed a Utah address. Petitioner then explained that in 1995 during a family dispute, the owner's children registered the company in Utah without authorization from the owner. At the Formal Hearing, there was no evidence submitted of any such registration in Utah. Further, if there was such a registration of the company in 1995, and if there were no further filings of information by way of annual reports, the registration would not have been current as of May 2000, the date of the sale of the vehicle. In the absence of any evidence, the Commission finds that Petitioner was not registered to do business in the State of Utah as of May 2000, the time of the vehicle sale at issue in this proceeding.

To determine whether Petitioner is a bona fide nonresident of this state, it is necessary to examine the limited known facts, and the relevant statutes and administrative rules.

Utah Code Ann. §59-12-104(9) uses the term "bona fide nonresidents", but the term is not defined in the sales tax statutes. However, Utah Administrative Code, Rule R865-19S-98 (Rule 98) does attempt to set the parameters of sales of vehicles to nonresidents by the following:

1. "Person" means any individual, firm, partnership, joint venture, association, corporation, estate, trust, business trust, receiver, syndicate, or any group or combination, acting as a unit.

. . . .

B. In order to qualify as a nonresident for the purpose of exempting vehicles from sales tax under Subsections 59-12-104(9) and 59-12-104(32), a person may not:

. . . .

3. maintain a vehicle with this state designated as the home state;

. . . .

Respondent also submits that the sales tax provisions of Rule 98 are supported by the statutes related to motor vehicle licensing and registration, Utah Code Ann. §§41-1a-202 and 41-1a-102(34). Section 41-1a-202 includes as a resident any individual or entity that maintains a branch office in this state or that bases and operates a motor vehicle in this state. Section 41-1a-102(34) defines a nonresident by referring to §41-1a-202. However, other definitions contained in the corporation and individual income tax statutes may be just as relevant as the motor vehicle registration statutes. Utah Code Ann. §59-7-101 defines a "domestic corporation" as "a corporation which is incorporated or organized under the laws of this state" and a "foreign corporation" as "a corporation which is not incorporated or organized under the laws of this state". Utah Code Ann. §59-7-302(2) defines the commercial domicile of an entity as "the principal place from which the trade or business of the taxpayer is directed or managed". Under Utah Code Ann. §59-10-103, the relevant issues to determine the state in which a state income tax return must be filed is either the legal domicile of the individual or the amount of time present in this state.

Rule 98 supports the position of Respondent in determining that Petitioner is not a "bona fide nonresident" because it maintains motor vehicles in this state designated as the home state, and because it occupies a place of business in this state. Thus, there is significant undisputed evidence to support the Division's contention that Petitioner is, in fact, a resident of Utah. A corporation may easily be a "resident" of several different states simultaneously.

The Commission recognizes the risk that a single transaction could be taxed two different times by two different states, i.e., Utah and STATE. If PETITIONER 2-Utah purchased a vehicle in CITY 2, STATE and took it to CITY, Utah for use, there is no question it would be subject to Utah sales tax and would be required to be licensed and registered in the State of Utah. Utah, however, would grant a credit for any sales tax paid to STATE. In this case, it appears that a credit against Nevada's use tax should be given for Utah sales tax, given the fact that the sales tax obligation arose at the time of the sale, before any STATE use tax obligation could arise.

Accordingly, the Commission finds and determines that Rule 98 as written and as applied to the facts of this case is a valid interpretation of Utah Code Ann. §59-12-104(9). The Commission also finds and determines that Utah sales tax is due on the transaction at issue in this proceeding.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that the transaction was subject to sales tax in the State of Utah, and the audit assessment is sustained. The Petition for Redetermination is hereby denied. It is so ordered.

DATED this 10^th day of July , 2002.

___________________________________

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 10^th day of July , 2002.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner