BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 02-0649
v. ) Account No. #####
AUDITING DIVISION OF ) Tax Type: Sales
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
Jane Phan, Administrative Law Judge
For Petitioner: PETITIONER REP., Attorney at Law
For Respondent: Laron Lind, Assistant Attorney General
Anna Anderson, Manager, Sales and Use Tax Auditing
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 March 31, 2003.
Petitioner is appealing a sales and use tax audit deficiency determined for the audit period of October 1, 1998 through August 31, 2001. The amount of the additional sales and use tax determined in the audit was $$$$$. In addition, interest was assessed at the statutory rate and continues to accrue on the unpaid balance. The audit was in part based on a sample period. Respondent found certain errors during the sample period and then determined from them a factor which was applied to the entire audit period. Petitioner argues that certain of the items should not have been included in the sample period, thereby reducing the amount of the factor. In addition there were some unreported taxable purchases some of which were considered ongoing purchases and included in the factor amount and some of which were one time purchases for which tax was assessed, but they were not included in the factor.
The first items at issue were listed on Schedule 1 of the audit. These were transactions that Petitioner claimed were exempt as sales to nonresidents. Petitioner provided Nonresident Affidavits for Sales Tax Exemption that had been signed by three purchasers. Respondent concluded the transactions were not entitled to the sales tax exemption, pointing out that the Nonresident Affidavits were incomplete. They were either missing the purchaser's drivers license number or social security number or both. On the face of the affidavit it states, marked by arrows, the following, "This sales tax exemption may NOT be allowed if all name, address, I.D. numbers and signatures on this form are not filled in." In addition, just above where the dealer signed the affidavit it states, "I understand that by accepting an incomplete affidavit or an affidavit that I knew (or should have known) to be false, misleading, or inaccurate, I may be held liable for appropriate taxes, interest, and penalties."
The rule is clear on this point and it is appropriate for Respondent to disallow the exemption on these items based on the incomplete Nonresident Affidavits. Utah Admin Rule R865-19S-98(F) & (G) indicates that incomplete responses shall invalidate the affidavit and a dealer who accepts an incomplete affidavit may be held liable for the tax. Respondent points out it is difficult to verify the claims on the affidavit without the complete information. Respondent did attempt to locate the purchasers in the states that they claimed for their residence on the affidavit but was unable to do so. Of course, this attempt was made was several years after the purchase at issue.
Petitioner asserts that it is possible these purchasers were foreign nationals, or for other reasons did not have a drivers licenses or social security number. However, there is no evidence supporting this assumption on the affidavit and it appears to be contradicted by the fact that all purchasers listed as their place of residence a location within the United States. Respondent has appropriately applied the law and rule in this matter and disallowed the nonresident exemption for these sales.
Another item on Schedule 1 of the audit pertains to Invoice No. 3464 for a purchase in the amount of $$$$$ of an ADJ Stator Banshee which Petitioner asserts was mailed out-of-state to the purchaser. The invoice indicates that this was an "out-of-state sale, exempt from tax." Upon inquiry from Petitioner after this audit was initiated, the purchaser of this item wrote on the invoice "PETITIONER's mailed out to me" and signed his name. The invoice indicates a STATE address for the purchaser. As Respondent did not present anything that would refute Petitioner's contention on this, the Commission will except Petitioner's position that this transaction was exempt from sales tax and should be removed from the audit.
Another invoice, Invoice No. 7156, was for a part which Petitioner represents was shipped to STATE 2. Petitioner provided the invoice which indicated "Out-of-state, exempt from sales tax." There was a note on the invoice, presumably written by Petitioner, that the item had been shipped to STATE 2 and the invoice also indicates an invoice date and a later shipping date. Petitioner provided evidence that this purchaser was a resident of STATE 2 in the form of a Nonresident Affidavit signed by the purchase relating to a prior transaction. The preponderance of the evidence presented on this invoice indicates that the purchased item was shipped out of state and the transaction should also be exempt from sales tax.
Turning to items in Schedule 2, there were a number of trade-ins where Respondent disallowed the trade-in allowance for the purposes of reducing the taxable base. The reason for the disallowance is Respondent's assertion that the trade-in amount may reduce the taxable base only when the item traded-in was titled and registered in the name of the purchaser or, in the alternative, Petitioner could show that all applicable sales or use taxes had been paid on the prior acquisition of the vehicle. Respondent relies in part on the Tax Commission's Motor Vehicle Dealer/Marine Dealer Publication 5 ("Tax Commission Publication 5") which indicates that trade-in credits are not allowable when the trade-in vehicle is not registered and titled in the name of the purchaseror when the owner of the newly acquired trade-in vehicle cannot show "all applicable sales or use taxes have been paid on the acquisition of the vehicle."
Petitioner's representative points to the statute in this matter which provides an exemption from sales tax for the trade-in portion. He argues that Petitioner is entitled to this exemption pursuant to Utah Code Ann. Sec. 59-12-104(18), regardless of whether the vehicles traded-in were titled and registered in the name of the purchaser, as there is no requirement in the statute or corresponding rule that the trade-in be titled and registered in the name of the purchaser of the new item to qualify for the exemption. It was his assertion that the Tax Commission Publication 5 went beyond the scope of the statute and impermissibly narrowed the exemption.
Respondent's statutory references on this issue, and the rules referenced in the Tax Commission Publication 5, do not appear to the Commission to be relevant to Respondent's position that either the vehicle must be titled and registered in the name of the purchaser, or that Petitioner prove that the sales tax on the prior exchange had been paid. It is unclear to the Tax Commission why and on what statutory authority, the exemption set out at Utah Code Ann. Sec. 59-12-104(18) was narrowed to the point described in Tax Commission Publication 5. Without sufficient information from Respondent in support of this Publication, the Commission agrees with Petitioner that the publication has impermissibly narrowed the exemption. Petitioner should have been allowed the requested trade-in amounts to reduce the taxable base.
There was one item on Schedule 3, Unreported Purchases, that remained at issue at the Initial Hearing. Petitioner had purchased a display clip and wall hanging for display use in its showroom. Petitioner does not contest that the purchase of these items were taxable transactions. He argues instead that they should be included in Schedule 4 as one time purchases, rather than Schedule 3 which would affect the factor applied to the entire audit period. It was Petitioner's position that the display clip and wall hanging were not the type of product to be purchased on a quarterly basis. Respondent argued that they were types of items that should be included in Schedule 3. The Commission concludes that Petitioner's argument is reasonable on this issue. This does not appear to be the type of equipment that would be purchased on an ongoing basis.
The one item on Schedule 4, One Time Events, that remained at issue was whether Petitioner owed sales or use tax on the purchase of a 1999 Holiday Rambler 40' motor home. Petitioner maintains that he purchased this item for resale. Respondent maintains that Petitioner's principal purchased the motor home for his personal use or for use by the business. This motor home was purchased on October 18, 2000, individually by NAME. Later he registered and titled it in Utah in the business' name, PETITIONER and at that time the vehicle had 8383 miles of travel. Petitioner did apparently place adds in November 2000 to sell the motor home on ADVERTISING NEWSPAPER and in the local newspapers. Petitioner did not, however, sell the vehicle until July 2002. When Petitioner sold the vehicle it had 12,923 miles. Petitioner argues the reason for the additional miles was that he drove the Motor home to STATE 3, via the STATE 4 coast, for repairs. In addition he took the motor home to the sand dunes in Southern Utah on weekends where he set up a display to advertise and sell his inventory.
The issue is whether this motor home was purchased for resale or for use by Petitioner. Respondent points out that there are factors that indicate the motor home was purchased for the use of the business and its principal despite the fact that an advertisement or two may have been placed to sell the motor home shortly after its purchase. The motor home was originally purchased in the individual name of Petitioner's principal. Later, when the motor home was titled and registered in Utah, it was registered in the business name with permanent plates. Typically a dealer would use temporary dealer plates. Petitioner's accountant depreciated the motor home on the books, rather than consider it as inventory. More than four-thousand miles had been placed on the motor home between the time it was brought to Utah and when it was finally sold. There are clearly factual questions at issue on this point and the information presented at the hearing is conflicting. The Commission concludes that Petitioner has not met its burden of proof on this issue.
1. A tax is imposed on the purchaser as provided in this part for amounts paid or charged for the following transactions: (a) retail sales of tangible personal property made within the state; . . . (Utah Code Ann. 59-12-103(1)(a).)
2. 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. 59-12-104(9).)
3. In order to qualify as a nonresident for the purposes of exempting vehicles from sales tax under Subsection 59-12-104(9) and 59-12-104(32), 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 residence or place of business; 5. except in the case of an employee who can clearly demonstrate 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. (Utah Admin. Rule R865-19S-98(B).)
4. (F) Purchasers claiming this exemption must complete a nonresident affidavit. False, misleading, or incomplete responses shall invalidate the affidavit and subject the purchaser to tax, penalties and interest. (G) A dealer who accepts an incomplete affidavit, may be held liable for the appropriate tax, interest and penalties. (Utah Admin. Rule R865-19S-98(F)&(G).)
5. The Burden of proving that a sale is for resale or otherwise exempt is upon the vendor. If any agent of the Tax Commission requests the vendor to produce a valid exemption certificate or other similar acceptable evidence to support the vendor's claim that a sale is for resale or otherwise exempt, and the vendor is unable to comply, the sale will be considered taxable and the tax shall be payable by the vendor. (Utah Admin. Rule R865-19S-23(E).)
6. The following sales and uses are exempt from the taxes imposed by this chapter: . . . (18) tangible personal property, other than money, traded in as full or part payment of the purchase price, except that for purposes of calculating sales or use tax upon vehicles not sold by a vehicle dealer, trade-ins are limited to other vehicles only, and the tax is based upon: (a) the bill of sale or other written evidence of value of the vehicle being sold and the vehicle being traded in; or (b) in the absence of a bill of sale or other written evidence of value, the then existing fair market value of the vehicle being sold and the vehicle being traded in, as determined by the commission. (Utah Code Ann. Sec. 59-12-104(18).)
7. A. An even exchanged of tangible personal property for tangible personal property is exempt from tax. When a person takes tangible personal property as part payment on a sale of tangible personal property, sales or use tax applies only to any consideration valued in money which changes hands. B. For example, if a car is sold for $8,500 and a credit of $6,500 is allowed for a used car taken in trade, the sales or use tax applies to the difference, or $2,000 in this example. Subsequently, when the used car is sold, tax applies to the selling price less any trade-in at that time. C. An actual exchange of tangible personal properties between two persons must be made before the exemption applies. For example, there is no exchange if a person sells his car to a dealer and the dealer holds the credit to apply on a purchase at a later date; there are two separate transactions, and tax applies to the full amount of the subsequent purchase if and when it takes place. (Utah Admin. Rule R865-19S-72.)
8. The following sales and uses are exempt from the taxes imposed by this chapter: . . . (26) property purchased for resale in this state, in the regular course of business, either in its original form or as an ingredient or component part of a manufactured or compounded product; . . . (Utah Code Ann. Sec. 59-12-104(26).)
DECISION AND ORDER
Based on the foregoing, the Tax Commission makes the following adjustments to the audit. On Schedule 1 of the audit Invoice Numbers 3464 and 7156 shall be considered exempt from tax as an out-of-state sales. The factor amount applied to the remaining audit period shall be adjusted accordingly. The remaining items on that schedule as determined by Respondent are sustained. On Schedule 2 of the audit, the Commission orders Respondent to adjust the taxable base by subtracting out the value of the trade-ins, in order to allow Petitioner the statutory sales tax exemption for the trade-ins. On Schedule 3, in addition to the changes to which the parties have already agreed, the Commission orders the display clip and wall hanging to be removed from this Schedule and placed instead in Schedule 4. On Schedule 4 the items above will be added to Schedule 4 and all other items on Schedule 4 are sustained. Respondent is to adjust the audit according to this decision. 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 8th day of May , 2003.
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 8th day of May , 2003.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson