02-0649
Sales Tax
Signed 5/8/03
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
PETITIONER, )
) ORDER
Petitioner, )
) Appeal No. 02-0649
v. ) Account No. #####
)
AUDITING DIVISION OF ) Tax Type:
Sales
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
)
Respondent. )
_____________________________________
Presiding:
Jane Phan,
Administrative Law Judge
Appearances:
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.
APPLICABLE LAW
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
Appeals
Division
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.
____________________________________
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 8th day of May ,
2003.
Pam Hendrickson R.
Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc
B. Johnson
Commissioner Commissioner