BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX )
:
Petitioner )
: DECISION
FROM
) INFORMAL
HEARING
v. :
AUDIT DIVISION
OF THE )
UTAH STATE TAX
COMMISSION : Appeal No. 85-51-0048
)
Respondent :
_____________________________________
This
is an appeal to the Utah State Tax Commission from a Notice of Delinquency in
which Respondent assessed a sales and use tax deficiency based on a
"failure to pay on electrical power used in other than industrial
capacity" in Petitioner's XXXXX.
XXXXX,
Hearing Officer, heard the matter in an Informal Hearing held on XXXXX. XXXXX represented the Petitioner, and XXXXX
represented the Respondent.
Based
on the evidence and the written documentation, the Commission makes the
following determinations:
1. The tax periods in question are from XXXXX
to XXXXX.
2. The audit report prepared by Respondent
assessed an amount of $$$$$ tax and $$$$$ in interest for a total of $$$$$.
3. Both parties agreed at the hearing that the
electricity consumed for the construction of the XXXXX. The remaining issue in this case is whether
the electricity consumed in the operation of the XXXXX is an industrial use or
a commercial use of electricity. It is the
former, then it is not taxable. If the
latter, it is taxable. (Utah Code Ann.
59-15-6, Tax Commission Regulation S-35.)
4. Petitioner asserts that the XXXXX is an
industrial establishment. The
electricity is consumed in the operation of the equipment which converts
mineral shale into shale oil. The shale
oil is then sold to an oil refinery.
This is an industrial use of electricity and it should not be taxed
because, theoretically, the end product is taxed.
5. Respondent asserts that the XXXXX has a
primary objective of developing an extraction process to extract shale oil from
crushed shale. Since any shale oil
produced is merely incidental to the research and development efforts, the
electricity consumed is for a commercial use and it should be taxed.
6. The definitions of 'industrial' and
'commercial' were examined in XXXXX. v. State Tax Commission, 426 P 2d 231
(Utah 1967). In that case, the Utah
Supreme Court referred to the New Twentieth Century Dictionary unabridged for
the definitions:
INDUSTRIAL: "Pertaining to, involving, or characterized
by industry; pertaining to those manufacturing or their operations through
which marketable commodities are produced; as, industrial arts; industrial
operations..." XXXXX., 426 P. 2d at 234. (Emphasis added)
COMMERCIAL: "(1) Pertaining to commerce or trade;
as, commercial affairs; commercial relations... (2) Carrying on commerce; as, a
commercial nation... (3) Proceeding for trade; as, commercial benefits or
profits..." Id.
The
electricity used to operate the machinery in the XXXXX is not used to produce a
marketable commodity. The primary
nature of the XXXXX is the "development of synthetic fuels form shale or
other resources" as evidenced from Petitioner's application for sales tax
license and/or use tax registration.
The XXXXX was never intended to used in an industrial capacity. The shale oil produced is only a by-product. Therefore, there is to industrial use of
electricity in the XXXXX. Instead, the
electricity is used to develop a new area of commerce or trade. The electricity to operate the equipment is
taxable as a commercial use.
DECISION
THEREFORE, ITS IS HEREBY DECIDED:
1. That the electricity to operate the
equipment of the XXXXX is taxable as a commercial use of electricity.
2. That Petitioner is subject to sales and use
taxes in Utah.
3. That Petitioner's exemption certificate
maintained with the XXXXX be cancelled.
4. That Respondent's audit deficiency is
affirmed.
DATED
this 27 day of November, 1985
BY ORDER OF THE UTAH STATE TAX COMMISSION.
Mark K.
Buchi Gary
C. Cornia
Chairman Commissioner
R. H. Hansen Roger
O. Tew
Commissioner Commissioner