85-0048 - Sales





Petitioner )



v. :


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.



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


Mark K. Buchi Gary C. Cornia

Chairman Commissioner

R. H. Hansen Roger O. Tew

Commissioner Commissioner