BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX
:
Petitioner, )
v. : FORMAL DECISION
)
AUDITING
DIVISION, STATE :
TAX COMMISSION
OF UTAH, ) Appeal No. 85 0341
Respondent. :
_____________________________________
STATEMENT OF CASE
A
Formal Hearing was held on XXXXX. Joe
B. Pacheco, Commissioner, was the Hearing Officer and heard the matter for the
Utah State Tax Commission. XXXXX,
C.P.A., represented the Petitioner.
XXXXX, Assistant Attorney General, State of Utah, represented the
Respondent.
The
Petitioner is in the business of providing crop dusting to the farming
industry. The Petitioner purchased a
specialized XXXXX aircraft which is used exclusively for the purpose of crop
dusting. The aircraft was purchased
exempt from sales tax because the Petitioner believed the aircraft was
agricultural property which is exempt from sales tax. Section 59-15-6(3) Utah
Code Ann. Now Section 59-12-104(22) as
recodified. Section 59-15-6(3) states:
The gross receipts from sales of tangible personal property used or
consumed primarily and directly in farming operations are exempted from the
taxes imposed by this chapter. This
exemption does not include: (a) machinery, equipment, materials and supplies
used in a manner that is incidental to farming, such as maintenance and
janitorial equipment and supplies, and hand tools with a unit purchase price
not in excess of $100.00.
(b) Tangible personal property used in any activities other than actual
farming operations, such as office equipment and supplies, equipment and
supplies used in sales or distribution of farm products, in research, or in
transportation or
(c) Any vehicle required to be licensed by the laws of this state,
without regard to the use to which the vehicle is put.
The
Respondent assessed a deficiency against Petitioner for sales tax on the XXXXX aircraft
because the exemption applies only to sales of tangible personal property used
or consumed primarily and directly in commercial farming operations, and
further that farming operations are evidenced by the filing of a federal form
1040 F or similar evidence that the operations is a farming venture which was
not done by Petitioner. The Petitioner
argues that because the XXXXX aircraft is used exclusively for dusting
agricultural crops and because the average farmer does not have the money nor
the expertise to buy and operate a crop dusting aircraft, Petitioner should be
exempt from sales tax on the XXXXX aircraft pursuant to Utah Code Ann. §
59-15-6 (Supp. 1986).
Additional reasons the Petitioner feels the
purchase is exempt are following: (1) Because of the uniqueness of the business
they feel they are more typically identified as an agricultural producer in the
agriculture industry. (2) The aircraft is a special craft designed only for the
use of crop spraying. (3) The service they provide to the farmer is a necessary
item in that without the spraying of crops the crops would not be able to
produce. (4) The product dispensed by
the company actually becomes a part of the crop, protecting it until it
matures. (5) From an economic stand
point it would not be feasible for an individual farmer to undertake this type
of venture. (6) The company does not
engage in any other business. The
service is provided exclusively for farmers in southern Utah.
Petitioner
also points out that there is no clear definition of what constitutes a farmer
or agricultural production and that is clearly the heart of the case, that is
the unique business of XXXXX. The fact
that a farm income and expense statement is not submitted is a matter of
semantics, the true questions are whether the company fits the category of
agricultural producer, whether they integrally service the farming community,
and is the aircraft agricultural type equipment.
Respondent
asserted that while crop dusting may be an essential part of farming, and may
be too expensive for the farmers to perform themselves, Utah Code Ann. §
59-15-6 (Supp. 1986) does not support allowing Petitioner the sales tax
exemption it claims. Further, the
Respondent argues, while farm machinery may be exempt from sales tax when
"used or consumed primarily and directly in commercial farming
operations," the Petitioner does not file a federal Farm Income and
Expenses Statement. Tax Commission Rule
A12-02-S49 (d)(2). Rule S49 states that the exemptions are to be to those who are
engaged primarily in the function of farming or producing agricultural
products; and evidence of that is to be provided by the filing of the Form 1040
F or some similar evidence to show that the taxpayer is in fact a farmer
engaged primarily in the business of farming.
FINDINGS
1.
Utah Code Ann. § 59-15-6(3) (Supp. 1986) provides:
The gross receipts from sales of tangible personal property used or
consumed primarily or directly in farming operations are exempted from the
taxes imposed by this chapter.
2. Tax Commission Rule
A12-02-S49(d) provides:
Farm machinery, equipment, and supplies used primarily and directly in farming
operations are exempt from sales tax subject to the following provisions.
(2) The exemption applies only to sales of tangible personal property
used or consumed primarily or directly in commercial farming operations, as
evidenced by the filing of a federal Farm Income and Expenses Statement
(Schedule F) or similar evidence that the farm is operated as a commercial
venture.
3. The Commission finds that although Utah Code
Ann. § 59-15-6(3) (Supp. 1986) does not specifically limit the sales tax
exemptions on sales of tangible personal property and farm equipment to farmers
or agricultural producers, the Utah State Legislature's intent was to limit the
sales tax exemption to farmers and agricultural producers. This intent is apparent throughout Tax
Commission Rule A12-02-S49. Furthermore,
the Petitioner must file a federal Farm Income and Expenses Statement or other
similar statement in order to qualify for the exemption which the Petitioner
has failed to do.
4. The exemption does not apply to support
services to agricultural production.
The aircraft and its use of crop dusting is a support service and therefore,
not entitled to the exemption.
DECISION AND ORDER
Based
on the foregoing facts, it is the Decision and Order of the Utah State Tax
Commission that the Decision of the Informal Hearing is hereby affirmed and the
request for an exemption for the aircraft of the XXXXX is denied.
DATED
this 23 day of July, 1987.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner