85-0341 - Sales

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