BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX
:
Petitioner, )
:
v. ) INFORMAL DECISION
:
)
AUDITING
DIVISION OF THE : Appeal No. 86 0140
STATE TAX
COMMISSION OF UTAH, )
:
Respondent. )
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission on XXXXX. James E. Harward,
Hearing Officer, heard the matter for the Tax Commission. XXXXX, Assistant Attorney General, appeared
representing the Respondent. XXXXX
appeared representing the Petitioner.
A
XXXXX airplane was purchased in XXXXX from XXXXX of XXXXX, Utah, by the
Petitioner. The sole purpose of the purchase
of the airplane was the lease of the airplane from the Petitioner to
XXXXX. After the purchase of the
airplane to XXXXX of XXXXX, Utah, delivery of the airplane was taken in Kansas
with a trip to Colorado and then returning to Utah.
The
Petitioner argues that the transaction is; (1) an isolated sale which is exempt
from taxation under Utah Code Ann. §
59-15-2, and that it is exempt from taxation due to the interstate commerce
clause; (3) that the airplane was used almost exclusively in California, and
therefore, only a portion should be apportioned to Utah; and (4) the penalty
should not be assessed because the taxpayer partnership consists of doctors who
relied upon advice of attorneys and accountants and could not be construed to
be negligent.
DECISION AND ORDER
The
Tax Commission, after reviewing the case law which was submitted by the
Petitioner in a previous hearing, and which has been made a part of this record
finds that (1) the exemption of Utah Code Ann.
§ 59-15-2 does not apply to these facts. The sole purpose of the creation of the partnership was for the
purchase of the airplane for lease purposes.
Simply because it was done only on a one time basis does not make it an
isolated sale for tax purposes. The
case cited by the Petitioner, L. A. Young Sons Construction Company v. The
State Tax Commission (457 P.2d 973, Utah 1969) is distinguishable on its
facts. The seller was an out of state
corporation who is engaged in the business of constructing highways, roads,
bridges, and like projects, and who is not engaged in the business of selling
construction equipment or in retail sales.
Therefore, the sale of construction equipment to L.A. Young Sons
Construction Company was deemed to be an isolated or occasional sale. In the case at hand, the Petitioner
purchased the airplane from a local resident business which is in the business
of selling the airplanes. Therefore,
the ruling in L.A. Young Sons Construction Company is not
controlling. The Tax Commission finds
that the subject transaction is not an isolated sale under Utah Code Ann. § 59-15-2.
2. Interstate Commerce Clause. The Petitioner cited numerous cases whereby
the courts have concluded that an airplane has been placed in interstate
commerce prior to becoming a taxable event in a state. These cases turn upon a sale of an airplane
by an out of state company to a company doing business in the state. When the airplane is placed in interstate
commerce after purchase of the airplane from the out of state company, then the
courts have concluded that there is no taxable moment upon which the state can
impose a tax. See King v. L.
& L. Marine Service Inc., (647 SW2d 524, Mo. 1983) W. R. Grayson
Company v. Comptroller, (258 A.2d 740, Md. 1969) and Union Pacific
Railroad v. Utah State Tax Commission (110 Utah 99, 169 P.2d 804, 1946).
The
Tax Commission has reviewed the cases cited by the Petitioner and also the Great
American Airways v. Nevada State Tax Commission, 705 P.2d 654 (Nev. 1985)
case. The Nevada Supreme Court looked
at a four prong test to determine whether or not a transaction was taxable or
exempt from taxation because of the interstate commerce clause. That four prong test is 1) there must be a
substantial nexus with the State, 2) the tax be fairly apportioned, 3) the tax
does not discriminate against interstate commerce, and 4) it be fairly related
to the services of the State. (Great
American Airways, 709 P.2d at 656.)
In
applying the four prong test to the facts before the Commission, the Commission
finds that there is substantial nexus with the State. That nexus is that both the seller and the purchaser are
residents of the State of Utah. The only transaction which occurred outside the
State of Utah was the delivery of the airplane in Kansas. The Commission finds that there has been no
evidence of apportionment or payment of tax in any other state. Therefore, the apportionment aspect of the
test has been met. This transaction in
being taxed, does not tax this event anymore or any less, and therefore, finds
that there has been no discrimination against interstate commerce. This event is not taxed any more than had it
been purchased in the state which can be argued that it is because both the
seller and the purchaser are residents of the State of Utah. Since both seller
and buyer are residents of the State of Utah, the fourth prong, that the matter
be fairly related to the services of the state is properly met in that both are
residents of the State of Utah. Based
upon this analysis and a review of the XXXXX case and in relation to the other
case as cited by the Petitioner and Respondent, the Commission concludes that
the transaction is taxable and not exempt because of the interstate commerce
clause. In making this conclusion, the
Tax Commission relies upon the residency of both the seller and the buyer in
the terms of the lease which indicates that the aircraft is to be permanently
based in XXXXX, Utah, and that no taxes have been paid in other states or
apportioned in other states.
The
Commission does not accept the argument that since the airplane was used almost
exclusively in California that only a percentage of the taxes be paid in
relation to the proportion of the use in Utah.
The court in the XXXXX disposed of that argument stating that it would
"not only be administratively complicated for both the state and the
taxpayer, but also misconceives the function of the use tax, namely, to prevent
evasion of the state sales tax." Great American Airways, Id. at
657.
The
penalty assessed against the Petitioner was properly assessed. The argument that the Petitioners relied
upon the advice of attorneys and accountants does not persuade the Commission
to waive the penalty associated with this audit, and therefore, affirms the
same. Therefore, it is the order of the
Utah State Tax Commission that the taxes, penalty, and interest be affirmed.
DATED
this 1 day of September, 1987.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
ABSENT
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner