BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX,
Petitioner, :
v. ) INFORMAL DECISION
) Appeal No.
86-1701
AUDITING DIVISION
OF THE : Account No. XXXXX
STATE TAX
COMMISSION OF UTAH, ) Audit period XXXXX
: through
XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
For
the audit period XXXXX, through XXXXX, Respondent assessed a deficiency claiming
that additional tax liability was due on all lease payments received by
Petitioner for which Petitioner did not collect sales tax. Petitioner responded in a Petition for
Redetermination dated XXXXX, that its transactions with Utah customers were not
true leases but were secured transactions.
Petitioner requested a ruling based on its Petition for Redetermination
and did not request a hearing.
Petitioner argued that Utah Code Ann. 59-15-2(2) (Supp. 1986) supports
its position that its leases are not
subject to sales tax on the lease
payments. Section 59-15-2(2) provides
that "[a] transaction whereby the possession of property is transferred
but the seller retains the title as security for the payment of the price shall
be deemed a sale." However, section
59-15-2(8) provides that "[w]hen right to possession, operation, or use of
any article of tangible personal property is granted under a lease or contract
and such transfer of possession would be taxable if an outright sale were made,
such lease or contract shall be considered the sale of such article and the tax
shall be computed and paid by the vendor or lessor upon the rentals paid,
regardless of the duration of the lease or contract." Tax Commission Rule A12-02-S32 provides that
sales tax shall be computed by the lessor on rentals paid pursuant to rental or
lease agreements made in lieu of outright sales. Subsection (e) provides that "[r]entals to be applied on a
future sale or purchase are subject to the tax." Petitioner argued further
that the Utah Sales Tax Act does not explain the differences between leases and
secured transactions and that any distinctions must be ascertained from other
Utah laws. Utah's Uniform Commercial
Code, Utah Code Ann. 70A-1-201(37) (1953) provides:
Whether
a lease is intended as security is to be determined by the facts of each case;
however, (a) the inclusion of an option to purchase does not of itself make the
lease one intended for security, and (b) an agreement that upon compliance with
the terms of the lease the lessee shall become or has the option to become the
owner of the property for no additional consideration or for a nominal
consideration does make the lease one intended for security. The Tax Commission disagrees with Petitioner
that the Uniform Commercial Code applies to the taxation of rental payments
received pursuant to leases. Because
the Petitioner bears the burden of proving that the deficiency was improperly
assessed and has failed to meet that burden, the Commission finds that the
transactions in question are true leases and that sales tax was properly
assessed.
DECISION AND ORDER
Based
on the foregoing, it is the Decision and Order of the Utah State Tax Commission
that Petitioner's Petition for Redetermination be denied. Respondent is ordered
to give Petitioner any credit that may be due for tax paid.
DATED
this 5 day of October, 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