BEFORE THE STATE TAX COMMISSION OF UTAH
v. ) INFORMAL DECISION
) Appeal No. 86-1701
AUDITING DIVISION OF THE : Account No. XXXXX
STATE TAX COMMISSION OF UTAH, ) Audit period XXXXX
: through XXXXX
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
Joe B. Pacheco G. Blaine Davis