87-0146 - Sales




XXXXX                                                                                  )           INFORMAL DECISION

v.                                                                                 :

AUDITING DIVISION OF THE                                :           Appeal No. 87-0146

STATE TAX COMMISSION OF UTAH,                  )           Sales Tax No. XXXXX

            Respondent.                                                     :



            This matter came before the Utah State Tax Commission for an Informal Hearing on XXXXX.  James E. Harward, Hearing Officer, heard the matter for the Tax Commission.  XXXXX, XXXXX and XXXXX appeared representing the Auditing Division.  XXXXX representing the Petitioner.  The Petitioner's primary function is to inspect oil field tubular pipe.  As a secondary function, the Petitioner will also repair that pipe when requested to do so by the client.  During the audit test period, i.e., XXXXX, twelve invoices for eleven different customers were examined.  Two invoices had only inspection work performed but no repairs.  Four invoices had inspection work performed plus a separate charge for a cleaning of threads and application of thread lubricant with no repairs.  One invoice had inspection work performed and XXXXX performed the repairs to correct the problems disclosed by one type of inspection.  One invoice had inspection work performed and a third party performed the required repairs.  Four invoices had no inspection performed but rather repairs such as pipes straightened, etc.  The issue is whether or not the services performed by XXXXX of inspecting tubular pipe are taxable.  In conjunction with the inspection service, the Petitioner is required to clean and lubricate threads to the pipe.  The method of inspection include a hydrostatic and an ultra sound method.  The Respondent argues that the service performed by the Petitioner are the nature "services for repairs, renovations, cleaning or washing of tangible personal property or for installation of tangible personal property rendered in connection with other tangible personal property."  Utah Code Ann. 59-15-4(1)(e).  Rule 78S also provides for "persons who wash, clean, repair, renovate tangible personal property where the material is furnished by seller or not, required to collect the sales tax upon the total charge made for the rendition of such services."


            The Tax Commission after reviewing the evidence presented at the informal hearing conclude that the services provided by the Petitioner also include washing, cleaning, repairing, and renovating and are, therefore, subject to tax.  The Tax Commission further recognizes the problems that this may create for the taxpayer and therefore makes the application of this decision prospective from the notice of the audit.  Therefore, the audit is adjusted to delete any taxes assessed in the audit as it relates to service contracts for cleaning, repairing, and inspection.  The Auditing Division is ordered to adjust its records in conformance with this decision.

            DATED this 21 day of December, 1987.


R. H. Hansen                                                                Joe B. Pacheco

Chairman                                                                      Commissioner

G. Blaine Davis                                                                         Roger O. Tew

Commissioner   Commissioner