BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, : FINDINGS OF FACT,
v. : CONCLUSIONS OF LAW
: AND FINAL DECISION
AUDITING DIVISION OF THE :
UTAH STATE TAX COMMISSION, : Appeal No. 87-0263
: Account No. XXXXX
: Audit Period XXXXX
STATEMENT OF CASE
This matter came before the Utah State Tax Commission pursuant to the Utah Administrative Procedures Act for a formal hearing on XXXXX before Joseph G. Linford, Presiding Officer. The Petitioner was represented by XXXXX. Respondent was represented by XXXXX, Assistant Attorney General and XXXXX of the Auditing Division of the Utah State Tax Commission.
After reviewing the evidence and arguments of the parties in the record and the recommendation of the presiding officer, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. The tax in question is corporate franchise tax.
2. The period in question is XXXXX.
3. Petitioner is a regulated electric utility that produces and sells electric power from and to various locations within Illinois. One of the fuels used by Petitioner to produce electric power is processed uranium which produces nuclear power. The processed uranium is put into nuclear fuel assemblies which are treated as depreciable assets for federal income tax purposes.
4. Petitioner's business operations outside of XXXXX are performed by subsidiary companies of Petitioner. One of these is XXXXX (hereafter "XXXXX") which is wholly owned by Petitioner. XXXXX explores for, develops and mines uranium ore for Petitioner in several states including Utah. When it is determined that a property has sufficient uranium for economic mining, XXXXX transfers to Petitioner the ownership of the intangible rights to the unmined uranium so that all of the uranium ore mined by XXXXX is owned by Petitioner who eventually uses that ore in producing electrical power.
5. On its Utah corporation franchise tax returns filed by Petitioner for XXXXX, Petitioner included the cost of uranium ore which was located in the state of Utah for those periods in the numerator and in the denominator of the property factor that is used to apportion its income to the state of Utah. Petitioner now contends that that was erroneous and the cost of this uranium ore should not be included in either the numerator or the denominator of the property factor.
CONCLUSIONS OF LAW
1. Utah Code Ann.59-7-312 (1987) provides:
The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in this state during the tax period and the denominator of which is the average value of all the taxpayer's real and tangible personal property owned or rented and used during the tax period.
2. Utah Administrative CodeR865-6F-8 provides in pertinent part:
(G)(l)(a)... Real and tangible personal property includes land, buildings, machinery, stocks of goods, equipment, and other real and tangible personal property but does not include coin or currency (G)(2)... Property shall be included in the property factor if it is actually used or is available for or capable of being used during the tax period in the regular course of the trade or business of the taxpayer. Property held as reserves or standby facilities or property held as a reserve source of materials shall be included in the factor. For example,...raw material reserves not currently being processed are includable in the factor. Property or equipment under construction during the tax period (except inventoriable goods in process) shall be excluded from the factor until such property is actually used in the regular course of the trade or business of the taxpayer....
3. Petitioner contends that uranium reserves stored in Utah constitute property under construction and therefore should not be included in the property factor underR865-6f-8(G)(2).
4. The Tax Commission finds that the uranium reserves maintained in Utah do not constitute property under construction. The uranium ore is merely stored in Utah. It is not under the process of construction at all when it is within the borders of the state. It would be better characterized as "raw material reserves not currently being processed." Petitioner's argument that it is later used in the construction or fueling of nuclear reactors outside of the state of Utah is irrelevant to its use within the state of Utah for purposes of the corporation franchise tax. The uranium reserves are clearly stocks of goods which are available or capable of being used during the tax periods in question during the regular course of the trade or business of the Petitioner, that regular course of trade or business being the generation of electrical power, part of which is the process used for generating nuclear power. Therefore, the cost of the uranium reserves located in Utah should be included as part of the numerator and the denominator of the property factor.
DECISION AND ORDER
Based upon the foregoing, it is the decision and order of the Utah State Tax Commission that Petitioner's request is denied and the determination of the Auditing Division is sustained.
DATED this 3 day of May, 1990.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis