BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX
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
Respondent. :
_____________________________________
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
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner