87-1037 - Sales




Petitioner, : FINDINGS OF FACT,





Respondent. :



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Paul F. Iwasaki, Presiding Officer, and R. H. Hansen, Chairman, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX, Attorney at Law. Present and representing the Respondent was XXXXX, Assistant Attorney General.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. The tax in question is sales tax.

2. The period in question is XXXXX.

3. The Petitioner is an XXXXX corporation which operated a XXXXX facility in XXXXX.

4. Typically, the Petitioner at its XXXXX facility, would take XXXXX and form them into desired shapes for assembly into a final product such as XXXXX.

5. The Petitioner would, in most cases, contract with its customers to design, manufacture the product and erect or assemble the product at the job site.

6. Sub-assembled pieces were then transported to the job site where final assembly took place. Because of the size of the product and difficulties in transportation, the majority of final assembly activity took place outside the state of Utah.

7. The Petitioner purchased the XXXXX and other raw materials used in the sub-assemblies from Utah vendors. Sales tax on those transactions were not paid at that time. The Petitioner billed its customers sales tax at the point of final destination and remitted it to the state in which that job was located.

8. The assembly or erection of the final product when performed by the Petitioner at the job site, was done by a separate division of the company. There was no showing that the construction division was a separate corporation or other illegal entity from the fabricating division.

9. During the audit period, the Petitioner's XXXXX facility was also involved in manufacturing XXXXX used in the refurbishing of the XXXXX located in XXXXX. The XXXXX was delivered to the job site where installation and supervision of that installation, was done by a contractor other than the Petitioner.

10. The XXXXX project constituted approximately %%%%% of the Petitioner's work load during the period of that project.


The purchase of property, by a person engaged in the business of manufacturing, which enters into and becomes an ingredient or component part of the manufactured product is exempt from sales tax. (Utah Code Ann. 59-16-4(g), Supp. 1984.)


In the present case, the central issue to be determined is whether or not the Petitioner's activity at its XXXXX facility constituted "manufacturing" within the meaning of Utah Code Ann. 59-16-4(g).

The term "manufacture" is not defined by statute. The Respondent argues that the definition given to that term should be the definition provided in Utah State Tax Commission Administrative RuleR865-19S-85. This rule defines "manufacture" for purposes of determining the exempt status of sales or leases of machinery and equipment purchased or leased by a manufacturer in a new or expanding operation.

The Tax Commission does not accept the Respondent's position that the term "manufacturer" as used in determining the exempt status of property which becomes an ingredient or component part of some other piece of tangible personal property is the same as the definition provided for the manufacturing exemption of RuleR865-19S-85. Those two exemptions are for different purposes, and therefore, the terms are given different meanings.

The Tax Commission finds from evidence provided that the Petitioner's XXXXX facility does "manufacture" the products made from the XXXXX it purchases from various vendors located within and without the state of Utah. That determination, however, is not dispositive of the outcome of this case. Although the Petitioner may indeed be engaged in manufacturing at its XXXXX facility, the activities at that facility is but one of a number of different activities that the Petitioner is engaged in, which, when acting in concert with one another, show the Petitioner in its overall operation to be a "real property contractor."

In the present case, the evidence established that the Petitioner engages in designing, manufacturing, and final assembly of large steel products which, when affixed to real property, becomes a fixture to that real property. The manufacturing of those components is done at the XXXXX facility. However, the construction and assembly of those components is done by another division of the Petitioner at the job site. The jobs are bid by the Petitioner under a lump sum contract whereby the Petitioner is obligated to manufacture and install those items of personal property.

There was no showing that the assembly and erection of the items was conducted by a separate corporation or other legal entity of the Petitioner, with the exception of the XXXXX provided for the refurbishing of the XXXXX. In that case, the Petitioner was only responsible for the manufacturing of the XXXXX and had no responsibilities for the final installation of the products. Therefore, in that case, the Petitioner acted as a manufacturer within the meaning of Utah Code Ann. 59-16-4g).

Based upon the foregoing, the Tax Commission finds that in those cases where the Petitioner manufactured and installed the various items, it did so as a real property contractor and, thus, was responsible for payment of sales tax at the time of the purchase of the XXXXX that went into the construction of those items. In those instances the determination of the Auditing Division in assessing a sales tax deficiency is affirmed. To the extent that the audit included materials purchased for the manufacture of items which the Petitioner was not obligated or contracted to install, such as the steel decking used in the XXXXX job, such materials were purchased as ingredients or component parts of items manufactured for sale and, thus, should be removed from the audit.

The Commission rejects the Petitioner's argument that credit must be given to the Petitioner for taxes paid on the sales in question to other states, that doing so creates a "double taxation" situation.

The Commission finds that sales tax on the purchase of the raw materials was first due at the point of sale in Utah and that the Petitioner should have paid it at that time. The fact that it later remitted sales or use taxes to other states does not relieve the Petitioner from its obligation, nor does that fact prevent the state of Utah from collecting the tax. It is so ordered.

DATED this 13 day of February, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner