BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
AUDITING
DIVISION OF THE : Appeal No. 87-1037
UTAH STATE TAX COMMISSION, : Account
No. XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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.)
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner