BEFORE THE UTAH STATE TAX COMMISSION
v. : FINDINGS OF FACT,
AUDIT DIVISION OF THE : CONCLUSIONS OF LAW,
STATE TAX COMMISSION OF UTAH ) AND FINAL DECISION
Respondent : Appeal No. 87-1056
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. G. Blaine Davis, Commissioner, and Paul F. Iwasaki, Administrative Law Judge, heard the matter for and in behalf of the Commission. Present and representing the Petitioner was XXXXX, Attorney at Law. Present and representing 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 issue is whether machinery and equipment purchased by the Petitioner in XXXXX qualified for the exemption from sales tax pursuant to the provisions of59-12-104(16), Utah Code Ann. and RuleR865-19S-85.
4. The primary business of Petitioner is the construction of highways, which fits within the classification of SIC 1611, "general and special trade contractors, primarily engaged in the construction of roads, streets, alleys, public sidewalks, guardrails, parkways, and airports."
5. The classification of SIC 1611 does not fit within59-12-104(16), Utah Code Ann. or RuleR865-19S-85.
6. In XXXXX, the Petitioner purchased an asphalt plant and located it between XXXXX.
7. An asphalt plant falls within the classification of SIC 2951, which does fit within the SIC classifications required by the statute and the rule.
8. The asphalt plant is not a separate corporation, or a separate division of the Petitioner's corporation, but it does function as a distinct operation and as a separate cost center.
9. Asphalt plants operations may be classified as manufacturers and fall within SIC 2951, which is within the classifications required by the statute and the rule.
10. During XXXXX, the year of acquisition of the asphalt plant, the Petitioner used nearly 97% of the asphalt in its own construction projects. The remaining 3% of the asphalt was used in projects constructed by others.
11. During XXXXX, the first full year of operation after the acquisition of the asphalt plant, the Petitioner used nearly 64% of the asphalt in its own construction projects. The remaining 36% of the asphalt was used in projects constructed by others. Seventy eight percent of the portion sold to others was sold for a single project of the XXXXX. Over 99% of the sales to others were to XXXXX and other governmental entities.
12. For XXXXX combined, 86% of the asphalt was used by the Petitioner in its own construction projects and 14% of the asphalt was sold to others.
13. RuleR865-19S-85 (B)(4) provides that the purchase of machinery and equipment is "exempt only if used predominantly in activities which qualify for exemption." The asphalt plant is used predominantly in construction activities which do not qualify for the exemption.
14. The asphalt plant was purchased primarily to supply products for the construction projects of Petitioner and not to manufacture products for sale as tangible personal property to other entities.
15. De minimis non-qualifying use of the machinery and equipment will not disqualify the purchase from the exemption. Based on the foregoing Findings of Fact, the Commission now makes and enters its:
CONCLUSIONS OF LAW
1. Sales or leases of machinery and equipment purchased or leased by a manufacturer for use in new or expanding operations (excluding normal operating replacements) in any manufacturing facility in Utah are exempt from sales tax.
2. Manufacturing facility means an establishment described in SIC Code Classification 2000-3999 of the Standard Industrial Classification Manual 1972 of the Federal Executive Office of the President, Office of Management and Budget. (Utah Code Ann.59-12-104(16).)
3. "Manufacturer" means a person who:
a. Functions within the activities included in SIC Code Classification 2000-3999;
b. Produces a new, reconditioned, or remanufactured product, article, substance, or commodity from raw, semi-finished, or used material; and
c. In the normal course of business, produces products for sale as tangible personal property.
4. "Establishment" means an economic unit of operation that is generally at a single physical location in Utah where qualifying manufacturing activities are performed. Where distinct and separate economic activities are performed at a single physical location, each activity should be treated as a separate establishment. (RuleR865-19S-85)
5. "Use" means the predominant use.
6. Minimal or de minimis non-qualifying use will not disqualify the purchase or lease of the equipment from the exemption. Based on the foregoing Findings of Fact and Conclusions of Law, the Commission now makes and enters its:
DECISION AND ORDER
The asphalt plant is not used predominantly in manufacturing products for sale as tangible personal property. Therefore, the request of the Petitioner for exemption from the sales tax on the purchase of the asphalt plant is denied.
Dated this 15 day of
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Joe B. Pacheco
G. Blaine Davis Roger O. Tew