BEFORE THE STATE TAX COMMISSION OF UTAH
Petitioner, : INFORMAL DECISION
AUDITING DIVISION OF THE : Appeal No. 87-1161
UTAH STATE TAX COMMISSION, : Acct. No. XXXXX
STATEMENT OF CASE
This is an appeal to the Utah State Tax Commission from an audit report prepared by the Auditing Division of the Utah State Tax Commission (Respondent) for the period XXXXX. An informal hearing was held on XXXXX in the offices of the Utah State Tax Commission. David J. Angerhofer, Hearing Officer, heard the matter for the Tax Commission. XXXXX, Attorney at Law, represented the Petitioner. XXXXX represented the Respondent. The audit includes sales and use tax along with penalty and interest assessed on two large jobs which Petitioner completed in XXXXX. Petitioner sold and installed two gas processing or separating plants, one for XXXXX and one for XXXXX. Petitioner raised several issues regarding the audit. First, the sales are not subject to Utah sales tax because they were negotiated and consummated in XXXXX. Petitioner is a nonresident of Utah and has no duty to collect sales tax for the state of Utah. Use tax may be due on the transactions but is properly remitted by the purchasers of the property, XXXXX. The second issue is whether the installation of the gas processing plants constitutes an improvement to real property or whether the plant remains personal property. Labor involved with an improvement to real property is not taxable. Petitioner stated that the Tax Commission is without authority to distinguish between tangible, personal property which becomes real property upon installation and tangible, personal property which remains personal property after installation. To exempt installation charges from sales tax only if the labor is separately stated on tangible, personal property which remains personal property after installation is contrary to a XXXXX letter received from a Tax Commission employee and is contrary to the Utah Code. The third issue raised by Petitioner is that Utah Code Ann. 59-15-6(4) (1953) (recodified to59-12-104(15)) exempts sales in excess of $500,000 used in the "new construction, expansion, or modernization" of any "mine." Oil and gas wells are included in the Utah definition of "mines." Petitioner claimed further exemptions for tax paid to the state of Wyoming and for tax assessed on freight charges. The fourth issue raised by Petitioner concerned the appropriateness of penalties given the circumstances of this case. Respondent noted that the gas plant is mounted on skids and is considered personal property for investment tax credit purposes as well as for sales and use tax purposes. Respondent stated that the property is subject to use tax since it was purchased for use in the state of Utah. A nonresident vendor is required to collect the tax unless the vendor's only contact is through the mail. Respondent stated that a gas processing plant is excluded from the exemption set forth in59-12-104(15) because it is a refinery.
The Tax Commission finds that the sales in question were not consummated in the state of XXXXX but were consummated in Utah at the conclusion of the installation. The sales of the gas processing plants are sales of property subject to Utah sales and use tax. Since Petitioner installed the plants, Petitioner had a sufficient nexus with the state of Utah to incur the duty of collecting the tax. Given that the gas processing plant is mounted on skids, the Tax Commission finds that the installation of the gas processing plant constitutes the installation of tangible, personal property which is attached to real property but which remains personal property. Tax Commission Rule R865-51S-l applies. Installation labor is exempt if separately stated. Since the installation labor on the XXXXX was invoiced separately, it is exempt. Petitioner did not separately invoice the labor for the XXXXX, but provided evidence of the charges for labor, profit, and freight at the time of the hearing. Because the XXXXX letter by the Tax Commission agent did not specify the requirement of separately stating the installation charges and because Petitioner did provide the installation charges at the hearing, the Tax Commission hereby exempts the installation labor, the profit, and the freight charges for the XXXXX project. Labor to install tangible, personal property to real property is exempt, but labor to install personal property in connection with other personal property is taxable pursuant to Rule R865-51S-1. Although some of the labor involved in the installation of the gas processing plant constituted installation of personal property in connection with other personal property, the Tax Commission finds that all labor involved with the installation of the gas processing plant ultimately was labor for installing tangible, personal property to real property but which remained personal property. Respondent properly applied a tax rate of 5.5 percent to the sales in question. This was the rate applicable in XXXXX during the audit period and included the local tax. A credit for XXXXX tax due is properly deducted from the tax due in Utah and not properly deducted from the total contract price. The Tax Commission finds sufficient basis on which to waive the penalty in this matter.
DECISION AND ORDER
Based on the foregoing, it is the decision and order of the Utah State Tax Commission that Petitioner had the obligation to collect and remit the sales and use taxes to the state of Utah. The installation of the gas processing plants constitutes the installation of tangible, personal property which is attached to real property but which remains personal property. The labor charges, freight, and profit as set forth on exhibit A of Petitioner's brief in support of the petition for redetermination are properly excluded from sales and use tax. Sales tax paid to the state of XXXXX is properly deducted from the sales and use tax assessed by the state of Utah. Penalty is hereby abated. The Auditing Division of the Utah State Tax Commission is ordered to adjust its records in accordance with this decision .
DATED this 25 day of August, 1988.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis