BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX
Petitioner, : INFORMAL DECISION
v. :
AUDITING
DIVISION OF THE : Appeal No. 87-1161
UTAH STATE TAX COMMISSION, : Acct.
No. XXXXX
Respondent. :
_____________________________________
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.
FINDINGS
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
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner