BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX ) INFORMAL DECISION
Petitioners, :
v. :
: Case Nos.
87-1162, 1163,
AUDITING
DIVISION OF THE : and 1164
STATE TAX
COMMISSION OF UTAH, ) Audit Periods XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for an Informal hearing on
XXXXX. James E. Harward, Hearing
Officer, heard the matter for and in behalf of the Tax Commission. XXXXX appeared representing the Respondent. XXXXX appeared representing the
Petitioner. The Petitioner operates
three marinas located at XXXXX. The
Petitioner ia a concessionaire for the XXXXX and is subject to all the
regulations, rules, and rate making guidelines of the XXXXX. As part of its concessionaire's services the
Petitioner provides houseboat rentals to visitors. In conjunction with the lease of houseboats lessees can purchase
an optional damage waiver. The optional
damage waiver is for the purpose of covering any deductible amount which is not
covered by the umbrella insurance coverage of the Petitioners. The Petitioners petition for redetermination
sets forth three issues:
1.
Whether Petitioners as concessionaires of the XXXXX are exempt from Utah sales
tax.
2.
Whether fees charged for optional damage waivers given to lessees of tangible
personal property of subject to Utah Sales Tax Act i.e., whether the August 31,
1987 rule promulgated by the State Tax Commission and Tax Bulletin 14-87 is
valid.
3.
Whether the damage waiver rule should be applied only to transactions occurring
after August 31, 1987, the date the damage waiver rule was disseminated to the
general public.
DECISION
Concessionaire
The Tax Commission finds the ruling and the facts in United States v. New
Mexico 102 S.ct. 1373 (1982) to be dispositive of the issue of whether or not
the Petitioners are in fact subject to sales tax provisions of the Utah Code as
concessionaires for the United States Government. The court stated that "immunity cannot be conferred simply
because the state tax falls upon the earnings of a contractor providing
services to the government." New
Mexico supra at 1352. The court went on
to say "in such a situation where the contractors use of the property in
connection with commercial activities carried on for profit is a separate and
distinct taxable activity. New Mexico,
supra 1352. The court concludes
"that tax immunity is appropriate in only one circumstance: when the levy
falls on the United States itself, or on an agency or instrumentality so
closely connected to the government that the two cannot realistically be viewed
as separate entities, at least insofar as the activity being taxed is
concerned." New Mexico, supra
1352. The Tax Commission after
reviewing the facts and evidence finds no evidence that the Petitioner is so
closely connected to the government that they cannot be realistically
separated. The Tax Commission looks at several facts in making that
determination including but not limited to the fact that Petitioner transacts
all business in the name of the Petitioner and not in the name of XXXXX. In addition, Petitioner is treated as a
separate entity from XXXXX in fact treated as a concessionaire with special
responsibilities and obligations to the government but is not a part of
XXXXX. Optional Damage Waiver The
optional damage waiver would at first blush appear to be a type of
insurance. However, it is not insurance
but simply a contractual arrangement whereby the leases no longer have any
obligation for damages should they occur.
If it were insurance it would be necessary to have an insurance policy
issued, the premium paid thereon, and premium tax paid upon the premium. In
addition, the insurance would have to be issued by a licensed insurance
agent. None of those facts appear. The Petitioner argues that the damage waiver
is a separate charge which is optional and therefore not subject to inclusion
in the lease of the house boats. The
Respondent on the other hand argues that XXXXX stands for the proposition that,
even though a separate charge, included in the lease payment and therefore
should be taxable. The Tax Commission
does not find XXXXX controlling. The
case is clearly distinguishable. XXXXX
stands for the proposition that when a maintenance agreement is made part of a
lease agreement that the maintenance monthly charges are taxed as part of the
lease agreement. In the situation
before the Commission, the charge is to purchase a release of liability for any
damage caused to the leased property.
The charge is clearly optional wherein the XXXXX it appears that the
maintenance agreements were part of the lease agreement. The Tax Commission is now faced with a
charge which is added to a lease of a houseboat which is not exempt from
taxation because it is an insurance premium or policy nor does it fall within
the facts situation as set forth in XXXXX.
Under the strict construction policy and directions of the Utah Supreme
Court all items shall be taxed unless specifically exempted. See, Parker v. Quinn, 64 P.961 (Utah 1901);
Loyal Order of Moose, No. 259 v. County Board of Equalization of Salt Lake
County, 657 P.2d 257 (Utah 1982); Friendship manor corporation v. Utah State
Tax Commission, 487 P.2d 1272 (Utah 1971).
Therefore the damage waiver claims are subject and for convenience
purposes would be included in the total lease payment for computation of sales
tax. Retrospective as opposed to
prospective application The Tax Commission is persuaded that the issue is
sufficient ambiguity up to the present time that the rule should be given
prospective application after the August 31, 1987 Bulletin. Therefore the portion of the assessment
which deals with damage waiver claims is rescinded. Petitioner's petition for
redetermination is granted in part. All
application of Tax Bulletin 14-87 shall be prospective.
DATED
this 22 day of December, 1987.
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