87-1162 to 87-1164 - Sales

 

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