BEFORE THE UTAH STATE TAX COMMISSION
v. : INFORMAL DECISION
AUDIT DIVISION OF THE : Appeal No. 87-2674
STATE TAX COMMISSION OF UTAH, ) Audit Period XXXXX
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, Attorney at Law, represented Petitioner. XXXXX appeared representing the Respondent.
At the outset of the hearing a recess was taken after which the parties stipulated to repossession credits and nonresident affidavit issues. The remaining two issues are:
1. Where the Petitioner has transferred vehicles out of state, is the Petitioner entitled to an exemption from the collection of sales tax under Rule R865-44S.
2. Where a salesman has purchased an automobile and pays sales tax thereon and then sells the automobile through the dealer, is the salesman entitled to a trade-in allowance on a new vehicle even though the vehicle was not traded in on a specific new vehicle.
ISSUE NO. 1
DELIVERY OF VEHICLES OUTSIDE OF THE STATE OF UTAH
The audit shows has approximately ten transactions where the automobiles purchased were delivered into XXXXX. Of those ten transactions, three of the purchasers listed residences in Utah, while the remaining seven showed residences in XXXXX, a city just over the border. In every case the vehicles were ultimately brought back into the state of Utah and registered in the state of Utah. The Petitioner did not collect sales tax on the transaction since the commodities were delivered out of state. The Auditing Division on the other hand argues that Rule R865-44S applies, and the transactions are subject to sales tax. Rule R865-44S, subparagraph A provides:
sales made in interstate
commerce are not subject to the sales tax imposed. However, the mere fact that commodities purchased in Utah are
transported beyond its boundaries is not enough to constitute the transaction
of the sale in interstate commerce.
When the commodity is delivered to the buyer in this state, even though
the buyer is not a resident of the state and intends to transport the property
to a point outside of the state, the sale is not in interstate commerce and is
subject to tax.
The rule then goes on in subparagraph B to state:
Before a sale qualifies as a sale made in interstate commerce, the following must be complied with:
1. the transaction must involve actual and physical movement of the property sold across the state lines;
2. such movement must be an essential and not an incidental part of the sale;
3. seller must be obligated by the express or unavoidable implied terms of the sale, or contract to sell, to make physical delivery of the property across the state boundary line to the buyer; . . . The Petitioner argues that under the terms of this language, a vehicle delivered across state lines is not subject to sales tax. No thought is given to the residency of the purchaser only that the vehicle was delivered across state lines. By statute, a tax is levied upon the purchase of tangible personal property within the state of Utah, Utah Code Ann. §59-12-103. There are certain exemptions. The only exemption that would be remotely conceived to be applied to these facts would be subparagraph 18 of Section 59-12-104 which exempts from the sales and use tax "interstate movements of freight and express or street railway fare; . . ." Apparently for this purpose, Rule R865-44S was instituted by the Tax Commission to set out certain criteria establishing whether or not the interstate movements of freight actually took place thereby exempting the transactions from sales tax. The rule provides that "before a sale qualifies as a sale made at interstate commerce, the following must be complied with:
1. The transaction must involve actual and physical movement of the property sold across the state line;
2. Such movement must be an essential and not an incidental part of the sale.
3. The seller must be obligated by the expressor unavoidable implied terms of the sale or contract to sell to make physical delivery of the property across the state boundary lines to the buyer.
The Tax Commission concedes that the transaction as set forth by the Petitioner involved the actual physical movement of the property across the state line, and can even accept the assertion that the Petitioner was obligated by the terms of the sale to physically deliver the property across the state line. However, the Tax Commission is not persuaded that the movement across the state line was an essential part of the sale. It would appear to the Tax Commission that the transportation of the vehicles across the state line was an incidental part of the sale and was done for the sole purpose of avoiding the payment of sales tax.
The Tax Commission is obligated by law to strictly construe exemptions in favor of the taxing authority and against those seeking the exemptions. Therefore, the Tax Commission finds that the movement across the state line to be an incidental part of the sale, and not an essential part of the sale; and finds that the Petitioner is not entitled to an exemption from the collection of sales tax on the transactions.
ISSUE NO. 2
The salesmen of Petitioner purchase and pay sales tax on a vehicle which is used as a demonstrator. When that demonstrator is sold each salesman then applies the proceeds of the sale towards the purchase price of a new demonstrator. The Petitioner has been showing the sale price of the salesman's automobiles as a trade-in allowance on a new vehicle purchased by the salesman as a demonstrator. The Petitioner argues that for all intents and purposes the transaction is a trade-in, and the appropriate credit should be given with the tax paid only on the difference.
The Respondent on the other hand argues that the transactions are too remotely connected and therefore, sales tax should be collected on every transaction. As authority for its position the Respondent cites Rule 865-72S of the Utah State Tax Commission.
Rule 865-72S, subparagraph A of the Utah State Tax Commission provides that:
A. An even exchange of tangible personal property for tangible personal property is exempt from tax. When a person takes tangible personal property as part payment of a sale of tangible personal property, sales or use tax applies only to any consideration valued in money which changes hands.
B. For example, if a car is sold for $8,500 and a credit of $6,500 is allowed for a used car taken in trade, the sales or use tax applies to the difference, or $2,000 in this example. Subsequently, when the used car is sold, tax applies to the selling price less any trade-ins at that time.
C. An actual exchange of tangible personal property between two persons must be made before the exemption applies. For example, there is no exchange if a person sells his car to a dealer, and the dealer holds a credit to apply on a purchase at a later date; there are two separate transactions, and tax applies to the full amount of the subsequent purchase if and when it takes place.
The Tax Commission after reviewing Rule R865-72S finds insufficient evidence to support the contention of the Petitioner. No evidence was presented to the Commission which would indicate that the sale of the salesman's automobile was through the dealership or that the dealership handled the entire transaction from start to finish on the cars involved. Therefore, the Petitioner's request is denied and the audit deficiency as it relates to salesmen's trade-ins is affirmed.
Therefore, it is the decision of the Utah State Tax Commission that Petitioner's Petition for Redetermination as it relates to these two issues is denied. The remaining issues have been resolved by stipulation and an amended audit report.
Dated this 20 day of May, 1988.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis