BEFORE THE UTAH STATE TAX COMMISSION
XXXXX ) AMENDED ORDER
XXXXX ) FINDINGS OF FACT,
Petitioner, : CONCLUSIONS OF LAW
v. : AND FINAL DECISION
AUDITING DIVISION OF THE : Appeal Nos. 87-3236
UTAH STATE TAX COMMISSION, : and 88-2544
AUDITING DIVISION OF THE : Audit Period XXXXX
UTAH STATE TAX COMMISSION, :
STATEMENT OF CASE
This matter came before the Utah State Tax Commission on a Petition for Redetermination filed by Petitioner. The parties have entered into a stipulation, a copy of which was attached to the previous order issued XXXXX, and which is incorporated herein by reference. The stipulation disposes of all the issues but one before the Tax Commission, subject to the approval of the Tax Commission. The one issue still outstanding is that regarding connection fees, concerning which the Commission hereby makes its:
FINDINGS OF FACT
1. Petitioner charges a "connection fee" of $$$$$ whenever the company initiates natural gas service for a customer, pursuant to Utah Natural Gas Tariff No. 200 on file with the Utah Public Service Commission. This connection fee was made effective XXXXX by order of the Utah Public Service Commission in its Docket No. XXXXX.
2. The connection fee is charged separately from all other rates or charges on the customer's bill and it will appear on the customer's first billing or in three equal installments in the first three billings as the customer desires. In the alternative the customer may also pay the connection fee at the time service is signed for at one of XXXXX business offices.
3. When service is initiated for a customer, the following events occur:
(a) A XXXXX business office representative completes an application, the information from which is entered into the company's computer.
(b) An order is issued for this service to be turned on at the date and time requested by the customer.
(c) XXXXX then sends a service technician to the customer's home when a request for the purchase of gas is made. The technician checks all the gas appliances for safety, soaps the gas meter for gas leaks, and then turns the gas on and lights the appliances. He also gives the customer a handbook for the customer's use and reads the meter for a startup reading.
4. Some situations which involve nonresident property owners, change of name, and bankruptcies will result in a service turn-on order but there will be no service call to the premises. In those cases there is no connection fee charged.
5. The connection fee is billed to the customer whether or not the customer uses any natural gas service.
CONCLUSIONS OF LAW
1. Utah Code Ann. §59-16-2(d) (1974, 1983 Supp.) provides that the words "sales price" includes the total cost of tangible personal property plus the cost of any services that "are part of the sale." Thus, services which are a part of the sale of tangible personal property are subject to sales and use taxes.
2. Utah Code Ann. §59-16-2(d) applies to both sales and use taxes. See Barrett Investment Company v. State Tax Commission of Utah, 387 P.2d 998 (Utah 1964); Union Portland Cement Co. v. State Tax Commission of Utah, 176 P.2d 879 (Utah 1947). Both sales and use taxes are administered in the same manner under the Sales and Use Tax Act of Utah Code Ann. §§59-12-101 through59-12-208, and were to be so administered at the time the events which gave rise to this case occurred, as indicated by the above citations.
3. Utah Code Ann. §59-12-102(13) (1987 replacement, 1989 Supp.) provides that "tangible personal property' includes "all. . . physically existing articles or things.
4. This statute codifies provisions of regulation A12-02-S1:S26 of the Utah Sales and Use Tax Book of Regulations, as amended XXXXX, which was in force during the audit years in question in this case. Under this definition, natural gas is tangible personal property for sales tax purposes. See Aldine Apartments Inc., v. Commonwealth of Pennsylvania, 426 A.2d 1118 (Penn. 1981); State Tax Commission of Arizona v. Marcus J. Lawrence Memorial Hospital, 495 P.2d 129 (Ariz. 1972). The connection fee at issue in this case is a service that is incidental to and a part of the purchase of tangible personal property (natural gas) and is subject to the sales tax pursuant to Utah Code Ann. §59-16-2(d).
5. In Butler v. State Tax Commission of Utah, 367 P.2d 852 (Utah 1962), the Utah Supreme Court considered a case in which the taxpayer would furnish three factory trained experts to check the installation of the taxpayer company's equipment in order to insure that such equipment was put into operation and also in order to instruct the local operators as to the equipment's use and maintenance. The court held that because no installation separate from the furnishing of the services of these experts was performed, the services were merely incidental to and a part of the sale and were included in the sales price contemplated in Utah Code Ann. §59-16-2(d). Similarily, Petitioner's technician in this case as part of the initiation of natural gas service performs certain services just as the experts in the Butler case did. Furthermore, a customer cannot purchase gas from Petitioner without these initial connection services being performed. Petitioner's connection fee is therefore a service that is part of the purchase of the natural gas which is tangible personal property and which is, therefore, subject to the sales tax under Utah Code Ann. §59-16-2(d).
DECISION AND ORDER
The Tax Commission after reviewing the stipulation of the parties, the amended audit report, the payment of the assessment of the amended audit report, and the briefs submitted by the parties, hereby orders the dismissal of all of the issues in appeal Nos. 87-3236 and 88-2254, on the grounds that those issues have been settled and paid in full, with the exception of the one issue concerning the taxability of the connection fees. As to that issue the Tax Commission hereby finds and orders that Petitioner's connection fees are subject to sales taxes, and that Petitioner henceforth must conduct itself in its dealings with the connection fees accordingly. However, as per an agreement reached between the parties, Petitioner is required to render only prospective compliance with this order and the $$$$$ deficiency together with any penalty or interest assessed thereon is waived.
DATED this 21 day of December, 1989.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis