87-3247 - Sales





v. : Appeal No. 87-3247



Respondent. :


This matter came before the Utah State 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.

At the outset of the hearing the Petitioner indicated that he would concede the issue on the soda pop. However, from that point he raised three general issues as it relates to sales tax on those sales designated as; 1) U.S. homes, 2) over the counter sales, and 3) sales to employees.


The Tax Commission will review the three issues raised by the Petitioner separately and in the order brought forth by the Petitioner. However, prior to doing so the Commission must note several facts:

1. The Petitioner is in the business of insulation, refitting and repair of residential heating and air conditioning systems.

2. It has been the Petitioners practice to pay sales tax on all materials and supplies purchased by the company in conjunction with the ordinary course of its operations.

3. The Petitioner is entitled to a credit equal to the sales tax previously paid on the purchase of goods and materials against sales tax that it is required to collect on the sales of such goods and materials and taxable transactions for sales tax purposes.

XXXXX is a prefabricated housing manufacturer. The Petitioner would come to the construction lot of XXXXX and install in the modular units, heating and air conditioning systems. All of the work performed by the Petitioner was done at XXXXX plant while the homes under construction remained fully transportable and detached from real property. In addition, XXXXX provided the Petitioner with a sales tax exemption number and informed them that the XXXXX was collecting sales tax upon the sale of the home to the retail purchaser. Based on these facts and representations, the Petitioner did not collect sales tax on contracts performed for XXXXX.


Based upon the evidence and arguments presented at the hearing, the Tax Commission concludes that the Petitioner is not a real property contractor in its relationship with XXXXX. Specifically the Tax Commission is persuaded that the exemption certificate given by XXXXX would leave the Petitioner to believe that it was not required to collect sales tax in this transaction.

Credit for taxes paid on goods which were ultimately resold. In computing the credit to be given for sales tax for goods which previously have been paid upon the purchase of goods and materials against sales tax which was collected upon those sales, the Respondent has used an average markup of 65%. However, the Petitioner argues that their average markup is only 25%, thus the Respondent has an understated credit which should be given to the Petitioner. The Utah State Tax Commission finds this to be a factual determination and finds no other evidence to indicate any other average markup other than that put forth by the Petitioner of 25%. Therefore, the Auditing Division is ordered to adjust its audit to reflect a 25% markup as it relates to credits against taxable transactions of the Petitioner.

Projection period: The Petitioner points to several factors which skew the test period in favor of the Respondent.

The Petitioner argues that because of the cyclical market the test skews results by using test periods which have higher than average sales. Therefore, the income is overstated and expenses are understated.

However, the Petitioner did not present any other alternatives short of having the Tax Commission order a complete detail by detail audit of the period in question. This the Tax Commission declines to do. It is therefore the conclusion of the Utah State Tax Commission that insufficient evidence has been presented which would justify an adjustment to the audit based upon the contention of the Petitioner as it relates to the test periods.

Bad debt adjustments. The Petitioner requested an adjustment for bad debts of approximately $$$$$. The Tax Commission after reviewing this, finds the Petitioner may file a TC55 to request credit for bad debts on the periods in question. It may also be appropriate to file a TC71 and receive a refund as it relates to bad debts. This option is certainly available to the Petitioner.

Based upon the foregoing, it is the decision and order of the Tax Commission that the request as it relates to XXXXX be granted, that the average market used is 25%, that the argument as it relates to test periods and projections be denied and that refunds may be granted or adjustments given for bad debts. It is so ordered.

DATED this 31 day of March, 1989.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner