88-0048 - Sales





            Petitioner,                                                         :

                                                                                    :           FINDINGS OF FACT,

v.                                                                                 :           CONCLUSIONS OF LAW

                                                                                    :           AND FINAL DECISION

AUDITING DIVISION OF THE                                :

STATE TAX COMMISSION OF UTAH,                  )           Appeal No. 88-0048

            Respondent.                                                     :



            This matter came before the Utah State Tax Commission for a formal hearing on XXXXX.  James E. Harward, Presiding Officer, heard the matter for and on behalf of the Tax Commission.  Present and representing the Petitioner was XXXXX, Attorney at Law.  Present and representing the Respondent were XXXXX, Assistant Attorney General, and XXXXX of the Auditing Division.

            The Petitioner filed this appeal from the determination of the Auditing Division which, pursuant to an audit conducted for the period XXXXX through XXXXX, found the Petitioner liable for sales and use taxes plus interest in the amount of $$$$$.

            Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


            1.  The Petitioner is a Utah corporation formed pursuant to the provisions of the Utah Business Corporation Act and Federal Reclamation Law.

            2.  The articles of incorporation of the Petitioner provide that the corporation is a "XXXXX users association" and that "All income from any and all sources received by the corporation shall be used to meet the expenses and outlays of the corporation in constructing, operating, maintaining, reconstructing, and enlarging the XXXXX and in owning, using and managing the property of the corporation for the benefit of the stockholders, provided, however, that no cash distributions or dividends are to be given or paid to the stockholders of the corporation."

            3.  Pursuant to the Federal Reclamation Act of 1902, the United States Secretary of Interior authorized construction of a water reclamation project known as the XXXXX of Utah (XXXXX) in XXXXX.

            4.  The XXXXX was organized in XXXXX for the stated purposes of serving as a successor to the United States in charge of the XXXXX.  On XXXXX, XXXXX and the United States entered into a contract relating to the ownership, care, operation and maintenance of the XXXXX.

            5.  By the terms of the XXXXX contract and subsequent amendments to that contract, title to the lands and all improvements, relative to the project, remained in the United States.  Responsibility for the care, operation and maintenance of the XXXXX was transferred to the Petitioner.

            6.  The articles of incorporation of the Petitioner provide that all the revenue generated by the project would be used for the care, operation, maintenance and improvement of the project, and that all such expenses would be paid from the funds generated through XXXXX without additional cost to the United States.

            7.  The Petitioner was obligated to complete repairs as directed by the Secretary of Interior, and no substantial changes in the Project were to be made without approval by the Secretary of Interior.  It was also provided that the United States government could resume care, operation and maintenance of the Project in its own name or subsequently reassign the care, operation or maintenance of the Project back to Petitioner at any time.

            8.  Funds generated by operation of the Project were to be used first to repay the construction costs of the Project; second, to pay for the operation of the Project; third, to repay certain overhead expenses incurred by the XXXXX in supervising and administration of the Project; and fourth, all remaining proceeds were dedicated in perpetuity to the maintenance and improvement of the XXXXX.

            9.  In XXXXX the Petitioner undertook improvement of an existing XXXXX.  In connection with that improvement, the Petitioner purchased a XXXXX System, several radial gates, and other tangible personal property which were installed within the XXXXX.

            10.  Purchase of the items were made on the Petitioner's purchase order and paid by checks drawn on the Petitioner's account.

            11.  No sales or use taxes were paid by the Petitioner with respect to the above described items.

            12.  An audit conducted by the Auditing Division of the Utah State Tax Commission established a deficiency in the amount of $$$$$ plus interest for failure to pay the sales tax on the above mentioned items.

            13.  The Petitioner acknowledges responsibility for payment of $$$$$ and has sought a redetermination for the outstanding balance.

            14.  The Petitioner has no ownership interest in the land or any of the improvements located thereon in the XXXXX.  Title to such land and improvements remains with the United States government.


            The use tax applies to the purchase of tangible personal property for consumption if the sale or rental of the property or the services performed on the property would have been subject to the sales tax if purchased within the state.  (Utah State Tax Commission Administrative Rule R865-1U-1(b)).


            In the present case, the Petitioner argues that it should not be liable for the sales and use tax on the purchase of the equipment used in the refurbishing of the hydroelectric plant for essentially two reasons: 1. Petitioner has no ownership interest in the assets on which the sales or use tax has been assessed; and 2.  The tax, as assessed, is a tax upon an agency of the U.S. government and therefore exempt.

            With respect to the Petitioner's first argument, the Tax Commission finds that argument to be without merit.  The imposition of the tax is not conditioned upon ownership or lack of ownership in the tangible personal property question.  As stated in Rule R865-1U(b) "In general, the use tax applies to the purchase of tangible personal property for consumption if the sale or rental of the property or the service performed on the property would have been subject to the sales tax if purchased within the state." (emphasis added).

            Here, there is no question that the Petitioner was the purchaser of the property in question.  The items were ordered on the Petitioner's purchase order and in the name of the Petitioner.  Additionally, payment was made by checks drawn on the Petitioner's account.  Unquestionably, the Petitioner was the purchaser of the items in question and cannot escape imposition of the tax by claiming it did not have title to the items.

            Turning to the Petitioner's second argument, the Tax Commission similarly finds that such argument is not persuasive.

            The facts of the present case, while not completely identical, are substantially similar to those in United States v. New Mexico, 455 U.S. 720 (1982).

            New Mexico involved the contracting of the U.S. government with private firms to provide long-term private management of government owned research and development facilities.

            In determining whether the private contractors were agents of the U.S. government, the United States Supreme Court found that where the contractors made purchases in their own name and not that of the U.S., where the contractors were presumably directly liable to the vendors for the purchase price, and where vendors were not informed that the government was the only party with an independent interest in the purchase, and where the contractors did not need to obtain advance approval from the government for each purpose, such facts demonstrated that the contractors had "a substantial independent role in making purchases, and that the identity of interest between the government and the contractors was far from complete" Id. at 742 to 743.

            The Court further found that the fact that title to the items purchased past directly to the government was not in itself sufficient to make the transaction a purchase by the U.S. government.

            Based upon the substantial similarity between the present case and New Mexico, the Tax Commission finds that a sufficient identity of interest between the Petitioner and the U.S. government was lacking and the Petitioner did not act as an agent of the government in the purchase of the items in question.

            Based upon the foregoing, the Tax Commission finds that the audit deficiency as established by the Auditing Division was correct and affirms the audit.  It is so ordered.

            DATED this 14 day of March, 1990.


R. H. Hansen                                                                Roger O. Tew

Chairman                                                                      Commissioner

Joe B. Pacheco                                                            G. Blaine Davis

Commissioner   Commissioner