BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX
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. :
_____________________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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)).
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner