88-1254 - Sales






Petitioner, : FINDINGS OF FACT,






Respondent. :


This matter came before the Utah State Tax Commission pursuant to Rules of Administrative Procedure and Administrative Procedures Act for formal adjudicative proceedings. XXXXX appeared representing the Petitioner. Also appearing for the Petitioner was XXXXX. XXXXX appeared representing the Respondent. Also appearing for the Respondent was XXXXX. James E. Harward, Presiding Officer, heard the matter for and in behalf of the Tax Commission.

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


1. The Tax in question is sales tax.

2. The period in question is XXXXX through XXXXX.

3. The Petitioner is a Utah Corporation with its principal place of business in XXXXX, Utah.

4. The Petitioner is involved in three phases of operation. Those phases are: XXXXX, XXXXX, and XXXXX.

5. In its wholesale operation, the Petitioner would sell materials to XXXXX as a package basis. As part of the sale, Petitioner would deliver the materials to an out of state site designated by the purchaser. The question before the Tax Commission is whether or not delivery out of state was a delivery and an integral part of the transaction.

6. As a XXXXX, the Petitioner is licensed and bonded to XXXXX. Some of the construction is XXXXX, done on its site in XXXXX. Other job sites are XXXXX on site.

7. Petitioners sell wholesale to other XXXXX and retailers who then re-sell the merchandise.

8. The documentation submitted by the Petitioner was incomplete at best and showed deliveries both in and out of the State of Utah and picked up by the purchaser within the State of Utah without address or destination.

9. The Petitioner presented testimony in lieu of exemption certificates in an attempt to satisfy the requirements of Rule 23S to establish that individuals who had not provided valid exemption certificates were entitled to an exemption because they were purchasing for resale.

10. No sales tax was charged to XXXXX regardless of delivery, will call, or destination.

11. Petitioner had no general ledgers in existence at the time of the audit. Job cost figures were very sketchy. The auditors had to fill in gaps as best as they could from little if any information supplied by the Petitioner.

12. In their XXXXX operation, the Petitioners had no cost records. They would remove materials from the general inventory at the retail/wholesale outlet and use in their XXXXX operations. The inventory did not have a job designation.

13. Petitioner did not maintain separate books for the three operations.

Petitioners did collect and pay sales tax on their Utah retail XXXXX operation.


1. Tax Commission Rule R865-44S-l exempts sales made in interstate commerce from sales tax. However, that exemption is qualified where the transaction must involve actual physical movement of the property sold across state lines. Such movement must be an essential and not an incidental part of the sale and the seller must be obligated by the express or unavoidable implied

terms of the sale or the contract to sell to make physical delivery of the property across the state boundary lines to the buyer.

2. "Taxpayer selling tangible personal property or services to exempt customers are required to keep records verifying the nontaxable status of such sales." Rule R865-23S-l.

3. "Sales of tangible personal property to real XXXXX. . . . is generally subject to tax." Tax Commission Rule R865-58S-lA. The person who converts the personal property into real property is the consumer of the personal property since he is the last one to own this personal property. (Rule 58S, Supra.)

4. "The XXXXX must accrue and report tax on all merchandise bought tax free and used in performing contracts to improve and repair real property. Books and records must be kept to account for both materials sold and material consumed." Rule R865-58S-l-B-2.

5. "Sales of materials and supplies to XXXXX for use in out-of-state jobs are taxable unless sold in interstate commerce in accordance with Rule R865-44S." (58S Supra).


The Tax Commission, after reviewing the evidence and arguments of the Petitioner, finds that the Petitioner has not met the requirement of selling materials in interstate commerce according to Rule 44S. Specifically the Tax Commission finds that Petitioner has not maintained sufficient records to indicate the matter was, in fact, shipped out of state and was an integral part of the sale. The records and testimony of the Petitioner would indicate that in a vast majority of the cases cited by the Petitioner "WC" was written on the form which indicates to the Commission that the XXXXX picked up the materials in Utah. The Tax Commission further finds that where valid exemption certificates are not kept and maintained as part of the records by Petitioner that self serving testimony is not sufficient to correct the failure to properly keep the appropriate records and support and justify the non-collection of the tax.

Therefore, it is the Decision and Order of the Utah State Tax Commission that Petitioner's request be denied and sales tax is due on all transaction whereby the Petitioner was the real XXXXX and converted the personal property into real property. No consideration is given by the Tax Commission of the use of the materials out of state where the XXXXX is a licensed contractor in the State of Utah and purchased the materials in the State of Utah. Further, insufficient evidence has been submitted which would support the contention that the materials were delivered out of state as part of the sale. Attempting to insert testimony as it relates to exempt sales is insufficient to correct the deficiency of not maintaining appropriate books and records and maintaining exemption certificates on the transactions involved. The Tax Commission affirms the negligence penalty that relates to this transaction.

DATED this 26 day of April, 1989.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner