BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX )
XXXXX,INC. :
) FINDINGS
OF FACT,
Petitioner : CONCLUSIONS OF LAW
v. ) AND FINAL DECISION
:
) Appeal No.
89-0071
AUDITING
DIVISION OF THE :
UTAH STATE TAX
COMMISSION )
Respondent :
_____________________________________
STATEMENT OF CASE
Based
upon the agreement reached by the parties at the prehearing conference held on
XXXXX, this matter was submitted to the Tax Commission for determination based
upon the briefs submitted by the parties.
The
Petitioner operates a video and audio production studio in XXXXX, Utah. The Petitioner filed a claim for refund with
the Tax Commission for sales tax paid on the purchase of natural gas and
electricity for the third quarter of XXXXX through the third quarter of XXXXX
by its production studio in XXXXX, Utah.
The Petitioner alleged that the use of such products did not constitute
commercial consumption of such products within the meaning of Utah Code Ann.
§59-12-103(1)(c), and therefore, was not the proper subject matter for the
imposition of sales tax. It is from the
Auditing Division's denial of that claim that this appeal was filed.
Based
upon the facts as stipulated to by the parties, the Tax Commission hereby makes
its:
FINDINGS OF FACT
1. The Petitioner operates an audio and video
production studio at XXXXX, Salt Lake City, Utah.
2.
The Petitioner offers a complete range
of services regarding audio and video production.
3. The principal activity performed at the
production studio during the period in question was the production of
television advertisements and commercial and noncommercial video programs. Approximately 83% of the Petitioner's
revenues were generated through the production of video tapes and films. The balance of the revenues during the period
in question were generated through the preparation of duplicate copies of video
and audio tapes.
4. All the electricity received by the
Petitioner at its production studio is serviced by a single meter. All natural gas received by Petitioner at
the production studio is serviced by a single meter.
5. The video tapes and films produced by
Petitioner are subject to sales tax unless an exemption applies with respect to
the sale.
6. The Petitioner filed a claim for refund of
sales tax paid on electricity and natural gas used at the production studio
during the periods in question. Such
claim for refund was denied by the Auditing Division.
CONCLUSIONS OF LAW
There
is levied a tax on the purchaser for the amount paid or charged on the purchase
of gas, electricity, heat, coal, fuel, oil, or other fuels sold or furnished
for commercial consumption. (Utah Code
Ann. §59-12-103(1)(c).)
"Commercial
consumption" means the use connected with trade or commerce and includes
the use of services or products by retail establishments, and by hotels,
motels, restaurants, warehouses, and other commercial establishments. (Utah
Code Ann. §59-12-102(1).)
DECISION AND ORDER
The
issue before the Tax Commission is: Are purchases of gas and electricity used
by the Petitioner at its audio and video production studio commercial
consumption of such products and thus subject to sales tax as provided for by
Utah Code Ann. §59-12-103(1)(c), Utah Code Ann. §59-12-102(1) defines
"commercial consumption" as "... the use connected with trade or
commerce and includes the use of services or products by retail establishments,
hotels, motels, restaurants, warehouses, and other commercial
establishments;..." Utah State Tax Administrative Rule R865-19S-35 (Rule
35S) further interprets "commercial consumption" as used in
§59-12-103. Rule 35S states:
"Commercial consumption" means the use connected with
trade or commerce and includes the use of services or products by retail- establishments,
hotels, motels, cafes, fast food establishments, restaurants, warehouses,
and other commercial establishments."
Although
potentially very broad in scope, the term is not without limits. In Union Pacific Railroad Co. v. State Tax
Commission of Utah, 426 P.2d 231, (Utah 1967), the Utah Supreme Court stated:
In it's broadest meaning, "commercial" would include all business
activity, and such a construction would tax all business enterprises within the
state. We hold that the legislature
intended to exclude from tax the fuel oil which industrial concerns use in the
business of fabricating merchandise which, when completed, would be subject to
a sales tax and that a sales tax is intended being imposed on railroads which
are primarily engaged in commerce, that is, in trade rather than industry, or
the fabrication of merchandise. The
activities of the Petitioner in the instant case must be viewed in light of the
parameters set forth by statute and by case law. After so doing, the Tax Commission finds that the Petitioner's
activities are commercial activities and the Petitioner is not an industrial
concern in the business of fabricating merchandise as those terms are commonly
used.
In
the present case, the Petitioner attempts to characterize its activity as the
operation of an industrial concern engaged in the fabrication of merchandise.
In
support of that argument, the Petitioner states that it "transforms
optical and audio information into an electrical signal which is eventually
encoded on a film or video tape".
While such an activity may be creative, it is not manufacturing or fabricating
any more than a photographer's studio is.
A
helpful factor in determining the precise classification within which to place
the Petitioner's activity is found in the standard industrial classification
manual which classifies telecommunication companies such as the Petitioner as a
"service" rather than a manufacturer.
Based
on the foregoing, the Tax Commission finds that the purchase of electricity and
natural gas by the petitioner for use at its production studio was a commercial
consumption of such products within the meaning of Utah Code Ann. §59-12-103(1)(c),
and therefore, the determination of the Auditing Division is sustained. It is so ordered.
DATED
this 12th day of April, 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