BEFORE THE UTAH STATE TAX COMMISSION
) FINDINGS OF FACT,
Petitioner : CONCLUSIONS OF LAW
v. ) AND FINAL DECISION
) Appeal No. 89-0071
AUDITING DIVISION OF THE :
UTAH STATE TAX COMMISSION )
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
Joe B. Pacheco G. Blaine Davis