90-0052 & 90-1589 - Sales




XXXXX, dba :





v. )

AUDITING DIVISION OF THE : Appeal Nos. 90-0052 &



Respondent. )



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Roger O. Tew, Commissioner and Presiding Officer, Joe B. Pacheco, Commissioner, and Paul F. Iwasaki, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner were XXXXX and XXXXX, Attorneys at Law. Present and representing the Respondent was XXXXX, Assistant Utah Attorney General.

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


1. The tax in question is sales tax.

2. The period in question is XXXXX through XXXXX.

3. The Petitioner operated a railroad which carried passengers between XXXXX and XXXXX XXXXX. The rail line ran from XXXXX, Utah to XXXXX which is located in XXXXX, XXXXX.

4. Approximately eighty percent of fares sold on the railroad were for trips that originated in XXXXX. Of the eighty percent approximately eighty percent were round trip fares.

5. From approximately XXXXX through XXXXX the Petitioner remitted sales tax on fares. The tax was calculated based upon the gross receipts from such fares multiplied by the applicable tax rate. The tax was not separated from the fare when charged to the customer. In XXXXX the Petitioner stopped remitting the sales tax. The Petitioner had conducted an informal survey of other XXXXX XXXXX in surrounding states and, as a result of that survey, believed itself to be exempt from sales tax receipts.

6. Food and beverages were sold on the train. From XXXXX to XXXXX, the Petitioner and/or its predecessors had remitted sales tax on the food and beverages sold on the train. The amount of tax remitted was calculated in the same manner as the tax remitted on fares. Thereafter, the Petitioner stopped remitting sales tax on sales of food and beverages.

7. In addition to those passengers who purchased tickets to ride on the train, other groups of passengers would charter XXXXX cars on the train for XXXXX purposes.


Amounts paid to common carriers for all transportation are subject to sales tax. (Utah Code Ann. 59-12-103).

All fares paid for intrastate transportation of persons to common carriers having established routes are subject to tax, except:

1. Street railway fares;

2. Amounts paid for charter transportation rendering service only to specific parties with whom a contract has been made; and

3. Amounts paid for persons traveling in air commerce. (Utah State Tax Commission Administrative Rule R865-19S-36.)

The term, "common carrier" includes every railroad corporation. (Utah Code Ann. 54-2-1(8)(a).)


In the present case, the Petitioner claims that the fares charged to ride the railroad are not subject to sales tax and also that it is entitled to a refund of taxes paid on the sale of food and beverages for three reasons:

1. The railway is an XXXXX railway and therefore exempt under Utah Code Ann. 59-12-104(17);

2. The imposition of sales and use taxes against the Petitioner constitutes an unlawful discrimination under the Staggers Rail Act of 1980; and

3. The imposition of sales and use tax against the Petitioner violates the equal protection provisions of the Utah and United States Constitution.

With respect to its first argument, the Petitioner claims that Utah Code Ann. 59-12-104(17) which exempts from sales tax intrastate movements of freight and express or street railway fares" effectively exempts the Petitioner from the imposition of sales tax on its rail fares. The Petitioner maintains that statutory provision exempts "express railways" from sales tax. The Petitioner further argues that "express railway" refers to a railway that travels from Point A to Point B without stopping.

The Tax Commission rejects the Petitioner's interpretation of 59-12-104(17). It is clear from the statute that the terms freight and express are to be read together and refer to the transportation and/or delivery of goods or small packages and parcels.

The Petitioner next claims that the Interstate Commerce Commission (ICC) exercises jurisdiction over the XXXXX and that the Staggers Rail Act of 1980 prohibits the imposition of any tax that discriminates against the rail carrier which provides transportation subject to the jurisdiction of the ICC.

The Tax Commission rejects the Petitioner's argument for two reasons:

1. Section 11503(b)(4) of the Staggers Rail Act which is cited by the Petitioner as support for its claim that the imposition of the sales tax upon the Petitioner is a prohibited action under the Staggers Rail Act does not deal with sales tax. Section 11503 of the Staggers Rail Act deals with the valuation of rail transportation property for property tax purposes. There is nothing in that section which would indicate that it applies to the applicability of sales tax to railways and;

2. Section 10501(b)(1) of the Staggers Rail Act specifically provides that ICC does not have jurisdiction over the, "transportation of passengers or property, or the receipt, delivery, storage, or the handling of property, entirely in a state (other than the District of Columbia)..."

Here, clearly, the railroad in question operates exclusively within the State of Utah and therefore is not subject to the jurisdiction of the ICC.

In its final argument, the Petitioner claims that by imposing the sales tax requirement upon the Petitioner, the equal protection provisions of the Utah and United State Constitution's are violated. Specifically, the Petitioner maintains that by imposing sales tax requirements on it and not imposing the same requirements on other modes of transportation such as hot air balloons, river rafts, helicopters, and horse drawn carriages, the Petitioner is treated differently than other members in its class.

The Tax Commission rejects the Petitioner's argument that the Auditing Division has unconstitutionally applied Utah Code Ann. 59-12-104(18). The Tax Commission finds that the Petitioner is a common carrier and the amounts paid for transportation on it are subject to tax. It is that status as a common carrier that provides the basis for the imposition of sales tax. The other entities cited by the Petitioner are not common carriers and thus do not belong to the same class as the Petitioner. Therefore there is no dissimilar treatment among members of the same class.

The Commission notes that the Respondent has argued, as an alternative position, that the sale of fares on the train represented admissions to a place of amusement, entertainment, or recreation and were thus subject to tax as provided for by 59-12-103 (1)(f).

Because the Commission has already determined the Petitioner to be a common carrier and thus subject to sales tax, the question of the status of the Petitioner as a place of amusement need not be decided. Therefore, the Commission specifically withholds ruling on that issue.

With respect to those charter fares which were paid for by specific groups pursuant to contract, the Tax Commission finds that such fares were not subject to sales tax as provided for by section R865-19S-36 which, in part, states, all fares paid for intrastate transportation of persons to common carriers having established routes are subject to tax, except:

2. Amounts paid for chartered transportation rendering service only to the specific parties with whom a contract has been made.

The Commission is aware of the economic hardship placed upon the Petitioner by this decision. That situation however is one of the Petitioner's own making. As found by the evidence presented, the Petitioner had been following the law correctly when it had been remitting the sales tax on fares.

The Petitioner thereafter deliberately chose to stop remitting the tax based upon its own conclusion that such was not required. It did so without seeking advice from the Commission as to the correctness of its action when it could easily have done so through a request for declaratory judgment. Indeed there was no evidence that the Petitioner sought the advice of its counsel or accountants when the decision to stop remitting the tax was made.

Based upon the foregoing, the Tax Commission affirms the determination of the Auditing Division, however, to the extent it has not already done so, orders the Auditing Division to remove from the audit the deficiency assessed on those fares which represented chartered fares. It is so ordered.

DATED this 26th day of November, 1991.


R. H. Chairman Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner