BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________
XXXXX
Petitioner, :
: FINDINGS
OF FACT,
v. : CONCLUSIONS OF LAW,
: AND FINAL
DECISION.
AUDITING
DIVISION OF THE :
UTAH STATE TAX COMMISSION, : Appeal
No. 90-1060
: Account
No. XXXXX
:
Respondent. :
___________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a formal hearing on
XXXXX. Paul F. Iwasaki, Presiding
Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was
XXXXX. Present and representing the Respondent was XXXXX, Assistant Attorney
General.
Based
upon the evidence and testimony presented, the Tax Commission hereby makes its:
FINDINGS OF FACT
1.
The tax in question is sales and use tax.
2.
The audit period in question is XXXXX through XXXXX.
3.
The Petitioner is engaged in the sale of asphalt used in road construction.
4.
During the audit period in question, the Petitioner sold asphalt on a number of
occasions to XXXXX. Depending upon the
job XXXXX was involved in, sales tax was or was not charged. Specifically, on those jobs XXXXX performed
for a municipal government such as XXXXX or XXXXX, the asphalt was sold to
XXXXX tax free. On those jobs which
XXXXX performed for private entities, sales tax was charged in a normal manner.
5.
The purchases of the asphalt by XXXXX were paid by XXXXX with checks drawn on
its account.
6.
On the sales made to XXXXX where no sales tax was charged, the Petitioner
failed to obtain tax exempt certificates from the purchaser.
7.
The Petitioner presented letters from the XXXXX recorder and from the former
Mayor of XXXXX, which stated that the Petitioner was authorized to purchase the
material for the respective cities and that XXXXX acted as an agent of the
respective cities in the purchase of those materials.
8.
As a result of an audit conducted, a sales tax deficiency was assessed against
the Petitioner for having failed to obtain tax exempt certificates for the
sales in question. In addition, a XXXXX
penalty was imposed. The basis for the
penalty was that the Petitioner was audited in XXXXX and at that time was
instructed to report its sales tax on an accrual basis rather than the cash
basis which it had been using. In spite
of that instruction, the Petitioner continued to report on a cash basis.
CONCLUSIONS OF LAW
Sales
of tangible personal property to the state, its institutions, and its political
subdivisions, are exempt from the imposition of sales and use taxes. (Utah Code
Ann. §59-12-104(2).)
The
taxpayer selling tangible personal property or services to exempt customers is
required to keep records verifying the nontaxable status of sales. Records
shall include:
1.
Sales invoices, showing the name and identity of the customer; and
2.
Exemption certificates for exempt sales of tangible personal property of
services if the exemption category is shown on the exemption certificate forms
or if the sale is to a government agency, and the total sale is $$$$$ or
less. (Utah Tax Commission
Administrative RuleR865-19S-23.)
The
Tax Commission is granted the authority to waive, reduce or compromise
penalties and interest upon a showing of reasonable cause. (Utah Code Ann. §59-1-408(8).)
DECISION AND ORDER
In
cases subsequent to the one at hand, the Tax Commission has held that
subcontractors purchasing materials used on construction projects for a tax
exempt organization may purchase those materials tax free if certain conditions
are met. To qualify for such treatment,
the subcontractor must meet certain minimum criteria. Those criteria are:
1.
The exempt organization must exercise direct supervision over the construction
projects;
2.
Purchase orders must be issued by the exempt organization for all materials for
which sales tax is not paid;
3.
Payment must be made by the exempt organization for all materials for which
sales tax is not paid; and
4.
Any furnish and install contracts entered into must have provisions in the
contract for changes through change order.
In
the present case, the Petitioner was not able to establish any of the above
described criteria. Additionally, the
Petitioner did not collect any of the sales tax exemption certificates which
are required by Utah State Tax Commission Administrative RuleR865-19S-23. Therefore, the Petitioner has failed to show
that the sales made to XXXXX were exempt from the imposition of sales tax.
With
respect to the Petitioner's request that the penalty and interest associated
with the audit be waived, the Tax Commission finds the imposition of the
penalty was reasonable in light of the fact that Petitioner had been previously
instructed to report on an accrual basis rather than a cash basis, yet failed
to do so.
Based
upon the foregoing, the Tax Commission affirms the sales tax deficiency as
assessed by the Auditing Division's audit in question and further denies the
Petitioner's request to waive the penalty and interest associated with that
audit. It is so ordered.
DATED
this 21 day of March, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner