BEFORE THE UTAH STATE TAX COMMISSION
: 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
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
Joe B. Pacheco G. Blaine Davis