BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX,
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
:
AUDITING
DIVISION OF THE : Appeal No. 90-1668
UTAH STATE TAX COMMISSION, :
: Account
No. XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a formal hearing on
XXXXX. Alan Hennebold, Presiding
Officer, heard the matter for and on behalf of the Commission. XXXXX, attorney at law, represented
Petitioner. XXXXX, Assistant Utah
Attorney General, represented Respondent.
Based
upon the evidence presented at the hearing, the Commission hereby makes its:
FINDINGS
OF FACT
1. The tax in question is sales and use tax.
2. The period in question is XXXXX through
XXXXX.
3. Respondent used a projection method to
determine Petitioner's compliance with Utah's sales and use tax for the period
in question. As a result of the test
methodology, Respondent assessed Petitioner with additional tax in the amount
of $$$$$, plus interest. No penalty was
assessed.
4. At the hearing in this matter, Respondent
conceded that materials sold by Petitioner to the XXXXX were erroneously
included as taxable transactions in the audit test period. For its part, Petitioner conceded that
certain other transactions included in the test period are, in fact,
taxable. Consequently, the only items
in dispute from the audit test period are materials used in XXXXX for the XXXXX
and the XXXXX.
5. Regarding the XXXXX, Petitioner submitted a
bid to furnish and install partitions in a park restroom. Petitioner did not include sales or use tax
in its bid, nor did it pay sales or use tax on the partitions used in the
project. Petitioner's bid was accepted
by the XXXXX's standard preprinted purchase order, which purchase order stated
that materials used in the project were not subject to sales tax. Petitioner's employees affixed the
partitions to the XXXXX's building, thereby converting the partitions from
personal property to real property.
XXXXX employees were present and monitored Petitioner's employees as they
installed the partitions.
6. The same pattern was followed in the XXXXX
transaction. The XXXXX accepted
Petitioner's bid to furnish and install partitions in a XXXXX restroom. The bid was accepted by a standard
preprinted XXXXX purchase order which contained a statement that the XXXXX was
exempt from sales tax and that the XXXXX should not be charged with sales tax
on the materials used in the project.
Petitioner did not incorporate sales or use tax in its bid on the
project, nor did it pay sales or use tax on the partitions so used. Petitioner's employees affixed the
partitions to the XXXXX's building, thereby converting the partitions from
personal property to real property.
University employees were present and monitored Petitioner's employees as
they installed the materials.
CONCLUSIONS
OF LAW
1. The person who converts personal property
into real property is the consumer of the personal property since he or she is
the last person to own it as personal property. (See Utah Administrative CodeR865-19S-58.A.1.)
2. Sales of materials and supplies to
contractors and subcontractors are taxable transactions as sales to final
consumers, even if the contract is performed for a religious institution,
charitable organization, or governmental instrumentality. (See Utah Administrative
CodeR865-19S-58.A.3.)
3. Sales of materials to religious
institutions, charitable organizations, and governmental instrumentalities are
exempt only if sold to such institutions, organizations and instrumentalities
as tangible personal property and the seller does not install the material as
an improvement to realty or use it to repair real property. (Utah Administrative CodeR865-19S-58.A.4.)
4. Parties seeking exemptions from taxation
bear the burden of proving that they qualify and are legally entitled to the
exemption. Parson Asphalt Products
v. Utah State Tax Commission, 617 P.2d 397 (1980).
5. Contractors must accrue and report tax on
all merchandise bought tax-free and used in performing contracts to improve or repair
real property. (See Utah Administrative CodeR865-19S-58.B.2.)
DECISION AND ORDER
Petitioner
raises three points in challenging the assessment of use tax against it. First, Petitioner contends its transactions
with XXXXX and the XXXXX are exempt from sales or use tax under
U.C.A.59-12-104(2) as interpreted by the Commission's "Horne" line of
decisions. Second, Petitioner maintains
Respondent is equitably estopped from assessing the tax against it. Third, Petitioner argues it is unfair to
assess the tax. Petitioner's three
contentions will be addressed in that order.
As
a general rule, a contractor who both furnishes and installs materials to real
property is the last entity to hold such materials in the form of tangible
personal property. In performing the
contract, the contractor consumes the materials and is therefore liable for
sales or use tax.
In
some situation, commonly referred to as the "Horne" cases, the
Commission has concluded that no sales or use tax is due on material purchased
by exempt entities such as religious institutions, charitable organizations or
government agencies. These
"Horne" cases are not an exception to the general rule that real
property contractors are subject to sales or use tax on materials which they
furnish and install on real property.
Instead, the "Horne" cases recognize that entities which are
themselves exempt from sales or use tax may directly acquire materials to be
used in construction projects, then provide those materials to the contractor
for installation. In such situations,
and under the guidelines established by the "Horne" cases, the exempt
entity is not required to pay sales or use tax on its purchase of such
materials.
This
case does not follow the "Horne" pattern. Here, Petitioner entered into contracts with the XXXXX and the
XXXXX which required Petitioner to both furnish and install the partitions in
question. The XXXXX and XXXXX made no
attempt to acquire the materials themselves.
They never possessed the partitions as tangible personal property, but
only as real property fixtures after their installation by Petitioner. Petitioner was therefore the final consumer
of those partitions.
That
the XXXXX and the XXXXX monitored Petitioner's performance of its contracts is
of no significance. The XXXXX and the
XXXXX did not assume responsibility for installation, and Petitioner remained
obligated to install the materials according to the terms of its contracts.
Moving
to the issue of equitable estoppel, Petitioner makes two arguments. First, Petitioner contends that it has never
paid sales or use tax on its "furnish and install" contracts with
other exempt entities, and has never been advised by Respondent that such
practice was improper. Whether or not
errors went undetected in previous audits, it is the Commission's duty in the
case now before it to insure that tax statutes and regulations are properly
applied.
Petitioner's
second argument regarding equitable estoppel is that Respondent is bound by the
statements contained in the XXXXX and XXXXX purchase orders to the effect that
no tax was to be charged. It is
axiomatic that estoppel can be imposed only against a party who has made an
erroneous or misleading representation, which misrepresentation was then relied
upon by another party, to its damage.
According to Petitioner, Respondent is bound by the statements in the
XXXXX and XXXXX purchase orders because Respondent, XXXXX and the XXXXX are all
subdivisions of the XXXXX. Petitioner
cites no authority for its premise that representations made by one
governmental subdivision may be attributed to other governmental entities for
purposes of equitable estoppel. The
Commission is unaware of any such authority.
Consequently, even if the Commission were to assume that the doctrine of
equitable estoppel is available against Respondent, the Commission finds no
misrepresentation by Respondent upon which equitable estoppel might be based.
Finally,
Petitioner argues that imposition of use tax against it is unfair, since the
XXXXX and the XXXXX were the purchasers of the materials, and were therefore
liable for any sales tax on those materials.
This argument overlooks the fact that Petitioner, as the final consumer
of the materials, was itself liable for the applicable sales or use tax.
Based
on the foregoing, the Commission concludes that Petitioner was the consumer of
materials and supplies used in its XXXXX and XXXXX contracts, and that
Respondent properly assessed use tax against Petitioner with respect to such
materials and supplies. This matter is
remanded to Respondent for issuance of an amended audit that is consistent with
this decision and which also reflects the agreement of the parties regarding
the other issues included in the audit.
It is so ordered.
DATED
this 6 day of August, 1992.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner
BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX,
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
:
AUDITING
DIVISION OF THE : Appeal No. 90-1668
UTAH STATE TAX COMMISSION, :
: Account
No. XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a formal hearing on
XXXXX. Alan Hennebold, Presiding
Officer, heard the matter for and on behalf of the Commission. XXXXX, attorney at law, represented
Petitioner. XXXXX, Assistant Utah
Attorney General, represented Respondent.
Based
upon the evidence presented at the hearing, the Commission hereby makes its:
FINDINGS
OF FACT
1. The tax in question is sales and use tax.
2. The period in question is XXXXX through
XXXXX.
3. Respondent used a projection method to
determine Petitioner's compliance with Utah's sales and use tax for the period
in question. As a result of the test
methodology, Respondent assessed Petitioner with additional tax in the amount
of $$$$$, plus interest. No penalty was
assessed.
4. At the hearing in this matter, Respondent
conceded that materials sold by Petitioner to the XXXXX were erroneously
included as taxable transactions in the audit test period. For its part, Petitioner conceded that
certain other transactions included in the test period are, in fact,
taxable. Consequently, the only items
in dispute from the audit test period are materials used in XXXXX for the XXXXX
and the XXXXX.
5. Regarding the XXXXX, Petitioner submitted a
bid to furnish and install partitions in a park restroom. Petitioner did not include sales or use tax
in its bid, nor did it pay sales or use tax on the partitions used in the
project. Petitioner's bid was accepted
by the XXXXX's standard preprinted purchase order, which purchase order stated
that materials used in the project were not subject to sales tax. Petitioner's employees affixed the
partitions to the XXXXX's building, thereby converting the partitions from
personal property to real property.
XXXXX employees were present and monitored Petitioner's employees as they
installed the partitions.
6. The same pattern was followed in the XXXXX
transaction. The XXXXX accepted
Petitioner's bid to furnish and install partitions in a XXXXX restroom. The bid was accepted by a standard
preprinted XXXXX purchase order which contained a statement that the XXXXX was
exempt from sales tax and that the XXXXX should not be charged with sales tax
on the materials used in the project.
Petitioner did not incorporate sales or use tax in its bid on the
project, nor did it pay sales or use tax on the partitions so used. Petitioner's employees affixed the
partitions to the XXXXX's building, thereby converting the partitions from
personal property to real property.
University employees were present and monitored Petitioner's employees as
they installed the materials.
CONCLUSIONS
OF LAW
1. The person who converts personal property
into real property is the consumer of the personal property since he or she is
the last person to own it as personal property. (See Utah Administrative CodeR865-19S-58.A.1.)
2. Sales of materials and supplies to
contractors and subcontractors are taxable transactions as sales to final
consumers, even if the contract is performed for a religious institution,
charitable organization, or governmental instrumentality. (See Utah Administrative
CodeR865-19S-58.A.3.)
3. Sales of materials to religious
institutions, charitable organizations, and governmental instrumentalities are
exempt only if sold to such institutions, organizations and instrumentalities
as tangible personal property and the seller does not install the material as
an improvement to realty or use it to repair real property. (Utah Administrative CodeR865-19S-58.A.4.)
4. Parties seeking exemptions from taxation
bear the burden of proving that they qualify and are legally entitled to the
exemption. Parson Asphalt Products
v. Utah State Tax Commission, 617 P.2d 397 (1980).
5. Contractors must accrue and report tax on
all merchandise bought tax-free and used in performing contracts to improve or repair
real property. (See Utah Administrative CodeR865-19S-58.B.2.)
DECISION AND ORDER
Petitioner
raises three points in challenging the assessment of use tax against it. First, Petitioner contends its transactions
with XXXXX and the XXXXX are exempt from sales or use tax under
U.C.A.59-12-104(2) as interpreted by the Commission's "Horne" line of
decisions. Second, Petitioner maintains
Respondent is equitably estopped from assessing the tax against it. Third, Petitioner argues it is unfair to
assess the tax. Petitioner's three
contentions will be addressed in that order.
As
a general rule, a contractor who both furnishes and installs materials to real
property is the last entity to hold such materials in the form of tangible
personal property. In performing the
contract, the contractor consumes the materials and is therefore liable for
sales or use tax.
In
some situation, commonly referred to as the "Horne" cases, the
Commission has concluded that no sales or use tax is due on material purchased
by exempt entities such as religious institutions, charitable organizations or
government agencies. These
"Horne" cases are not an exception to the general rule that real
property contractors are subject to sales or use tax on materials which they
furnish and install on real property.
Instead, the "Horne" cases recognize that entities which are
themselves exempt from sales or use tax may directly acquire materials to be
used in construction projects, then provide those materials to the contractor
for installation. In such situations,
and under the guidelines established by the "Horne" cases, the exempt
entity is not required to pay sales or use tax on its purchase of such
materials.
This
case does not follow the "Horne" pattern. Here, Petitioner entered into contracts with the XXXXX and the
XXXXX which required Petitioner to both furnish and install the partitions in
question. The XXXXX and XXXXX made no
attempt to acquire the materials themselves.
They never possessed the partitions as tangible personal property, but
only as real property fixtures after their installation by Petitioner. Petitioner was therefore the final consumer
of those partitions.
That
the XXXXX and the XXXXX monitored Petitioner's performance of its contracts is
of no significance. The XXXXX and the
XXXXX did not assume responsibility for installation, and Petitioner remained
obligated to install the materials according to the terms of its contracts.
Moving
to the issue of equitable estoppel, Petitioner makes two arguments. First, Petitioner contends that it has never
paid sales or use tax on its "furnish and install" contracts with
other exempt entities, and has never been advised by Respondent that such
practice was improper. Whether or not
errors went undetected in previous audits, it is the Commission's duty in the
case now before it to insure that tax statutes and regulations are properly
applied.
Petitioner's
second argument regarding equitable estoppel is that Respondent is bound by the
statements contained in the XXXXX and XXXXX purchase orders to the effect that
no tax was to be charged. It is
axiomatic that estoppel can be imposed only against a party who has made an
erroneous or misleading representation, which misrepresentation was then relied
upon by another party, to its damage.
According to Petitioner, Respondent is bound by the statements in the
XXXXX and XXXXX purchase orders because Respondent, XXXXX and the XXXXX are all
subdivisions of the XXXXX. Petitioner
cites no authority for its premise that representations made by one
governmental subdivision may be attributed to other governmental entities for
purposes of equitable estoppel. The
Commission is unaware of any such authority.
Consequently, even if the Commission were to assume that the doctrine of
equitable estoppel is available against Respondent, the Commission finds no
misrepresentation by Respondent upon which equitable estoppel might be based.
Finally,
Petitioner argues that imposition of use tax against it is unfair, since the
XXXXX and the XXXXX were the purchasers of the materials, and were therefore
liable for any sales tax on those materials.
This argument overlooks the fact that Petitioner, as the final consumer
of the materials, was itself liable for the applicable sales or use tax.
Based
on the foregoing, the Commission concludes that Petitioner was the consumer of
materials and supplies used in its XXXXX and XXXXX contracts, and that
Respondent properly assessed use tax against Petitioner with respect to such
materials and supplies. This matter is
remanded to Respondent for issuance of an amended audit that is consistent with
this decision and which also reflects the agreement of the parties regarding
the other issues included in the audit.
It is so ordered.
DATED
this 6 day of August, 1992.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner