90-2654 - Sales





Petitioner, : FINDINGS OF FACT,






: Account No. XXXXX

Respondent. :



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 and XXXXX, of XXXXX, represented Petitioner. XXXXX, Assistant Utah Attorney General, represented Respondent. Thereafter, the Commission reopened the hearing for additional evidence and argument on XXXXX. The record was then left open to allow XXXXX to submit additional information which was received by the Commission on XXXXX.

Prior to the first hearing in this matter, the parties submitted a written stipulation of facts. Based upon that stipulation and the additional evidence received at the formal hearings, the Commission hereby renders its decision.


1. The tax in question is sales and use tax.

2. The period in question is XXXXX through XXXXX.

3. Following an audit, Respondent assessed Petitioner with sales tax in the amount of $$$$$ for the period in question, plus interest. Petitioner then filed a timely Request for Redetermination with the Commission.

4. The sales tax assessed in this matter arises from Petitioner's purchase of materials used to construct low income housing for the XXXXX.

5. XXXXX, the owner of petitioner XXXXX, is a member of the XXXXX and a XXXXX. As such, she entitled to any benefits available to a XXXXX. XXXXX is an XXXXX XXXXX XXXXX that is entitled to preference in contracting and which must give preference to XXXXX in hiring pursuant to the Buy Indian Act 25 U.S.C. 47.

6. On XXXXX, XXXXX contracted with the XXXXX, a subdivision of the XXXXX, to complete all work and services for the construction of XXXXX low rent housing units. The total contract amount was $$$$$. The housing units were located at or near XXXXX, XXXXX, and XXXXX, Utah.

7. The lands upon which these housing units were built were lands held in trust by XXXXX for the benefit of the XXXXX with the exception of XXXXX parcels of land, located in XXXXX, Utah, which were vested in the XXXXX. There were XXXXX units built upon this land. All other units were built on lands held by XXXXX as XXXXX for the XXXXX.

8. The contract plans and specifications for the foregoing XXXXX recognized XXXXX as a prequalified XXXXX contractor approved to bid on the project.

9. XXXXX purchased materials for the project by purchase orders written in the XXXXX XXXXX office, which was located within the XXXXX, as follows:

a. XXXXX of XXXXX, Utah, to furnish interior doors, hardware and bathroom accessories, for a total price of $$$$$ (non-taxable), shipped F.O.B. to each job site.

b. XXXXX of XXXXX, Utah, to furnish floors, walls or roofs, for a total price of $$$$$ (non-taxable), shipped F.O.B. to each job site.

c. XXXXX of XXXXX, Utah, to furnish trusses for a total price of $$$$$ (non-taxable), shipped F.O.B. to each job site.

d. XXXXX of XXXXX, Utah, to furnish entry doors and storm doors with jams and hardware, for a total price of $$$$$ (non-taxable), shipped F.O.B. to each job site.

e. XXXXX of XXXXX, Utah, to furnish windows for a total price of $$$$$ (non-taxable), shipped F.O.B. to each individual job site.

f. XXXXX of XXXXX, Utah, to furnish clothes line poles and hardware, for a total price of $$$$$ (non-taxable) shipped F.O.B. to each job site.

g. XXXXX of XXXXX, Utah, to furnish pipe columns and accessories for a total price of $$$$$ (non-taxable), shipped F.O.B. to each job site.

h. XXXXX of XXXXX, Utah, to furnish a pump for a total price of $$$$$ (non-taxable), shipped F.O.B. to the XXXXX site.

i. XXXXX of XXXXX, XXXXX, to furnish cabinets for a total price of $$$$$ (non-taxable), shipped F.O.B. to each job site.

10. The foregoing materials were received by XXXXX within the boundaries of the XXXXX and incorporated into the housing units constructed pursuant to XXXXX's contract with the XXXXX. The materials were paid for by checks distributed from the XXXXX office, also located within the boundaries of the XXXXX.

11. The housing development was controlled and supervised by (a) the XXXXX, (b) the office of XXXXX of the XXXXX and XXXXX, and (c) the XXXXX through the XXXXX.

12. XXXXX subdivision roads, utilities and other infrastructure necessary to support the housing units were provided by XXXXX, XXXXX or the XXXXX.

13. In constructing housing on the XXXXX, XXXXX contracts with local utilities to provide services that they need, such as electricity, water, sewer, etc.

14. With respect to XXXXX units built in XXXXX, those units built at XXXXX obtained their utilities locally. Water, sewer, and heating services were obtained from the appropriate utility by paying all customary hook-up costs and payment of service charges. Electrical power was also obtained by contracting with the electrical power provider and paying for those charges.

15. Governmental services, such as police protection, and fire protection, are provided by the City of XXXXX as to the XXXXX, XXXXX as to the XXXXX, and by XXXXX as to the XXXXX.

16. Children from the XXXXX attend public schools.

17. Once built, the houses in question are owned by the XXXXX and occupied by XXXXX.

18. The contract between Petitioner and the XXXXX required Petitioner to pay state sales and use tax on all materials and equipment purchased for use on the project.


A tax is levied on a purchaser for the amount paid or charged for the retail sale of tangible personal property within Utah or the storage, use, or consumption of such property in Utah. (Utah Code Ann. 59-12-103(1)(a) and (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 Admin. RulesR865-19S-58.A.1.)

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 Admin. RulesR865-19S-58

The states may not exercise their authority over commercial activity on an XXXXX if such state authority has been pre-empted by federal law, or interferes with the XXXXX's ability to exercise its XXXXX functions. Either barrier can be a sufficient basis for holding state law inapplicable to activity on the reservation or by XXXXX members. (XXXXX XXXXX School Board. Inc. v. Bureau of Revenue of XXXXX XXXXX, 458 U.S. 832, (XXXXX).)

Ambiguities in federal law should be interpreted in favor of a finding that federal preemption exists. Congress need not explicitly announce an intention to pre-empt state activity. (XXXXX XXXXX School Board. Inc., Ibid.)

In determining whether federal pre-emption or XXXXX sovereignty prohibits state action, the respective state, federal and XXXXX interests must be identified and given due weight. (XXXXX XXXXX School Board. Inc., Ibid.)


Petitioner does not dispute the general proposition that contractors must pay sales or use tax on materials purchased for installation in real property, nor does Petitioner dispute Respondent's computation of tax in this case. Instead, Petitioner argues that the doctrine of pre-emption, as it relates to both XXXXX housing on XXXXX reservations and XXXXX-preference contracts, prevents imposition of tax. Petitioner also argues that XXXXX is exempt from tax because the tax burden falls on the XXXXX. Finally, Petitioner argues that assessment of state tax is an impermissible infringement on XXXXX sovereignty. Each of XXXXX's argument's will be considered in turn.

The parties agree that Utah may not interfere in activities undertaken on reservations or by XXXXX members if federal law pre-empts such regulation. In cases where federal regulation is both comprehensive and pervasive, no state involvement is permitted. (XXXXX XXXXX School Board, Inc., Ibid.)

The welfare and protection of XXXXX is a specific federal duty. The federal government has a long-standing concern and involvement with XXXXX housing. The federal government has established the instrumentalities of the XXXXX and XXXXX's office of XXXXX to provide low income XXXXX housing, in cooperation with various XXXXX authorities. The federal government provides the funds for such housing. Its instrumentalities oversee the execution and performance of construction contracts. The federal government's activities in the area are comprehensive and pervasive.

XXXXX interests with respect to XXXXX housing mirror those of the federal government.

Under XXXXX, however, state interests are also entitled to consideration. A more recent Supreme Court decision, Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163 (1989), provides an appropriate analysis for weighing federal and state interests. A non-Indian company and the XXXXX Tribe challenged a New Mexico severance tax which was assessed on a non-Indian lessee working on the Indian reservation. The Court stated the issue regarding federal pre-emption as "whether Congress has acted to grant the Tribe such immunity, either expressly or by plain implication." Id. at 175-76. Listing the federal and Tribal regulations, the Court found:

The federal regulations provide, inter alia, that tribal leases may only be offered for sale pursuant to specified standards governing notice and bidding, that the Secretary reserves "the right to reject all bids when in his judgment the interests of the Indians will be best served by so doing," that corporate bidders must submit detailed information concerning their officers, directors, shareholders, and finances, that no single lease for oil and gas may exceed 2,560 acres, and that a primary lease may not exceed 10 years, the regulations also address the manner of payment and amount of rents and royalties, and provide for Interior Department inspection of lessees' premises and records. Other federal regulations address the spacing, drilling, and plugging of wells and impose reporting requirements concerning production and environmental protection.

The Tribe imposes further regulations, including a requirement that anyone seeking to conduct oil and gas operations in the reservation must obtain a permit from the Tribal Oil and Gas Administration, must open covered premises for inspection, and must comply with the Tribe's environmental protection ordinance. (Id. at 186 (citations omitted).)

Despite all of these federal and tribal regulations, the Court found that federal law did not "expressly or by plain implication" pre-empt XXXXX from collecting its severance tax. The Court held, "although the federal and tribal regulations in this case are extensive, they are not exclusive. . . We thus conclude that federal law, even when given the most generous construction, does not pre-empt XXXXX's oil and gas severance taxes." Id.

In the instant case, the federal regulations over the construction of low income housing on XXXXX reservations are general guidelines which are far from exclusive. Petitioner argues that 25 U.S.C. 47, Buy Indian Act which gives preference to Indians in the awarding of construction contracts, 25 U.S.C. 450, Indian Self-Determination Act which requires federal agencies to include in the prime contract a provision requiring the general contractor (the XXXXX in this case) to afford preference to Indians in the award of subcontracts to the greatest extent feasible; and 42 U.S.C. 1437, which vests in the local housing agency authority to administer its housing programs, constitute sufficient federal intervention into the construction of low income housing units on Indian reservations to pre-empt state taxation.

However, the statutes and regulations which Petitioner cites do not meet the pre-emption standard the Supreme Court followed in Cotton. None of these federal statutes or regulations "either expressly or by plain implication" pre-empts assessing sales and use tax pursuant to Utah's taxing scheme applicable to property contractors.

Moveover, assessment of sales and use taxes on Petitioner does not infringe on the right of the XXXXX to make its own laws and to be governed by them. The United Supreme Court has stated:

This Congressional authority and the "semiindependent position" of Indian tribes have given rise to two independent but related barriers to the assertion of state regulatory authority over tribal reservations and members. First, the exercise of such authority may be pre-empted by federal law. Second, it may unlawfully infringe "on the right of reservation Indians to make their own laws and be ruled by them." White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 142 (1980) (citations omitted).

The cases Petitioner relies upon for support of its position that the assessment of a state sales and use tax infringes upon the XXXXX sovereignty were decided under the federal pre-emption analysis not under the second "independent but related" prong the Supreme Court has established: an unlawful infringement of XXXXX sovereignty. However, in the present case, because the legal and economic incidence of the sales and use tax falls upon Petitioner, XXXXX sovereignty is not affected.

Petitioner's contention that a state assessment which indirectly taxes an Indian tribe is unlawful is based on the Court's decision in Ramah Navajo School Bd. v. Bureau of Revenue, 458 U.S. 832 (1982). The Ramah Court stated that although the legal incidence of a state tax fell upon a non-tribal member, if the economic incidence falls upon the tribe in an area where federal law extensively regulates the tribal activity then the state tax cannot prevail. In Ramah, the Court would not permit New Mexico to assess a state gross receipts tax on a non-tribal member construction contractor who was constructing a school on the Navajo Indian reservation. The Court stating the facts in Ramah found that "[t]he contract between the Board and Lembke provides that Lembke is to pay all "taxes required by law." . . . Lembke paid the gross receipts tax and, pursuant to standard industry practice, was reimbursed by the Board for the full amount paid." Id. at 835. Under the facts of Ramah, it was clear that the economic incidence of the state tax fell upon the Indian Tribe.

In the present case, however, there is no agreement between Petitioner and the XXXXX regarding responsibility for taxes. Indeed, the contract specifically requires Petitioner to pay state sales and use tax on all materials and equipment purchased for the project.


Federal laws regulating the construction of low income housing units on Indian reservations are not exclusive. Therefore, the Tax Commission's sales and use tax on Petitioner is not preempted by federal law.

The tax imposed does not interfere with XXXXX sovereignty or with the XXXXX Tribe's right to make its own laws and to be ruled by them.

The legal and economic incidence of the tax rests upon Petitioner.


Based on the foregoing, the Commission finds the Petitioner was properly assessed for sales tax in the amount of $$$$$, plus interest for the purchase of materials used to construct low income housing for the XXXXX. It is so ordered.

DATED this 23 day of March, 1994.


W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner