Sales & Use
BEFORE THE UTAH STATE TAX COMMISSION
Petitioner ) FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
v. ) AND FINAL DECISION
AUDITING DIVISION OF THE ) Appeal No. 91‑0004
UTAH STATE TAX COMMISSION :
) 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, and Joe B. Pacheco, Commissioner, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX, Esq. 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:
FINDINGS OF FACT
1. The audit period in question is XXXXX through XXXXX.
2. On XXXXX the Petitioner filed a claim for refund of sales tax in the amount of XXXXX which had been paid for the purchase of pollution control equipment that was otherwise exempt. On the face of the claim for refund form filed by the Petitioner, the Petitioner indicated that the period involved was from XXXXX through XXXXX.
3. The pollution control equipment was purchased at various times from XXXXX through XXXXX when the Petitioner's power plant was undergoing construction. Some of the pollution control equipment was purchased more than three years prior to the date on which the claim for refund was made.
4. Most of the claim for refund was granted in XXXXX by the Auditing Division. Some items had been disallowed because of insufficient documentation or because credit had already been given for those items in a previous audit. No items were denied because they were purchased outside of the time limits in which a claim for refund may be made.
5. The audit for the period in question was completed and a statutory notice of deficiency was sent on XXXXX. Prior to that time however, the Petitioner had executed a waiver of statute of limitations which, in essence, extended the time period by which the Tax Commission could assess any additional deficiency in taxes for the audit period in question.
6. During the time the audit was being conducted, it was discovered by the Auditing Division that some of the items in the claim for refund were purchased outside the statutory time period. The Auditing Division then assessed a deficiency for refunds made on those items.
7. The Petitioner operates a coal fired generator which generates electricity for sale to its users. The Petitioner is also a consumer of some of the electricity which it generates. Approximately one fourth of the energy consumed by the Petitioner is used to produce electricity for its own use in the administrative buildings, worker housing buildings, and outlying maintenance buildings.
8. The Petitioner purchased the coal which it used in its coal fired generators tax free. Thus, the Petitioner paid no tax on the coal used to generate the electricity that was used in the above described buildings.
9. The coal used by Petitioner in generating the electricity for its own use and for use by its customers was not separately metered nor separately monitored.
10. During the second quarter of XXXXX, the Petitioner was required to make a prepayment of sales and use taxes for XXXXX and XXXXX. The Petitioner did not timely file and pay those taxes therefore, a penalty in the amount of XXXXX was assessed. This failure to timely file and pay the prepayment of sales tax was due to a change in the person responsible for such matters. The Petitioner had been responsible for making sales tax prepayments in prior years and had done so.
11. When the Petitioner receives invoices for payment, those invoices are then forwarded to the appropriate corporate department for approval of payment. Once approved, the invoices are entered into the Petitioner's accounting books and sales and use tax as accrued at that time. Because of this
procedure, some invoices may be dated on one date yet not entered on to the books until a later date. Depending upon the day of the month received, this may lead to a situation where the invoices are received in one quarter yet not accrued on the Petitioner's books until the next quarter.
12. The Auditing Division assessed a deficiency for interest on those invoices where the sales and use tax was invoiced in one quarter but not accrued until the next.
CONCLUSIONS OF LAW
1. If any tax, penalty, or interest has been paid more than once or has been erroneously collected or computed, the Commission shall credit it on any amounts then due from that person to the state . . . and the balance shall be refunded to that person . . . . No such credit or refund is allowed unless a claim is filed with the Commission within three years from the date of overpayment. (Utah Code Ann. '59‑12‑110(2)).
2. The amount of any tax imposed, except if a deficiency is due to fraud with intent to evade tax or of a failure to file a return, shall be assessed within three years after the return was filed and if not so assessed no proceeding for the collection of the taxes shall be begun after the expiration of the period. (Utah Code Ann. '59‑12‑110(8)).
3. Under the facts of the present case, the Respondent is barred from assessing a deficiency arising out of its erroneous granting of the Petitioner's claim for refund. The facts leading to such a determination are as follows:
a. At the time the Petitioner filed its claim for refund, the Respondent was put on notice that some of the items involved fell outside of the statute of limitations;
b. In spite of such notice, the Respondent granted the refund, and;
c. Had the Petitioner not executed a waiver of statute of limitation agreement with respect to the audit period in question, the Respondent would have been time barred from assessing a deficiency based upon the erroneous refund because it had not made such an assessment within the three year statute of limitation period.
Given these facts, it would be manifestly unjust to allow the Respondent, on one hand, to claim the Petitioner has a sales tax deficiency of approximately XXXXX because the statute of limitations for claiming such a refund had expired while, on the other hand, allowing it to assess such a deficiency only because it had obtained a waiver of statute of limitations from the Petitioner. Such a situation is so completely one‑sided and manifestly unjust that such a circumstance cannot be allowed to exist.
4. There is levied a tax on the purchaser for the amount paid or charged for the following: ...(c) gas, electricity, heat, coal, fuel oil, or other fuels sold or furnished for commercial consumption.... (Utah Code Ann. '59‑12‑103.)
5. "Commercial consumption" means the use connected with trade or commerce and includes the use of services or products by retail establishments, hotels, motels, cafes, fast food establishments, restaurants, warehouses, and other commercial establishments.
Examples of commercial consumption are electricity to light department stores, fuel used in a train locomotive, natural gas to heat a warehouse, fuel to provide power for off highway transportation of fill dirt by contractors, and fuel or electricity purchased for use by mining companies in their commercial operations such as transporting ore and other tangible personal property in trucks and locomotives.
If a firm has activities which are commercial and noncommercial and all services or products are furnished at a given location to a single meter, the predominate use of the service or product shall determine the classification of consumption for the purpose of determining the taxable status of the service or product. (Utah State Tax Commission Admin. Rule R865‑19‑35S.)
6. The purchase of coal by the Petitioner for use in producing electricity used in servicing itself such as in the administration building, worker housing buildings, and outlying maintenance buildings, was not exempt from taxation. Such purchases were made to produce electricity, the use of which constituted a commercial consumption of that electricity as contemplated under Utah Code Ann. '59‑12‑103(1)(c) and Utah State Tax Commission Admin. Rule R865‑19‑35S.
7. The Petitioner argued that because the coal used to produce electricity is not separately measured, then the predominate use of the coal, which is to produce electricity for sale to consumers, determines the taxable status of all the coal.
The Tax Commission rejects the Petitioner's argument. The purpose behind R865‑19‑35S(c) is to address the situation where it is impossible or impractical to separate the use to which the electricity in question is put. Such is not the case here. In the present case, the amount of electricity consumed by the Petitioner for its commercial use is known and stipulated to by the parties. Therefore, it is not necessary to turn to Rule 35S to determine the commercial or noncommercial use of the electricity.
8. The purchase of the coal was not exempt under the provisions of Utah Code Ann. '59‑12‑104(29) which exempts from sales tax any sale of gas, electricity, heat, coal, fuel oil, or other fuels sold or furnished for commercial consumption. That provision applies to those situations where there is a taxable transaction by the ultimate consumer of the service. Here, the consumer of the service is also the producer of the service. To allow the purchase of the coal to go untaxed would result in the entire transaction to go untaxed.
Section 59‑12‑104(29) is analogous to the exemption allowed for property purchased for resale. There, the taxable event occurs when the property is consumed by the ultimate consumer. The imposition of the tax is postponed until that event occurs.
9. Section 59‑12‑104(29) operates in much the same manner in that it allows for the exemption from sales tax those items which are used to produce electricity used in commercial consumption which is then subject to sales tax. Therefore, there is no reason to postpone the taxable event. To hold otherwise would allow what is clearly a taxable transaction to escape taxation.
10. Each person storing, using, or consuming tangible personal property is liable for use tax.
Each vendor shall, on or before the last day of the month next succeeding each calendar quarterly period, file with the Commission a return for the preceding quarterly period.
The use tax as computed in the return shall be based upon the total amount of sales or purchases for storage, use, or other consumption in this state made during the period, including both by cash and by charge. (Utah Code Ann. '59‑12‑107 emphasis added).
11. The terms of '59‑12‑107 are clear in setting forth the requirements that a sales and use tax return be filed quarterly and also that the use tax computed be based on "the total amount of sales or purchases...made during the period...." Therefore, the date on the purchase invoice is the date on which the taxable transaction occurred. The Petitioner cannot shift that date to whatever period it so chooses simply by changing the date by which the invoice is actually paid.
12. Certain taxpayers are required to make a prepayment of not less than 90% of their sales and use tax liability for the months of April and May of each year. The return and payment are due on or before June 15th of each year.
Failure to make the required prepayment by June 15th will incur penalties provided by Utah Code Ann. '59‑12‑108 and '59‑1‑401. (Utah State Tax Commission Admin. Rule R865‑19‑86S).
13. The Tax Commission is granted the authority to waive, reduce, or compromise penalties and interest upon a showing of reasonable cause. (Utah Code Ann. '59‑1‑401(a)).
14. In the present case the Petitioner has demonstrated reasonable cause which would justify a waiver of the prepayment penalty in this case.
DECISION AND ORDER
Based upon the foregoing, the Tax Commission affirms the determination of the Auditing Division to the extent that such a determination assesses a deficiency for the sales of coal and interest charges on the late remittance of use tax. The Commission reverses the determination of the Auditing Division in its assessment of a sales tax deficiency arising from the erroneous refund of sales tax previously paid. The Commission also waives the penalty associated with the prepayment tax for XXXXX. It is so ordered.
DATED this 8th day of September, 1992. BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco S. Blaine Willes
NOTICE: You have twenty (20) days after the date of the final order to file a request for reconsideration or thirty (30) days after the date of final order to file in Supreme Court a petition for judicial review. Utah Code Ann. ''63‑46b‑13(1), 63‑46b‑14(2)(a).