BEFORE THE UTAH STATE TAX
COMMISSION
_______________________________
XXXXX, :
:
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
:
AUDITING
DIVISION OF THE : Appeal No. 91-0257
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, Assistant General Counsel for XXXXX
represented the Petitioner. XXXXX,
Assistant Utah Attorney General, represented the Respondent.
Prior
to the hearing, the parties submitted a Stipulation of Facts. Based upon the
stipulated facts and evidence presented at the hearing, the Tax Commission
hereby makes its:
FINDINGS OF FACT
1. Petitioner is primarily engaged in radio and
television broadcasting, but also does business in related fields through
various operating divisions. On XXXXX,
the Commission issued an advisory opinion holding that purchases or leases of
manufacturing machinery and equipment by two of Petitioner's operating
divisions, XXXXX and XXXXX, are not exempt from sales and use tax pursuant to
U.C.A.59-12-104(15)
[formerly59-12-104(16)].
Petitioner
then sought review of the Commission's advisory opinion by filing its Petition
For Redetermination. The parties have
subsequently agreed that Petitioner's Petition for Redetermination may be
treated by the Commission as a claim for refund of sales tax already paid by
Petitioner.
2. XXXXX assembles, duplicates and distributes
video tapes from its own facility. It
is a separate cost center with separate financial statements. In XXXXX, video tape manufacturing accounted
for XXXXX of XXXXX net sales, with the remainder derived from production of
commercials, training tapes, and the like.
3. XXXXX, another of XXXXX operating divisions,
is nearly identical to XXXXX except that it manufactures audio tapes instead of
video tapes. The parties have
stipulated that purchases or leases of manufacturing equipment by XXXXX exempt
from sales and use tax pursuant to U.C.A.59-12-104(15). In a separate Order, the Commission has
approved the parties' stipulation with respect to XXXXX.
4. The magnetic tape used by XXXXX and XXXXX in
their respective operations is essentially the same material.
CONCLUSIONS OF LAW
Machinery
and equipment purchased or leased by a manufacturer for use in new or expanding
operations (excluding normal operating replacements) in any manufacturing
facility in Utah are exempt from sales and use tax. [U.C.A.59-12-104(15).]
"Manufacturing
facility" means an establishment described in SIC Code Classification 2000-3999
of the Standard Industrial Classification Manual 1972, of the Federal Executive
Office of the President, Office of Management and Budget.
[U.C.A.59-12-104(15).]
"Manufacturer"
means a person who:
a. Functions within the activities included in SIC
Code Classification 2000-3999;
b. Produces a new, reconditioned, or
remanufactured product, article, substance, or commodity from raw,
semi-finished, or used material; and
c. In the normal course of business, produces
products for sale as tangible personal property. [Utah State Tax Commission Administrative RuleR865-19S-85(14).]
DECISION AND ORDER
The
Commission has accepted the parties' stipulation that purchases or leases of
equipment used by XXXXX in the manufacture of audio tapes are exempt from sales
and use tax pursuant to U.C.A.59-12-104(15). The issue now before the
Commission is whether XXXXX is also entitled to the same exemption. Respondent concedes that XXXXX meets all
criteria for exemption except the requirement that it function within activity
codes 2000-3999 as set forth in the XXXXX SIC manual. Therefore, the determination of the proper SIC activity code for
XXXXX is determinative of this appeal.
Petitioner
argues that video tape manufacture is included in activity code 3652, which is
titled "Phonograph Records and Pre-recorded Magnetic Tape" and
includes "establishments primarily engaged in manufacturing phonograph
records and prerecorded magnetic tape".
However, the Commission considers it unlikely that the drafters of the
XXXXX SIC manual intended to include video tape reproduction in the same
activity code as activities related to audio media such as phonograph
records. The Commission's
interpretation of the scope of activity code 3652 is supported by the fact that
the XXXXX SIC manual specifically limits activity code 3652 to audio media.
For
its part, Respondent contends that video tape manufacture is included in the
XXXXX SIC manual's activity code 7814, "Motion Picture and Tape Production
For Television":
Establishments
primarily engaged in the production of theatrical and nontheatrical motion
pictures and tape, including commercials, for television exhibition. Establishments engaged in both production
and distribution are included here. . . .
However,
the notes following activity code 7814 specifically exclude video tape
reproduction. The Commission therefore
concludes that video tape reproduction is not encompassed by the XXXXX manual's
activity code 7814.
By
its own terms, the XXXXX SIC manual is intended to cover the entire field of
economic activities. If XXXXX video
tape reproduction activities are not included in the manual's activity code
3652 as urged by Petitioner, or in activity code 7814 as urged by Respondent,
it must be included in another of the manual's activity codes. The Commission finds that video tape
reproduction is included in the manual's activity code 7819--Services Allied to
Motion Picture Production:
Establishments
primarily engaged in performing services independent of motion picture production
but allied thereto, such as motion picture film processing, editing and
titling; casting bureaus; wardrobe and studio property rental; television tape
services (editing, transfers, etc.); and stock footage film libraries.
The
foregoing list of activities allied to motion picture production is not
exclusive and is broad enough to encompass video tape reproduction. The XXXXX SIC Manual specifically places
"motion picture and video tape reproduction" in activity code 7819.
The
Commission's obligation in this matter is to determine whether XXXXX activities
fall with the SIC activity codes designated by the legislature as qualifying
for exemption from sales tax. The
Commission has no authority to extend the exemption beyond the scope of the
legislative determination. After
reviewing the various SIC activity codes and comments, the Commission concludes
that XXXXX reproduction of video tapes is included in activity 7819 of the
XXXXX SIC manual. Because XXXXX
activities fall outside those SIC classifications which are exempt from sales
and use tax under U.C.A.59-12-104(15), the Commission concludes Petitioner is
liable for payment of sales and use tax with respect to machinery and equipment
purchased or leased by XXXXX for the reproduction of video tapes. The Commission therefore reaffirms its
previous declaratory order as it pertains to XXXXX and denies XXXXX request for
refund of sales tax already paid. It is
so ordered.
DATED
this 2nd day of September, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner