91-0696 - Sales





Petitioner : FINDINGS OF FACT,





Respondent :



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 were XXXXX, and XXXXX. 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:


1. The tax in question is sales tax.

2. The audit period in question is XXXXX through XXXXX.

3. After a waiver of the statute of limitations had been obtained from the Petitioner's representative, the Auditing Division began its audit on approximately XXXXX. On XXXXX, and within the period prescribed by the statute of limitations waiver, the Auditing Division issued its preliminary findings. On XXXXX the Auditing Division's audit became final, also within the time period prescribed by the statute of limitations waiver.

4. The audit revealed that the Petitioner had, prior to the audit period, entered into a lease agreement for the lease of certain computer equipment. That lease agreement did not provide for sales tax to be paid on the monthly lease payments.

5. Prior to the lease agreement between the Petitioner and lessor, the lessor had purchased the computer equipment in question from a vendor and erroneously paid sales tax on that purchase.

6. The Petitioner and Respondent agreed that credit for the sales tax erroneously paid by the lessor should be given to the Petitioner to offset the sales tax the Petitioner should have been paying on the monthly rental payments. The parties differed, however, as to how that credit should be applied.

7. The Petitioner argued that the credit should be given to the Petitioner in a lump sum for the first period within the audit period. The Respondent argued that the credit should be allocated to each of the monthly lease payments as they arose.

8. At the prehearing conference held on this matter on XXXXX, both parties agreed that the issues to be presented at the formal hearing would include, inter alia, the nature of the Petitioner's business, i.e., either retail sales or a service, and the taxable treatment of XXXXX used by the Petitioner in its business. At the formal hearing, the Petitioner offered no evidence with respect to either of these two issues.


Any amounts paid more than once or erroneously or illegally collected or computed, shall be credited on any amounts then due from that person to the State of Utah and the balance shall be refunded to that person or his successors provided that a claim for such creditor refund is filed with the State Tax Commission within three years from the date of over payment. (Utah Code Ann. 59-7-141, formally 59-15-8.)


At the prehearing conference held on this matter, as well as by way of subsequent orders, the Petitioner presented several issues to be determined by the Commission:

1. Did the statute of limitations bar the assessing of a deficiency for the first three quarters of the audit;

2. Should amounts to be credited to the Petitioner's account be paid on a lump sum basis or allocated over the life of the lease;

3. Should all or part of the interest that had accrued on the deficiency be waived;

4. Did the Petitioner operate as a retail business or as a service oriented business; and

5. Are XXXXX used by the Petitioner in its business subject to sales tax.

With respect to the statute of limitations issue, both parties stipulated that the assessment and collection of the first three quarters of the audit period was barred due to the fact that the statute of limitations had run on those periods.

With respect to the nature of the Petitioner's business, i.e. retail or service and shipping containers issues, the Tax Commission finds that the Petitioner offered no evidence or presented any facts upon which the Commission can base a decision. Because neither of these two issues were contained in the audit, and because the Petitioner included these in its petition in an attempt to obtain some sort of advisory ruling with respect to the taxable nature of them, the Tax Commission specifically withholds ruling on those issues and reaffirms the position taken by the Auditing Division regarding the nature of the Petitioner's business. The Commission also reaffirms the advisory opinion contained in the letter of XXXXX, signed by Commissioner XXXXX, dealing with the taxable status of the XXXXX.

With respect to the manner in which the sales tax credit should be applied, the Petitioner argued that Utah Code Ann 59-158, and the Tax Commission's policy number 00-04.00, effective January 1, 1984, require the credit to be paid back in a lump sum allocated to the first quarterly sales tax period during the audit period the Petitioner also argued that such treatment is also justified by the fact that by not doing so, the Petitioner is denied the use of the money and any interest that would accrue thereon.

The Commission is not persuaded by the Petitioner's argument. While it is true that Utah Code Ann. 59-15-8 requires a credit or refund of taxes erroneously paid, such credits or refunds shall be given to the taxpayer and only if a request for the refund is made within three years from the date of the overpayment.

Here, the party that initially paid the sales tax in error is not the Petitioner and is not the party requesting the refund. Secondly, no such claim for refund was made within the three year period of time. Nevertheless, because of the Commission's desire to ensure that only the appropriate amounts of tax are collected, the Commission has established a policy whereby credits for overpayments erroneously made will be allowed to offset liabilities that arise from related transactions. Specifically, Utah State Tax Commission policy number 00-04.00 states: The Commission has determined that under certain circumstances, if sufficient information is provided, credit will be allowed to offset any liability that may arise from a related transaction. For example, if a person purchases equipment for a lease and pays Utah sales and use tax, the tax paid in error on the purchase can be used as an offset against any sales or use tax determined to be due on the lease agreement. This method permits a correction without the lessor going back to the suppliers for refunds and presents a practical solution to the problem created by a person who initially pays the sales or use tax in error.

The example given in the policy statement is precisely the same fact situation as in the present case. That being so, the Commission finds that the Auditing Division acted correctly in allocating the credits to the monthly lease payments as they arose. The Commission also is not persuaded by the Petitioner's argument that by not giving a lump sum creditor payment to the Petitioner deprives the Petitioner of any use of the money or interest that would accrue thereon. In the present case it was not the Petitioner who erroneously paid the sales tax. The lessor of the equipment was the entity that paid the sales tax. Therefore, to credit the Petitioner's account on amounts paid by its lessor would unjustly enrich the Petitioner.

The Petitioner next argues that interest assessed by the Auditing Division should be reduced because of the delays in issuing the final audit report. In its testimony, the Petitioner's representative made reference to numerous occasions where, in his opinion, the field auditor could have acted more quickly in performing his audit or in obtaining information regarding the audit. Thus, the Petitioner argued that approximately three months of the time in which the audit was conducted could have been eliminated.

The Tax Commission finds that the audit report was prepared within a reasonable time and without any intentional delays caused by the field audit. Therefore, the Petitioner's request to waive or reduce the interest associated with the audit period is denied.

Based upon the foregoing, the Tax Commission affirms the determination of the Auditing Division with respect to its findings and with respect to any interest imposed. It is so ordered.

DATED this 25th day of February, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner