BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX, )
:
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
:
OPERATIONS
DIVISION OF THE : Appeal No. 91-0822
UTAH STATE TAX COMMISSION, :
: Account
No. XXXXX
:
Respondent. : Tax Type: Sales & Use Tax
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a Formal Hearing on XXXXX.
Jane Phan, Administrative Law Judge, heard the matter for and on behalf
of the Commission. Present and
representing Petitioner were XXXXX, Esq., of XXXXX, XXXXX, CEO and owner of
XXXXX and XXXXX, General Manger of XXXXX.
Present and representing Respondent were XXXXX, Assistant Attorney
General, XXXXX of the Operations Division and XXXXX of the Auditing Division.
Based
upon the evidence and testimony presented at the hearing, the Tax Commission
hereby makes its:
FINDINGS OF FACT
1. Petitioner is appealing Respondent's denial
of a refund request filed by Petitioner on XXXXX.
2. The refund requested was for $$$$$ in sales
tax paid relating to vending machine sales made in several schools during the
period in question, XXXXX through XXXXX.
3. Respondent had denied the refund request on
XXXXX. Petitioner timely filed the
Petition for Redetermination in this matter and it eventually proceeded to this
Formal Hearing.
4. During the period in question Petitioner
owned vending machines which it placed in certain public schools pursuant to an
oral agreement with the schools.
5. Under this oral agreement the schools
allowed Petitioner to place its vending machines in the schools in return for
which the schools received a percentage of the proceeds from the sale of the
snacks, foods and candy items sold from the vending machines.
6. The oral agreement also allowed the schools
some control over the vending machine sales.
Each school determined where the vending machines were located within
the school and when they were turned on.
The schools also had some input as to what products were sold from the
machines.
7. Students, school faculty, and school
visitors were the purchasers of the products from Petitioner's vending machines
in the schools.
8. Petitioner collected the proceeds from the
machines, processed the proceeds through its internal accounting and remitted a
check to the schools on a monthly basis for the percentage agreed to in the
oral arrangement.
9. Petitioner did not invoice the schools for
the items sold in its vending machines.
The schools did not issue a check to Petitioners for the items sold in
the vending machines.
10. From the testimony presented, Petitioner did
not sell its vending machine products to the schools and the schools did not
act as a retailer, reselling the vending machine products. Instead Petitioner
sold its products through the vending machines directly to the students,
teachers and school visitors who purchased the products.
11. Petitioner restocked the machines on a
regular schedule, generally without
request from the schools. When a
problem arose with either the vending machine or a product sold in the machine
the schools would contact Petitioner and Petitioner would fix the problem. Petitioner served the product from the
vending machines. The schools did not
serve the vending machine products to their students.
12. If the vending machines were vandalized or
broken into it was the schools who decided whether or not to prosecute the
offender.
13. Some of the vending machines were located in
or near the schools' cafeterias.
Federal regulation of school lunch programs consider these items to be
"competitive food" items and require that they have "minimal
nutritional value." 7 CFR Ch. 11
§210.11.
14. The proceeds each school received from the
vending machine sales did not go into the fund for the school lunch program. No discount was given on the vending machine
sales to low income students who qualified for free or reduced price school
lunches.
15. From the testimony presented, Owners of
Petitioner had also owned XXXXX which sold snacks, food and candy items from
vending machines in public schools. In
XXXXX XXXXX filed a request for a refund of sales tax paid on its sales from
vending machines located in public schools.
That refund request was granted and a refund paid to XXXXX.
16. Following the sales tax refund, XXXXX did
not thereafter pay sales tax on any of its products sold from the vending
machines in public schools up to and including the period of this refund
request by Petitioner.
17. XXXXX refund application was entered as
Petitioner's Exhibit 2 at the hearing.
In answering the question on the refund request form that asked why
XXXXX believed its claim should be allowed, the representative for XXXXX had
written, "Sales to schools have been reported as taxable in the past. This business' sales of food and candy items
is primarily to schools-your office was contacted to verify this
adjustment." However, Testimony
from XXXXX representative indicated that the products were sold from vending
machines located in the schools to students, staff and visitors to the school.
18. Following Petitioner's submission of the
refund request that is the subject of this appeal, Petitioner's representative
had several telephone conversations with Tax Commission employees concerning
the refund request. Petitioner's representative
remembered making the phone calls and kept a record of the dates of these phone
calls, with whom he had spoken and what was said. The testimony of Petitioner's representative was that he was told
by Tax Commission employees that sales tax was not assessed on sales from
vending machines in public schools.
Representatives from the Operations Division testifying at the Formal
Hearing had little recollection of the phone calls or conversations which took place.
19. XXXXX, an employee of the Auditing Division
at the time of the refund request, testified that he thought it was the policy
of the Auditing Division that sales tax was not assessed on vending machines
sales in public schools until XXXXX when the Tax Commission issued Tax Bulletin
15-88.
CONCLUSIONS OF LAW
Sales
tax is levied upon the retail sales of tangible personal property made within
the state unless it qualifies for a sales tax exemption. (Utah Code Ann. §59-12-103(1)(a)(1995).
Exemptions
set out in Utah Code Ann. §59-12-104 (1995) include the following:
(2) sales to the state, its institutions, and its political
subdivisions. . .
(13) sales of meals served by: (a) public elementary and secondary
schools. . .
(27) property purchased for resale in this state, in the regular course
of business, either in its original form or as an ingredient or component part.
. .
ANALYSIS
Two
issues are presented in this appeal.
The first is whether Petitioner is entitled to the refund of sales taxes
on its sales of food products from vending machines in public schools because
these sales are exempt pursuant to Utah Code Ann. §59-12-104. The second issue is whether Petitioner is
entitled to the refund because denial would result in a violation of the rule
making requirements of the Utah Administrative Rule making Act at Utah Code
Ann. §63-46a-1 (1995).
ISSUE 1: ARE THE SALES EXEMPT SALES UNDER UTAH CODE ANN. §59-12-104?
In
asserting that the sales from the vending machines are exempt sales pursuant to
Utah Code Ann. §59-12-104 the Petitioner, at the hearing and in the briefs
submitted, has pointed to three different exemptions set out in that
section. These exemptions are
§59-12-104(2) sales to the institutions of the state, §59-12-104 (27) sales for
resale and §59-12-104(13) sales of meals served by elementary and secondary
schools.
However,
in order to qualify for the exemptions listed under subsection (2), sales to
the institutions of the state, or under subsection (27), sales for resale,
there would have to be a sale of the products sold in the vending machines from
the Petitioner to the schools.
According to the facts as presented this did not occur. There was no sale of the vending machine
products from Petitioner to the schools.
Petitioner sold the products through the vending machines directly to
the students, staff and school visitors who purchased the products.
The
third exemption promulgated by Petitioner at the hearing and in the Post
Hearing Memorandum is set out in subsection (13). Utah Code Ann. §59-12-104(13) exempts sales of meals served by
public elementary and secondary schools.
The Commission notes that in the drafting of this subsection the Utah
Legislature used the words "served by" not "served at"
public schools.
Petitioner
asserts that the snacks, food stuffs and candy sold from the vending machines
are meals that were served by the schools.
This argument is unpersuasive because the facts presented at the hearing
indicate that the items from the vending machines were not "served
by" the schools. They were served by
Petitioner regardless of whether they are considered to be "competitive
foods" under federal regulations.
The Commission notes that generally the schools did turn the vending
machines on and off. However, it was
Petitioner who owned the vending machines and owned the items sold from the
vending machines. Petitioner restocked
the machines, collected the money and corrected any problem with the machines
or with the product in the machines.
The weight of the facts presented indicate it was Petitioner who served
the items from the machines.
Petitioner
asserts the vending machine products were "meals" as required by Utah
Code Ann. §59-12-104(13). To support
this assertion Petitioner's representatives point to the fact that
approximately 38% of the vending machines were in or near the schools'
cafeterias and so were subject to federal regulation as "competitive
foods" relating to the federal school lunch programs. Petitioner's assertion is unpersuasive. Although the federal government may regulate
some of the vending machine products as "competitive foods" it does
not necessarily follow that these products are "meals served by" the
schools for purposes of the exemption.
ISSUE 2: IS PETITIONER ENTITLED TO A REFUND OF SALES TAXES BECAUSE
DENIAL WOULD RESULT IN A VIOLATION OF RULE MAKING REQUIREMENTS?
The
second issue is whether Petitioner is entitled to the requested refund because denial of that refund would result
in a violation of the rule making requirements of the Utah Administrative Rule
Making Act set out in Utah Code Ann. §63-46a-1. Petitioner asserts that prior to the issuance of Tax Bulletin
15-88 on XXXXX it was the policy of the Operation Division and the Auditing
Division that sales of food items from vending machines in public schools were
not subject to sales tax and that the Tax Commission attempted to change the
policy by the issuance of the Tax Bulletin.
Petitioner asserts that a policy change of this nature would require
compliance with rule making procedures set out in the Utah Administrative Rule
Making Act.
Testimony
presented by Petitioner does indicate that there may have been some confusion
among employees of the Auditing Division and Operations Division during the period
at issue concerning the tax liability of sales from vending machines in public
schools. However, this does not
represent the policy of the Tax Commission during the period in question. Further, the requirement to assess the tax
was statutory. Utah Code Ann.
§59-12-103 required sales tax to be paid on retail sales of tangible personal
property unless they qualified for an exemption. This statute required tax on the vending machine sales at issue.
The
fact that XXXXX received a refund of sales tax paid for vending machine sales
made in public schools is not dispositive because of the written misstatement
on the refund request form. XXXXX
stated on its refund request form that the sales for which the refund was
requested were made to schools. In reality
the sales, although they occurred in the schools, were made to the students,
staff and visitors of the schools. Had
the sales been made to the schools as represented in the application it is
possible that they would have qualified for exemption under Utah Code Ann.
§59-12-104(2) and the refund would then would be valid. Sufficient evidence was not presented to
indicate that the Tax Commission issued Tax Bulletin 15-88 to change an
established policy. Instead it merely
reiterated an existing policy.
DECISION AND ORDER
Based
upon the foregoing, the Tax Commission denies Petitioner's request for a refund
of $$$$$ of sales tax paid for the period of XXXXX through XXXXX. It is so ordered.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
DATED
this 9th day of February, 1996.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner