BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX )
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
AUDITING
DIVISION OF THE : Appeal No. 91-1385
UTAH STATE TAX COMMISSION, : Account
No. XXXXX
Respondent. :
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STATEMENT OF CASE
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, of 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:
FINDINGS OF FACT
1. The tax in question is sales tax.
2. The audit period in question is XXXXX
through XXXXX.
3. The Petitioner is a wholly owned subsidiary
of XXXXX, a XXXXX Corporation with its principal place of business in XXXXX.
4. At its Utah operations, the Petitioner is
engaged in a contract sterilization operation that primarily sterilizes medical
products and instruments.
5. As a contract sterilizer, the Petitioner
receives medical products from its customers which are contained in their final
shipping package and subjects them to the sterilization process.
6. It was stipulated by the parties that the
sterilization performed by the Petitioner is the last step in the manufacturing
of the products.
7. The sterilization process involves exposing
the product to radiation. The source of
the radiation is cobalt-60.
8. Cobalt-60 is used as the radiation source
because it is the most reliable method of sterilization. It is highly penetrating which allows the
Petitioner's customers to package the product in any way they may desire. It is also used because the desired level of
sterility can be controlled and measured by the length of exposure to the
radiation source.
9. Cobalt-60 acts as a sterilizer by two
methods: 1) As cobalt-60 decays it emits heat which kills bacteria and; 2)
Cobalt-60 emits gamma rays which disrupt or break the DNA bonds of the
microorganisms thus killing them.
10. Cobalt-60 has a half life of approximately
five and one fourth years and decays at a rate of approximately one percent per
month. The Petitioner generally refuels
on an annual basis, however, sometimes they do so twice a year. The Petitioner refuels by supplementing its
existing cobalt-60 source and not by completely replacing that source.
11. The Petitioner would purchase the cobalt-60
from a XXXXX company. During the audit
period the Petitioner performed one loading of cobalt-60. The Petitioner obtained XXXXX curries of
cobalt-60 from the following sources: 1) XXXXX curries were transferred to Utah
from the Petitioner's XXXXX facility and; 2) The Petitioner purchased XXXXX curries
from a XXXXX company.
12. The Auditing Division assessed a use tax on
XXXXX curries of cobalt-60 valued at $$$$$ which was based upon an
approximation of the value of the cobalt-60 that was loaded at the Utah
facility. The use tax deficiency on that
amount was determined by the Auditing Division to be $$$$$. The Auditing Division also imposed a penalty
in the amount of $$$$$ and interest applied at the statutorily prescribed rate.
13. As cobalt-60 decays, it undergoes an
exothermic reaction. That is, as it
decays there is a net increase in kinetic energy as measured by heat
output. Although cobalt-60 releases
heat, its use as a heating source, such as used in heating a building, is not
practicable.
14. Cobalt-60 is not combustible, nor is it
capable of nuclear fission or fusion.
Thus, it is not used to fuel nuclear reactors.
15. No evidence was presented by the Respondent
to establish the basis for the imposition of the penalty portion of the
assessment.
CONCLUSIONS OF LAW
There
is levied a tax on the purchaser for the amount paid or charged for gas,
electricity, heat, coal, fuel oil, or other fuels sold or furnished for
commercial consumption. (Utah Code Ann.
§59-12-103(1)(c).)
"Commercial
consumption" means the use connected with trade or commerce . . . . (Utah
Code Ann. §59-12-102(1).)
"Non-commercial
consumption" is defined as fuel used in: . . . (3) Use in manufacturing
tangible personal property or use in producing or compounding of a product
which will be resold. (Utah State Tax Administrative
Rule R865-19S-35(B)(3).)
"Other
fuels" means products which burn independently to produce heat or
energy. (Utah State Tax Commission
Administrative Rule R865-19S-35(D).)
DECISION AND ORDER
In
the present case, the issue before the Commission is whether the consumption of
the cobalt-60 by the Petitioner in its business was exempt from the imposition
of sales and use tax as a purchase of an "other fuel" sold or
furnished for "non-commercial consumption" within the meanings of
Utah Code Ann. §59-12-103 and Utah State Tax Commission Administrative Rule
R865-19S-35. The parties stipulated
that the sterilization of the products represented the last step of the
manufacturing process of those products.
Therefore, the consumption, if any, would qualify as a
"non-commercial consumption" within the meaning of Administrative
Rule R865-19S-35(B)(3). Although the
Commission questions whether the Petitioner is engaged in any manufacturing,
there having been no evidence presented to the contrary and in light of the
stipulation, the Commission reticently accepts the characterization of the
Petitioner as being engaged in manufacturing for purposes of this decision
only.
Utah
State Tax Commission Administrative Rule R865-19S-35 ("Rule 35S")
defines "other fuels" as "products which burn independently to
produce heat or energy."
In
an attempt to fit cobalt-60 within this definition, the Petitioner presented
the testimony of an expert witness.
That witness testified that if the meaning of the word "burn"
was limited to oxidation reactions then cobalt-60 would not be included in the
definition of "other fuels".
He testified, however, that under a broader definition of
"burn" as "providing heat and light", cobalt-60 would
qualify as an "other fuel".
The witness testified that as cobalt-60 decays there is a net increase
in the kinetic energy as measured by an increase in temperature and that it
emits light, although not in the visible spectrum.
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The parties stipulated that the sterilization
of the products represented the last step of the manufacturing process of those
products. Therefore, the consumption,
if any would qualify as a "non-commercial consumption" within the
meaning of Administrative Rule R865-19S-35(B)(3). Although the Commission questions whether the Petitioner is
engaged in any manufacturing, there having been no evidence presented to the
contrary and in light of the stipulation, the Commission reticently accepts the
characterization of the Petitioner as being engaged in manufacturing for
purposes of this decision only.
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It
is a well established rule of statutory consideration that a statutory term
should be interpreted and applied according to its usually accepted meaning,
where the ordinary meaning of the term results in an application that is
neither unreasonably confused, inoperable, nor in blatant contradiction of the
express purpose of the statute. Morton
International, Inc. v. Auditing Division of the Utah State Tax Commission,
814 P.2d 581 (Utah 1991).
Webster's
II New Riverside University Dictionary defines "burn" as, inter alia,
"(l)(a) To cause to undergo combustion.
(b) To destroy with fire." That same source defines
"combustion" as, inter alia, "(1) The process of burning. (2) A rapid chemical change, esp. oxidation,
that produces heat and light."
These
definitions are consistent with the statute and rule which they serve to
interpret. In those contexts
"other fuels" is one of several types of products or services which
may commonly be described as utilities which are used to provide a source of
heat or lighting for buildings.
These
definitions clearly show that in its normal usage, the definition of the word
"burn" is not meant to include the exothermic reaction nor the
emission of light which is beyond the visible spectrum as described by the
Petitioner's witness.
Since
cobalt-60 is not a product which can burn independently to produce heat or
energy within the meaning of Rule 35S it is therefore not a "fuel"
within the meaning of §59-12103(1)(c).
That being so, the purchase or use of cobalt-60 by the Petitioner is a
taxable transaction and the determination of the Auditing Division is affirmed. The Tax Commission however, reverses that
portion of the assessment that imposed a 15% penalty because no evidence was
presented by the Respondent to justify such a penalty. It is so ordered.
DATED
this 9 day of March 1993.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner