BEFORE THE UTAH STATE TAX COMMISSION
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
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.
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.
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
Joe B. Pacheco S. Blaine Willes