BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX ) FINDINGS OF FACT,
Petitioner, : CONCLUSIONS OF LAW,
: AND FINAL
DECISION
v. :
AUDITING
DIVISION OF THE : Appeal No. 91-1388
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. Paul F. Iwasaki, Presiding
Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner as
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 operates a meat processing
plant which produces ground beef and pork patties for sales to XXXXX. The patties are made from bulk meat which is
supplied to the Petitioner from other sources.
4. In the process of producing the patties,
liquid nitrogen is sprayed onto the patties to flash freeze them to a very low
temperature. The patties are then
packed in containers and placed in cold storage to maintain their hard frozen
condition while awaiting shipment in refrigerated vehicles to XXXXX.
5. The freezing process is used to preserve the
uniformity, freshness, quality and purity of the patties and also acts as a
retardant to spoilage.
6. During the audit period in question, the
Petitioner purchased its liquid nitrogen from its vendors and did so without
paying sales tax on the purchase price.
The Petitioner maintained that the use of liquid nitrogen constituted a
"spray" used in the production of animal products and thus was exempt
from taxation as provided for by Utah Code Ann. §59-12-104(20).
CONCLUSIONS OF LAW
Sprays
and insecticides used to control insects, diseases, and weeds for commercial
production of fruits, vegetables, feeds, seeds, and animal products are exempt
from sales tax. (Utah Code Ann.
§59-12-104(20)).
There
is levied a tax on the purchaser for the amount paid or charged for the
following: . . . (1) tangible personal property stored, used, or consumed in
the state. (Utah Code Ann. §59-12-103(1)(1)).
DECISION AND ORDER
In
the present case, the issue before the Commission is whether the purchases of
the liquid nitrogen were, as the petitioner alleges, exempt from the imposition
of sales tax. The Petitioner argues
that the purchases of the liquid nitrogen constituted purchases of sprays used
to control diseases for the commercial production of animal products and thus
are exempt from sales tax as provided for by59-12-104(20) Utah Code Ann.
For
an item of tangible personal property to be exempt from sales tax
under59-12-104(20), several requirements must first be met. The item must be: 1) a spray or insecticide;
2) used to control a disease; and 3) must be used in the commercial production
of animal products.
With
respect to the first requirement, that the item of personal property in
question be "sprays", the Petitioner argued that the word is used
without specific limitation and is therefore all inclusive so as to include all
sprays administered.
The
Respondent argued that the liquid nitrogen was not exempt from sales tax
because:
1. The liquid nitrogen did not become a
component part or ingredient of the meat patty, and;
2. The Petitioner was not engaged in the
"commercial production" of animal products as that term is used in the
statute.
Under
the facts of the present case, the Tax Commission finds that the liquid
nitrogen purchased by the Petitioner was not exempt from sales tax, not
necessarily for the arguments set forth by the Respondent but rather, because
the liquid nitrogen did not constitute a "spray" within the meaning
of59-12-104(20).
By
arguing that the word "sprays" is all inclusive and without
limitation, the Petitioner has, essentially, taken each word in subsection 20
and applied a definition to each of those words without regard to the context
in which the words are used.
By
reading each of the words set forth in subsection 20 and defining them, not
within the context of which they are used, but singularly and standing alone, one
might arrive at the interpretation the Petitioner argues for. To do so however, violates the rule of
statutory construction set forth by the Utah Supreme Court in Morton
International, Inc. v. Auditing Division of the Utah State Tax Commission,
814 P.2d 581 (Utah 1991). There, the
Utah Supreme Court stated that the rule of noscitur a sociis,
"provides that the meaning of questionable words and phrases in a statute
be ascertained by reference to the words or phrases associated with them."
When
applying that rule of statutory construction to the present case, it becomes
clear that the word "sprays" is meant to be a substance which is used
in the same manner as an insecticide or herbicide which may be applied to
agricultural or animal products to prevent or destroy diseases. Here, the liquid nitrogen is not an
insecticide nor herbicide and the only reason it would qualify under the
exemption as proposed by the Petitioner is that it is sprayed upon the meat
patties.
In
addition to the above, the Tax Commission is not convinced that the liquid
nitrogen spray applied in the present case is used to control a
"disease" as is contemplated by §59-12-104(20). Admittedly, the liquid nitrogen, when used
to freeze the meat patties, helps to prevent and retard the growth of bacterial
micro-organisms which lead to spoilage.
This natural process of spoilage however does not constitute a
"disease" as contemplated under the statute. As used in the statute, the word
"diseases", implies an external force such as infection, that creates
an abnormal impairment of a plant or animal's normal functions. It does not imply the natural decay of
agricultural or animal products.
Based
upon the foregoing, the Tax Commission finds that the liquid nitrogen as
purchased and used by the Petitioner does not constitute a purchase of a
"spray" within the meaning of Utah Code Ann. §59-12-104(20), and
therefore, is not exempt from the imposition of sales tax. Therefore, the determination of the Auditing
Division is affirmed. It is so ordered.
DATED
this 28 day of October, 1992.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
ABSENT
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner