92-0318 - Sales





Petitioner, :







: Account No. XXXXX

Respondent. : Tax Type: Sales Tax



This appeal came before the Utah State Tax Commission for a formal hearing on XXXXX. Alan Hennebold, Administrative Law Judge, heard the matter on behalf of the Commission. XXXXX, of XXXXX, represented XXXXX. XXXXX, Assistant Utah Attorney General, represented the Auditing Division.

After the hearing, the parties were permitted to submit additional evidence and argument. The last such material was received by the Commission on XXXXX. Based on the record in this matter, the Tax Commission hereby makes its:


1. The tax in question is sales tax.

2. The period in question is XXXXX through XXXXX.

3. On XXXXX, the Audit Division assessed XXXXX with additional sales tax in the amount of $$$$$, arising from three types of transactions: 1) Use of materials in real property contracts; 2) Sales made on an "exempt" without proper documentation; and 3) Purchases of personal property for use or consumption by XXXXX. In addition to the tax liability, a 10% negligence penalty in the amount of $$$$$ and interest were also assessed against XXXXX. XXXXX has filed a timely appeal of the foregoing assessment.

5. XXXXX manufactures, supplies and installs synthetic marble used for counter tops, showers and tubs.

6. In the transactions at issue in this appeal, XXXXX furnished and installed counter tops, showers and tubs for various customers outside Utah. XXXXX did not collect sales tax on these transactions.

7. During XXXXX, XXXXX was also assessed for additional sales tax for failure to collect tax on "furnish and install" contracts.


Utah's Sales and Use Tax Act levies sales tax on the purchaser for the amount paid or charged for retail sales of tangible personal property made within the state. (Utah Code Ann. 59-12-103.) The Commission's RuleR865-19S-58 provides in material part as follows:

A. Sale of tangible personal property to real property contractors and repairmen of real property is generally subject to tax.

1. The person who converts the personal property into real property is the consumer of the personal property since he is the last one to own it as personal property.

2. The contractor or repairman is the consumer of tangible personal property used to improve, alter or repair real property, regardless of the type of contract entered into whether it is a lump sum, time and material, or a cost-plus contract.

3. The sale of real property is not subject to the tax nor is the labor performed on real property. For example, the sale of a completed home or building is not subject to the tax, but sales of materials and supplies to contractors and subcontractors are taxable transactions as sales to final consumers. This is true whether the contract is performed for an individual, a religious institution, or a governmental instrumentality. . . . .

C. Sales of materials and supplies to contractors for use in out-of-state jobs are taxable unless sold in interstate commerce in accordance with RuleR865-19S-44. Utah Code Ann. 59-1-401(3) levies the following penalty for failure to pay tax as due:

(3) The penalty for underpayment of tax is as follows: (a) If any underpayment of tax is due to negligence, the penalty is 10% of the underpayment.


XXXXX challenges the Auditing Division's assessment of tax on those transactions where XXXXX has provided and installed materials in real property construction. XXXXX argues that the exemption found in Utah Code Ann. 59-12-104(33)1 should apply to XXXXX's out of state "furnish and install" contracts. However, 59-12-104(33) did not become effective until after the audit period and does not apply to the transactions in question.

XXXXX additionally argues that its "furnish and install" contracts are exempt from Utah tax as being in "interstate commerce". The Utah Supreme Court considered the same argument in Tummurru Trades v. Utah State Tax Commission, 802 P.2d 715 (Utah 1990). In Tummurru, the taxpayer manufactured modular units in Utah which its construction division then installed in real property outside the state. The taxpayer argued that it was not liable for Utah sales tax on the items taken from inventory for use in out of state construction projects. In response to that argument, the Court commented:

Because Tummurru took possession of the items within the state of Utah and title passed within the state, it became the ultimate consumer for sales tax purposes. The fact that the items would be incorporated into real property located out of the state does not change the nature of Tummurru's consumer use of the items.

The Court then proceeded to uphold the assessment of sales and use tax against the taxpayer. XXXXX also contends that even if the transactions in question are subject to Utah's sales and use tax, the amount of tax assessed is incorrect. However, XXXXX has failed to provide any documentation or clear explanation on this point. Finally, XXXXX challenges the imposition of a 10 negligence penalty against it. The Commission notes that several years ago, XXXXX was assessed a sales tax deficiency for the same type of deficiency as is involved here. Under such circumstances, a 10% negligence penalty is appropriate. Based on the foregoing, the Commission affirms the Audit Division's assessment of additional tax, penalty and interest.

DATED this 1 day of September, 1994.


W. Val Oveson Alice Shearer

Chairman Commissioner

Joe B. Pacheco Roger O. Tew

Commissioner Commissioner