BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX
Petitioner, :
:
: FINDINGS
OF FACT,
: CONCLUSIONS
OF LAW,
:
AUDITING
DIVISION OF THE : Appeal No. 92-0318
UTAH STATE TAX COMMISSION, :
: Account
No. XXXXX
Respondent. : Tax Type: Sales Tax
_____________________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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.
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Alice
Shearer
Chairman Commissioner
Joe B.
Pacheco Roger
O. Tew
Commissioner Commissioner