92-1285 - Sales





Petitioner, ) FINDINGS OF FACT,






) Account No. XXXXX

Respondent. :



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Commissioner Roger O. Tew, Presiding Officer, and Chairman W. Val Oveson, heard the matter for and on behalf of the Commission. Present and representing Petitioner was XXXXX. Present and representing Respondent was XXXXX, Assistant Attorney General.

The issues in this appeal have been bifurcated, with only one issue being treated in this Order. The sole issue addressed in this Order is whether inventory stored at XXXXX's XXXXX Regional Distribution Center is taxable as assessed by the Auditing Division.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. The tax in question is sales and use tax.

2. The period in question is XXXXX through XXXXX.

3. XXXXX's Salt Lake Regional Distribution Center is located near the XXXXX and supplies as many as thirty-nine (39) XXXXX stations in the western part of the United States with items of tangible personal property.

4. The distribution center manager, at his discretion, purchases items as he deems appropriate.

5. The items are stored in the warehouse until shipped out to another XXXXX facility in response to an order that has been placed with the distribution center.

6. Orders are processed for the Salt Lake station in the same manner as for the other stations served by the center.

7. Salt Lake is the largest single user of the items ordered by the distribution center, consuming approximately 47% of all of the merchandise ordered by the center.

8. XXXXX has acknowledged that items consumed by the XXXXX XXXXX are taxable and has paid the portion of the audit relating to those items.


Utah Code Ann. 59-12-103(1)(1) imposes a tax on the purchaser for "tangible personal property stored, used, or consumed in this state." Storage is defined in Utah Code Ann. 59-12-102(12) as "any keeping or retention of tangible personal property . . . in this state for any purpose except sale in the regular course of business."


Petitioner cites Utah Code Ann. 59-12-104(12) for the proposition that sale and use of property is exempt from sales and use tax if prohibited under the Constitution of the United States or under Utah law; however, no state or federal laws which prohibit taxing the goods in question are presented.

Petitioner relies on the Commerce Clause of the United States Constitution, Article I, Section 8, Clause 3 which states that Congress shall have power "to regulate commerce with foreign nations, among the several states, and with Indian tribes." In response to this argument, it must be noted that the United States Supreme Court has specifically found Utah's taxing scheme does not violate the commerce clause. State Tax Commission of Utah v. XXXXX, 372 U.S. 605(1963).

Petitioner asserts that the tangible personal property purchased by the XXXXX distribution center and placed in the distribution center until transported to another XXXXX location is property which remains in the stream of interstate commerce. Petitioner has taken the position that the tangible personal property which is ultimately transported to other XXXXX facilities is not "stored." Petitioner's argument that the tangible personal property in question remains in interstate commerce is supported by neither the facts nor the case law. XXXXX takes title and possession of the property in Utah. The original shipment comes to an end in Utah. XXXXX is the ultimate consumer of all the items purchased. There is no subsequent sale to an out-of-state third party. The items are placed in general inventory and are withdrawn to fill the orders of other XXXXX facilities, as needed. XXXXX does not resell the materials.

In XXXXX v. Utah State Tax Commission, 802 P.2d 715, Utah XXXXX, XXXXX took items held in Utah to be used in constructing modular housing units out-of-state. The Utah Supreme Court upheld the tax imposed despite the out-of-state use by XXXXX. The Court found the items taxable in Utah since the ultimate consumer took title and possession in Utah. Id at 719. Clearly, in the instant case, XXXXX is the ultimate consumer, with title and possession transferring to XXXXX in Utah.

Petitioner cites State of XXXXX v. XXXXX, 290 U.S. 1 (XXXXX), in support of its argument. In that case, XXXXX had bought cattle at a railhead in XXXXX which had been shipped in from out-of-state. "The class of livestock which XXXXX buys on the market are those which immediately thereafter go into the hands of feeders or growers within and without the state of XXXXX." Id. at 5. Practically all the cattle bought were shipped to nonresidents. Id. The governing law, was stated by the Court as follows:

Where property has come to rest within a state, being held there at the pleasure of the owner, for disposal or use, so that he may dispose of it either within the state, or for shipment elsewhere, as his interest dictates, it is deemed to be a part of the general mass of property within the state and thus subject to its taxing power.

Id. at 10.

The Court held:

Here the original shipment was not suspended; it was ended. That shipment was to the XXXXX stockyards for sale on that market. That transportation had ceased, and the cattle were sold on that market to XXXXX, who then became absolute owner and was free to deal with them as he liked. He could sell the cattle within the State or for shipment outside the State. He placed them in pens and cared for them awaiting such disposition as he might see fit to make for his own profit. The tax was assessed on the regular tax day while XXXXX thus owned and possessed them. The cattle were not held by him for the purpose of promoting their safe or convenient transit. They were not in transit. Their situs was in XXXXX and they had come to rest. There was no federal right to immunity from the tax.

Id. at 12.

Petitioner also cites XXXXX Warehouses v. XXXXX, 331 U.S. 70 (XXXXX). In that case, the Petitioner stored coal purchased in XXXXX at a depot in XXXXX awaiting use at various destinations in XXXXX, XXXXX, and XXXXX. XXXXX imposed a tax which was challenged under the Commerce Clause. The Court, stating the governing law in the exact language quoted above in XXXXX, reasoned as follows:

Here the cessation takes place not simply for the carrier's transit reasons relating to the necessities or convenience of the journey, but for reasons primarily concerned with the owner's business interests. As in the XXXXX and XXXXX cases, supra, he is entirely free to keep or market the goods in XXXXX or to send them elsewhere. Marketing considerations primarily, and it may be exclusively, determine this choice and many or all of the controlling factors may not arise until after the coal has reached XXXXX or indeed many months later. . . . That reasons of economy and convenience or even of necessity arising from the absence or prohibitive cost of storage space at the immediate point of distribution might lead him thus to locate his storage operations, and thereby incur the necessity and expense of hauling the goods from storage to market, could hardly be held to make the interruption an incident of transit rather than one of his own business policy and interest.

Id. at 83.

In this case, Petitioner has indicated that the decision to purchase in large quantities in anticipation of future needs in various locations was based on economy and convenience. The "interruption", as in XXXXX, is a consequence of business policy and interest, not an incident of travel.

In XXXXX v. XXXXX, 306 U.S. 167 (XXXXX), also cited by Petitioner, XXXXX had imposed a tax on the storage and use of supplies purchased out-of-state which XXXXX used for its XXXXX operations, for previously determined plans and specifications, and for repairing damaged or worn equipment. Even though the Court found that "few if any of the materials were stored for long term needs," and storage in this case was "merely incidental to protection until use," it nevertheless concluded that:

We think there was a taxable moment when the former had reached the end of their interstate transportation and had not begun to be consumed in interstate operation. At that moment, the tax on storage and use, retention and exercise of a right of ownership, respectively was effective. The interstate movement was complete. The interstate consumption had not begun.

Id. at 177.

Where Petitioner takes title and possession of property in Utah and exercises all rights over that property, Utah is not prohibited from exercising its taxing authority. The federal cases discussed above clearly reinforce that principle. The fact that the property once in the state, may be subsequently transported beyond the state's boundaries by Petitioner for its own use does not create a transaction in interstate commerce.


Analysis of the facts in the instant case and the applicable case law bring the Commission to the conclusion that the tangible personal property in question is stored in Utah and is taxable under Utah Code Ann. 59-12-103, with no exemptions being available to excuse payment of the tax.


Based on the foregoing, the Tax Commission finds that the Auditing Division properly assessed XXXXX on the inventory in the Salt Lake City XXXXX Center.

DATED this 7th day of July, 1994.


W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner