BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX )
:
Petitioner, ) FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. ) AND FINAL DECISION
:
AUDITING
DIVISION OF THE ) Appeal No. 92-1285
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. 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:
FINDINGS OF FACT
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.
APPLICABLE LAW
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."
ANALYSIS
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.
CONCLUSION OF LAW
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.
ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner