92﷓1699

92‑1699

Sales Tax

Signed 2/2/94

BEFORE THE UTAH STATE TAX COMMISSION

__________________________________

XXXXX )

Petitioner, ) FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. ) AND FINAL DECISION

)

OPERATIONS DIVISION OF THE ) Appeal No. 92‑1699

UTAH STATE TAX COMMISSION, )

) Tax Type: Sales Tax

Respondent. ) Refund

____________________________

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, attorney at law, represented XXXXX. XXXXX, Assistant Utah Attorney General, represented the Operations Division of the Utah State Tax Commission.

Based on the evidence presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is sales tax on electricity and natural gas.

2. The period in question is XXXXX through XXXXX.

3. XXXXX is a "for profit" corporation which operates the XXXXX.

4. XXXXX consists of two private rooms with one bed in each room, twenty‑nine rooms with three beds in each room, and five rooms with two beds in each room. It is licensed to care for XXXXX patients who are unable to care for themselves because of age or illness.

5. XXXXX advertises itself as a "skilled nursing/rehabilitation center".

6. Approximately 80% of XXXXX patients are enrolled in the XXXXX program. XXXXX criteria for admission to facilities such as XXXXX include that the patient require at least an intermediate level of care.

7. XXXXX maintains a physician on staff who makes rounds one or two times per week. The XXXXX maintains a professional nursing staff twenty‑four hours a day. The XXXXX staff administers medications to its patients as prescribed by physicians.

8. XXXXX contains 28,750 square feet of building space, of which 2,749 square feet are utilized as office space and an employee lounge. The remainder is used for patient rooms or support activities such as kitchen, dining, and so forth.

9. XXXXX provides various levels of care to its patients, ranging from intermediate care through skilled care. Its charges to patients range from $$$$$ per day for intermediate care to $$$$$ per day for skilled care.

10. XXXXX patients receive personal mail at the XXXXX. Some vote as residents of the voting district in which XXXXX is located.

11. Approximately 80% of XXXXX patients have lived at the XXXXX for more than a year. Approximately 10% of the patients have other residences to which they could return if they were to leave the XXXXX.

12. During the period in question, XXXXX paid sales tax in the amount of $$$$$ on its purchases of natural gas. The tax was computed at a rate of 6.25%.

13. Also during the period in question, XXXXX paid sales tax in the amount of $$$$$ on its purchases of electricity, also computed at a rate of 6.25%.

CONCLUSIONS OF LAW

Utah Code Ann. '59‑12‑103 imposes sales tax on the purchase of, among other things:

(d) gas, electricity, heat, coal, fuel oil, or other fuels sold or furnished for residential use;

"Commercial consumption" is defined by Utah Code Ann. '59‑12‑102 as:

the use connected with trade or commerce and includes:

(a) the use of services or products by retail establishments, hotels, motels, restaurants, warehouses, and other commercial establishments;

(b) transportation of property by land, water, or air;

(d) real property contracting work.

"Residential use" is defined by Utah Code Ann. '59‑12‑102 as "the use in or around a home, apartment building, sleeping quarters, and similar facilities or accommodations."

The Commission's Rule R865‑19‑35S provides, in material part, as follows:

A. "Commercial consumption" is as defined in '59‑12‑102(1).

B. "Noncommercial consumption" is defined as fuel used in:

1. mining or extraction of minerals;

2. off highway agriculture, . . . . and

3. use in manufacturing tangible personal property or use in producing or compounding of a product which will be resold.

C. All activities not specifically defined as noncommercial or residential consumption are considered as commercial consumption.

E. If a firm has activities which are commercial and noncommercial and all fuels are furnished at given locations through single meters, the predominant use of the fuels shall determine taxable status of the fuels.

Provisions of Utah's Sales and Use Tax Act which impose tax are strictly construed in favor of the taxpayer. Parsons Asphalt Products v. Utah State Tax Commission, 617 P.2d 397 (1980).

DECISION AND ORDER

With respect to purchases of natural gas and electricity, Utah's Sales and Use Tax Act imposes sales tax in two situations: when purchased for commercial use or when purchased for residential use. Unless XXXXX purchases of gas and electricity fall within one of those two categories, they are not subject to tax. Furthermore, the Act applies different tax rates to commercial and residential use. Residential purchases are taxed at a rate 3% lower than commercial purchases. The crux of this appeal is whether XXXXX purchases of gas and electricity were for "commercial consumption", and therefore taxable at the higher rate.

It is well established that provisions of Utah's various tax laws which impose tax are to be strictly construed in favor of the taxpayer.

Utah Code Ann. '59‑12‑102 defines residential use as "the use in or around a home, apartment building, sleeping quarters, or similar facilities or accommodations." XXXXX facility easily fits within the plain meaning of the foregoing statutory definition.

The Operations Division suggests that XXXXX use of gas and electricity more closely fits within the definition of commercial use set forth in '59‑12‑102: "use connected with trade or commerce". Two difficulties exist with the Operations Division's position. First, XXXXX activities do not fall ‑ within traditional definitions of "trade or commerce". Second, under accepted principles of statutory interpretation, tax imposing statutes must be interpreted strictly in favor of the taxpayer.

In view of the foregoing, the Commission concludes that XXXXX use of gas and electricity is for residential use rather than commercial use.

The Commission notes that approximately 10% of the gas and electricity purchased by XXXXX is used to heat and light its offices, rather than the rooms used by its residents. However, the Commission's Rule R865‑19‑35S provides, in material part, as follows:

Applying this "predominant use" test, all of XXXXX purchases of gas and electricity are subject to sales tax at the residential rate.

In summary, the Commission concludes that XXXXX is entitled to a refund of the difference between the sales tax it paid during the period in question and the amount it would have paid had such tax been computed at the "residential" rate. XXXXX is also entitled to interest on such amount, computed as provided by law. It is so ordered.

DATED this 2nd day of February, 1994.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

DISSENTS

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

NOTICE: You have twenty (20) days after the date of the final order to file a request for reconsideration or thirty (30) days after the date of final order to file in Supreme Court a petition for judicial review. Utah Code Ann. ''63‑46b‑13 (1), 63‑46b14(3)(a).