Signed 4/14/97








Petitioner, ) FINDINGS OF FACT,






) Account No. #####


Respondent. ) Tax Type: Sales & Use Tax





This matter came before the Utah State Tax Commission for a Formal Hearing on March 13, 1997. G. Blaine Davis, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner were PETITIONERS REP. from the law firm of XXXXX, together with PETITIONERS REP. and PETITIONERS REP.. Present and representing Respondent were Mr. Gale Francis, Assistant Attorney General, together with Mr. Brad Simpson, Mr. Bert Ashcroft, Mr. Ron Jacobson, and Ms. Marie Humphreys from 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 October 1988 through December 1989.

3. Petitioner, COMPANY A is a corporation organized, existing, and in good standing under the laws of the State of XXXXX, and was duly qualified to transact business and was in good standing as a foreign corporation under the laws of the State of Utah.

4. COMPANY B was also a XXXXX Corporation and was authorized to transact business in the State of Utah.

5. COMPANY B is a wholly owned subsidiary of COMPANY C

which, prior to May 4, 1988, operated an ammonium perchlorate (AP) manufacturing facility in XXXXX County, Nevada. Prior to May 4, 1988, COMPANY C was one of two domestic producers of AP. AP is a chemical that is essential to a variety of national defense and space exploration programs.

6. On May 4, 1988, a series of fires and explosions at the COMPANY C manufacturing facility resulted in the total destruction of COMPANY C's facility and the loss of approximately one-half of the United States= domestic AP production capacity.

7. After the May 4, 1988 fires and explosions, the United States Department of Defense (DOD) and the National Aeronautic=s and Space Administration (NASA) determined that it was essential to national security and space exploration that the nation=s AP production capacity be replaced as soon as possible.

8. After the fires and explosion of May 4, 1988, COMPANY C lacked sufficient funds with which to rebuild or replace its AP manufacturing facility, and was unable to obtain conventional financing for this purpose. In order to expedite the replenishment of the nation=s AP production capacity, contractors of NASA and DOD made certain financing available to COMPANY C, an affiliate of COMPANY C. The terms of the financing prohibited the expenditure of the loan funds to purchase Anon-severable@ property, or real property.

9. The financing made available by contractors of NASA and the DOD was the sole source of construction funds for the AP facility until permanent financing was obtained in March, 1989.

10. It was not possible to rebuild the AP manufacturing facility on the site that had been occupied by the COMPANY C manufacturing facility. After a brief but intensive search, a suitable site was located in XXXXX County, Utah, approximately 15 miles west of XXXXX. COMPANY C purchased the site with its own funds because real property was not a permissible use of the construction funds. Construction began at the XXXXX County site in July, 1988 and proceeded under the terms of a DOD priority rating, pursuant to the provisions of the Defense Priority and Allocation System Regulation (15 C.F.R. 350).

11. During the construction period, a search for permanent financing continued. When construction was nearly complete, permanent financing was obtained from XXXXX Bank, Washington, N.A. The permanent financing was closed on March 3, 1989. On that date, the lender required that COMPANY C form COMPANY B for the purpose of completing the construction of the facility and thereafter operating the facility. COMPANY B then succeeded COMPANY C as the owner of the AP facility under construction. Initial manufacture of AP at the new COMPANY C manufacturing facility occurred in August, 1989.

12. During the course of construction of the facility, COMPANY B and COMPANY C entered into an agreement with COMPANY F, and its affiliate, COMPANY A, for purpose of providing assistance in the engineering, design and procurement for the construction of the AP manufacturing facility. COMPANY F assisted COMPANY B in purchasing materials for use in the construction of the facility and located suppliers, obtained price quotations and arranged for COMPANY B to make purchases of materials. In addition to assisting COMPANY B, COMPANY F and COMPANY A actually purchased some of the materials which were invoiced and billed to COMPANY A and were paid for by checks from COMPANY A. COMPANY A ultimately installed those materials into the real property at the COMPANY B facility or consumed the materials in the construction process. The contract provides that title to all materials purchased for use at the COMPANY B facility would pass directly from suppliers to COMPANY B, but the invoices and checks indicate that some of the materials came to rest in the hands of COMPANY A.

13. COMPANY F placed one of its employees with COMPANY A to perform the purchasing function for the products for COMPANY B. That employee performed those purchasing functions. Paragraph GC-17 of the Agreement between COMPANY C and COMPANY F, provided that Atitle to all material and equipment procured by contractor to be incorporated into the project, shall pass to owner upon delivery to common carrier or at the project site, whichever is provided for in the purchase order.@ However, Petitioner was not a party to that contract. Even if Petitioner had been a party to the contract, the actions of Petitioner determine the taxability of purchases, and not the written agreement, especially if the provisions of the agreement were not followed.

14. Notwithstanding paragraph GC-17 of the agreement, paragraph A-1 of the agreement provides the contractor (COMPANY F or COMPANY A) is to Aprocure, deliver and install permanent materials and equipment;@. The evidence submitted in this proceeding is clear that Petitioner did procure many of the materials and install them into the project.

15. COMPANY A also issued an exemption certificate to the vendors of some of the materials. Exemption certificates were not appropriately issued for any materials which were not resold or which Petitioner installed into real property.

16. There is no evidence, or even an allegation, that COMPANY B or any other company paid the sales tax on the materials at issue in this proceeding.

17. The only items on which sales tax has been imposed upon Petitioner by Respondent are those materials which were invoiced to Petitioner and/or were paid for by checks of Petitioner.

18. In performing the audit, Respondent looked only at who bought and paid for the materials. The source of those funds was not, and should not have been, material in determining whether or not Petitioner should have paid sales tax on the materials.

19. Petitioner converted the materials to real property, or personally consumed the materials in the construction of the project.


There is a sales tax imposed upon the purchaser for amounts paid or charged for retail sales of tangible personal property made within the State of Utah (U.C.A. 59-12-103).

Property purchased for resale in this state in the regular course of business, either in its original form or as an ingredient or component part of a manufactured or compounded product is exempt from sales tax. (U.C.A. 59-12-104(27)).

Sales of construction materials and other items of tangible personal property to real property contractors and repairmen of real property are subject to tax if the contractor or repairman converts the materials or items to real property. (Rule R865-19S-58, Utah Administrative Code).

The contractor or repairman who converts the personal property to real property is the consumer of tangible personal property regardless of the type of contract entered into between the parties. (Rule R865-19S-58B.1, Utah Administrative Code).


In this case, Respondent made an audit assessment against Petitioner for additional sales and use taxes. Petitioner has paid the full amount of sales and use taxes, together with the interest thereon, and Petitioner is now seeking a refund of approximately $$$$$ for the taxes and interest which it paid pursuant to the audit. If the audit assessment is correct, then Petitioner was not entitled to such a refund. If the audit assessment was not correct, then Petitioner is entitled to a refund.

The position of Petitioner is that it never made any purchases of products upon which it should have paid tax, because the title to those products passed directly to COMPANY B as provided by the contract between COMPANY B, COMPANY C, and COMPANY F.

Petitioner further relies upon paragraph 12 of the stipulation of facts entered into between the parties in which it was agreed that COMPANY F assisted COMPANY B in purchasing materials for use in the construction of the facility and located suppliers, obtained price quotations and arranged for COMPANY B

to make purchases of materials. Therefore, Petitioner claims that its only function was to assist in obtaining materials and that it did not actually obtain any such materials. However, the interpretation of the Commission of that stipulation is that although one of the functions of XXXXX was to assist COMPANY B, that does not foreclose the possibility that COMPANY F may have itself purchased materials for the construction of the facility. The Petitioner=s interpretation of paragraph 12 is one possible interpretation of the paragraph, but it is not the only possible interpretation. Further, Respondent has submitted evidence which would indicate that Petitioner=s interpretation of paragraph 12 does not accurately portray the facts as they were carried out by the parties.

Petitioner also takes the position that everything was purchased for the account of the owner, but there may have been some mistakes in documentation because of the fast-track requirements to try to get the plant built in a hurry to restore the nation=s AP production capacity. Again, that does not comport with the invoices billing items directly to COMPANY A, and COMPANY A then paying those invoices from its funds. That argument may be persuasive if it were determined that the owner, either COMPANY B or COMPANY C paid the tax on the materials, but there is no evidence to indicate that any other entity has also paid the tax on the materials purchased by COMPANY A.

Therefore, it appears clear to the Commission that COMPANY A purchased the materials and installed those materials into the real property at the XXXXX facility or otherwise consumed those materials or supplies in the construction of that project. Under either event, sales and use tax would be due and owing from Petitioner.


Based upon the foregoing, the Tax Commission finds that the audit assessment made by Respondent was appropriate, that Petitioner was responsible for the payment of such sales and use taxes. Petitioner is therefore not entitled to the requested refund. The request for refund is denied, and the audit assessment is affirmed and sustained. It is so ordered.

DATED this 14 day of APRIL, 1997.



W. Val Oveson Richard B. McKeown

Chairman Commissioner


Joe B. Pacheco Alice Shearer

Commissioner Commissioner


NOTICE: You have twenty (20) days after the date of a final order to file a Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13 et. seq.)