93-0784
Sales
Signed 10/15/93
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX )
XXXXX, :
)
Petitioner, : FINDINGS OF
FACT,
) CONCLUSIONS OF LAW,
v. : AND FINAL DECISION
)
AUDITING
DIVISION OF THE : Appeal No. 93-0784
UTAH STATE TAX
COMMISSION, )
: Account No. XXXXX
Respondent. )
_____________________________________
STATEMENT OF
CASE
This appeal came before the Utah State
Tax Commission for a prehearing conference on XXXXX. Alan Hennebold, Administrative Law Judge, heard the matter on
behalf of the Commission. XXXXX, Vice
President and Secretary/Treasurer, represented XXXXX ("XXXXX"
hereafter). XXXXX, Assistant Utah
Attorney General, represented the Auditing Division.
With the consent of the parties, the
proceeding was converted from a prehearing conference to a formal hearing. Based on the evidence 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 audit period in question is XXXXX through XXXXX.
3.
On XXXXX, the Audit Division assessed XXXXX with additional sales and
use tax of $$$$$ for the audit period, plus accrued interest. The Audit Division did not assess any penalties
against XXXXX.
4.
XXXXX has now paid the full amount of the foregoing assessment, but
seeks refund of $$$$$ in tax arising from its purchase of a "XXXXX".
5.
During the audit period, XXXXX purchased certain computer software from
XXXXX. It also purchased, for $$$$$, a
support agreement from XXXXX.
6.
Under the terms of the support agreement, XXXXX agreed to provide XXXXX
with "telephone advice, research and other assistance . . . necessary to
keep the . . . software operating".[1] Also under the agreement, XXXXX was entitled
to receive software corrections, updates and new versions at no charge.[2]
CONCLUSIONS OF
LAW
Section 103(1) of Utah's Sales and Use
Tax Act (Utah Code Ann. '59-12-101 et
seq.) levies a tax on the purchaser for the amount paid or charged for the
following:
(a)
retail sales of tangible personal property made within the state;
.
. . .
(g)
services for repairs or renovations of tangible personal property or services
to install tangible personal property in connection with other tangible
personal property;
. . . .
The Commission's Rule R865-19-92S
defines the proper application of '103(1)(a)
and (g) to computer software and service transactions, as follows:
B.
The sale, rental or lease of canned or prewritten computer software
constitutes a sale of tangible personal property and is subject to the sales or
use tax. . . . Charges for program
maintenance, consultation in connection with sale or lease, enhancements, or
upgrading of canned or prewritten software are taxable.
The Commission has also adopted Rule
R865‑19‑78S.H., pertaining to assessment of sales tax on purchases
of service plans:
Sales of extended warranty agreements
or service plans are taxable, and tax must be collected at the time of the sale
of the agreement. The payment is
considered to be for future repair, which would be taxable.
The "tax imposing"
provisions of Utah's Sales and Use Tax Act are construed in favor of the
taxpayer. Parsons Asphalt Products v.
State Tax Commission, 617 P.2d 397, 398 (Utah 1980).
DECISION AND
ORDER
In essence, XXXXX's purchase of a
"support agreement" from XXXXX is equivalent to XXXXX's prepayment of
charges for future computer software upgrades and future repairs. Utah's Sales and Use Tax imposes sales tax
on both such items.
The Commission's Rules R865-19-72S and
R865-19-92S make clear that the foregoing items are subject to tax, and that
service agreements are to be treated as prepayment for such taxable items and
services.
Based upon the foregoing, the Tax
Commission affirms the imposition of sales and use tax on the amount paid by
XXXXX for the "software support agreement" in question. It is so ordered.
DATED this 15th day of October, 1993.
BY ORDER OF THE
UTAH STATE TAX COMMISSION.
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), 63-46b-14(3)(a).
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