BEFORE THE UTAH STATE TAX COMMISSION
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
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". Also under the agreement, XXXXX was entitled to receive software corrections, updates and new versions at no charge.
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
Joe B. Pacheco Alice Shearer
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).