Signed 5/24/94






Petitioner, :

v. : Appeal No. 93-1621





Respondent. :



This matter came before the Utah State Tax Commission for a Settlement Conference pursuant to the provisions of Utah Code Ann. 59-1-502.5, on XXXXX. Lisa L. Olpin, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner were XXXXX, president, and XXXXX, vice-president. Present and representing the Auditing Division was XXXXX.

The Auditing Division of the Tax Commission audited Petitioner's sales and use tax account for the period of XXXXX- XXXXX. An audit deficiency was assessed plus interest. No penalty was included.

According to XXXXX of the Auditing Division, the audit deficiency amount reflects taxes that Petitioner should have paid on improvements to real property. Also, Petitioner was charged with taxes that the Auditing Division believes Petitioner should have collected on sand used in sandblasting the pipes that Petitioner coats, seals and sells to buyers.

Petitioner contends that it should be excused of paying the taxes on both the improvements to real property and sand used in sandblasting.

Petitioner's representatives explained that Petitioner purchased raw land for the purpose of improving it and then moving the business thereto.

Prior to constructing any building on the site, XXXXX explained that he personally went to the Tax Commission and presented the building plans to a Tax Commission employee who apparently was from the sales and use tax area of expertise. He recalls that she told him the construction costs qualified for exemption status under the manufacturer's exemption statute.

Mr. XXXXX could not remember the employee's name, only that he went the Commission on a day in XXXXX when the Commission's building had been flooded downstairs.

In accordance with the advice he received, he wrote a letter to XXXXX from whom Petitioner was purchasing the pre- fabricated building components, telling it that Petitioner's purchases were tax exempt. Petitioner also provided an exemption certificate to XXXXX to that effect.

Mr. XXXXX further added that XXXXX itself contacted the Commission to verify that it could sell the construction items tax- free to Petitioner. XXXXX was also told by the same Commission employee that the construction purchases were tax-free. XXXXX cannot recall the name of the Commission employee involved either.

As a result of the Commission employee's advice, Petitioner went ahead and improved the property, not paying tax on any aspect of the new building.

The Auditing Division determined that a portion of Petitioner's new machinery purchases for the new site qualified for the manufacturer's exemption. The Division maintains, however, that improvements to real property are not tax exempt under the statute.

Secondly, Petitioner stated that it was unaware of the necessity to pay tax on the sand it uses in sandblasting the pipes it sells to buyers. Since the audit in question was performed, Petitioner now realizes that taxes should have been collected, but claims that it is presently a financial hardship to pay the deficiency.


With regard to the applicability of the manufacturer's exemption statute, the administrative rules cite the following:

The machinery and equipment exemption applies only to tangible personal property. It does not apply to real property or to tangible personal property which is purchased and becomes an improvement to real property. (Utah Admin. RuleR865-19S-85(B)(1).)


Based upon the information presented at the conference, and the records of the Tax Commission, the Commission finds sufficient cause has not been shown to modify the audit deficiency in this case. Petitioner owes the amounts reflected in the sales and use tax audit for the period XXXXX-XXXXX.

Petitioner presented insufficient information to conclude that misinformation was given by a Commission employee regarding the taxability of the improvement to the real property. Even if it was known who Petitioner met with and what the parties said on the issue, any resulting misinformation would not be grounds to relieve Petitioner of liability in this case.

Further, Petitioner's contention that paying the sales tax deficiency on the improvements and sand would cause extreme financial hardship is understood, but again, not a basis for relief.

A payment arrangement should be made with the Collection Division on how to best settle the amount due.

This Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request for a Formal Hearing within ten (10) days of the date of this decision. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

160 East 300 South

Salt Lake City, Utah 84134

It is so ordered.

DATED this 24th day of May, 1994.


W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner