93-2184
Sales Tax
Signed 1/27/95
BEFORE THE UTAH STATE TAX
COMMISSION
_______________________________________
XXXXX
:
Petitioner, : ORDER
:
v. : Appeal No. 93-2184
:
AUDITING
DIVISION OF THE : Account No. XXXXX
UTAH STATE TAX COMMISSION, :
:
Respondent. : Tax Type: Sales Tax
_______________________________________
STATEMENT
OF CASE
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. G. Blaine Davis, Administrative Law Judge,
heard the matter for and on behalf of the Commission. Present and representing Petitioner was XXXXX of the law firm
XXXXX. Present and representing
Respondent was XXXXX, Assistant Attorney General.
The
petitioner, XXXXX, operates a XXXXX in XXXXX.
It commenced business during late XXXXX, and continued business through
the audit period which was XXXXX through XXXXX. During the first six months of XXXXX, the petitioner purchased a substantial
amount of tangible personal property, such as XXXXX, for installation and use
at the motel. Sales and use tax were
not paid on those items. The sales and use tax return for the first quarter of
XXXXX was due on or before XXXXX, and it was timely filed on XXXXX. The return for the second quarter of XXXXX
was due on XXXXX, and it was also timely filed and paid.
All
other sales and use tax returns during the audit period were timely filed and
paid.
As
a part of the marketing strategy of Petitioner, the motel furnishes
“complimentary” breakfast foods to its clients. These foods normally consist of items such as donuts, muffins,
sweet rolls, tomato juice, orange juice, apple juice, and coffee. Petitioner purchases the foods and drinks at
wholesale without the payment of sales or use tax, and provides a free
continental breakfast for its clients each morning. The price of the breakfasts are not billed separately to each
room or each client, but are instead included in the price which is paid for
the room. Sales tax is charged on the
rental price of each room.
On
or about XXXXX, the respondent issued a Statutory Notice to Petitioner in which
it took the position that the breakfast items were not purchased for resale but
that Petitioner was the ultimate consumer of the food items, and the tax was
imposed on Petitioner. The respondent alleged a use tax deficiency on the food
items consumed and on the items purchased during the start up period in an
amount of $$$$$. The stated audit
period was XXXXX through XXXXX.
Petitioner
timely filed a Petition For Redetermination challenging the proposed deficiency
and raised the following issues:
1. The petitioner takes the position that the
Division's assessment for the first two quarters of XXXXX is barred by the
three year statute of limitations contained in Utah Code Annotated
§59-12-110(8) because the Statutory Notice was not issued until more than three
years after the due date of the return.
2. The petitioner also takes the position that
the breakfast items purchased by Petitioner were for resale to its clients, and
that the cost of food was included in the room charges to the clients. Petitioner therefore claims that the
imposition of the use tax on the food results in double taxation because the
price of the food was also included in the price of the room on which sales tax
has been paid.
The
registration forms signed by each person registering for a room contains a
statement which says, “A continental breakfast is included in the cost of your
room.” However, no separate charges are
made for the breakfast.
The
Auditing Division has responded to the allegations of Petitioner as follows:
1. With respect to the allegation that a
portion of the Audit contained in the Statutory Notice is beyond the three year
statute of limitations, the respondent's position is that Petitioner never
started the running of the statute of limitations because line 4 of the sales
and use tax return was left blank. That
line of the return asked them to report goods purchased tax free and used by
them. Respondent relies upon the case
of Whitmore Oxygen Company v. Utah State Tax Commission, 196
P.2nd 976, 114 Utah 1(1948) wherein the Utah Supreme Court held that even
though a sales tax return had been filed, where the petitioner left blank the
use tax portion of the form the taxpayer was not deemed to have filed a use tax
return. Therefore, the statute of
limitations never commenced to run.
2. In response to the position of Petitioner
that the food items purchased for the complimentary breakfasts were purchased
for resale and therefore no use tax should be imposed on them, Respondent
relies upon the case of Sine v. State Tax Commission of Utah, 390
P.2nd 130, 15 Utah 2nd 214(1964). That
case held that Hotel owners were required to pay use tax on linens, towels,
mattress covers, blankets, washrags, soap, postcards, drinking glass covers,
toilet bands, stationery, and magazines which had been purchased from out of
state sources.
The
petitioner's response to the argument of Respondent that the statute of
limitations never commenced to run because the line for use tax was left blank
is that the tax recodification of the Sales And Use Tax Acts which occurred in
XXXXX merged the sales and use tax acts together, so that under the statute
there is only one tax which is imposed upon both sales and use
transactions. Therefore, Petitioner
argues, when the petitioner filed its sales tax return, even though it did not
fill in anything on the line which asks for goods purchased tax free and used
by the taxpayer, the filing of the form TC-71 still constituted the filing of a
tax return for the single sales and use tax which is imposed on both sales and
use transactions. Thus, according to
Petitioner, upon the filing of the sales and use tax return, form TC-71, on or
before the due date for the first two quarters of XXXXX, the statute of
limitations commenced to run and it had expired for the first two quarters of
XXXXX prior to the date of the assessment by Respondent.
The
position of Petitioner in response to the Sine v. State Tax
Commission case is that in the Sine case the items on which the Supreme
Court sustained the tax were items of tangible personal property, such as
linens, towels, and blankets, which were not consumed by the customers except
through use over a long period of time.
To the contrary, in the instant case, breakfast items are all physically
consumed by the clients of the motel prior to the time they have departed the
premises of the motel. Therefore,
Petitioner argues, the legal test for taxability on the breakfast foods and
drinks is on the party who consumes the tangible personal property, and since
the clients of Petitioner consume the food and drink, and have paid tax on it
and the room when they paid for their room, it should not be taxed to
Petitioner.
In
dealing with the first issue of whether the statute of limitations was ever
commenced because Petitioner did not insert anything on the sales and use tax
return for items consumed, the respondent has relied on the case of Whitmore
Oxygen Company v. Utah State Tax Commission, supra. In that case, the Utah Supreme Court
analyzed that problem as follows:
The fact that the Tax
Commission has made it possible to file both a use and a sales tax return on
the same form does not mean that a filing of one shall constitute a filing of
both. Were we to decide otherwise, we would obviate all necessity for the
taxpayer to file a use tax return at all.
Plaintiff contends that the taxpayer is often at a loss to know whether
to file a return for sales tax or use tax on a given transaction; that inasmuch
as both taxes constitute but one comprehensive taxing system, if the taxpayer
files a Form 71 making entries only as to sales tax and signs the printed
certification, it should be considered both a sales and a use tax return for
the purpose of starting the running of the statute of limitations. In support of this view, plaintiff cites the
regulation of the Tax Commission which provides that it may be unnecessary for
the taxpayer to determine which tax is technically applicable. That regulation, however, does not improve
plaintiff's position. It offers an excuse for an erroneous filing where the
taxpayer, being confused, has filed a sales tax return when he should properly
file a use tax return. Plaintiff may
not claim it has been confused concerning how to file for it has never
attempted to file a return for the use or the purchase of the cylinders. The instant case is not a case of an
erroneous filing -- it is rather a case of no filing at all.
Does the fact that
plaintiff signed the certificate at the bottom of Form 71, even though it has
never placed figures, words or marks of any kind in the space reserved for use
tax entries, require a holding that plaintiff filed a use tax return? While the latter part of the certification
states the form is filed pursuant to the Sales Tax Act, . . ., and the Use Tax
Act, . . ., the first part of the certification must also be considered. The taxpayer certifies that 'the statements
made and the figures shown herein and in accompanying schedules' comprise to
the best of his knowledge and belief a true and complete return. Although the certification might have been
more carefully drafted, it will be noted that the taxpayer is certifying to the
statements he has made and figures he has shown. If no marks, words or figures were placed on the form at all, but
the taxpayer merely signed the printed certification, the form so filed would
not constitute a return for either sales tax or use tax. Plaintiff in effect
concedes this but contends that if the form is filled in as to sales tax, and
the certification is then signed, Form
71 becomes a use tax return as well.
The fact that the Tax Commission has made it possible to make a return
for both sales and use tax on the same form, does not do away with the
necessity of furnishing information as to both taxes. The form is so designed
that the entries for each tax are severable and if the taxpayer intends to
claim a return for both taxes some words or figures should be entered in both
divisions of the form. The plaintiff
not having by words, statements, or figures indicated in the body of the use
tax division of the form that it intended this portion of the form to be
treated as part of the completed form, we hold the return was not sufficient to
start the statute of limitations running against a use tax.
The
position of Petitioner is that the Whitmore Oxygen case was more than 45
years ago, and that when the Utah State Legislature recodified the Sales And
Use Tax Act they merged the sales and use tax into one tax which is all
contained in chapter 12 of title 59 of the Utah Code. In fact, §59-12-101, Utah Code Annotated, as amended, which
includes the 1987 recodification, now provides:
“This
chapter is known as the ‘Sales And Use Tax Act.’”
After
careful review of the recodified statutes and the rules of the Commission,
together with a careful review of the Whitmore Oxygen case, the
Commission determines that the Legislature did in fact recodify the Sales And
Use Tax Act in 1987, and in doing so, the Legislature created a single act
which embodies both the sales tax and the use tax. The current tax structure does impose just one single sales and
use tax on both sales and use transactions.
The single tax on both sales and use transactions was designed to be
complimentary and to impose the tax one single time on both sales and use
transactions and to ensure that all transactions pay the tax the one single
time and do not escape taxation.
Following that recodification and merging of the two taxes into a single
tax, the sales and use tax return prepared and utilized by the Commission, Form
TC-71, was not significantly modified. However, the return form, Form TC-71,
has now been modified and more clearly establishes that the sales and use tax
are one and the same tax imposed upon different transactions.
Section
59-12-110(8), Utah Code Ann., as amended, provides as follows:
(8) Except if a
deficiency is due to fraud with intent to evade tax or of a failure to file a
return, the amount of taxes imposed by this chapter shall be assessed within
three years after the return was filed and if not so assessed no proceeding for
the collection of the taxes shall be begun after the expiration of the period.
It
is noted that in this case there is no allegation and no showing or evidence
that the deficiency is due to fraud with intent to evade tax. The only reason which Respondent asserts for
avoiding the three year statute of limitations is a failure to file a
return. Since Petitioner timely filed a
form TC-71, the only reason Respondent asserts a failure to file a return is
because there was no entry on line 4 of TC-71.
The
Commission determines that the timely filing of the standard sales and use tax
return, Form TC-71, by the petitioner constituted a filing of the only return
which was required to be filed by Petitioner.
Because of the merging of the sales tax act and the use tax act into a
single “Sales and Use Tax Act,” there is only one tax and one return to be
filed. Accordingly, the statute of
limitations commenced on the date the sales and use tax return was filed. For the first and second quarters of XXXXX,
the statute of limitations expired prior to the date on which the Statutory
Notice for those two quarters was issued by the Auditing Division. The proposed assessment for those two
quarters is unenforceable.
Regarding
the issue of use tax on the consumable food products which were purchased by
Petitioner tax free for service of the continental breakfast to the clients of
Petitioner, the Commission is convinced that the issue is identical to that
which was decided by the Utah Supreme Court in the case of Sine v. State
Tax Commission Of Utah, 390 p.2nd 130, 15 Utah 2nd 214(1964). This ruling of the Utah Supreme Court has
also been implemented in ruleR865-19S-61(b), of the Utah Administrative Code,
which provides as follows:
"When no separate
charge or specific amount is paid for meals furnished but is included in the
membership dues or board and room charges; the club, boarding house,
fraternity, sorority, or other place is considered to be the consumer of the
items used in preparing such meals."
The
petitioner has argued that the client has physically consumed the breakfast
foods and drinks, and the tax should be imposed, and was imposed on the client
at the time the client paid for the room.
While it is certainly true that the client physically consumed the
products, it does not necessarily follow that the legal incidence of the tax
falls upon the client. Petitioner purchased the products in the last taxable
transaction for those products prior to the time they were physically consumed.
Petitioner purchased those products exempt from tax by representing that the
products were for resale, but the products were never resold. Instead, Petitioner utilized those products
in pursuit of the business of Petitioner.
If Petitioner had imposed a separate charge for the products, as is
required by RuleR865-19S-61(b) of the Utah Administrative Code, then there
would have been a taxable transaction on those products which occurred later
than the transaction in which the Petitioner purchased the products. If there had been such a later purchase of
the products, then Petitioner's purchase of those products would have been
exempt. However, where Petitioner did not separately bill those products to its
clients, as required by the rule, then its purchase of the products was the
last taxable transaction for those products. Petitioner was the legal consumer
of those products, even though the clients of Petitioner physically ate, drank
and consumed those products. This is no
different than an individual who buys food and drinks to serve to guests at a
dinner party. The last person to
purchase those products is liable for the sales and use tax, even though
someone else may physically consume the food and drinks. Also, where there is no charge for the food,
separate from the charge for the room as required by the Rule, the food and
drinks were not resold and were not entitled to be purchased tax-free. The legal incidence of the sales and use tax
must fall upon Petitioner.
In
this case, the petitioner does not impose a separate charge for the continental
breakfast and there is no separate accounting breakdown. The person paying for the room does not have
the option of reducing the amount paid if they do not receive the
breakfast. Therefore, in accordance
with the above stated rule, where there is no separate charge or specific
amount paid for the meal, the person or entity purchasing such food is
considered to be the consumer of the items used in preparing such meals. Accordingly, the audit assessment of the
Auditing Division on the amount paid for such meals by Petitioner is hereby
affirmed.
DECISION AND ORDER
Based
upon the foregoing, the Tax Commission finds that the Statutory Notice as to
the tax on food and drinks for the continental breakfast should be affirmed, but
the Statutory Notice relating to items which are beyond the statute of
limitations should not be affirmed. It
is so ordered.
This
decision does not limit a party's right to a formal hearing. However, this Decision and Order will become
the Final Decision and Order of the Commission unless any party to this case
files a written request within thirty (30) days of the date of this decision to
proceed to a Formal Hearing. 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
210 North 1950 West
Salt Lake City, Utah
84134
Failure
to request a Formal Hearing will preclude any further administrative action or
appeal rights in this matter.
DATED
this 27 day of January, 1995.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Absent
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
^^