Sales Tax

Signed 1/27/95








Petitioner, : ORDER


v. : Appeal No. 93-2184





Respondent. : Tax Type: Sales Tax



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.


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.


W. Val Oveson Roger O. Tew

Chairman Commissioner


Joe B. Pacheco Alice Shearer

Commissioner Commissioner