Individual Income

Signed 5/22/95






Petitioner, : ORDER


v. : Appeal No. 94-0222





Respondent. : Tax Type: Individual Income



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 on the telephone was XXXXX XXXXX. Present and representing Respondent was XXXXX, Assistant Attorney General together with XXXXX and XXXXX from the Auditing Division.

Petitioner operates a XXXXX in XXXXX. The customers of Petitioner pay a fee to have the right to XXXXX, which XXXXX at the XXXXX, and then they are XXXXX. The XXXXX is surrounded by a XXXXX, and XXXXX where the persons who are XXXXX are XXXXX which can be firmly XXXXX.

Respondent performed an audit of Petitioner and imposed a sales tax upon Petitioner for three items, as follows:

1. Tax on the fee paid for the XXXXX from the XXXXX XXXXX. The position of Respondent is that the persons have paid an XXXXX.

2. Certain unreported purchases as contained on XXXXX of the audit. Petitioner does not dispute that the unreported purchases are subject to tax and that tax should be paid on those items.

3. A separate XXXXX which was XXXXX to the XXXXX XXXXX. The materials were purchased tax exempt to be utilized in the manufacture of XXXXX, but no sales tax was collected when it was sold to the XXXXX. Petitioner does not dispute that tax should be paid on the sale of that XXXXX, but represents that the tax cannot be paid until her XXXXX has been able to sell XXXXX.

Accordingly, the only contested issue is whether the fees paid for the right to use the XXXXX, are subject to sales tax as an "XXXXX" pursuant to the provisions of 59-12-103(1)(f)(the statute has now been changed, but the audit occurred for fees paid under the old statute.) The Petitioner now collects sales tax on the fees and has timely filed and remitted the sales tax since XXXXX XXXXX, the date on which the new statute became effective.

One of the contentions of Petitioner is that at the time the business started, Petitioner called someone at the Utah State Commission and explained the business and asked if it was going to be subject to sales and use tax. Petitioner alleges she was informed that she would be required to collect sales and use tax on the XXXXX which were sold, but that the fees paid for XXXXX XXXXX would not be subject to sales tax. Based upon that purported representation, she has not collected any sales and use tax.

For the time periods which are involved in the audit assessment, Utah Code Ann. XXXXX levied a tax on XXXXX as follows:

The term XXXXX has been defined by the Commission in XXXXX (the rule has now been slightly renumbered), which at the time of the audit provided as follows:

The Court of Appeals of Utah has issued the only significant court decision on the issue of sales tax on XXXXX. That case is the XXXXX. In that case, the Tax Commission had imposed sales tax for the "XXXXX" to XXXXX at the XXXXX. In reviewing the above sited statute and rule, the Court of Appeals of Utah stated:


The Court continued:


"Not only does the record indicate no fee is charged for the right XXXXX, but individuals such as XXXXX may enter the XXXXX. The situation is apparently no different for XXXXX. Consequently, the Tax Commission erred in departing from its traditional application of the rule. The rule states that XXXXX means the "XXXXX." There is simply no XXXXX by the XXXXX to any place; there are only XXXXX to do XXXXX. Thus, given the Tax Commission's own interruption of the statute, as memorialized in its rule, its decision in this case is incorrect."

In the above sited XXXXX case, the test applied by the court was whether the XXXXX was one for XXXXX verses whether it was a XXXXX a place. They furthered clarified that in the case of the XXXXX, where other people were permitted to XXXXX without the XXXXX, the XXXXX was being paid for the XXXXX and the XXXXX, and that it was not an XXXXX.

The case at hand is very similar to the XXXXX case because other persons are XXXXX to take XXXXX and to even go XXXXX. Accordingly, the Commission finds that the XXXXX by Petitioner are not XXXXX, and therefore are not subject to sales and use tax.


Based upon the foregoing, the Tax Commission finds that the XXXXX by Petitioner for the XXXXX are not XXXXX, but are XXXXX XXXXX of Petitioner. Such XXXXX are not subject to sales and use tax.

Accordingly, the Commission hereby affirms the audit assessment made against Petitioner for the XXXXX and on the sale of the XXXXX which was XXXXX, but the Commission does not sustain the assessment for sales and use tax which was made on the XXXXX to have the XXXXX. 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 22nd day of May, 1995.


W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner