94-1438
Sales
Signed 11/21/96
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX, )
:
Petitioner, : ORDER
:
v. :
:
CUSTOMER
SERVICES DIVISION : Appeal No. 94-1438
UTAH STATE TAX COMMISSION, :
: Account
No. XXXXX
:
Respondent. : Tax Type: Sales
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for an Initial Hearing
pursuant to the provisions of Utah Code Annotated §59-1-502.5 on XXXXX,
19YY. G. Blaine Davis, Administrative
Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner was Mr.
XXXXX, from the law firm of XXXXX, together with Mr. XXXXX. Present and representing Respondent were Ms.
XXXXX, Assistant Attorney General, together with Mr. XXXXX from the Auditing
Division, and Ms. XXXXX and Mr. XXXXX from the Customer Service Division of the
Utah State Tax Commission.
Petitioner
filed a claim for refund for the sales and use taxes paid and remitted to the
Utah State Tax Commission from XXXXX, 19YY through XXXXX, 19YY. Petitioner alleges that the Commission
should grant the refund because Petitioner is a charitable organization and
Utah Code Annotated §59-12-104(9) provides that “sales made to or by religious
or charitable institutions” are exempt from sales and use taxes. (Utah Code
Annotated §59-12-104(9)(1996).
Respondent has denied the claim for refund.
Petitioner,
XXXXX, was incorporated as a Utah Nonprofit Corporation on XXXXX, 19YY. Petitioner then filed an application for a
determination from the Internal Revenue Service (IRS) that it was an Internal
Revenue Code Section 501(c)(3) organization.
Petitioner received a letter of determination from the IRS that accepted
it as a 501(c)(3) organization as of XXXXX, 19YY. Petitioner, however, did not file an application for a sales tax
exemption for religious or charitable institutions with the Utah State Tax
Commission until XXXXX, 19YY, when it filed a form TC-160 with the Commission.
On
XXXXX, 19YY, one week after the filing of the application, Petitioner was
recognized by the Tax Commission as a charitable institution exempt from sales
and use tax, and the Commission issued a sales tax exemption number to
Petitioner.
There
is a dispute as to the amount of tax that Petitioner has paid, but both parties
agree that evidence on the amount due, if a refund is appropriate, will be
deferred until a determination by the Commission on the primary legal issue of
whether such a refund is due. If the
Commission determines that Petitioner is entitled to a refund, and if the
parties cannot agree on the amount due, the Commission will hold another
hearing limited only to a review of the amount due.
Petitioner’s
position is that pursuant to Utah law all sales made to Petitioner or by
Petitioner are exempt from sales tax.
The statute states, “The following sales and uses are exempt from the
taxes imposed by this chapter. . . . (9) sales made to or by religious or
charitable institutions in the conduct of their regular religious or charitable
functions and activities. . . .” (Utah Code Ann. §59-1-104 (1996). Petitioner argues that the statute grants
this exemption whether or not the institution applies to the Tax Commission for
an exemption number. To the extent that
Petitioner paid such taxes, Petitioner contends it is entitled to a refund.
Respondent’s
position is that Petitioner does not qualify for a refund for the period of
XXXXX, 19YY to XXXXX, 19YY, because
during that time, Petitioner had not complied with Rule R864-19S-43 of the Utah
Administrative Code. The relevant part
of the Rule R864-19S-43 states:
C. The exemption granted by the statute [Utah
Code Ann. §59-12-104(9)]under this rule does not apply to institutions merely
operating on a nonprofit basis. Every
institution claiming exemption under this rule must obtain from the Tax
Commission an approval of its claim for such exemption. Vendors making sales to institutions
claiming exemptions must obtain a certificate from the institution in the form
set forth in RuleR865-19S-23.
Therefore, Respondent’s position is
thatR865-19S-43 required Petitioner to file a form TC-160 (Application for
Sales Tax Exemption Number for Religious and Charitable Institutions), to be
approved for such an exemption before it is qualified to purchase or sell on a
tax-free basis.
Petitioner
did in fact file a TC-160 form on XXXXX, 19YY, and the Commission issued a
sales tax exemption number to Petitioner on XXXXX, 19YY. Petitioner, thereafter, filed a claim for
refund on XXXXX, 19YY. The Commission
issued a refund for all sales taxes paid by Petitioner back through XXXXX,
19YY. Therefore, the only taxes at
issue in the proceeding are those paid by Petitioner during the period XXXXX,
19YY through XXXXX, 19YY.
The
claim for refund for the taxes for that period (XXXXX, 19YY through XXXXX,
19YY) was filed within three years from the date the taxes were paid (Utah Code
Ann. §59-12-110(2)), but the claim was not filed within the “90 days after the
end of the calendar year in which the sales or use tax was paid,” as required
by RuleR865-19S-100, Utah Administrative Code.
The position of Respondent is, therefore, that even if Petitioner was a
qualified charitable organization, it did not timely file its claim for refund,
so the claim cannot be granted. The
position of Petitioner is that Rule 100 is inconsistent with the statute, and
is therefore, unconstitutional and cannot be followed or enforced by the
Commission.
APPLICABLE LAW
Utah
Code Annotated §59-12-104, provides, in relevant part, as follows:
The following sales
and uses are exempt from the taxes imposed by this chapter:
. . . .
(9) Sales made to or
by religious or charitable institutions in the conduct of their regular
religious or charitable functions and activities,. . . .
RuleR865-19S-43,
Utah Administrative Code, provides, in relevant part, as follows:
(a) In order to qualify for an exemption from
sales tax as a religious or charitable institution, an organization must be
recognized by the Internal Revenue Service as exempt from tax under Section
501(c)(3) of the Internal Revenue Code.
. . . .
(c) Every institution
claiming exemption from sales tax under this rule must submit form TC- 160,
Application for Sales Tax Exemption Number for Religious or Charitable
Institutions, along with any other information that form requires, to the Tax
Commission for its determination.
Vendors making sales to institutions exempt from sales tax are subject
to the requirements of RuleR865-19S-23.
Utah
Code Annotated §59-12-110(2) provides:
(2) If any tax, penalty or interest has been
paid more than once or has been erroneously collected or computed, the
commission shall credit it on any amounts then due from that person to the
state under this chapter or under any other taxing law, the administration of
which is vested in the commission, and the balance shall be refunded to that
person or his successors, administrators, executors, or assigns. No such credit or refund is allowed unless a
claim is filed with the commission within three years from the date of
overpayment.
RuleR865-19S-100,
Utah Administrative Code was enacted effective July 1, 1993, and provides, in
relevant part:
(D) Refund claims must be filed no later than 90
days after the end of the calendar year in which the sales or use tax was paid.
Subparagraph
(D) of Rule 100 as cited above was repealed effective September 24, 1996.
ANALYSIS
In
the view of the Commission, there are only two issues which must be determined
in order to reach a decision in this case.
Those issues are, first, whether or not Petitioner was a qualified
charitable organization during the periods for which the refund has been
requested, and second, whether the application for refund was filed beyond the
time period permitted by the applicable statute of limitations.
In
trying to reach a resolution of the first issue regarding whether Petitioner
was a qualified charitable organization for the time period at issue, the
Commission must look to the rule to determine those entities that constitute a
charitable organization. The primary
test is contained in RuleR865-19S-43 as cited above. Pursuant to that Rule, “in order to qualify for an
exemption. . .an organization must be recognized by the Internal Revenue
Service as exempt from tax under Section 501(c)(3) of the Internal Revenue
Code.” Regarding that matter, there is
no question. The parties have agreed
that Petitioner was approved by the Internal Revenue Service as a 501(c)(3) organization
as of XXXXX, 19YY. That approval was
more than seven months prior to the earliest date for which a refund has been
requested in this proceeding.
Notwithstanding
that approval by the Internal Revenue Service, Respondent has argued that
Petitioner was still not qualified because they had not filed a form TC-160 by
that date, or by any of the dates at issue in this proceeding, and therefore
they did not qualify. There is no
question that the Rule does require the filing of a form TC-160, but the
Commission must try to analyze the purpose for requiring the filing of the form
TC-160. If the purpose of filing the
form is to define when an organization becomes a charitable institution, then
Petitioner did not do so before the times at issue in this proceeding, and
therefore, no refund could be given back to Petitioner for times prior to the
filing of the form. On the other hand,
if the purpose of filing the form is for the benefit of the Utah State Tax
Commission to either permit the Commission to know or control the individuals
and entities who are purchasing or selling items tax free, then that does not
affect the legal status of Petitioner, i.e., the organization would become tax
exempt at the time they qualify with the Internal Revenue Service, and the form
is only for informational purposes.
In
this proceeding, Respondent has already given refunds to Petitioner for time
periods prior to the date when Petitioner actually filed the form TC-160. Therefore, it is clear that Respondent has
not interpreted filing of the form TC-160 to be the time at which an
organization becomes a charitable institution.
To this extent, the actions of Respondent are not consistent with their
arguments that Petitioner was not a qualified charitable organization prior to
the time of the filing of the TC-160.
It is clear that Respondent has deemed the filing of the form TC-160 to
be merely procedural, so the failure to file the form should not preclude the
refund to Petitioner if it otherwise qualifies for the refund. Further, a reading of Rule 43 as cited above
makes it clear that qualification for the exemption comes by way of the
Internal Revenue Service recognizing the organization as a 501(c)(3)
organization, and that the filing of the form TC-160 is a procedural matter
which must be done in order to claim the exemption. Therefore, in accordance with the rule,
Petitioner became a qualified organization when it received approval from the
Internal Revenue Service on XXXXX, 19YY, but it did not claim that exemption
until XXXXX, 19YY. Therefore, in the
opinion of the Commission, after Petitioner claimed the exemption on XXXXX,
19YY, by filing the form TC-160, it was thereafter, entitled to file a claim
for refund. Such a claim for refund was
filed by Petitioner filing a claim for refund on XXXXX, 19YY, and Petitioner is
entitled to such a refund for all periods for which the statute of limitations
has not run. Although such a refund
cannot be given until the taxpayer has filed the form TC-160 and has been
approved as a charitable organization, once the claim is filed, a refund may be
given for the full time that the organization was a charitable organization,
unless prevented by a relevant statute of limitations.
Utah
Code Annotated §59-12-110(2) provides a three year statute of limitations for
most sales tax matters. However,
effective July 1, 1993, the Commission adopted Rule 100 as cited above, which
in essence provided a statute of limitations of ninety (90) days after the end
of the calendar year in which the sales or use tax was paid. Petitioner has argued that the rule is
unconstitutional as being in conflict with the statute. However, the Commission, in general, cannot
rule on constitutional issues.
Nevertheless, in this case, the Commission feels it does not need to
decide the constitutional issues in order to decide this case.
In
reviewing the provision of Rule 100 which limits claims for refund to ninety
days after the end of the calendar year in which the sales or use tax was paid,
the Commission is aware that the ninety day provision was repealed by the
Commission on September 24, 1996.
Further, the effective date of that provision of Rule 100 was July 1,
1993. The time periods at issue in this
proceeding are XXXXX, 19YY through XXXXX, 19YY, all of which was prior to the
effective date of the Rule. Petitioner
has already been granted a refund for all periods for which Rule 100 was in
effect. Therefore, it is clear that the only limitation period applicable
during the time periods at issue in this proceeding was the three year statute
of limitations as set forth in §59-12-110(2) as set forth above.
Accordingly,
since the ninety day provision of Rule 100 was not effective for the periods in
question, and since the questionable portions of the rule have now been
repealed, the Commission determines that the ninety day provision is not applicable
to this case and the Commission will not apply it to be applicable in this
case. Therefore, the Commission
determines that Petitioner is entitled to a refund of all of the sales and use
taxes which it paid for periods from XXXXX, 19YY through XXXXX, 19YY for which
the three year statute of limitations set forth in §59-12-110(2) had not
expired as of the date of the claim for refund, XXXXX, 19YY.
DECISION AND ORDER
Based
upon the foregoing, the Utah State Tax Commission hereby determines that Petitioner
is entitled to a refund of the sales taxes which it paid for all time periods
prior to XXXXX, 19YY for which the three year statute of limitations provided
by §59-12-110(2) had not expired as of the date of the claim for refund, XXXXX,
19YY. The parties are to attempt to
determine the amount of such tax refund, and if the amount of such refund
cannot be agreed upon between the parties, then further proceedings shall be
held in this matter to review and determine the correct amount of such refund.
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 21st day of November, 1996.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Richard
B. McKeown
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
^^