94-2079

Sales & Use

Signed 8/23/95

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

Petitioner, : ORDER

v. : Appeal No. 94-2079

COMPLIANCE AUDIT UNIT OF THE ) Account No. XXXXX

COLLECTION DIVISION OF THE :

UTAH STATE TAX COMMISSION, :

Respondent. : Tax Type: Sales & Use

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. §59-1-502.5, on XXXXX. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner were XXXXX, XXXXX and XXXXX. Present and representing Respondent were XXXXX, Assistant Attorney General, XXXXX and XXXXX of the Auditing Division.

Petitioner is appealing the assessment of tourism tax in the amount of $$$$$, sales and use tax in the amount $$$$$ and interest of approximately $$$$$ for the audit period of XXXXX, on the basis that it is exempt in accordance with Utah Code Ann. § 59-12-104. Petitioner also requests guidance for the future application of this exemption.

APPLICABLE LAW

The following are exempt from sales and use tax: (8) Sales made to or by religious or charitable institutions in the conduct of their regular religious or charitable functions and activities as long as the provisions of §59-12-104.1 are fulfilled; or (13) Sales of meals served by churches or charitable institutions if the meals are not available to the general public. (Utah Code Ann. §59-12-104.)

ANALYSIS

The sole issue in this appeal is whether or not Petitioner's sales of food items and beverages are tax exempt. There are two possible exemptions listed in Utah Code Ann. § 59-12-104, subsections (8) and (13). To find the sales in question exempt they must qualify under either one of these subsections.

Subsection 8 of Utah Code Ann. §59-12-104 exempts sales made by religious or charitable institutions in the conduct of their regular religious or charitable functions and activities. Respondent has not expressly disputed Petitioner being a religious or charitable institution. The parties have stipulated to the fact that Petitioner was recognized by the IRS as tax exempt under I.R.C.§501(c)(3), was organized as a non-profit corporation under the laws of the State of Utah and was granted a Religious or Charitable Institution Sales and Use Tax Exemption Number by the

State of Utah. Respondent asserts that the activities performed by Petitioner were not religious or charitable activities and the sales at issue were not related to those activities.

Petitioner does not hold itself out be a religion or church, instead as an organization which supports XXXXX XXXXX purposes, like XXXXX, encouraging discussion of XXXXX religious philosophy and providing XXXXX speakers and programs. Petitioner's representatives explained at the hearing and in the documents provided that they decided they could better accomplish these purposes by setting the operation up cafe style, instead of as a formal XXXXX, to encourage attendance and open discussion. To this end they opened up the XXXXX in XXXXX, which is open five evenings a week and at which XXXXX centered programs are provided for those in attendance at the XXXXX. The size and structure of the XXXXX is such that anyone in the XXXXX would be subject to the XXXXX programming and discussions of XXXXX philosophy.

Petitioner's position is that the food service is intertwined with the religious and charitable activities and is therefore in the conduct of its regular religious or charitable functions and activities. It is apparent that Petitioner is not following the traditional format of holding formal church services, and is instead furthering its religious and charitable functions

through the XXXXX style approach. Petitioner had no other religious or charitable activities during the audit period, except that it also XXXXX. In fact, Petitioner's regular religious and charitable function appears to be providing religious programs in a XXXXX setting.

There are significant difference between Petitioner's cafe and a commercial food service establishment. Petitioner represents that all work at the XXXXX and the services of Petitioner's board of trustees is performed by volunteers. The XXXXX has a very limited menu and is open only during the evenings. All visitors are subject to the XXXXX discussions and activities which at the time of the audit period included a XXXXX XXXXX anonymous meeting, XXXXX XXXXX, XXXXX, XXXXX and XXXXX. Visitors would have notice of the XXXXX nature of the activities because of the visible XXXXX on the XXXXX of the XXXXX, the XXXXX and table XXXXX and the XXXXX. Petitioner represented that during the audit period the menu stated all menu prices are the suggested contribution for these items and that on occasions when someone did not want to contribute the food items were given away.

Petitioner represents that no profit is made from the sale of the food items which does not even cover Petitioner's expenses in operating the XXXXX and providing the XXXXX programs. From the sales listed in the audit Petitioner made only approximately $$$$$ per quarter which averages to be about $$$$$ for each day the XXXXX was open. The deficit in operating expenses during the audit period was made up from donations and rent received from portions of Petitioner's building which were not used by the XXXXX.

Respondent's position is that the activities that take place at the XXXXX are not religious or charitable, pointing out that just because activities use the word "XXXXX" in their title like the "XXXXX" does not mean they are XXXXX activities.

Further, Respondent argued that even if the activities were of a XXXXX nature, Petitioner must still prove that the sale of food was made in the conduct of the regularXXXXX. Respondent maintains that the sale of food items had very little to do with Petitioner's religious activities other than the fact that they occurred at the same location. Respondent points out that the sales were made at retail prices. Respondent also provided a copy of the XXXXX which listed the XXXXX in the XXXXX section. Although Petitioner's representatives stated that it was a complimentary listing. Respondent also made an unpersuasive attempted to distinguished Petitioner's sale of food items from the sale of tennis equipment in Youth Tennis Foundation v. Tax Comm'n, 554 P.2d 220 (Utah 1976).

Clearly the Petitioner's XXXXX was not a commercial enterprise during the audit period and would not have competed with other commercial restaurants. The small dollar amount of sales made at the XXXXX were made in the conduct of Petitioner's regular, although untraditional, XXXXX and activities. Since the Commission finds that the sales during the audit period are exempt under Utah Code Ann. §59-12-104 (8) the Commission does not look at the applicability of the exemption under Utah Code Ann. §59-12-104 (13).

DECISION AND ORDER

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission finds that the sales of food items made by Petitioner during the audit period of XXXXX to XXXXX are exempt from tourism and sales and use tax. Respondent is ordered to issue the appropriate refund to Petitioner.

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 23 day of August, 1995.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner