95-0115

Sales Tax

Signed 4/1/96

 

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

XXXXX,

Petitioner, ) FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. ) AND FINAL DECISION

:

AUDITING DIVISION OF THE ) Appeal No. 95-0115

UTAH STATE TAX COMMISSION, :

) Account No. XXXXX

:

Respondent. ) Tax Type: Sales & Use Tax

_____________________________________

 

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on XXXXX. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner by telephone conference call was XXXXX, Senior Manager at XXXXX, and XXXXX, Tax Representative Director. Present and representing Respondent were XXXXX, Assistant Attorney General, XXXXX, Assistant Director of the Auditing Division, and XXXXX of the Auditing Division.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is sales and use tax.

2. The period in question is the audit period of XXXXX through XXXXX.

3. As stipulated to by the parties, Petitioner is a publisher of educational and academic books. An affiliate of Petitioner has a XXXXX center in the State of Utah. The books in question are published out-of-state and are sent to the Utah XXXXX center for the purposes of re-shipment to college and university bookstores and popular retail bookstore chains within and without the State of Utah.


4. At issue in this appeal is the relatively small number of books distributed from the Utah XXXXX center as promotional items to existing and prospective customers out-of-state. These free promotional items are an integral part of the Petitioner's solicitation function.

5. All decisions regarding the distribution of promotional books are made in advance at Petitioner's commercial domicile in XXXXX.

6. For the taxable period of XXXXX through XXXXX, Petitioner self-assessed and paid use tax to the State of Utah on shipments of all promotional books.

7. Petitioner subsequently filed a refund claim for the portion of the use tax attributable to shipments of promotional books out-of-state.

8. The State Tax Commission initially approved the refund claim. However, upon the subsequent audit which is at issue in this appeal, it has assessed a use tax due on the promotional books shipped to locations outside the State of Utah.

APPLICABLE LAW

Utah Code Ann. '59-12-103(1)(1) (1993)[1] imposes a tax on the purchaser for "tangible personal property stored, used or consumed in this state."

"Use" is defined in Utah Code Ann. '59-12-102(14)(1993)[2] as "the exercise of any right or power over tangible personal property . . . incident to the ownership or the leasing of that property, item or service. "Use" does not include the sale, display demonstration, or trial of that property in the regular course of business and held for resale."


"Storage" is defined in Utah Code Ann. '59-12-102(12)(1993)[3] as "any keeping or retention of tangible personal property . . . in this state for any purposes except sale in the regular course of business."

The Commission has considered the tax treatment pursuant to Utah Code Ann. '59-12-102 and '59-12-103 of items given as premiums, gifts or rebates and adopted Utah Administrative Rule R865-19S-68(A)(1993) which states: "Donors of articles of tangible personal property, which are given away as premiums or otherwise, are regarded as the users or consumers thereof and the sale to them is a taxable sale."

ANALYSIS

The parties have stipulated to the relevant facts in this matter. The issue for consideration in this appeal is whether the inventory items brought into the State of Utah, stored at Petitioner's Utah facility and then packaged and shipped to out-of-state destinations as free promotional items, are taxable as tangible personal property stored, used or consumed in the state. Petitioner asserts that the promotional items shipped to out-of-state destinations are not taxable because while in Utah they are still in the stream of interstate commerce and they are actually used or consumed outside of Utah by the individuals ultimately receiving the items. Respondent maintains that the promotional items shipped to out-of-state destinations are taxable and its tax assessment is therefore valid. Petitioner did not dispute the imposition of Utah use tax on the promotional books shipped to destinations within Utah.

Both parties argue that the case law supports their respective positions in this matter. After reviewing the court decisions discussed by the parties in their prehearing and post hearing briefs in this appeal the Commission notes that the cases cited[4] support the fact that when a taxpayer removes items from


inventory in the stream of interstate commerce, it becomes the "ultimate consumer" of those items and a taxable event occurs. In applying the law and case law to the facts Petitioner is the ultimate consumer of the items at issue. Petitioner does not resell the items at issue. Petitioner makes a business decision as to what items will be mailed as promotional material and to whom they will be sent. The items at issue were then taken out of the exempt inventory to be repackaged and mailed as free promotional material out of state. These acts constitute storage and use of the tangible personal property for the purposes of Utah Code Annotated '59-12-103(1)(1)(1993).


Further, the Commission notes that this tax treatment is consistent with the Commission's previous decisions[5] and rules. A similar situation was addressed by the Tax Commission in its XXXXX decision in (Taxpayer) v. Auditing Division,


Appeal No. 94-1546. In that case phone books, which were printed outside the State of Utah then brought into the state, were distributed free of charge to phone users within and without the State of Utah. The Commission held in that case that the telephone books which were brought into the State of Utah and then were distributed to various locations within and without the State of Utah were brought into this state and stored and used within this state, and were, therefore, subject to sales and use tax. The Commission in that case pointed to Utah Administrative Rule R865-19S-68(a) to support the position that donors of articles of tangible person property are regarded as the users or consumers.

CONCLUSIONS OF LAW

Analysis of the applicable statutes and case law bring the Commission to the conclusion that the tangible personal property in question is taxable under Utah Code Ann. '59-12-103, with no exemptions being available to excuse payment of the tax.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that the audit assessment made by Respondent against Petitioner for the period of XXXXX through XXXXX should be sustained. The Petition for Redetermination is therefore denied. It is so ordered.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

DATED this 1 day of April, 1996.

W. Val Oveson Roger O. Tew

Chairman Commissioner

 

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

 

NOTICE: You have twenty (20) days after the date of a final order to file a Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13 et. seq.)

 

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[1] This section was renumbered and is currently set out in '59-12-103(n)(1995).

[2] This section was renumbered and is currently set out in '59-12-102(19) (1995).

[3] This section was renumbered and is currently set out in Utah Code Ann. '59-12-102(17) (1995).

[4] The parties discussed the following decisions in relation to their respective positions in this matter: State Tax Commission of Utah v. Pacific States Cast Iron Pipe, 372 U.S. 605 (1963); Utah Concrete Products v. Utah State Tax Comm=n, 125 P.2d

[5]408 (1942); Chicago Bridge and Iron v. Utah State Tax Comm=n, 839 P.2d 303 (1992); Tummuru Trades v. Utah State Tax Comm=n, 802 P.2d 715 (Utah 1990);

 

The Commission considered similar issues in its July 7, 1994, decision in (Taxpayer) vs. Auditing Division, Appeal No. 92-1285.