95-0325, 95-0326 & 95-0327, 95-0477
Signed 1/7/97
____________________________________
PETITIONERS, :
:
:
:
Petitioners, : ORDER
:
v. : Appeal Nos. 95-0325, 95-0326
: 95-0327, 95-0477
CUSTOMER
SERVICE DIVISION :
UTAH STATE TAX COMMISSION, :
:
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 Ann. §59-1-502.5, on December 10,
1996. G. Blaine Davis, Administrative
Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner were
PETITIONER REP., from the law firm of XXXXX, together with PETITIONER
REP.. Present and representing
Respondent were Mr. Gale Francis, Assistant Attorney General, together with Ms.
Julie Halvorson of the Customer Service Division.
Petitioner
requested a refund of sales and use taxes paid for the period October 1991
through July 1994. Petitioner claims to
be entitled to the refund for such taxes because it was initially charged on
repairs of property which was deemed to be tangible personal property.
Petitioner contends that the property is either real property or trade
fixtures, on which it contends that such repairs were not subject to sales and
use tax. Respondent has denied the
claim for refund and claims that the property on which such repairs were made
is personal property, which repairs were subject to the imposition of sales and
use tax.
The
parties have entered into a stipulation relating primarily to PETITIONER, and
therefore the facts stated herein relate primarily to PETITIONER. To the extent
that the facts for any of the other XXXXX are different than for PETITIONER,
such facts, if material, will have to be presented in the future.
The
issue in this case is the sales tax on repairs to items of XXXXX machinery or
equipment which is contained within the facilities of the respective
XXXXX. There was attached to the
stipulation a list of the invoiced repairs to XXXXX, XXXXX,XXXXX, XXXXX and
other XXXXX machinery and equipment, which list was attached as Exhibit A to
the stipulation. None of the scheduled items
on the exhibit included parts, but relate only to labor.
Each
of the scheduled items of XXXXX machinery or equipment on which the repairs
were performed, is fastened to the wall, floor or ceiling of the building. The attachments are usually by lag bolts and
nuts driven deep into concrete, or welded to fasten the equipment bases or
frames to the building structure.
Additionally, wires, cables or conduits directly wire the XXXXX
equipment to power sources, developers or computer systems. Some connections are not imbedded in the
walls, floors or ceilings. A photo of
several items of XXXXX equipment from PETITIONER and the method of attachment
is as shown in Exhibit B attached to the stipulation.
Due
to the nature of the XXXXX equipment and the delicate calibrations required to
complete their intended medical functions, vibration and motion must be reduced
as much as possible during the operation of the machinery and equipment.
The
items of XXXXX equipment are all incorporated into XXXXX and XXXXX rooms in
regular XXXXX buildings, which require special construction standards to
accommodate the equipment. These
construction standards include XXXXX walls, concrete floors, hardwiring and
solid placement of the XXXXX equipment in order to minimize movement of the
machinery and equipment.
The
representative of Petitioner also testified regarding an XXXXX at PETITIONER
that was placed in the room in the XXXXX prior to the roof being put on the
room, and if it is ever necessary to remove the XXXXX, a wall will have to be
removed from the building.
The
threshold issue to be determined by the Commission is whether the XXXXX
equipment qualifies as equipment attached to real property in a permanent or
semi-permanent manner in accordance with Utah Administrative Rules, statutory
law and case law.
The
Tax Commission originally promulgated sales tax regulation number 78 to be
effective July 1, 1959. For the years
in issue, the former regulation was codified as rule R865-19S-78, Utah
Administrative Rules, and will be referred to herein as rule “78S”.
The
relevant part of rule 78S is as follows:
(F) Property, fixtures
or equipment attached to real property, in a permanent or semi- permanent
manner, shall be considered as real property while so attached; but if removed
from the premises for the purpose of repairs, shall be considered as tangible
personal property.
(G) Amounts paid or
charged for repairing, building or renovating real property, as such, are not
taxable, except as explained in Rule R865-19S-58.
Rule
R865-19S-78, Utah Administrative Code, was recently amended so that paragraph
(B)(2)(a) provides as follows:
(a) For purposes of
B., (dealing with charges for repair, renovation, washing or cleaning of tangible
personal property) fixtures, trade fixtures, equipment or machinery permanently
attached to real property shall be treated as real property while so attached,
but shall revert to personal property when severed from the real property;
(b) Mere physical
attachment is not enough to
indicate permanent
attachment. Portable or
movable items that are
attached merely for
convenience, stability
or for an obvious
temporary purpose are
considered personal
property, even when
attached to real property.
(c) An item is
considered permanently attached if:
(I) attachment is
essential to the operation or use of the item and the manner of attachment
suggests that the item will remain affixed in the same place over the useful
life of the item; or
(ii) removal would
cause substantial damage to the item itself or require substantial alteration
or repair of the structure to which it is affixed.
Based
upon the foregoing, and the representations made at the hearing, the Commission
finds that the items of equipment on which the repairs were made constitute
trade fixtures, and further finds that the equipment has been semi-permanently
attached to the buildings and that they will remain affixed in the same place
over the useful life of the item. Based
upon the new rule, all trade fixtures are treated as real property while so
attached, and that because the items are semi-permanently attached that even
under the old rule such items were not those for which repairs would be taxed.
DECISION AND ORDER
Based
upon the information presented at the hearing, and the records of the Tax
Commission, the Commission finds that the request for refund as to the repairs
on the equipment located at PETITIONER should be granted. Regarding the sales tax on the repairs at
the other three XXXXX, if the equipment is similar to that located at
PETITIONER, then the refund request for the sales tax on the repairs to such
equipment should likewise be granted.
If such equipment is different than the equipment at PETITIONER then the
Respondent may pursue that matter further with the Commission, but otherwise,
the refunds thereon should be granted.
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 7 day of JANUARY, 1997.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Richard
B. McKeown
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
^^