95-0325,95-0326,95-0327,95-0477

SALES TAX

SIGNED 1/7/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

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 A78S@.

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.

(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