95-0504
Sales Tax
Signed 3/19/96
____________________________________
XXXXX,
Petitioner, : ORDER
:
v. : Appeal No. 95-0504
:
AUDITING
DIVISION OF THE : Account No. XXXXX
UTAH STATE TAX COMMISSION, :
:
Respondent. : Tax Type: Sales Tax
_____________________________________
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. Joe B. Pacheco, Commissioner, heard the
matter for and on behalf of the Commission.
Present and representing Petitioner by telephone were XXXXX, Director of
Taxes, and XXXXX. Present and
representing Respondent were XXXXX, Assistant Attorney General, XXXXX and XXXXX
of the Auditing Division.
The
sole issue Remaining in the Appeal is the taxability of blank movie tickets
purchased by XXXXX.
APPLICABLE LAW
UTAH CODE ANN. §59-12-104(27)
SUPP.. 1995 - Exemption(28) Property purchased for resale in this State,
in the regular course of business, either in it’s original form or as an ingredient or component part of a
manufactured or compounded product.
DISCUSSION
1.
Petitioner purchases rolls of blank stock computer tickets for use in
theaters. The computer at the XXXXX
prints the movie information on the ticket when it is purchased by the
customer: (the specific movie and movie time the customer requests.) The
customer has a variety of movies to select from. When the customer makes a choice the information is relayed to
the ticket seller and the transaction is printed on the ticket. Petitioner determines whether customers have
the right to enter the movie by requiring the customer to show their ticket
before entering the movie.
Petitioner argues that the
purchase of tickets that are used at the XXXXX are exempt because they are
items purchased for resale and exempt pursuant to UTAH CODE ANN. 59-12-104(27).
2.
Respondent argues that XXXXX is liable for sales taxes arising from it’s movie
ticket purchases because XXXXX is the ultimate consumer of the tickets and the
tickets are merely incidental to the purchase made by XXXXX customers.
3. Petitioner’s analysis for it’s position is
that the customer is the consumer. The
ticket has value to the customer.
The tickets, unlike projectors and bulbs used
in showing movies, can be itemized to the end user - the customer. In providing the movie entertainment, XXXXX
must “consume” projectors and bulbs.
Their consumption cannot be separated by individual customers but they
are consumed by many customers. As
such, they are considered “consumed” by XXXXX and taxed to XXXXX. Additionally, the customer does not have
rights to these items and never has possession of these items.
Distinguishing,
the tickets have no value to XXXXX.
They are not needed by XXXXX to provide the service of projecting a
movie to the customer. The ticket only
has value to the customer as proof of his or her right to attend a movie or
receive a refund. The ticket can be
itemized separately to each customer and the customer has possession of the
ticket. See B.J. Titan
Services v. State Tax Commission, Utah SC No.900368.
A
ticket is also distinguishable from soap, towels, and linens that are in a
motel room and “used” by the lodger (Sines v. State Tax Commission,
39 P.2nd 130). These items are
“consumed” by the motel in providing the service of renting a room as many of
these items are used again by other lodgers and are not generally traceable to
any specific revenue.
Whereas,
the tickets have a direct relationship to entrance to the movie and are not an
indirect consumable such as bulbs, soaps and towels.
Additionally,
tickets provided to customers in the service industry of movie exhibition are
the same as paint used in the service industry of auto repair and the same as
leather used in the service industry of shoe repair (See Utah RuleR865-19S-59
and Western Leather & Finding Co. v. State Tax Commission, 48 P.2nd
526, respectively). The customer
"consumes" and "uses" the ticket. It is distinguishable from items "consumed" by XXXXX in
order to provide the service. In the
Utah Rule, paint is exempt since the customer leaves with the paint on their
automobile but other tangibles “consumed” by the repairmen in order to provide
the painting service are taxable to the repairmen such as, masking tape,
sandpaper and other supplies.
Based
on the cases and rulings above, taxpayers in all taxable service industries
must distinguish between the tangible property that the customers actually take
possession of and “consume” in connection with the service provided versus
those which are used by the service provider to perform the service and which
are only indirectly “consumed” by the customer. XXXXX believes the tickets are not any different from paint,
leather, etc. transferred to customers in other service industries.
Respondent
argues its position by saying the movie tickets purchased by XXXXX are ultimately
consumed by XXXXX, not its customers, and XXXXX purchases of the tickets are
therefore subject to sales tax. The
Utah Code exempts “property purchased for resale in this state, in the regular
course of business, either in its original form or as an ingredient or
component part of a manufactured or compounded product” from sales tax. Utah Code Ann. §59-12-104(29) (Supp.
1995). In determining the applicability
of this exemption, “the elemental question is “who consumes the property . . .”
Sine v. State Tax Comm, 390 P.2d 130, 131 (Utah 1964). Sales made to the ultimate consumer are
subject to sales tax. BJ-Titan
services v. State Tax Comm’n, 842 P.2nd 822, 825 (Utah 1992).
In
ascertaining the “ultimate consumer” of products, the Utah Supreme Court has
noted that some materials “are not intended to become ingredients or component
parts of the finished product.” Id. at 827.
Also, the court has recognized that often, “tangible personal property
used in providing professional services is consumed by the provider rather than
the client.” Id. For example, although the customer uses the
products, a motel owner is the ultimate consumer of towels, blankets, soap, and
other property used in renting rooms. Sine,
390 P.2nd 130, 131
Utah 1964).
Thus,
like the motel owner’s purchases in Sine, for the purposes of
§59-12-104(29), XXXXX is the ultimate consumer of the movie tickets it
purchases. XXXXX provides movies, not
tickets, to its customers and the tickets are not intended to become components
of the movies. Moreover, XXXXX uses the
tickets to verify whether it’s customers have paid for the movies XXXXX
provides. Furthermore, XXXXX is the
last party to use the tickets when it requires customers to show their ticket
before entering its movie theaters. Accordingly, the tickets used by XXXXX in providing movies are
consumed by XXXXX, not its customers.
Additionally,
the tickets purchased by XXXXX are merely incidental to the product and/or
service it provides. In BJ- Titan, the Utah Supreme Court identified
six considerations used to determine “whether the object of the transaction
constitutes tangible personal property or services.” 842 P.2nd at 826. These
considerations include:
(1) the value of the
tangible property to the customer in relation to that of the services; (2) the
cost of the property to the seller; (3) the customer’s rights to possession or
ownership of the property; (4) the ability to separately itemize charges for
the property and services; (5) the extent to which the services increase the
value of the property or to which the property increases the value of the
services; and (6) the extent that such services are rendered in similar
transactions.
Id
Applying
these considerations, movie tickets have a minimal value to XXXXX customers
compared to the value of the movie itself.
Also, the cost of the tickets to XXXXX is insignificant compared to the
cost of the movies. Although XXXXX
customers possess the tickets, they do so to allow XXXXX to determine whether
they have paid for the movie.
Additionally, XXXXX may be able to separately itemize charges for the
tickets, but no more than the motel owner in Sine could separately
itemize the towels, blankets, and soap used by its customers. Furthermore, the tickets in no way increase
the value of XXXXX movies to its customers.
Finally, in similar transactions (i.e. admissions to sporting events,
concerts, etc.), tickets are used in the exact same manner; as a means of
determining whether customers have paid, not as a component of the actual
product or service. Therefore, the
movie tickets used by XXXXX are only incidental to the movies it provides.
DECISION AND ORDER
The
Tax Commission determines that the Petitioner, not the customer, is the
ultimate Consumer of the movie tickets.
In addition the ticket is only incidental to the movies provided by
XXXXX. Based on the above the Tax
Commission finds the purchase of the movie ticket taxable to the Petitioner,
XXXXX, and rules in favor of the Respondent, Auditing Division.
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 19 day of March, 1996.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
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