95-1597

IFTA TAX

Signed 3/12/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER )

: FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, : AND FINAL DECISION

)

v. : Appeal No. 95-1597

)

AUDITING DIVISION OF THE : Account No. #####

UTAH STATE TAX COMMISSION, )

: Tax Type: IFTA Tax

Respondent. )

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a formal hearing on January 20, 1998. Commissioner Joe B. Pacheco and Commissioner Pam Hendrickson heard the matter for and on behalf of the Commission. Present and representing the Petitioner were NAME, attorneys at law. Present and representing the Respondent were Mr. Clark Snelson, Assistant Attorney General, and Mr. Frank Hales and Mr. Tom Darais 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 the special fuel tax imposed by Utah Code Ann. '59-13-301.

2. The period in question is April 1, 1992 through March 31, 1995.

3. By Statutory Notice dated November 20, 1995, the Respondent imposed an audit deficiency upon Petitioner in a total amount of $$$$$ for the tax, plus interest thereon.

4. The Petitioner, PETITIONER, is a common carrier with its operations headquartered in CITY, XXXXX County, Utah.

5. Petitioner operates a fleet of trucks under authority from the state of Utah. The trucking fleet is licensed under the International Fuel Tax Agreement (IFTA).

6. The state of Utah is a member of IFTA.

7. Petitioner transports liquids used in connection with oil field operations.

8. The truck fleet of Petitioner consists of tanker trucks which are fitted with pumps to perform the loading and unloading of liquid commodities.

9. Petitioner transports the liquids primarily to oil and gas exploration and development operations located in XXXXX County, Utah, and XXXXX County, Utah.

10. To transport and deliver the liquid commodities, XXXXX travels upon paved roads and dirt roads, primarily in XXXXX County and XXXXX County.

11. Pursuant to Utah Code Annotated '27-15-3, as amended, which was enacted in 1978 and applied retroactively through October 21, 1976, counties located within the state of Utah were required to designate and map all roadways that were to be included as dedicated to the public use.

12. Some of the oil field roads have been designated by the county governments as county AD@ roads.

13. None of the roads at issue have barricades to restrict vehicular traffic. Most of the oil field roads, including the AD@ roads, were constructed without the use of taxpayer funds.

14. The position of Petitioner is that the AD@ roads and other oil field roads are not public highways of the state of Utah, and that special fuel tax on the diesel fuel used in those vehicles traveling on these roads is not subject to tax because it is not consumed on public highways.

15. The position of Respondent is otherwise. Respondent asserts that all highways or roads upon which vehicles may travel, including those constructed, repaired and maintained by oil companies, private individuals, and Indian tribes are public highways unless they have barricades, gates, or other means to restrict access of such roads from the public.

16. Both XXXXX County and XXXXX County submitted Motions to Intervene in this appeal. In late 1997, the Commission denied both counties' motions.

ISSUES

1. The Respondent conducted its audit of Petitioner on September 29, 1995, and made its assessment on November 30, 1995. Both dates were more than three years after a portion of the audit period, which extended from the second quarter, 1992 (April 1) through March 31, 1995. Does a three year limitation on the assessment of the special fuel tax preclude from taxation any portion of the audit assessment made by Respondent?

2. An exemption from the special fuel tax exists when the fuel is not used to operate or propel a motor vehicle upon the public highways of the state. For purposes of this exemption, how does the Commission interpret the words "public highway?"

3. Has the Petitioner kept adequate records of its use that occurred off the public highways so that the exemption may be claimed?

APPLICABLE LAW

1. A tax is imposed on the sale and use of special fuel by Utah Code Ann. '59-13-301(1)(a) which provides:

A tax is imposed at the rate of 19 cents per gallon on the sale or use of special fuel...

2. Several exemptions are provided from the impositions of that tax by additional portions of Section 59-13-301, and subparagraph (2)(a) provides:

(2) No tax is imposed upon special fuel which:

(a) is sold or used for any purpose other than to operate or propel a motor vehicle upon the public highways of the state, but this exemption applies only in those cases where the purchasers or the users of special fuel establish to the satisfaction of the commission that the special fuel was used for purposes other than to operate a motor vehicle upon the public highways of the state.

3. The statute does not define the term Apublic highway,@ but the term Ahighway@ is defined by Utah Code Ann. '59-13-102(4), as follows:

(4) AHighway@ means every way or place, of whatever nature, generally open to the use of the public for the purpose of vehicular travel not withstanding that the way or place may be temporarily closed for the purpose of construction, maintenance, or repair.

4. In 1994, the Legislature provided statutory guidelines concerning the period in which the special fuel tax can be assessed, which is found in Utah Code Ann. '59-13-313(4), as follows:

(4) A proceeding to assess the tax under this part may not begin more than three years after the filing of any report...

5. The Commission has established by rule the documentation necessary to qualify for the exemption found in Section 59-13-301(2)(a). This is contained in Utah Admin. Code R865-4D-18 (since amended), pertinent parts as follows:

A. Utah Code Ann. Section 59‑13‑312(1) requires every user to maintain special fuel records and documents for a period of three years... Specifically, every user must maintain detailed mileage records and summaries for fleets traveling in Utah, detailed fuel purchase records, and bulk disbursement records... Individual vehicle mileage records (IVMRs) must be maintained which separate Utah miles from non‑Utah miles; Utah miles must be separated further into taxable Utah miles and non‑taxable Utah miles. An adequate IVMR will show the following:

1. starting and ending dates of trip,

2. trip origin and destination,

3. route of travel, beginning and ending odometer or hubometer reading, or both,

4. total trip miles,

5. Utah miles,

6. fuel purchased or drawn from bulk storage for the vehicle; and

7. other appropriate information which identifies the record such as unit number, fleet number, record number, driver's name, and name of the user or operator of the vehicle.

B. If the user fails to maintain or provide adequate records from which the user's true liability can be determined, the Tax Commission shall, upon giving written notice, estimate the amount of liability due. Such estimate shall take into consideration any or all of the following:

1. any available records maintained and provided by the user,

2. historical filing information,

3. industry data,

4. a flat or standard average mpg figure.

ANALYSIS

I. Statute of Limitations

The audit period on which the special fuel tax was assessed extended from April 1, 1992, through March 31, 1995. Auditing Division conducted its audit on September 29, 1995, and issued its Statutory Notice of assessment on November 30, 1995. Utah Code Ann. '59-13-313(4) provides that a proceeding to assess the tax may not begin more than three years after the filing of any report.

The April 1, 1992, beginning date of the audit period coincides with the beginning of the second quarter, 1992. Before the end of the second quarter, 1995, the Petitioner signed a "First Waiver of Statute of Limitations," dated June 21, 1995. In this document, the Petitioner agreed that the audit period was at that time within the statutory time limit and that he would not present the statute of limitations as a defense against any deficiency assessment for this audit period, provided the Statutory Notice covering this period was issued by January 31, 1996. As the Statutory Notice was issued on November 30, 1995, prior to the agreed upon cut-off date, Petitioner is precluded from asserting the statute of limitations defense. Thus, the audit period does not violate the statute of limitations provisions of the agreement signed by the two parties.

II. Public Highway

Utah Code Ann. '59-13-301(2)(a) provides that "[n]o tax is imposed upon special fuel which is sold or used for any purpose other than to operate or propel a motor vehicle upon the public highways of the state..." The statute further gives the Commission broad powers to determine if this exemption applies, stating that an exemption exists only "where the purchasers or the users of special fuel establish to the satisfaction of the commission" that the special fuel was used for purposes that satisfy the exemption. This issue before the Commission is how to interpret the words "public highway" for purposes of this exemption.

Driving a vehicle on ground other than public highways is commonly referred to as Off-Road Mileage ("ORM"). The Petitioner and Respondent disagree on whether some of the roads used by the Petitioner are "public highways" or roads that qualify as ORM. In 1996, the Commission was presented the same issue in another appeal, XXXXX. Though the appeal was settled prior to a final agency order, the Commission determined that a road should be deemed a public highway for purposes of the taxation of special fuel if it meets any of the following three tests:

1) The road constitutes a Class "A," "B," or "C" road within the state of Utah; or

2) The roadway is a Class "D" road and has been constructed, repaired or maintained with the use of federal, state, county, or city tax dollars; or

3) There is a legally enforceable right in the public to have access across the roadway.

In Target, the Commission stated that this standard replaced the standard that had been established by Auditing Division requiring a road to be barricaded before it was considered a private highway. Further, the Commission stated that its intent for the XXXXX standard was to try to match the tax income with the tax expenditure, so that the imposition of the tax and the related exemption from the tax should be tied primarily to whether those tax funds are used for the construction, repair and maintenance of the roads.

Both Petitioner and the Respondent have analyzed the XXXXX standard and disagree on the interpretation of the second and third tests. The second test classifies as a public highway any roadway that is a Class "D" road and has been constructed, repaired or maintained with the use of federal, state, county, or city tax dollars. The Petitioner asserts that this test is satisfied only by a Class "D" road that has been adopted by the county by ordinance and then recorded in the county. The Respondent asserts that any road that is passable satisfies the second test, even if the county does not affirmatively maintain the road and has renounced any responsibility to do so.

As to the third test, the Petitioner asserts that it is satisfied only by looking at a county's road book, which must include all judicial determinations of highway by prescription use and must also include the county's acceptance of maintenance on those roads. The Respondent claims that any road used by the public for a period of ten years has become a public highway through prescription, that all rights-of-way created prior to 1977 through the U.S. Congress's 1866 enactment of RS 2477 were included on the 1978 "D" Road maps produced in the state have become public highways, and that roads on Indian reservations are generally public highways.

The evidence is clear that most of the roads in dispute are oil field roads that are on property owned or leased by individuals, oil companies, or Indian tribes. It further appears that tax monies which are obtained from the imposition of the special fuel tax have not been utilized to construct, repair or maintain most of those roadways. Additional portions of the roads are Class "D" roads which may not have been declared as public roads, or in some instances, the county determination that they are Class "D" roads has been withdrawn.

These arguments show that, for many roads in Utah, there is much disagreement on whether or not those particular roads would be deemed public highways under Utah law. While Utah Ann. Code '59-13-301(2)(a) provides that the Commission may determine if "special fuel was used for purposes other than to operate a motor vehicle upon the public highways of the state," Utah law does not grant the Commission the jurisdiction to proclaim with legal effect a particular road to be a public highway. This jurisdiction lies with the state's district courts.

To decide when special fuel is used for purposes other than to operate a vehicle on a public highway, the Commission must distinguish between use on and off a public highway. With neither the power to legally proclaim a road public or private, nor the presumption that we can determine how another court would decide on this issue, the Commission has proposed the three tests set out in XXXXX.

Similarly, the Commission has not been granted jurisdiction to determine: (1) if the counties have properly declared and recorded roads as class "D" roads, (2) whether a road is a public highway because it has been open to the public for ten consecutive years, (3) if roads on Indian land are open to public use; (4) whether counties class "D" road maps are valid; or (5) whether a road meets the definition of an RS2477 road.

For these reasons, the Commission declines to determine whether or not a particular road is a public highway, but does determine that a roadway should be deemed to be public for purposes of the second of the three XXXXX tests listed above only if:

1) the roadway is identified on a county's Class "D" road map that is on file at the Utah Department of Transportation (UDOT); and

2) the county has not by ordinance and recordation denounced all responsibility to maintain or keep in repair the roadway.

Further, the Commission determines that a roadway should be deemed to be public for purposes of the third of the three XXXXX tests listed above only if:

1) the public status of the roadway has been adjudicated by a court of law, and that court has deemed the roadway a public highway; and

2) the county has not by ordinance and recordation denounced all responsibility to maintain or keep in repair the roadway.

III. Record keeping

Has the Petitioner kept adequate records of its ORM so that the special fuel tax exemption can be claimed? Utah Admin. Code R865-4D-18(A) requires every user to maintain special fuel records and documents for a period of three years, which should contain individual vehicle mileage records (IVMRs) that separate Utah miles from non‑Utah miles. The rule also requires that the Utah miles be separated further into taxable Utah miles and non‑taxable Utah miles.

Also, subpart (B) of the rule provides that if the user fails to maintain or provide adequate records from which the user's true liability can be determined, the Tax Commission shall, upon giving written notice, estimate the amount of liability due.

The Petitioner is required by rule to maintain records that separate Utah taxable miles from Utah non-taxable miles. From the facts presented, the Petitioner did not maintain its records in this fashion. Instead, the Petitioner has estimated its non-taxable mileage or ORM by use of a measuring wheel to measure the distances of non-public roads on which it travels. The distance traveled on every such road is then multiplied by the number of trips made on that road when determining total ORM.

Respondent argues that this estimation technique is flawed and should not be used as a substitute for precise odometer-based records. Petitioner's estimation technique may or may not be flawed, but it is the only estimation technique presented, and it does not appear unreasonable. Respondent has not offered an alternative technique to estimate the ORM, as required under subpart (B) when the taxpayers records are not adequate. As the Petitioner's estimation technique for ORM is the only one given for the Commission to consider, the Commission finds it adequate in this case.

However, it appears that Petitioner's ORM estimation technique only excludes Class "A," "B," or "C" roads from ORM. We find that the Petitioner's estimated ORM should be recalculated to also exclude any other road that meets the Commission's criteria for public highway as set forth above.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that the audit period does not violate the statute of limitations. The Commission further finds that "public highway" for purposes of the special fuel tax exemption shall be interpreted as set forth above. Lastly, the Commission accepts Petitioner's ORM estimation technique in this case if it is adjusted, if necessary, to reflect the Commission's interpretation of "public highway." It is so ordered.

DATED this 12 day of May, 1998.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

Joe B. Pacheco

Commissioner

Pam Hendrickson

Commissioner

The agency has reviewed this case and the undersigned concur in this decision.

DATED this 12 day of May, 1998.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner