96-2313

SALE & USE

Signed 10/27/97

BEFORE THE UTAH STATE TAX COMMISSION

COMPANY C, )

: FINDINGS OF FACT, ) CONCLUSIONS OF LAW,

Petitioner, : AND FINAL DECISION

)

v. : Appeal No. 96-2313

)

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

UTAH STATE TAX COMMISSION, )

STATE OF UTAH, : Tax Type: Sales & Use

)

Respondent. :

_________________________________________________________________

IMPORTANT NOTICE: On October 7, 1997 the Utah Supreme Court, in Evans and Sutherland Computer Corp v. Utah State Tax Commission, invalidated the informal adjudicative process by disallowing trial de novo to the District Court. Therefore, your appeal is now being processed as a formal adjudicative proceeding. Under this process, you are entitled to an additional right. Utah Law allows for an Initial Hearing before the matter is heard on the record in a formal proceeding. Therefore, the hearing held in this matter will constitute the Initial Hearing. Please note in the body of the decision your right to, and the method of request for, a formal hearing.

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Initial Hearing on July 3, 1997. Richard B. McKeown, Commissioner, heard the matter for and on behalf of the Commission. Present and representing Petitioner was its legal counsel, PETITIONERS REP. of XXXXX. Present and representing Respondent was Clark Snelson, Assistant Attorney General.

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

FINDINGS OF FACT

1. The tax type involved is Sales and Use Tax.

2. The purchases involved were made during the period of July, 1994 through April, 1995.

3. Utah Administrative Rule R865-19S-97, enacted July 15, 1992, exempts from sales tax purchases of vehicles operated pursuant to the International Registration Plan and the International Fuel Tax Agreement.

4. Rule R865-19S-97 was amended April, 7, 1994 and, in part, added a condition that to be eligible for the exemption, the vehicles must be operated by an authorized carrier exclusively in interstate commerce.

5. In its 1995 legislative session, the state legislature codified the authorized carrier exemption in section 59-12-104 (38), effective July 1, 1995. The term Aauthorized carrier@ was codified in section 59-12-102(2). Neither statute included the provision of exclusivity as a condition for exemption.

6. As a consequence of the 1995 legislative action to codify the exemption, the Commission repealed rule R865-19S-97, effective August 15, 1995.

APPLICABLE LAW

1. Utah Code Ann. '59-12-102(2)(Supp. 1995) states, in pertinent part:

AAuthorized carrier@ means:

(a) in the case of vehicles operated over public highways, the holder of credentials indicating that the vehicles is or will be operated pursuant to both the International Registration Plan (IRP) and the International Fuel Tax Agreement (IFTA).

2. Utah Code Ann. '59-12-104 (Supp. 1995) states, in

pertinent part:

The following sales and use are exempt from the taxes imposed by this chapter:

. . .

(38) sales or leases of vehicles to, or use of vehicles by an authorized carrier . . . .

3. Utah Administrative Rule R865-19S-97 (1992) states:

A. Definitions.

1. AAuthorized carrier@ means:

a. the holder of a permit or certificate issued by the United States Interstate Commerce Commission authorizing the holder to engage in interstate commerce over highways or other public thoroughfares; or

b. the holder of credentials indicating that the vehicle is or will be operated pursuant to the International Registration Plan (IRP) and the International Fuel Tax Agreement (IFTA).

B. The purchase of a truck, trailer, tractor, or tractor-trailer combination for use in interstate commerce by an authorized carrier is exempt from sales and use tax.

C. The seller of the truck, trailer, tractor, or tractor-trailer combination is required to maintain on file an affidavit from the purchaser certifying that the purchaser is an authorized carrier. The affidavit must show the purchaser=s ICC authorization number or the purchaser=s IRP and IFTA account numbers.

4. Utah Administrative Rule R865-19S-97 (1994) states:

A. Definitions.

1. AAuthorized carrier@ means:

a. in the case of vehicles:

(1) the holder of a permit or certificate issued by the United States Interstate Commerce Commission authorizing the holder to engage in interstate commerce over highways or other public thoroughfares; or

(2) the holder of credentials indicating that the vehicle is or will be operated pursuant to the International Registration Plan (IRP) and the International Fuel Tax Agreement (IFTA); or

b. in the case of aircraft, the holder of a Federal Aviation Administration (FAA) operating certificate or air carrier=s operating certificate.

2. AVehicle@ is as defined in Section 41-1a-102.

B. The purchase of vehicles or aircraft for exclusive use in interstate commerce by an authorized carrier is exempt from sales and use tax.

C. The requirement of B. that the vehicle or aircraft be used exclusively in interstate commerce does not prohibit a de minimis use of that vehicle or aircraft in Utah.

D. The seller of the vehicle or aircraft is required to maintain on file an affidavit from the purchaser certifying that the purchaser is an authorized carrier. The affidavit must show the purchaser=s operating certificate, air carrier=s operating certificate, ICC authorization number or IRP and IFTA account numbers, as applicable.

ISSUE

This appeal concerns purchases of vehicles made during the period in which the Commission, by rule, narrowed the authorized carrier exemption to apply only to purchases of vehicles and aircraft used exclusively in interstate commerce. The condition of exclusivity was later repealed. The issue in this case is whether, during the period that the exclusivity provision was in place, the Petitioner was entitled to purchase vehicles tax free even if the vehicles were not used exclusively in interstate commerce.

ANALYSIS

In 1992, the Commission enacted a rule to exempt from sales tax all purchases of vehicles by authorized carriers. That rule was not tied to a specific statutory exemption, and was enacted pursuant to the Commission=s general authorities and duties set out in Utah Code Ann. '59-1-210 (Supp. 1992).

In 1994, the Commission amended that rule by extending the exemption to certain purchases of aircraft and by adding a requirement that the vehicle or aircraft had to be used exclusively in interstate commerce. As authority for the rule, the Commission relied, in part, on Utah Code section 59-12-104(12)(Supp.1994). That section bars the state from imposing a tax that is otherwise prohibited under federal law. The rule was eventually repealed when the legislature enacted a statutory exemption for authorized carriers. The statutory exemption did not include the exclusivity requirement that had been a part of the 1994 rule.

Relying on the theory that federal law barred the state from imposing sales tax on vehicles and aircraft used in interstate commerce, the Commission developed the exclusivity provision as a means of distinguishing which vehicles and aircraft were entitled to federal protection. Upon reconsideration, we believe that some vehicles and aircraft may have been entitled to federal protection even if they did not operate exclusively in interstate commerce. It is now our opinion, therefore, that the exclusivity provision impermissibly narrowed the exemption.

We note that the Auditing Division conscientiously applied all provisions of the rules during the periods that they were in place. We also reject the Petitioner=s contention that the Commission deliberately misrepresented the amendment in order to avoid public scrutiny of the rule or that the Commission is required to give Petitioner individual notice of rule changes. However, having determined that the exclusivity provision of the 1994 amendment is invalid, the Commission finds that authorized carriers who were denied the exemption solely on the basis of that provision are entitled to a refund of sales tax erroneously paid.

Based on the foregoing discussion, the Commission hereby issues its:

DECISION AND ORDER

The Tax Commission finds that the exclusivity provision of the 1994 amendment to Rule R865-19S-97 is invalid. The Commission, therefore, grants Petitioner's request for relief. It is so ordered.

This Decision does not limit a party's right to a Formal Hearing. Any party to this case may file 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 27 day of OCTOBER, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Pam Hendrickson

Commissioner Commissioner

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