97-0253
SALES
Signed 11/27/97
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
COMPANY C )
:
)
Petitioner, : DECISION
)
v. :
)
AUDITING DIVISION
OF THE : Appeal No. 97-0253
UTAH STATE TAX
COMMISSION, )
: Account No. #####
)
Respondent. : Tax
Type: Sales Tax
_____________________________________
STATEMENT OF CASE
This matter came
before the Utah State Tax Commission pursuant to the provisions of Utah Code
Ann. '59-1-502.5. An Initial Hearing was held on September 15,
1997. Gail S. Reich, Administrative Law
Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner by
telephone was PETITIONERS REP.. Present
and representing Respondent was Susan Barnum, Assistant Attorney General.
APPLICABLE LAW
Utah Code Ann. '59-12-104
provides: The following sales and uses
are exempt from the taxes imposed by this chapter: (24) Sales of non-returnable containers,
non-returnable labels, non-returnable bags, non-returnable shipping cases, and
non-returnable casings to a manufacturer, processor, wholesaler, or retailer for
use in packaging tangible personal property to be sold by that manufacturer,
processor, wholesaler, or retailer.
Tax Commission Rule
R865-19S-48(D), which interprets '59-12-104(24) states in pertinent part:
A. Sales of containers, labels, bags, shipping
cases are taxable when:
1.
Sold to the final user or consumer;
2.
Sold to manufacturer, processor, wholesaler, or retailer for use as a
returnable container that is ordinarily returned to and reused by the
manufacturer, processor, wholesaler, or retailer for storing or transporting
their product; or
B. Returnable containers may include water
bottles, carboys, drums, beer kegs for draft beer, dairy products, and gas
cylinders.
D. When tangible personal property sold in
containers, for example soft drinks, is assessed a deposit or other container
charge, that charge is subject to the tax.
Upon refund of this charge, the retailer may take credit on a sales tax
return if the tax is refunded to the customer.
ANALYSIS
The audit period in
issue is October 1, 1992 through March 31, 1996. The disputed tax amount is $$$$$ plus applicable interest
calculated at the statutory rate. This
amount is attributable to tax due for returnable container deposits billed on
or after May 2, 1994 and not refunded to the customer since the containers were
not returned to Petitioner. This does
not include returnable container deposits charged on exempt transactions such
as resale customers, out-of-state deliveries or entities exempt from the sales
tax.
Petitioner is a
wholesaler who sells building materials to contractors. Many of the products Petitioner sells are
placed on returnable pallets to facilitate delivery. Petitioner bills its customers a deposit charge on returnable
pallets. When the pallets are returned
the deposit charge is refunded. Prior
to May 2, 1994, sales or leases of any containers were considered tax exempt. Beginning May, 1994, the statute was
rewritten to exclude returnable containers from the exemption.
In the instant
case, Petitioner billed its customers a deposit charge on its returnable
pallets. When the pallets were returned
the Petitioner refunded the deposit.
However, Petitioner did not charge sales tax on the pallet deposit. Auditing Division has assessed tax on the
pallet deposits after May 2, 1994 that were not subsequently refunded to
customers since the pallets were not returned.
Respondent is relying on paragraph D of Tax Commission Rules R865-19S-48
which indicates that tangible personal property sold in containers which is
assessed a deposit charge is subject to tax.
Petitioner argues that his operation is unlike the example provided in
the Tax Commission Rules of Asoft drinks@ and therefore the rule is inapplicable. Petitioner does agree however, that if the
pallet is not returned then the transaction becomes tantamount to a sale and
tax is due. In that respect, the
Petitioner is not disputing the tax amount due of $$$$$. Petitioner feels, however, that the taxable
nature of the transaction only occurs upon non-return of the pallet and not
when the deposit is paid.
Respondent,
however, relying on Tax Commission Rule R865-19S-48(D) indicates that the
deposit charge is subject to tax at the time the deposit is paid. Should the pallet be returned and the
deposit be refunded, any tax collected should also be refunded at that time,
and the Petitioner would be entitled to a credit on any tax paid to the State
Tax Commission for that transaction.
DECISION AND ORDER
After a complete
review of the entire matter and the positions of both the parties, it has been
determined that the Division has properly applied Tax Commission Rule
R865-19S-48(D) and the Commission finds that the deposit charge is subject to
tax and the disputed tax amount has
been properly assessed against Petitioner.
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 NOVEMBER, 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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