97-0789

SALES

Signed 8/20/98

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal No. 97-0789

) Account No. #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Sales

COMMISSION, )

) Presiding: McKeown

Respondent. )

_____________________________________

 

Presiding:

Richard B. McKeown, Commissioner, Utah State Tax Commission

 

Appearances:

For Petitioner: NAME

For Respondent: Michelle Bush, Assistant Attorney General

Anna Andersen, Manager, Auditing Division

 

 

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on April 6, 1998. 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 sales tax.

2. The audit period in question is March 1, 1994, through January 31, 1997.


3. On April 15, 1997, the Auditing Division issued an assessment and statutory notice in the amount of $$$$$. Petitioner submitted a Petition for Reconsideration on April 30, 1997.

4. Petitioner owns and operates a business in Utah called PETITIONER, which is in the business of selling and installing hot tubs and other tangible personal property.

5. During the audit period, Petitioner did not collect or submit sales tax on the sale, delivery, and installation of certain hot tubs, believing that hot tubs were subject to the sales tax exemption allowed for home medical equipment.

6. The Petitioner and Respondent both now agree that sales tax is due on charges for the delivery of the hot tubs, but not the installation of the hot tubs. They still disagree on whether or not sales tax is due on the sale of the hot tubs.

7. In its audit, Auditing Division found that sales tax was not collected on a number of the Petitioner=s hot tub sales. On these sales, Petitioner has presented medical prescriptions and exemption certificates that were supplied to the Petitioner by the individual buyers of the hot tubs.

APPLICABLE LAW

1. Utah Code Ann. Section 59-12-102(9)(a) defines home medical equipment for purposes of the sales tax exemption as:

(9)(a) ... equipment and supplies that:

(I) a licensed physician prescribes or authorizes in writing as necessary for the treatment of a medical illness or injury or as necessary to mitigate an impairment resulting from illness or injury;

(ii) are used exclusively by the person for whom they are prescribed to serve a medical purpose; and

(iii) are listed as eligible for payment under Title 18 ... or ... Title 19 the federal Social Security Act.

 


2. Utah Code Ann. Section 59-12-104(40) establishes a sales tax exemption for sales or rentals of home medical equipment and supplies.

CONCLUSIONS OF LAW

The first issue is whether Petitioner should have collected sales tax on its hot tub sales or whether these sales qualify for a sales tax exemption. Utah Code section 59-12-104(40) does allow a sales tax exemption for home medical equipment. To qualify for the exemption, an item must be: (1) prescribed by an licensed physician to treat a medical illness or injury ; (2) used exclusively to serve a medical purpose; and (3) listed as eligible for payment under Title 18 or Title 19 of the federal Social Security Act. Utah Code Ann. '59-12-102(9)(a).

All three criteria must be met before the exemption is granted. Respondent points out that hot tubs are not eligible for payment under either Title 18 or Title 19 of the federal Social Security Act. Petitioner has presented no information to show otherwise. As the third element of the statutory definition is not met, we do not recognize hot tubs as qualifying as home medical equipment. Consequently, we find that the Petitioner was not entitled to sell them tax exempt.

The second issue involves whether the Tax Commission is estopped from collecting the sales tax which was due on the hot tubs sold by the Petitioner because of incorrect information that may have been given to the Petitioner concerning the tax exempt status of the hot tubs. As set forth in Orton v. Utah State Tax Commission, 864 P.2d 904 (Utah. App. 1993), the elements necessary to invoke equitable estoppel are:


(1) a statement, admission, act, or failure to act by one party inconsistent with a claim later asserted;

(2) reasonable action or inaction by the other party taken on the basis of the first party's statement, admission, act, or failure to act; and

(3) injury to the second party that would result from allowing the first party to contradict or repudiate such statement, admission, act, or failure to act.

In applying equitable estoppel, the Court in Orton points out that "it is well settled that equitable estoppel is only assertible against the State or its institutions in unusual situations in which it is plainly apparent that failing to apply the rule would result in manifest injustice." Holland v. Career Serv. Review Bd., 856 P.2d 678 (Utah App. 1993)(citing Anderson v. Public Serv. Comm'n, 839 P.2d 822 (Utah 1992); Utah State Univ. v. Sutro & Co., 646 P.2d 715 (Utah 1982); Celebrity Club, Inc. v. Utah Liquor Control Comm'n, 602 P.2d 689(Utah 1979); Eldredge v. Utah State Retirement Bd., 795 P.2d 671(Utah App. 1990)). AIn such cases, >the critical inquiry is whether it appears that the facts may be found with such certainty, and the injustice to be suffered is of sufficient gravity, to invoke the exception.=@ Id. (quoting Utah State Univ., 646 P.2d at 720) (citations omitted).

Further, where an employee of the Tax Commission gives a taxpayer incorrect information based on inadequate facts, O'Rourke v. Utah State Tax Commission, 830 P.2d 230 (Utah 1992) holds that "sound public policy precludes the assertion of estoppel against the Commission...@ (citing Heckler v. Community Health Serv., 467 U.S. 51, 104 S. Ct. 2218 (1984); Morton Int'l v. Utah State Tax Comm'n, 814 P.2d 581 (Utah 1991)). In fact, "to hold otherwise would be to bind the Commission by the unappealed decisions of its subordinates." Morton Int'l, 814 P.2d at 595.


 

Petitioner testifies that it received a Tax Commission bulletin explaining the sales tax exemption for home medical equipment several years ago. Tax Bulletin 9-95 was issued by the Tax Commission in 1995 and summarized both the statutory definition of home medical equipment and the exemption certificate requirements. The bulletin clearly sets forward that to qualify for the home medical equipment exemption, one of the requirements is that the equipment be listed as eligible for payment under Title 18 or Title 19 of the federal Social Security Act.

Upon receiving the tax bulletin, the Petitioner asserts that it called the Tax Commission for guidance. Petitioner is uncertain of the exact date of the phone call, only that it occurred sometime around September, 1995. Petitioner claims that its employee was told that an exemption could be claimed if a prescription and an exemption certificate were obtained from the buyer. While Petitioner had sold fewer than ten hot tubs without collecting sales tax prior to the phone call, the Petitioner chose not to collect sales tax on any hot tub sale after the phone call.

Evidence that this phone call did occur is supplied by the Petitioner in the form of a copy of the tax bulletin on which has been written the names and phone numbers of several Tax Commission employees (Petitioner=s Exhibit 2). We believe this evidence supports the Petitioner=s claim that it phoned the Tax Commission for guidance and that the names and phone numbers were written down during this conversation.


However, there is no testimony from the Petitioner=s employee who spoke with the Tax Commission to ascertain what exactly was said during the conversation. Also, while we believe the names and phone numbers of the Tax Commission employees were written down during the conversation with the Tax Commission, there is no recordation of what was said during the conversation on the bulletin or any indication of which of the four Tax Commission employees supposedly declared hot tubs exempt from taxation. In essence, there is no written or first-hand oral testimony that shows that incorrect information was supplied by the Tax Commission to the Petitioner.

On the other hand, there are several names and phone numbers of other agencies written on the bulletin that suggests that the Tax Commission might not have told the Petitioner that hot tubs were exempt from taxation, but instead referred the Petitioner to another agency which could give a better response. Numbers are written down on the bulletin for the Division of Health Care Financing at 538-6492, for Medicaid at 538-9925, and for the Office of Legislative Research at 538-1032. Petitioner did not testify whether or not these offices were contacted.


Further supporting the likelihood that the Petitioner was referred to another agency is a memorandum (Petitioner=s Exhibit 1) which was prepared two months prior to the Petitioner=s phone call. On this memorandum, a Tax Commission employee alerts other employees not to make determinations as to what medical equipment qualifies for the exemption, but instead to refer the inquirer to the Division of Health Care Financing at 538-6492 for eligibility questions and to 538-9925 for coverage and reimbursement questions. These are phone numbers written on the Petitioner=s tax bulletin by its own employee. That the Tax Commission would have referred the Petitioner to these agencies is consistent with the memorandum prepared more than two months prior to the Petitioner=s phone call.

We believe, from the testimony and evidence supplied, that the Tax Commission informed the Petitioner how to account for an exempt sale should one qualify, then gave the Petitioner other agencies to contact to determine if hot tubs qualified as home medical equipment. As it has not been show with Asuch certainty@ that the Tax Commission misinformed the Petitioner concerning this tax issue, equitable estoppel is not appropriate in this instance.

Also, Petitioner=s tax bulletin shows that it had the number for the Division of Health Care Financing, the agency which could have told it if hot tubs qualified for the exemption. Apparently, Petitioner did not contact this agency, which would have been reasonable under the circumstances. Had the Petitioner done so, it would have received a determination from the party best able to do so. Because of its own inaction and the uncertainty that the Tax Commission mislead it, the Petitioner has not suffered Ainjustice of sufficient gravity@ to warrant equitable estoppel.

Lastly, Petitioner believes it would be unjust to require it to submit sales tax on these sales because its competitors also sold hot tubs during this period without collecting sales tax. Concerning the industry practice of not collecting sales tax on hot tub sales, the actions of an entire industry do not establish the law. The Legislature does, and the law it has enacted requires sales tax to be collected on the hot tubs at issue here.

DECISION AND ORDER


Based on the foregoing, it is determined that Petitioner's hot tub sales are subject to the sales tax and do not qualify for the home medical equipment exemption. Petitioner's delivery charges for these hot tubs are also subject to sales tax; however, its installation charges are not as they were listed separately.

The Commission also realizes that it is difficult to determine what does qualify for the home medical equipment exemption and recognizes that the Petitioner did take certain affirmative steps to determine if hot tubs did qualify. For these reasons, the Commission asserts its authority under Utah Code Ann. '59-12-118(4) to waive all interest charges assessed against the Petitioner associated with the audit at issue here. It is so ordered.

DATED this 20 day of August, 1998.

Richard B. McKeown

Commissioner

BY ORDER OF THE UTAH STATE TAX COMMISSION:

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

DATED this 20 day of August, 1998.

W. Val Oveson Pam Hendrickson

Chairman Commissioner

 

Joe B. Pacheco

Commissioner

^^