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
^^