00-037

Response - January 4, 2001

REQUEST LETTER

00-037

Facsimile Sent on 10/20/00

From: NAME

Enclosed , please find letter from COMPANY for your review. Please advise if this is all right. Thank you.

October 19, 2000

Dear NAME:

As we discussed on the phone regarding Invoice No ##### for $$$$$ our positions is that we only owe sales tax on the labor charge of $$$$$ and materials of $$$$$$ for a total of $$$$$$ @ 6.35% or $$$$$$. We agree we owe sales tax on Invoice No. ##### for materials of $$$$$$ or $$$$$.

The dispute involves the sales tax on the following amounts included on the invoice:

Lodging $$$$$

Rental Car $$$$$

Airfare $$$$$

Travel Hours (12 hrs @ $$$$$) $$$$$

The travel was incurred for a service call to repair equipment here. The repairman would have paid sales tax on the lodging, rental car and airfare already and passed that cost onto us. If we paid sales tax to you, we would be paying sales tax twice.

In addition, if the hours for travel are broken out from the labor cost to repair the equipment, we are not required to pay sales tax on that amount.

I understand that you will be forwarding this to the Utah State Tax Commission for resolution, which we are in agreement with. However, as I mentioned on the phone, we have also spoken with the Tax Commission and been informed that these items are not taxable.

Please let me know how I can further help to resolve this. My phone number here is #####. I appreciate your help in reaching a resolution on this.

Sincerely,

NAME

RESPONSE LETTER

January 4, 2001

RE: Sales Tax on Travel Expenses Associated with Repair Services

Dear NAME,

You have requested advice concerning Utah=s application of sales tax on services to repair tangible personal property. Specifically, you inquire whether sales tax should be applied on all charges associated with the repair services, including lodging, rental car, airfare and travel time charges, or applied only on those charges relating to the parts used and time spent working on the tangible personal property.

Utah Code Ann. '59-12-103(1)(g) states that services for the repair of tangible personal property are subject to sales tax. From your letter, it appears that COMPANY A has contracted to pay COMPANY B all of the listed charges in exchange for COMPANY B repairing COMPANY A tangible personal property. Each of these charges, whether included in COMPANY B bill as part of the repair charge or itemized separately, is associated with the repair service. Under these circumstances, the Tax Commission considers each charge an element of the total charge for the repair service and, as a result, subject to taxation. Accordingly, COMPANY B should collect and remit sales tax on all the repair service charges, including the charges for lodging, rental car, airfare, and travel time.

The imposition of sales tax on all repair service charges is not considered double taxation. To illustrate, assume an artist contracts to create and sell a painting for $100. In order to create the painting, the artist purchases a paint brush for $5, on which he pays sales tax. If the artist invoices the client a single $100 charge for the painting, it is clear that the client must pay sales tax on the $100 purchase price. However, should the artist=s invoice instead list a $95 charge for the painting and a separate $5 charge for the brush, the total $100 charge is still fully taxable to the client. Because the artist consumes the paint brush in producing the painting, he must pay sales tax on its purchase. The client, who never uses or possesses the brush, is not the consumer of the brush, even though part of the purchase price of the painting represents compensation for the it. Instead, he is the consumer of a painting with a total purchase price of $100, the amount on which he must pay sales tax.

Similarly, in providing its repair service to COMPANY B purchases lodging and a rental car lease, both of which are taxable. These items are consumed by COMPANY B in providing its repair service and, accordingly, are taxable to COMPANY B. COMPANY A is not the consumer of the lodging and rental car lease, but is the consumer of COMPANY B repair services. Accordingly, COMPANY A is responsible for sales tax on COMPANY B total charges for the repair services.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner