Response
August 13, 1990
August
13, 1990
XXXXX
Re: Declaratory Judgment - Shipping Containers
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether shipping containers and labels are taxable when you purchase them for
use in shipping your clients' products.
Although
your inquiry was framed as a request for a declaratory judgement, Tax
Commission policy is to initially treat all such inquiries as requests for
advisory opinions. As such, it was
referred to the Tax commission's Auditing Division for their analysis and recommendation. The division's recommendation is as follows:
1. In the performance of the shipping and
wrapping service performed by XXXXX, they are the "consumer" of all
items they use in performing the nontaxable service. Sales Tax Rule R865-19-48S states "Sales of containers,
labels, bags shipping cases, and the like are taxable when:
1.
sold to the final user or consumer;"
2. XXXXX is not selling tangible personal
property when they perform a service of taking an order and pulling the product
from a client's inventory in Utah, wrapping the product, labeling the package
and shipping the product to the client's customer. In billing the client for the service and separately billings for
the shipping materials, they are not selling the containers to their
client. The are using them in
performing the service.
3. Since you should not be making tax-free
purchases, your consumer reporting number, XXXXX, is appropriate and should not
be changed.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously,
if there are deviations from these facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute
a declaratory judgment and be appealable to the Utah State Supreme Court. A notice of appeal rights is attached.
For
the Commission
Joe
B. Pacheco
Commissioner
160
East 300 South
Salt
Lake City, UT 84134
XXXXX
is seeking a declaratory judgement before the Utah State Tax Commission in
regards to shipping containers and whether we can purchase them tax free.
Please give a judgement in regards to the situation written in the following
paragraph.
XXXXX
Purchases shipping containers, labels, and like for use in shipments. The
containers and the like are owned by us but are used in shipping the tangible
personal property of our clients. The shipments are sent to our clients
customers. The shipping containers and the like are not returned to us and are
not sent to our clients. We do bill our clients separately for the shipping
containers. If we are able to purchase the items tax free, does this mean that
we have to change our XXXXX sales tax number?
If
there are any questions, please feel free to give me a call at XXXXX.
Thank
you,
XXXXX
90-010DJ
Response
January 7, 1991
January
7, 1991
XXXXX
XXXXX
Certified
Public Accountants
Re: Declaratory Judgment - XXXXX
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether XXXXX qualifies for exemption on machinery and equipment purchases under
the provisions of §59-12-104(16). You stated they moved to a new plant location
and purchased a pasteurizer and related system, freezers, packaging machinery,
pumping machinery, boilers, egg breaking equipment and shipping equipment. You
further stated they had to hire seven new employees to operate the equipment
and maintain the expanded facility. It is your opinion that the manufacturing
part of XXXXX should be assigned SIC code 2017.
Although
your inquiry was framed as a request for a declaratory judgment, Tax Commission
policy is to initially treat all such inquiries as requests for advisory
opinions. As such, it was referred to the Tax Commission's Auditing Division
for their analysis and recommendation. The division's recommendation is as follows:
1. XXXXX's primary SIC code should be 5144.
However, Sales Tax Rule R865-19-85S, in defining an "establishment"
says, "where distinct and separate economic activities are performed at a
single physical location, each activity should be treated as a separate
establishment." The rule further states, new or expanding operations means
activities which:
"(b)
are begun in a new physical plant location in Utah; or" .. . It is our understanding XXXXX meets this
requirement. Egg drying, freezing and breaking does clearly fall under SIC code
2017, which is a qualifying code. XXXXX is entitled to the manufacturers
exemption and a refund of tax already paid on qualifying equipment.
2. Qualifying machinery and equipment is
machinery actually used in the production process. Machinery used for storage
or distribution (shipping equipment) does not qualify for the exemption. Once
the expansion is complete, additional purchases and replacements do not qualify
for exemption.
3. The method for obtaining a refund is to
issue a sales tax exemption certificate to vendors who collected tax on the
sale and request a refund, or where sales or use tax was paid directly to the
Tax Commission by XXXXX, apply to the Tax Commission for a refund.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously,
if there are deviations from these facts, this opinion may be negated.
If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights is attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
September
24, 1990
Utah
State Tax Commission
Heber
M. Wells Building
160
East Third South
Salt
Lake City, Utah 84134
We
hereby seek a declaratory judgement for our client, XXXXX (the company), to
qualify under Utah Tax Code R865-19-85S for an exemption from sales and use
taxes. The company wishes to obtain this judgement from the Utah State Tax
Commission so that charges for sales and use taxes from various vendors can be
stopped and refunds can be received for past collections of sales and use taxes
in error.
The
account number for our client is XXXXX. The standard industrial code for this
account has been XXXXX, but is more correctly XXXXX.
In
February of 1988, the company started new and expanding operations. These
operations were substantially different in nature, were begun in a new physical
plant location, and increased production and capacity.
The
company meets the definition of a manufacturer in that it produces a new
commodity from a raw material. The new product is a liquid or frozen egg
product from a raw egg.
In
February of 1988, the company leased a new warehouse and plant facility and
moved its operations to this facility. At that time one new production line was
installed which was substantially different and more efficient than prior
systems. This expansion required the purchase or lease of tangible personal
property on which the company was and is being charged sales and use
taxes. The property includes:
pasteurizer and related system, freezers, packaging machinery, pumping
machinery, boilers, and shipping equipment. In addition, the actual egg
breaking equipment was installed at that time. The expansion required hiring
five new employees to facilitate operation of the new equipment. Two new
sanitation employees were hired to assist in the clean up and maintenance of
the plant. The expansion has been an asset to the egg production business of
Utah. The plant is now producing products for large national companies such as
XXXXX, XXXXX and XXXXX. All of these products are produced from raw materials
substantially purchased from Utah producers.
We
request your immediate attention to this matter and appreciate your
cooperation. If you have any questions, please call or write to us at the above
address.
XXXXX
Certified
Public Accountants
Attachment
is located in Tax Commission file 90-010DJ.