March
20, 1991 Response from Tax
Commission
February
19, 1991 Letter from XXXXX of XXXXX
Certified Public Accountants
XXXXX
XXXXX
Re: Advisory Opinion -XXXXX Fishing and Rental Tools
Dear Mr. XXXXX:
This letter is in response to your recent request for a Tax Commission
ruling on whether sales tax is due on the rental or use of oil field tools,
either with or without a supervisor.
The Tax Commission policy is to refer such requests to the division
most qualified to analyze the request and make recommendations concerning it.
As such, your request was referred to the Tax Commission's Auditing Division
for their analysis and recommendation. The division's recommendation is as
follows. Their response will refer to your questions as you have numbered them.
1. Sales tax is due when tools
are rented to a customer.
2. Sales tax is due when
sub-rented tools are rented to a customer.
3. Sales tax is due when XXXXX
tools are sold to a customer unless the sale qualifies as an interstate sale or
is sold to an exempt entity.
4. Sales tax is due on both
materials and labor repair charges billed to a customer.
5. Sales tax is due on outside
repair charges, both materials and labor, billed to a customer.
6. Sales tax is due on freight
charges for XXXXX's truck to deliver tools to customer's site. Title to goods
does not pass until XXXXX's driver places the tools in the hands of the
customer.
7. Freight charges for a common
carrier to deliver tools sold to a customer are not taxable unless the
terms are F.O.B. destination. Freight charges for a common carrier to deliver rented
tools will usually be taxable. Sales Tax Rule R865-19-32S says tax is due on
(total) amounts received or charged pursuant to rental or lease agreements. If
the rental agreement requires XXXXX to deliver and/or pick up tools, the
freight charge is taxable.
8. The charge for a XXXXX
supervisor or employee to travel to a job site to supervise tool use or to make
additional tool recommendations is taxable unless the supervisor has actual
"hands on" use of the tool. In 1962, the Utah Supreme Court sustained
sales tax assessed on a separate charge for three factory trained experts to
check the installation of equipment to insure that the equipment was properly
installed and operational. See Davis and Butler v.s. Utah State Tax Commission.
In a separate case the Tax Commission denied the assessment of tax on the
rental and separate charge for a supervisor who was on site and actually
guided, by hand, the cable in a fishing tool operation.
9. Mileage charges for
supervisor travel billed to a customer are taxable if the sale or rental is
taxable.
10. Inspection charges for an
independent inspector to inspect and/or make repairs or recommend repairs are
taxable.
11. Number 11 does not ask for
a response.
12. Number 12 does not ask for
a response.
13. Even though a customer
arranges for freight services or other outside services, where they are billed by
XXXXX to its customer for their convenience, the freight or service is taxable
to the extent determined in previous paragraphs.
14. When tangible personal
property is sold and shipped or delivered by the seller into another state, it
is an exempt interstate sale. If real property service work is performed out of
state, any materials or supplies used are subject to Utah sales tax if
possession took place in Utah.
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 Pacheco
Commissioner
Mr. XXXXX
Utah State Tax Commission
160 East 300 South
Salt Lake City, UT 84134
Dear Sirs:
This letter is being sent to request a written determination as to
whether various transactions are subject to Utah Sales or Use Tax. After consulting both the Utah Code and
auditors with the tax commission, it was felt that a written determination was
advisable.
Background:
My client, XXXXX, is an oil field service company with offices in
XXXXX, Utah. XXXXX rents various tools and equipment used in drilling and/or
repairing oil and gas wells to oil companies and drilling contractors. These tools are rented by themselves, or
with a "supervisor," depending on what the customer orders. XXXXX has
always purchased tools for their rental inventory, tax free, as they have
determined that these tools are used predominantly for rental without a
supervisor. A normal XXXXX invoice to
its customer may include any combination or all of the following items or
situations, and we would like to determine the taxability or non-taxability of
each under Utah law.
1. XXXXX tools rented to customer.
2. Sub-rental tools rented to
customer.
3. XXXXX tools sold to customer.
4. XXXXX repair charges for materials and/or labor billed to customer.
5. Outside repair charges for
materials and/or labor billed to customer.
6. Freight charges for XXXXX
truck to deliver tools to customer.
7. Freight charges for
commercial trucker to deliver tools to customer.
8. Supervisor charge for XXXXX
employee to travel to job site and supervise tool use and make additional tool
recommendations are billed to customer.
9. Mileage charge for
supervisor travel billed to customer.
10. Inspection charges for
independent inspector to inspect tools upon return and make minor repairs or
recommend more extensive repairs are billed to customer.
11. The rental term on a normal
invoice is not predetermined except that a 1 to 5 day minimum rental charge may
apply. Other than that, charges are
based on actual time used, which may vary from 1 day to a period of weeks or
even a couple of months.
12. Supervisor charges are not
always consistent in that, given 2 similar jobs, the first may request a
supervisor while the second will not.
13. Some customers will arrange
their own outside services for freight and other goods and services and have
them billed through XXXXX for their own convenience. Other customers may simply indicate everything they need and
leave it up to XXXXX to make arrangements for all goods and services which are
then rebilled to the customer on XXXXX's invoice.
14. XXXXX is located in Utah.
Some jobs are in Utah, some are in Colorado, and a few are in other
western states.
I have enclosed a copy of XXXXX's current price list which may help you
further understand and terms and conditions of their charges to their
customers.
It is XXXXX's desire to be in full compliance with Utah's sales tax
laws and, given the complexity of the situation, we are asking for a written
response to the situations noted above.
However, as some items may be non-taxable under Utah law, we want a
complete understanding of these situations in order to avoid taxing customers
where they should not be taxed. I would
appreciate your written response as soon as possible.
If you have any questions, please feel free to call me at XXXXX.
Sincerely,
XXXXX
C.P.A.