August
15, 1991 Response from Tax
Commission
July
26, 1991 Letter from XXXXX
of XXXXX
XXXXX
Re:
Advisory Opinion - §59-12-104(34) & Rule R865-21-12U
This
letter is in response to your recent request for a Tax Commission ruling on
whether Code Section 59-12-104(34) and Rule R865-21-12U will allow a sales tax
exemption for materials purchased within the state for intended use in a
foreign country since a foreign country may be a "political entity."
You also wanted concurrence that your understanding that consumable tools and supplies
did not qualify for exemption even though used in a state which will not allow
credit for Utah tax. Your request further asks if the provisions of Rule 12U
allow credit when materials are withdrawn from a tax paid inventory and taken
to a state not allowing credit for Utah taxes paid. And finally, you wanted to
know if long delays, such as 90 (ninety) days or longer, in ultimately shipping
the materials out of state would invalidate the exemption.
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:
1.
Utah Code Ann. Section 59-12-104(29) allows credit for sales or use tax
"paid to some other state, or one of its subdivisions." This credit
clearly does not apply to tax of any nature paid to a foreign country.
Subsection 34 uses language as follows: "except to the extent that such
other state or political entity".... A political entity means the same as
"one of its subdivisions."
2.
Clearly, tools and consumable supplies are not eligible for the exemption since
they do not become part of real property.
3.
Use Tax Rule R865-21-12U was amended to agree with §59-12-104(34). If either
sales or use tax was paid on materials stored in Utah which are ultimately
taken to another state and incorporated into real property, and the other state
will not allow credit for Utah sales or use tax, the taxpayer may take a credit
on his own tax return or file a claim with the Tax Commission for a refund.
4.
Rule 12U makes no mention of a time frame to obtain the exemption it provides.
As long as an out of state purchase is identified as being for an out of state
job and the materials can be traced throughout the period of storage and/or
fabrication, they remain in the interstate commerce channel and are exempt from
use tax even if they are stored in Utah for 90 (ninety) or more days.
Based
upon the facts presented in your letter, we are in agreement with the Auditing
Divisions' 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 and a copy of the Utah Taxpayers Bill of Rights are
attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
Private
Mr.
Joe Pacheco, Commissioner
Utah
State Tax Commission
Heber
Wells Building
Salt
Lake City, Utah 84134
RE:
Advisory Opinion Regarding Utah Code 59-12-104 (34) and Application of Rule
R865-21-12U
Dear
Mr. Pacheco:
I
have a client with real property contracting activities throughout the world.
Materials and supplies for their world wide activities often are purchased for
initial delivery in Utah from both Utah and non Utah vendors. Changes (July 1,
1989) in the law regarding sales tax on material purchased in Utah for use
out-of-state and some unique circumstances involving purchases from
out-of-state vendors, where initial delivery is to Utah but for ultimate use
out of state prompts this request for an advisory opinion on two issues.
Issue
Number 1: I have advised my clients that, in general, material purchased from
local vendors for use on real property contracts is subject to Utah sales tax
if delivery is taken in Utah. However, I have also advised them:
Materials
or supplies that are incorporated into realty within a state or political
entity that imposes a sales, use or excise tax and doesn't have reciprocity
with Utah, may be purchased tax free. This would include purchases made for a
project in a foreign county (i.e. political entity) that imposes a gross
receipts or transaction excise tax.
Supplies
that are consumed (e.g. small tools, grinding disks, etc.) at the out of state
job location and do not become part of realty are not eligible for the special
out-of-state sales tax exemption.
Issue
Number 2: My client's policy is to accrue and pay Utah use tax on material
purchased from non-Utah vendors if for use in Utah or stored in Utah in a
common "stores inventory" prior to being used in projects out of
state. I have advised them:
Prior
to July 1, 1989, and presently, Utah use tax need not be paid if items
purchased were for intended use on out-of-state contracts and were delivered
initially to Utah for reasons primarily other than for storage, use, or
consumption. For example, often a large contract in a foreign country requires
special items to be purchased and delivered to Utah many months in advance of
ultimate crating and shipping to the job site. Special parts are purchased,
machined at the client's Utah plant, sent to local vendors for certain
services, returned to the client for ultimate crating and shipment outside
Utah. In other instances, items purchased are not changed in any way but rather
awaiting shipment with other special specific items to non-Utah locations. All
during the process from the time of initial delivery to Utah from the outside
vendor until shipment to the job site, the material doesn't lose it's identity
and is always designated for a specific non-Utah job. In a few instances there
may be as much as a 90 day lag between the time the material is purchased,
machined, serviced, and finally ready to be shipped, and when it is actually
crated and shipped. This delay is due to planning purchases early to insure
readiness of special parts when needed at the job site and/or delays in
construction schedules for various and sundry reasons.
Since
July 1, 1989, items put into a common stores inventory whereby Utah sales or
use tax had been paid (per existing company policy) would be eligible for a
sales or use tax credit if items were later used and incorporated into a real
property contract within a state (or county) that doesn't allow credit for
taxes imposed by Utah. Before credit could be claimed, it must be confirmed
that a non-Utah sales, use, gross receipts, or similar transaction excise tax
was imposed and paid upon the cost of material and services used or tax was
charged and collected upon the contract price.
Would
you please advise if my instructions to my client are correct? If additional
information or explanation is needed before you can issue an opinion, please
contact me.
Very
truly yours,
XXXXX
Consultant