Response
April
3, 1992
XXXXX,
UT XXXXX
Re:
Request for Declaratory Judgment
Dear
XXXXX:
This
letter is in response to your recent request for a Tax Commission ruling on
whether sales tax is due on the purchase of lead liners to be installed in
three autoclave vessels. The liners will be installed by the seller at XXXXX
facility in XXXXX. Legal title to the liners will pass to the purchaser, XXXXX,
at the XXXXX facility in XXXXX and XXXXX will transport the autoclaves to XXXXX
for installation by XXXXX at their gold mine site.
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 recommendations. The division's recommendations are as follows:
1. Petitioner, XXXXX, will take title to the
autoclave liners in XXXXX and arrange for transportation to their mine site in
XXXXX where petitioner will install the autoclaves on cement pads. Petitioner
contends they are acting as a real property contractor by converting the
personal property autoclaves into real property, and that they should be
entitled to purchase the lead liners, in Utah, exempt from Utah sales tax under
the provisions of Code Section 59-12-104(33). This section allows a real
property contractor to make tax-free purchases of materials which will be taken
to a state which does not allow credit for tax paid to Utah if the materials
are converted by the contractor into and becomes part of real estate. Nevada is
one of those states which will not allow credit for tax paid to any state.
2. 59-12-104(33) does not apply for two
reasons.
First,
Administrative rule R865-19-60S states that sales of equipment or trade
fixtures to a manufacturer or producer for use in carrying on their business
are taxable. Such sales are to final buyers or ultimate consumers. This means
that the autoclaves remain personal property and are taxable as personal
property even though attached to real property.
Second,
there is no contract pursuant to which tangible personal property is incorporated
into and becomes a part of real property as required in the exemption.
3. Therefore, use tax is due on the total
purchase price from the vendor, XXXXX since the first taxable transaction will
take 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 and a copy of the Utah Taxpayer Bill of Rights are
attached.
For
the Commission,
Joe
B. Pacheco
Commissioner
March
27, 1992
XXXXX,
UT
Re:
Request For Declaratory Judgment
Dear
XXXXX:
This
will confirm our conversation of this afternoon. In that conversation, you and
I agreed on behalf of Petitioner XXXXX and the Tax Commission that the time in
which the Tax Commission may issue its declaratory order in this matter is
extended to April 3, 1992.
For
the Commission
Joe
B. Pacheco
Commissioner
BEFORE
THE UTAH STATE TAX COMMISSION
**********
IN
RE:
XXXXX,
Utah
Sales And Use Tax Exemption
**********
STIPULATION
FOR EXTENSION
OF
TIME FOR ISSUANCE OF
DECLARATORY
JUDGMENT
Case
No. ___________
**********
XXXXX
("XXXXX") and the Utah State Tax Commission ("Tax
Commission") make and entered into this Stipulation for Extension of Time
for Issuance of Declaratory Judgment based on the following facts and
conditions:
1. On January 27, 1992, XXXXX filed a Request
for Agency Action by way of Declaratory Judgment and Request for Oral
Presentation with the Tax Commission seeking an order declaring that the
purchase and installation of lead linings in three autoclave vessels which will
be immediately transported to XXXXX and attached to real property in XXXXX are
exempt from Utah tax as imposed by the Utah Sales and Use Tax Act.
2. As of the date hereof, being 60 days
following January 27, 1992, the Tax Commission has not issued the requested
declaratory order.
3. Utah Code Ann. § 63-46b-21(7) (1991) states:
Unless
the petitioner and the agency agree in writing to an extension, if an agency
has not issued a declaratory order within 60 days after the receipt of the
petition for a declaratory order, the petition is denied.
4.
Both XXXXX and the Tax Commission, in accordance with and in reliance on Utah
Code Ann. § 63-46b-21(7) (1991), hereby stipulate and agree to extend the time
to April 10, 1992, within which the Tax Commission may issue the declaratory
order in this matter. If the sought declaratory order has not been issued by
the Tax Commission by April 10, 1992, the parties agree that the Request for
Agency Action by way of Declaratory Judgment shall be deemed denied and XXXXX
shall have its appeal rights therefrom beginning as of April 10, 1992.
Entered
into this 27th day of March, 1992.
FOR
THE UTAH STATE TAX
COMMISSION
ROGER
O. TEW
Commissioner
FOR
XXXXX
XXXXX
of
and for
XXXXX
Attorneys
for XXXXX
___________________________________
January
27, 1992
Hal
Hansen
Chairman
UTAH
STATE TAX COMMISSION
160
East 300 South
5th
Floor
Salt
Lake City, UT 84134
RE:XXXXX
Dear
Mr. Hansen:
Attached
is a Request for a Declaratory Order seeking an exemption from sales and use
taxes on a proposed transaction. We are filing this Request directly with your
office (rather than the appellate division) as we understand the procedures in
handling such matters differ from appellate procedures and the statute requires
action to be completed within 60 days.
Thank
you for your consideration of this matter. Should questions arise, please
contact the undersigned.
Very
truly yours,
XXXXX
BEFORE
THE UTAH STATE TAX COMMISSION
IN
RE:
XXXXX,
Utah
Sales
and Use Tax
Exemption
**********
REQUEST
FOR AGENCY ACTION
BY
WAY OF DECLARATORY
JUDGMENT
AND REQUEST FOR
ORAL
PRESENTATION
**********
Pursuant
to Utah Code Annotated § 63-46b-21 (1991) and Rules R861-1-4A and R861-1-5A.1Q
of the Administrative Rules of the Utah State Tax Commission, XXXXX
("XXXXX") petitions the Utah State Tax Commission "Tax
Commission") for an order declaring
that the purchase and installation of lead linings in three autoclave vessels
which will be immediately transported to XXXXX and attached to real property in
XXXXX by XXXXX are exempt from Utah taxes imposed by the Sales and Use Tax Act,
Utah Code Annotated § 59-12-101 et seq.
I.
PETITIONER
Telephone:
(801)XXXXX
II.
TAX INVOLVED
Taxes
imposed by the Sales and Use Tax Act, Utah Code Annotated § 59-12-101 et.
III.
RELIEF SOUGHT
A
Declaratory Order, pursuant to Utah Code Annotated § 63-46b-21, declaring that
the purchase and installation of lead linings in three autoclave vessels which
will be immediately transported to XXXXX and attached to real property in XXXXX
by XXXXX are exempt from Utah taxes imposed by the Sales and Use Tax Act, Utah
Code Annotated § 59-12-101 et seq.
XXXXX
requests a hearing before the Tax Commission on this Request for Agency Action.
IV.
STATUTES AND RULES RELIED UPON
Utah
Code Annotated § 63-46b-21
Utah
Code Annotated § 59-12-101 et seq.
Utah
Code Annotated § 59-12-104(33)
Rule
R861-1-4A
Rule
R861-1-5A.1Q
Rule
R865-19-58S
V.
STATEMENT OF FACTS AND LAW
A. STATEMENT OF FACTS
On
or about December 23, 1991, XXXXX contracted with XXXXX ("XXXXX"), a XXXXX
corporation, for it to supply, install and test lead linings on three (3)
autoclave vessels owned by XXXXX. XXXXX
will install and test the lead linings at XXXXX ("XXXXX") facility in
XXXXX, Utah. Autoclave vessels are horizontal cylinders approximately 75 feet
long, which are used to pressure oxidize a gold slurry as part of the gold
milling process.
XXXXX
is not a subcontractor for XXXXX, but an independent vendor from whom XXXXX
purchases the lead linings. Upon completion, testing and acceptance by XXXXX or
XXXXX's representative, title to the lead linings will pass to XXXXX. XXXXX will then sandblast, paint and ship
the autoclave vessels to the XXXXX mine site near XXXXX. When the vessels are
placed upon their permanent foundations at the XXXXX mine site in XXXXX, XXXXX
will retest and revacuum the upper 120° vapor zone to check for any lead lining
movement, cracks, etc. incurred during the transportation process. XXXXX's work at the XXXXX mine site is purely
labor oriented with no material supply involved. XXXXX installs the autoclave vessels at the mine site. The
vessels are permanently attached to the ground and become real property at the
XXXXX mine.
XXXXX
has been informed that XXXXX will impose a sales, use or transaction tax on
XXXXX's purchase of the lead lining materials at a rate of 6.5% (see letter
from Department of Taxation attached) because these materials will be
permanently "stored, used or consumed" in XXXXX.
B. SUMMARY OF LAW AND ARGUMENTS
1.
Review of XXXXX Statutes
XXXXX's
Sales and Use Tax Act is codified at XXXXX. Rev. Stat. Ann. § 372.010
(1991). The tax is imposed upon all
"retailers" for the privilege of selling tangible personal property
in XXXXX. See section 372.105. In addition, an excise tax is imposed "on the
storage, use or other consumption in a county of tangible personal property
purchased from any retailer for storage, use or other consumption in the
county." See section 374.190. Under XXXXX law, "[i]t is presumed that
tangible personal property shipped or brought to this State [XXXXX] on or after
July 1, 1979, was purchased on or after July 1, 1979 for storage, use or other
consumption in this state." See
section 372.250. Further, a contractor who fabricates material "for use in
constructing any building or other improvement to real property" must pay
sales or use taxes upon the "value of the material" fabricated,
"as if he were selling it to another." See section 372.257. The XXXXX
Act makes no provision for a credit against XXXXX taxes for similar taxes paid
to another state.
2.
Utah Law
Section
59-12-103(1) of the Utah Sales and Use Tax Act, Utah Code Annotated § 59-12-101
through 120, levies a tax "on the purchaser" for the "retail
sale of tangible personal property made within the state." Pursuant to
section 59-12-107 "each vendor shall pay or collect and remit the sales
and use taxes imposed by this chapter" to the Tax Commission. The prerequi
sites for imposition of a Utah sales or use tax are: (1) a retail sale (2) in
Utah (3) by a retailer or vendor doing business in the state, and (4) to a
purchaser within the state. In this case, the vendor (XXXXX), which is
registered to do business in Utah, has sold tangible personal property (lead
linings), to a purchaser (XXXXX), in Utah. The sales or use tax would thus
apply unless there is an applicable exemption.
However,
a statutory exemption does exist. Utah Code Annotated § 59-12-104(33) (1991)
exempts from sales and use taxes:
Sales
of tangible personal property to persons within this state that is subsequently
shipped outside the state and incorporated pursuant to contract into and
becomes a part of real property located outside of this state, except to the
extent that the other state or political entity imposes a sales, use, gross
receipts, or other similar transaction excise tax on it against which the other
state or political entity allows a credit for taxes imposed by this chapter.
As
interpreted by the Auditing Division of the Tax Commission, section 59-12-104(33)
provides that real property contractors can buy materials in Utah tax-free if
(1) those materials are incorporated as real property in another state (2)
which imposes a use, sales, or excise tax on the transaction, and (3) which
does not extend a credit for taxes paid to Utah. The intent of this exemption
is to preclude double taxation in the event a state other than Utah does not
give credit for taxes paid to Utah. Since XXXXX will tax XXXXX's purchase of
the lead linings, but will not extend credit on XXXXX taxes due for taxes paid
to Utah, section 59-12-104(33) is applicable to the extent that XXXXX is a
"real property contractor."
As
defined by Tax Commission Rule R865-19-58S, a real property contractor is
"the person who converts the personal property into real property [and] is
the consumer of the personal property since he is the last one to own it as
personal property." Likewise, the Utah Supreme Court, in
distinguishing contractors from manufacturers, stated:
[I]n
the instant case, contractors purchase the pipes, culverts and cinder blocks
for the purpose of use and consuming them by incorporating them as one of many
units which go to make up buildings, structures, or roads, as the case might
be, and not for reselling them as such in their original form, but for the
purpose of changing their very nature from personal to real property. In short,
labor and many other materials enter along with the plaintiff's products to
make up the particular structure, and they are all used or consumed in the
process in producing a new entity.
Utah
Concrete Products Corp. v. State Tax Commission, 125 P.2d 408, 410 (Utah 1942),
quoted in Tummurru Trades. Inc. v. Utah State Tax Commission, 802 P.2d 715, 718
(Utah 1990).
Neither
XXXXX nor XXXXX are real property contractors.
XXXXX is not involved at the mine site.
XXXXX only visits the XXXXX mine site at XXXXX in its role to ensure the
integrity of the lead linings on the vessels. Furthermore, XXXXX is not
responsible for the vessels after completion of its work in XXXXX as title
transfer from XXXXX to XXXXX occurs at XXXXX's facility in XXXXX. Consequently,
the only entity which could convert the "tangible personal property,"
i.e., the lead linings of the autoclave vessels, into real property is XXXXX when
it installs the vessels at the mine site. This concept is supported by the
purchase order (copy attached) which states "after autoclave vessels are
set on their foundation [implying that they become real property] Seller will
revacuum the upper 120° lead panel installation." Nothing in the
purchase order indicates that XXXXX has the obligation to set the vessels on
their foundations, thereby converting them to real property. XXXXX employees will be responsible for and
will perform the task of installing the vessels on their foundations. Thus
XXXXX is the real property contractor because it purchases the materials as
tangible personal property from XXXXX and converts those materials into real
property.
Inasmuch
as XXXXX's sales tax rate (6.5%) is greater than the Utah sales tax rate (5%
plus local option taxes) the exemption available under Utah Code Annotated §
59-12-104(33) should apply to all XXXXX's purchases of lead linings from XXXXX.
C.
CONCLUSION
XXXXX
purchases lead linings from XXXXX in Utah. The lead linings are installed in
and become part of autoclave vessels which XXXXX installs as real property at
its mine site near XXXXX. To the extent that XXXXX taxes XXXXX's purchases or
use of the lead linings, and does not extend credits against such taxes for any
taxes paid to Utah, XXXXX's purchases of the lead linings, as materials used by
a real property contractor in another state, should be exempt from Utah sales
and use taxes as provided for by Utah Code Annotated § 59-12-104(33).
DATED
this 27th day of January, 1992
XXXXX
CERTIFICATE
OF HAND DELIVERY
I
hereby certify that I caused to be hand delivered, a true and correct copy of
the foregoing REQUEST FOR AGENCY ACTION BY WAY OF DECLARATORY JUDGMENT AND
REQUEST FOR ORAL PRESENTATION to the following on this 27th day of January,
1992:
Utah
State Tax Commission
Heber
M. Wells Building
160
East 300 South
Salt
Lake City, Utah 84111