Response April 8, 1994
Request
September 8, 1993
Utah State Tax
Commission
ATTN. Commissioners
Office
160 E. 300 S.
Salt Lake City, UT.
84134
RE: REQUEST FOR
ADVISORY OPINION
Dear Madam or Sir:
Your opinion is
respectfully requested concerning an interpretation and application of a sales
tax exemption in a particular situation.
Specifically, Utah Code 59-12-104(15), which is sometimes referred to as
the manufacturers exemption for new and expanding equipment.
Some time ago, a
manufacturer I am familiar with instituted some changes in their operations,
advanced technology provided for them the opportunity to automate certain
processes in their line. Procedures
which were manually operated were being designed to be performed by the new
equipment. The new equipment had an
estimated functional life of 10-15 years.
The new equipment was
installed and subjected to extensive testing.
From the testing, it was determined that the new equipment did not
provide an acceptable product. As a
result, the equipment has subsequently been disassembled and salvaged where
possible.
With a better
understanding of the sales tax exemption, it is likely that this company would
have exempted the equipment purchases at the time of purchase. Without the convenience of "hind
sight," this project would have an entirely different perspective.
So the remaining
question, simply put, is the company entitled to exempting the sales tax on
this equipment? The company desires
your opinion on this matter as they continue to evaluate their alternatives.
Your attention to this
request is appreciated. Please notify
me at XXXXX, if I can be of some assistance.
Sincerely,
XXXXX
April 8, 1994
XXXXX
Re: Advisory Opinion -
Application of Sales Tax Exemption for Manufacturing Equipment Under Specific
Circumstances
Dear XXXXX:
Your request (copy
attached) for an advisory opinion as to whether certain equipment qualifies for
the sales tax exemption for manufacturers under Utah Code Annotated Section
59-12-104(15) was referred to the Auditing Division for their analysis.
The division's staff
recommendations are as follows:
1. The opinion request describes the
equipment's use only in that it was intended "to automate certain
processes" in a previously existing line. This, in itself, would not
qualify the equipment for the exemption even had the change been successful.
2. Administrative Rule R865-19-85S (copy
attached) requires that qualifying equipment have a 'useful economic and/or
accounting life" of at least three years. According to the opinion request
because testing showed that the equipment in question "did not provide an
acceptable product," the equipment was "subsequently disassembled and
salvaged where possible." The equipment does not therefore, meet the
useful life criterion.
3. The company is not entitled to the
sales tax exemption for the subject equipment.
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,
Alice Shearer
Commissioner