94-031
Response November
23, 1994 and February 3, 1995
Commissioners
Utah State Tax
Commission
210 North 1950 West
Salt Lake City, Utah
84134
Attention: Alice
Shearer
Dear Commissioners:
Regarding: Sales or
use tax exemption: Equipment for new or expanding operations.
I appreciated the
opportunity to talk with you last Thursday, Ms. Shearer. As a result of our conversation, I have
compiled the following information. I
hope it is responsive to your requests and that it gives you the information
you need in order to provide us with some guidance from the commission.
As indicated below,
XXXXX qualifies for the exemption from sales and use taxes described in UCA
59-12-101 and R865-195-35 on the sales of machinery or equipment for new or
expanding operations:
1.
The Corporate headquarters of XXXXX and the XXXXX facility is a new
physical plant location in Utah.
2.
The SIC code for the manufacturing operation is 3354.
3.
The manufacture of aluminum extrusions is accomplished by a large
extrusion press which forms the
finished products from aluminum billets.
The extrusion press
mentioned above forces a heated billet through the press, producing a finished
aluminum product formed according to a die placed in the front of the
press. Part of the press is a
closed-loop, reversed-osmosis cooling tower, without which the press could not
function.
Both the electrical
and the plumbing connections are necessary to the operation of this machine and
neither were available in the building prior to the installation of this
machine. The connections, of course, do
attach to panels in the walls, ceiling, or floor of the building; but,
typically, they are not buried in concrete otherwise made a permanent part of
the building. The connections, along
with the press, could be removed from the building without damaging the real
estate in any significant way The building itself has both a separate
electrical system and a separate water system.
We believe sales of
the piping and other parts and materials necessary to make this machine
operational qualify for the exemption because those connections are part of
tangible personal property used in new or expanding operations.
As I interpreted our
conversation on Thursday, you are in agreement with XXXXX s opinion in his
letter dated XXXXX, “ . . . auditors from the personal property division of the
State Tax Commission ruled that materials needed to connect a large piece of
machinery to a source of electricity remained as tangible personal property . .
. even though attached to real property.
I consider their decision to be a sound one If the machinery qualifies
as exempt manufacturing machinery, the necessary electrical materials to
connect it to a power source and that remain . . . [tangible personal property]
qualify also.”
We are confident that
this opinion verifies our interpretation.
In order for us to proceed in advising our client, however, we need a confirmation from the
commissioners.
We realize that XXXXX
opinion would have come from you had we addressed our request to you in the
first place. Since that was not done,
we are asking for a verification at this time.
Please let us know if
we can provide further information.
Sincerely,
XXXXX
XXXXX
Re: Advisory Opinion Qualifications of
Materials for Plumbing and Electrical Connections to Manufacturing Equipment
under Sales Tax Exemption for New or Expanding Manufacturing Facilities
Dear XXXXX:
Your request for an
advisory opinion as to whether purchases of materials for plumbing and
electrical connections to manufacturing equipment qualify for sales tax
exemptions for new or expanding manufacturing facilities was referred to the
Auditing Division for their analysis.
1.
Utah Code Annotated Section 59-12-104 and Administrative Rule
R865-19S-85 describe criteria for the “manufacturing exemption” for new or
expanding manufacturing operations.
Included in the referenced rule's definition of qualifying equipment
items are “. . . devices necessary to the control or operation of machinery and
the equipment qualifying under this rule....”
2.
The rule further indicates, “The
machinery and equipment exemption applies only to tangible personal
property. It does not apply to real
property or to tangible personal property that is purchased and becomes an
improvement to real property.”
3.
While treatment of materials under personal property tax statutes is not
determinative of treatment of materials under the sales tax statute and
its corresponding administrative rules R865-19S-85 does, in fact, refer
to the property tax law with regard to the definition of “improvements” in UCA
Section 59-2-102. Under the
definition of “improvement” is included the term, “fixtures.”
4.
Electrical and plumbing connections which are not attached to the real
estate in such a manner as to become an integral part of the building, which
are not installed or attached to the realty in such; matter that removal would
substantially destroy the connections and damage the realty and which have not become fixtures or
improvements to the realty by virtue of intent of the parties or any other
relevant factor will qualify for exemption if necessary for the operation or
control of qualifying equipment. Based
upon your description of the subject connections, the exemption is appropriate.
5.
If the connections were effected through a real property contract
performed by a real property contractor who has considered himself a consumer
of materials used in performing the job under the guidelines of Rule
R865-19S-58, such performance would be indicative of intent to convert personal
property to realty; and the exemption would not be allowed.
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
Commissioners
Utah State Tax
Commission
210 North 1950 West
Salt Lake City, Utah
84134
Attention: Alice
Shearer
Dear Ms. Shearer:
Regarding: Advisory opinion: Qualifications of
materials for plumbing and electrical connections to manufacturing equipment
under sales tax exemption for new or expanding manufacturing facilities.
Thank you for your
letter of XXXXX. We realize that you
expedited this opinion for us, and we appreciate your efforts. There is one point, however, that may need
further clarification. It is listed as
number 5 in your letter and is quoted below:
“If the connections
were effected through a real property contract performed by a real property
contractor who has considered himself a consumer of materials used in
performing the job under the guidelines of Rule R865-195-58, such performance
would be indicative of intent to convert personal property to realty; and the
exemption would not be allowed.”
Taken in context with
the other points in your letter, our interpretation is as follows:
Since a real property
contractor may also be a personal property contractor, number 5 would seem
relevant only to a real property/personal property contractor who is
functioning in the capacity of a real property contractor.
In other words, an
electrician who installs wiring in an office building may also install wiring
to a piece of personal property like the XXXXX owned by XXXXX. Our understanding of your point number 5 is
that the allowance or disallowance of the exemption depends upon the type of
work to be performed by the contractor rather than whether or not he considers
himself a real property contractor. If
dn electrician who considers himself generally a real property contractor were
to install the wiring to the extrusion press, we believe the exemption would
still apply.
One of the things that
makes our job difficult at times is that interpretations sometimes hinge on
terminology rather than on practice.
For that reason, it would be helpful if we could get you to expand upon
this detail. For reference, I have
attached copies of our previous correspondence.
Again thank you for your timely response and your
willingness to work with us.
Sincerely,
XXXXX
XXXXX.
Re: Advisory Opinion - Clarification of Previous
Opinion on Qualification of Plumbing and Electrical Connections to
Manufacturing Equipment Under Sales Tax Exemption for New or Expanding
Manufacturing Facilities
Dear XXXXX:
You have requested
further clarification of an advisory
opinion issued XXXXX with regard to materials for plumbing and electrical
connections to manufacturing equipment under sales tax exemption for new or
expanding manufacturing facilities.
Our research indicates
as follows:
1.
The previously issued opinion indicated that if the plumbing and
electrical connections “were effected through a real property contract
performed by a real property contractor ho has considered himself a consumer of
materials used in performing the job under guidelines of Rule R865-19S-58, such
performance would be indicative of intent to convert personal property to
realty; and the exemption would not be allowed.”
2.
The intent of the parties is one of the heavily weighted criteria used
to make determinations in real property/personal property questions. A contractor who treats himself as a
consumer of materials used in performance of a job has established an intent to
convert personal property to realty.
Further, such treatment results in a transaction between the contractor
and facility owner under which there is not tax collection by the contractor
from the facility owner, and consequently no basis for refund, credit, or
exemption of the sales tax. The
contractor is a consumer, not a manufacturer, and the exemption is not
available.
This opinion is based
upon the facts presented in your letter.
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