96-011
Response
January 23, 1996
Request
XXXXX
Re:
Clarification of a Tax Issue
Dear
XXXXX:
I
have enclosed the original letter to the state Tax Commission seeking
clarification of a legal issue that has arisen relative to one of my
clients. I understand you may not be the
person actually responding to the letter, but could you please forward it on to
the person in the state Tax Commission responsible for addressing these kinds
of issues.
Thank
you very much for your assistance.
Sincerely,
XXXXX
State
Tax Commission
210
North 1950 West
Salt
Lake City, UT
Re:
Letter Seeking Clarification
To
Whom It May Concern:
My
client, XXXXX, seeks to confirm that the tax on “admission and users fees”
(Section 59-12-103 (1) (f) ) is a tax on licenses in real property and not a
tax on interests in land or real property.
Because the taxpayer's business involves interests in real property, it
appears the admission and user fee tax does not apply to its business. However,
the taxpayer seeks to now confirm this position through the state Tax
Commission.
FACTS
XXXXX,
is a Utah business that conducts hunting expeditions in the state of Utah. Individuals pay XXXXX for a guided hunt
where they will have the opportunity to hunt big game animals such as mule
deer, antelope, and elk. The main
objective on these hunts is to harvest “trophy animals, “ which are mature
animals and usually past the prime of their lives.
In
order to provide premium hunting opportunities, XXXXX has entered into lease
agreements with private land owners for entry onto 80,000 acres of private
land. This allows the XXXXX' hunters to
harvest from that land a certain number of a specific type of animal each
year. The animals harvested are those
naturally occurring upon the land.
The
legal issue in this case concerns Utah Code Ann. §59-12-103 (1) (f) (Supp. 1995), which taxes “admission or user
fees” for amusement, entertainment, recreation, exhibition, cultural, or
athletic activities. The sample
activities listed in the statute include theaters, museums, sporting events,
ski lifts, river runs, jeep tours, scenic cruises and numerous other similar
activities.
XXXXX
feels the statute is not applicable to its business because the statute does
not appear to tax interests in real property, like the profits a prendre
owned and sold by XXXXX. XXXXX would
like clarification and confirmation of this from the tax commission.
ISSUE
Is
the Utah “admission” tax statute to be construed as levying a sales or use tax
upon the interest in land associated with a business that conducts trophy hunts
and grants profits a prendre to enter onto property and harvest a
certain number of big game animals?
Or
in other words:
IS
THE STATUTE IMPOSING A TAX ON ADMISSION FEES (LIKE TO MOVIES AND THEATERS) TO BE
INTERPRETED SO AS TO TAX AN INTEREST IN REAL PROPERTY, SUCH AS A PROFIT A
PRENDRE (LIKE HUNTING RIGHTS, GRAZING RIGHTS, OR THE RIGHT TO EXTRACT SAND AND
GRAVEL)?
ANALYSIS
1.
THE ADMISSION FEE TAX STATUTE IS TO BE STRICTLY CONSTRUED AND, WHEN AMBIGUOUS,
CONSTRUED IN FAVOR OF THE TAXPAYER.
Tax
statutes are to be construed strictly, and in favor of the taxpayer where
doubtful. Superior Soft Water v.
State Tax Comm'n, 843 P.2d 525,
529 (Utah Ct. App.
1992): quoting Pacific Intermountain Express Co.
v. State Tax Comm'n, 329 P. 2d 650, 651 (Utah 1958). In addition, Utah Courts will not extend
provisions of statutes that levy taxes beyond the clear import of the language
used, or enlarge the operation of the statute so as to embrace matters not specifically
pointed out. Id.
The
Utah Code levies a tax upon “admission or user fees for [listed activities] or
any other amusement, entertainment, recreation, exhibition, cultural, or
athletic activity. “Utah Code Ann. 59-12-103 (f) (I) (Supp. 1995). In light of this rule of strict
construction, the meaning of the statute must be limited by the actual language
used in the statute and in favor of the taxpayer. These underlying presumptions
must be kept in mind when considering the application of this tax to an area
not indicated in the statute.
2.
THE RIGHT TO ENTER UPON LAND, AND HUNT AND REMOVE TROPHY ANIMALS IS A “PROFIT A
PRENDRE,” WHICH IS AN INTEREST IN LAND .
The
grant of a right to enter upon lands of a grantor and kill for food or sport
the fowl or animals of a grantor is a grant of a “profit a prendre.” Haynes v. Hunt, 85 P. 2d 861 (Utah
1939). Indeed, whenever an act constitutes a privilege (such as entering onto
the land of another) plus a profit, this is generally characterized by legal
authorities as a “profit a prendre.”
For example, in Deseret Livestock v. Sharp, 259 P.2d 607 (Utah
1953), the Utah supreme Court held that the grazing of sheep constituted a profit
a prendre. Grazing rights are
perhaps the most common type of profit a prendre. Hunting rights and the right to extract sand
and gravel are the two other most common types of profits a prendre. Utah courts have stated that a profit a
prendre grants an interest in land.
Wasatch Mines Co. v. Hopkinson, 465 P. 2d 1007 (Utah 1970). In Wasatch, the court stated that the
creation of a profit a prendre involved the transfer of an interest in
land. Id . at 1010.
The
right of XXXXX and the hunters in regards to the land of the private individuals
consists of both the privilege to enter onto the land and the right to harvest
the animals found on the land (the profit).
Under the ruling in Deseret Livestock, the right of the hunters
to enter onto the property of others and take from that property animals which
are naturally found thereon is clearly a profit a prendre under Utah
law. Therefore, the profit a prendre
of XXXXX and the hunters is, according to the Utah Supreme court in Wasatch,
an interest in land.
The
Supreme Court in Wasatch provided guidance to determine when an interest
involves an interest in land. The court
noted that in order for an interest in land to be conveyed, a writing must
exist which evidences the conveyance.
In the case of XXXXX, each individual on the trophy hunt enters into a
written agreement with XXXXX. As the
attached brochure shows, even as early XXXXX, XXXXX considered themselves to be
granting “quality private hunting leases” to the hunters. In the minds of the management of XXXXX, as
well as the hunters, they believed they were operating pursuant to hunting
leases, which in legal terminology are generally referred to as “profits a
prendre.” Because “a lessee holding
under a valid lease also has a property interest,” the individual hunters also
have an interest in land. Coleman v.
Utah State Land Bd., 795 P. 2d 622 (Utah 1990).
Just
like the admission fee tax should not be applied to grazing rights, the
admission fee tax should not be applied to the exercise of hunting rights.
3. THE RIGHT TO PERFORM THE ACTIVITIES LISTED
IN THE STATUTE ARE LICENSES IN REAL PROPERTY WHICH ARE NOT INTERESTS IN
LAND
In
contrast, a “license” in real property is not in interest in real
property. Black's Law Dictionary,
at page 830, 1979 edition, defines a “license” in real property. It states:
A license is ordinarily considered to be a mere personal
or revocable privilege to perform an act or series of acts on the land of
another. Hennebont Co. v. Kroger Co.,
221 Pa.Super. 65, 289 A.2d 229, 231. A
privilege to go on premises for a certain purpose, but does not operate to
confer on, or vest in, licensee any title, interest, or estate in such
property. Timmons v. Cropper, 40 Del.Ch. 29, 172 A.2d 757, 759. Such privilege is unassignable.
This
black-letter law is well understood by Utah courts. Because a license allows only for entry upon land and not the
taking of the prof its contained thereon, it is not an interest in land under
Utah law. Haynes at 863-864.
The
admission tax statute lists 39 specific activities for which a tax must be
charged for “admission” to these activities.
The activities are as follows:
theaters, movies, operas, museums, planetariums, shows,
exhibitions, concerts, amusement rides, circuses, menageries (zoos), races,
contests, sporting events, boxing and wrestling matches, ski runs, ski trails,
snowmobile trails, river runs, jeep tours, boat tours, scenic cruises,
horseback rides, sports activities, carnivals, amusement parks, amusement
rides, fairs, dances, billiard or pool parlors, bowling lanes, golf and
miniature golf, golf driving ranges, batting cages, skating rinks, ski lifts,
tennis courts, swimming pools, water slides.
Most
of these activities involve entry upon and use of another's land or
facilities. Although the persons
involved in these activities are entering onto the land of another, they lack
the right to take substances naturally occurring on the land. For example, an individual who pays
admission to go to the zoo cannot claim, as a part of the right to enter into
the zoo, the right to also take a few trees or animals naturally occurring on
the premises. The payment of admission
to a zoo involves only the right to enter onto zoo property. It is a license. If each patron could take home with him a tree or other substance
naturally occurring on the land, the admission to the zoo would constitute a profit
a prendre and an interest in land.
Although
the statute gives many examples of activities included within the purview of
the tax, the statute does not specifically define “admission or user fees.”
Utah Code Ann. 59-12-102 (1) (Supp.
1995). However, the Utah Administrative
Code defines “admission” as the right to enter into a place. Utah Admin. Code R865-19S-33.A (1994). See 49th street Galleria v. Tax Comm'n,
Auditing Division, 860 P.2d 996, 1000 (Utah Ct. App. 1993) (approving the
definition of admission as an “act of admitting or the right to enter” ). The right to enter and remove
goes beyond this and encompasses a substantially different interest in
property. A charge for entry and
removal is not an “admission fee” nor a “user fee” since it involves the
additional right to take profit from the land.
The Utah statute was amended in 1994 to include user fees after the
Court of Appeals decided that payments for the right “to use facilities or
equipment within a place” were not payment for “admission.” Id. User fees are also undefined in
the statute, but the term was apparently added to reverse the Court of Appeals'
decision that the right to use facilities or equipment within a place is not an
admission fee. Therefore, a user fee is
probably a payment for the right “to use facilities or equipment within a
place.” Id.
The
charges for all of the activities listed in the statute are either admission
fees (for admission to the property) or user fees (for the use of the
facilities or equipment within a place).
Since a payment for the right to enter upon and remove wildlife from
property does not involve the right to merely enter upon a place without taking
its profits or to use facilities or equipment, it is therefore not contemplated
by the statute to be either an “admission fee” or a “user fee.” The examples in the statute of license
activities clarify the legislature's intention in having the admission tax
statute apply only to grants of licenses in real property, not to grants of
interests in real property.
Ejusdem
Generis.
When determining the meaning of an ambiguous statute, Utah courts have applied
two rules of construction. The first
rule is that of ejusdem generis, which literally means “of the same
kind.” This rule requires that when
general words or terms follow specific ones, the general must be understood as
applying to things of the same kind as the specific. Heathman v. Giles, 374 P.2d 829, 840 (Utah 1962); C.P.
National corp.. v. Public Service Comm'n, 638 P.2d 519, 522 (Utah
1981). In the Utah admission fee tax
statute, numerous specific activities are followed by the words “or any other
amusement, entertainment, recreation, exhibition, cultural, or athletic
activity.” In light of the standard of ejusdem
generis, the general words at the end of the statute must be understood as
having a similar meaning to the specific words contained earlier in the
statute. Since all 39 examples involve
licenses (not interests in real property), the general terms must also be
limited to applying only to licenses.
Noscitur
a Sociis. The second rule of statutory construction is
that of noscitur a sociis, which literally means “ it is known from its
associates.” Noscitur a sociis
requires that the meaning of doubtful words or phrases be determined in light
of and take their character from associated words or phrases. Heathman, 374 P. 2d at 840; C. P.
National Corp.. . 638 P. 2d at 522.
Under this rule, the terms of the Utah statute can be analyzed to
determine whether the actual words and phrases used in the Utah statute are
those which would include the application to an interest in land. Since 39 examples identify licenses, it
would violate the principle of noscitur a sociis to extend the
application of the statute to interests in real property.
Under
the rules of ejusdem generais and noscitur a sociss, the phrase
“amusement, entertainment, recreation, exhibition, cultural, or athletic activity”
takes its character from the other types of uses listed, and the phrase is
thereby limited to encompass only those activities requiring a license, not an
interest in land. None of the 39 items
listed in the statute involves the right to enter upon another's land and
remove the substances naturally occurring thereon. The business of XXXXX is a business involving the granting of Profits
a prendre and involves interests in land. The granting of an interest in
land is distinguishable from the granting of a license. The rules of construction applied by Utah
courts prevent the statute from extending to an interest in real property.
CONCLUSION
1. THE ADMISSION FEE TAX STATUTE IS TO BE
STRICTLY CONSTRUED AND,
WHEN
AMBIGUOUS, CONSTRUED IN FAVOR OF THE TAXPAYER.
2. THE RIGHT TO ENTER UPON LAND, AND HUNT AND
REMOVE TROPHY ANIMALS IS A “PROFIT A PRENDRE,” WHICH IS AN INTEREST IN LAND.
3. THE RIGHT TO PERFORM THE ACTIVITIES LISTED
IN THE STATUTE ARE LICENSES IN REAL PROPERTY WHICH ARE NOT INTERESTS IN
LAND.
4. THE TAX ON “ADMISSION AND USER FEES”
(§59-12-103 (1) (f) ) IS A TAX ON
LICENSES IN REAL PROPERTY AND NOT A TAX ON INTERESTS IN LAND OR REAL PROPERTY.
THEREFORE,
THE ADMISSION AND USER FEE TAX SHOULD NOT BE APPLIED TO THE HUNTING RIGHTS
INVOLVED WITH THE BUSINESS OF XXXXX.
The
intention of the Utah legislature in enacting a tax on admission and user fees
is not to tax an interest in land. All
of the items listed as examples in the statute are those involving a license,
not an interest in land. The statute
lists 39 specific activities for which an admission or use fee must be
charged. None of the items listed
involves the right to take from the land nor any other interest in land. In addition, the right to enter upon land
and remove the substances naturally occurring there are not included in the
definition of either admission fee or user fee.
Therefore,
XXXXX believes the Utah tax statute is not applicable to the business conducted
by XXXXX. It would be wrong to
interpret the statute as a tax on real property when none of the 39 examples
involve interests in real property.
Could you please confirm this understanding?
Sincerely,
XXXXX
XXXXX
RE:
Advisory Opinion Application of sales tax to charges for guided hunts.
Dear
XXXXX,
Your
request for an advisory opinion on the issue of sales tax on guided hunts has
been delivered to us for response.
After giving thoughtful consideration to your arguments, we find as
follows:
Section
59-12-103 (f) of the Utah Code imposes sales tax on charges for admissions or
user fees for recreational activities.
The Commission has interpreted this language to include charges for
access to private lands for a recreational purpose, such as hunting game
animals, and charges for guide service, camping, lodging, meals, or use of
facilities or equipment. Such charges
by XXXXX to its customers for such services are taxable under Utah law.
XXXXX
is responsible for collecting and remitting sales tax on its taxable
charges. If XXXXX does not already have
a sales tax license, it may obtain one by completing the enclosed application.
If
your client is not satisfied with this determination, you may petition the
Commission for a declaratory judgment under Utah Administrative Rule R861-1A-4
within 30 days of the date of this letter.
Please
let us know if we can be of further assistance.
For
the Commission,
Alice
Shearer
Commissioner