96-030

Response February 13, 1996

Request

January 30, 1996

Dear Mr. Oveson:

XXXXX is contemplating contracting all school bus services to a private company. The private company would own the buses, maintain them, provide drivers and use them exclusively to bus XXXXX students. XXXXX would buy the motor fuel in quantity, store the fuel and dispense the fuel to the buses for school district use only.

Our question is whether the motor fuel would be exempt from fuel taxes under Section 59-13-201(3)(a)(iv), U.C., 1995?

Under this proposed contract, the state benefits from the sales tax paid in purchase of the buses by the private company. We understand that the state follows this same procedure for the state XXXXX and that the state motor fuel is exempt from fuel tax. We believe four other school districts do the same and the motor fuel to those school districts is exempt from tax.

A tax auditor in your department issued the enclosed letter dated XXXXX. Why would the audit division respond to a letter from someone who has no authority to request an opinion?

In discussion with XXXXX, she could not give our legal counsel one reference to any statute or regulation that supports her opinion, merely that it was her opinion. Her only suggestion was that the school district hold title to the buses. That way the state would lose the sales tax and the motor fuel would be exempt from fuel tax. That solution seems to be of little benefit for either the state or the school district.

It is the opinion of our legal counsel that the statute provides that the motor fuel is exempt from fuel tax if the school district purchases the fuel in quantity of 750 gallons or more, stores the fuel and delivers and dispenses the fuel solely for school district use.

Your informal opinion is requested as to the motor fuel tax exemption so that the school district may properly evaluate the feasibility of entering a contract for school bus services.

Sincerely,

XXXXX

February 13, 1996

XXXXX

RE: Advisory Opinion Fuel Tax

Dear XXXXX,

The Commission met to discuss your issue pertaining to the fuel tax on fuel purchased by the school district for use in buses owned and operated by a private company. We find that your contractor must remit fuel tax on all gasoline and diesel fuel used in its vehicles, even if the school district dispenses the fuel from its own tanks.

We agree that Chapter 13 of Title 59 of the Utah Code allows a school district to purchase fuel for its own use tax free under sections 59-13-201 (3) and 59-13-301 (2) (b) of the Utah Code. However, the exemption does not extend to private parties on the basis of a contractual relationship with the school district.

Fuel tax is a tax imposed on the fuel's use or end user. This interpretation is supported by sections 59-13-201 (1) (a) and 59-13-301 (1) of the Utah Code, and various other sections of Chapter 13 of Title 59. On that basis. we find that the fuel used in vehicles owned by a private contractor is subject to fuel tax.

A different contractual relationship between the school district and the private contractor may result in a different outcome. Feel free to contact us as you explore your options. We are happy to help you evaluate the tax consequences of other proposals.

For the Commission,

Alice Shearer

Commissioner