96-037
Response
February 21, 1996
Request
Dear
Commissioners:
Regarding:
Exemption from sales or use tax for rail cars used in interstate commerce.
We
represent a manufacturer who primarily produces XXXXX which are supplied as raw
materials to other manufacturers. As
secondary products, our client also produces XXXXX and XXXXX. Chlorine is among its by-products.
The
XXXXX, and the chlorine are shipped by rail car to other locations in the
United States, with the predominant destination being southern California. The rail cars used to transport these
products are leased by our client from two leasing companies. Delivery of the rail cars is taken in
Utah. Our client contracts with a major
rail carrier to pull the cars.
Our
question related to this exemption is twofold because of the change in the law
(1995
House
Bill 120), which became effective July 1, 1995. The first part of our question
relates
to periods prior to July 1, 1995, and is as follows:
1.
We realize that during this period, the exemption for sales or uses of rail
cars was never clearly defined. We
believe the exempt status of the rail cars in question, however, is justified
by the following rationale:
a.
They are transporting goods in interstate commerce, and the sales tax on the
leases is not being apportioned among all the states in which they travel. As
discussed in Complete Auto Transit, Inc. v. Charles R. Brady, Jr., etc., U.S.
Supreme Court, March 7, 1977, sales tax which is not fairly apportioned may be
considered discriminatory against interstate commerce.
b.
The Utah sales and use tax exemption for sales or uses of property which the
state is prohibited from taxing under the Constitution or laws of the United
States appears to be applicable in this instance.
c.
Although we have nothing in writing, we attended meetings in late 1994 in which
representatives of the tax commission indicated that it has never been the
intent of the commission to tax rail carriers.
d.
Though the cars are not self-propelled, they are being pulled by a major rail
company who is indisputably an interstate commerce carrier.
2.
We acknowledge that our client, the lessee of the cars, is not an interstate
commerce carrier and that rail cars by themselves cannot transport. It is
conceivable that in isolation they could be considered merely containers.
Nevertheless, in concert with the engines, they are the means by which the
products we mentioned are being carried in interstate commerce; and we believe
the intent of the exemption would apply.
3.
Based upon our position, we have submitted requests for refund of the use tax
on these leases for the fourth quarter of 1992. We have indicated to XXXXX that
these requests are pending your ruling.
The
second part of our question relates to periods subsequent to July 1 , 1995, and
is as follows:
1.
Current law [UCA 59202 (2) and (20) and 59204 (38)] applies a very objective
criteria to qualification for the exemption, even though we believe the intent
is still to exempt interstate commerce carriers.
2.
We have a letter ruling regarding XXXXX which indicates that the IFTA and IRP
authority held by XXXXX would extend to the trucks leased from XXXXX by XXXXX.
We
believe this same rationale should apply to our client as a lessee; however, we
have been unable as yet to determine whether the lessors in this case possess
XXXXX authority. We are still working
on that.
It
seems, however, that under a similar kind of thinking, the XXXXX authority of
the rail carrier with whom our client contracts to pull the cars would extend
to those cars, since neither the cars nor the engines could transport the
products without the other.
3. Again, we believe our position is reasonable
and in keeping with the intent of this exemption. We also believe this to be an undefined detail in connection with
this exemption, and it would be helpful to have a ruling on this question.
We
understand that any new legislation places an additional burden on your time
because it always creates many new questions to be evaluated. If it would simplify the process, we could
meet with you in person to answer questions or clarify information related to
this inquiry.
As
always, we appreciate your responsiveness and attention to our concerns.
Sincerely,
XXXXX
Research
Consultant
XXXXX
RE:
Advisory Opinion Application of sales tax on rail car leases
Dear
XXXXX,
We
have received your request for an opinion as to whether leases of rail cars are
subject to sales tax if the car are thereafter used in interstate commerce. In
view of the fact that these transactions have already occurred, we have
directed the Customer Service Division to process your refund requests in the
normal fashion. Of course, if you are dissatisfied with the action taken on the
refund request, you may appeal.
For
the Commission,
Alice
Shearer
Commissioner