96-073
Request
May 9, 1996
Request
XXXXX
Utah
Tax Commission
Auditing
Division
210
North - 1950 West
Salt
Lake City, Utah 84134
Dear
XXXXX
We
are writing to request a Private Letter Ruling concerning the Utah Sales and
Use Tax Exemption for tangible personal property sold to the United States
government. Specifically, we would like to address this issue as it pertains to
tangible personal property sold and installed at existing Federal facilities by
our client, a registered Utah retailer.
Our
client is a manufacturer of XXXXX (XXXXX). Their principal business activity is
the manufacture and sale of the systems. In the event of a loss or reduction in
power, the XXXXX provide continuous electrical power to critical equipment or
machinery. XXXXX consist of tangible personal property manufactured by our
client as well as property purchased from various suppliers.
Recently,
our client entered into an arrangement with the United States Government to
design, manufacture and install the systems at existing facilities under lease
by the United States Government. The systems are capable of being moved to
different locations and the United States Government will remit payment for the
systems directly to our client.
Utah
in its definition of "retail sale" (UT Sec 59-12-102(10))
states..."retail sale means any sale within the state of tangible personal
property or any other taxable item or service other than resale of such
property, item, or service by a retailer or wholesaler to a user or
consumer." Later in the State's definitions section a "sale" is
defined as "any transfer of title, exchange, or barter, conditional or otherwise,
in any manner, of tangible personal property or any other taxable item or
service." (UT Sec 59-12-102(12))
Utah
Statute Section 59-12-104(13) exempts from sales and use tax "sales or use
of property which the state is prohibited from taxing under the Constitution or
laws of the United States or laws of this state." Following this, sales
made directly to the United States government or its agencies are exempt as
sales the state is without power to tax. Based on our examination of these
statutes and our review of the Statement of Work and accompanying documents
issued by the United States government, we believe that our client's
arrangement is a sale of tangible personal property directly to the United
States government and qualifies for the exemption.
Generally,
government contractors are considered consumers and as such are subject to
sales or use tax on all materials, equipment, and other tangible personal
property which is installed, applied, attached or incorporated in their
project. However, the subject agreement is for the sale and installation of
tangible personal property.
We
believe our client is involved in an installation sales arrangement with the
United States government. Tangible personal property and services purchased by
our client for resale to the government should not be subject to tax, provided
certificates of resale are presented to suppliers. Subsequent sale of the
tangible personal property to the United States government should be exempt
from Utah Sales and Use Tax.
We
respectfully request that the State affirm our position so that we might advise
our client as to the tax exempt nature of the contract.
Copies
of the Statement of Work and Order For Supplies Or Services detailing the scope
and requirements of our client's involvement are enclosed for your review.
Should you have any questions regarding this request or require further
information, please do not hesitate to contact me at XXXXX. Additionally, we
appreciate the expediting of this process to the extent possible.
Thank
you for your assistance and consideration with this matter. We look forward to
your reply.
Very
truly yours,
XXXXX
XXXXX
Re: Advisory opinion - Application of sales tax
to sales of XXXXX systems to government agencies
Dear
XXXXX
We have received your request for an
opinion pertaining to sales of XXXXX systems by your client to government
entities. From the information provided
in your letter and the documents that accompanied it, the systems appear to consist
of battery cells or modules, battery racks, and free-standing cabinets plus
additional necessary hardware. On that
basis, we assume that an XXXXX system remains tangible personal property after
installation, and that it is not converted by real property upon
installation. We note that your client
manufactures the XXXXX systems or assembles the component parts, then resells
the completed systems directly to a government entity. With regard to your question, we find as
follows:
Sales of tangible personal property
to the federal government are exempt from sales tax. Therefore, your client’s sales of XXXXX systems to the federal
government are exempt so long as payment is received directly from the
government. Additionally, your client
may purchase the component parts used to manufacture the final item of tangible
personal property tax free for resale.
However, your client must pay sales or use tax on the items that he uses
and consumes in the process of manufacturing or assembling the item. Your client is considered the final consumer
of anything used in manufacturing, shipping, or installation which does not
become a necessary component part of the final item sold.
Please contact us again if you have
other questions.
For the Commission,
Alice Shearer,
Commissioner