96-087
Response
May 15, 1996 and May 28, 1996
Request
XXXXX
Utah
State Tax Commission
210
North 1950 West
Salt
Lake City, Utah 84134
Re:
Request for Advisory Opinions - (1) Service on overhead cranes and (2)
Retroactive application of revised rule.
Dear
XXXXX
In
light of section 2 (a), (b) and (c) of the proposed revision of rule
R865-19S-78 some businesses are concerned whether overhead cranes would be
governed by these sections.
Typically,
the sale of large industrial overhead cranes are customized to the needs of
customers and installed in such a manner that complete removal is
impractical. Proper and permanent
attachment is essential for operation of the crane. At times, part of the crane may be temporarily detached from the
overhead rail for repairs at the job site.
If it would be helpful, we could arrange for a physical inspection of
operating cranes in a local manufacturing plant.
The
advisory opinion we are requesting is: Are job site repairs of industrial
overhead cranes permanently attached to a building considered nontaxable?
The
second opinion we request involves the application of the revised rule. Often,
when there has been confusion as to interpretation of a law, rule, or policy,
retroactive application of clarification is made by the Commission. Examples
include:
* Rule R865-19S-68A (treatment of items given to exempt
organizations);
* Rule R865-19S-98(5) (non-residents commuting daily to work
in Utah are not considered using the vehicle in Utah); and
* Rule R865-19S-88 and 1995 Senate Bill 89 (the 100%
non-compliance penalty reduced to 10% and applied to periods before July 1,
1995).
The
second advisory opinion requested is: Will the revised rule R865-19S-78 have
retroactive application?
Thank
you for your help in clarifying these issues.
Respectfully,
XXXXX
XXXXX
Re: Proposed Rule R865-19S-78.
Dear
XXXXX
We have received your request for
information pertaining the application of proposed administrative rule R865-19S-78.
As you know, this rule has not yet been adopted. The rule hearing is scheduled for May
28. If the rule passes, it will have
prospective application. To the extent
that this rule amends past practice, it is not our intention to revisit
Commission decisions rendered prior to the rule’s enactment.
With regard to overhead cranes,
cranes may be installed in a way that qualifies them for exemption on repairs
under R865-19S-78. However, these
questions are very fact specific, and we cannot issue an opinion that will have
broad application to overhead cranes. Our decision in any particular case will
depend upon on the circumstances in that case.
If you have a client who has installed an overhead crane, please feel
free to request an opinion on the basis of a description of the manner of
installation and your client’s use of the crane. If we find that a particular crane is installed in a manner that
qualifies it as real property for purposes of this rule, labor for on-site
repairs will also tax exempt.
Please contact us if you have
additional questions.
For the Commission,
Alice Shearer,
Commissioner
XXXXX
Re:
Retroactive application of R865-19S-78
Dear
XXXXX
Thank
you for taking time to meet with the Commission earlier this week. We appreciate your views on sales tax
issues. Your questions and suggestions
deserve our further consideration.
You
raised one question that we are prepared to respond to here. Tax Bulletin 8-89 informs printers that
“[c]harges for labor to repair equipment permanently or semi-permanently
attached to realty are not taxable. The
attachment must be necessary for proper operation of the equipment.” Apparently some of your clients in the
printing industry believe that our auditors are now assessing sales tax on
service or repair to printing presses, presumably on the heels of an order we issued
on an appeal concerning commercial refrigeration equipment. Amendments to rule R865-19S-78, when
adopted, will formally announce a departure from the position taken in the
refrigeration equipment appeal.
In
issuing our ruling on that appeal, we did not intend to overrule our prior Tax
Bulletin issued for the benefit of the printing industry. If our auditors relied on that ruling to
assess sales tax on repairs to equipment that otherwise qualify for exemption,
we are concerned that the assessments may be in direct conflict with information
published in Tax Bulletin 8-89. To the
extent that the ruling resulted in a misunderstanding, we propose the
following:
1. If
you identify clients in the printing industry who have not been audited, but
who may be due a refund for taxes paid on repairs, they may submit a refund
claim within the statutory period. The
claims may be directed to XXXXX of our Customer Service Division. Of course, your client must establish that
the equipment involved is affixed to realty and that the affixation is essential
to its operation.
2. If
the issue arises from an audit, the taxpayer has recourse to challenge the
assessment through the appeals process within the 30 day statutory period.
3. As we stated in our advisory opinion of
May 15th, we do not intend to revisit past final agency actions, orders and
decisions. However, we will recognize a
very narrow circumstance under which your clients in the printing industry may
petition to reopen a final audit assessment.
If
the taxpayer challenged the auditor’s determination on the basis of Tax
Bulletin
8-89, and the auditor represented to the taxpayer
that Tax Bulletin 8-89 had been overruled by subsequent agency decisions and
orders, the taxpayer would have had no reason to question the audit assessment
within the statutory period. In such a
case, we will grant the taxpayer’s request to reopen the audit assessment on
grounds that the taxpayer has discovered new evidence which was unavailable to
him during the appeal period despite his reasonable diligence. Once the audit is reopened, the client must
establish that the repairs at issue qualified for exemption.
Let
me emphasize that before we will reopen an audit assessment, the taxpayer
must show that he used reasonable
diligence in questioning the auditor’s determination, and that he relied on the auditor’s representations that
Tax Bulletin 8-89 had been overruled by the Commission. If he took no affirmative steps to question the
audit during the statutory period, we assume that he intended to waive his opportunity
to appeal and we will not entertain it now.
Thank
you for bringing these matters to our attention. Our staff is reviewing the other issues raised in the meeting,
and we will communicate our findings and decisions to you as soon as possible.
For
the Commission,
Alice
Shearer,
Commissioner