96-124
Response
August 23, 1996
Request
Utah
Tax Commission
Attn:XXXXX
10
North 1950 West
Salt
Lake City, UT 84134
Dear
XXXXX
This
letter is to request an advisory opinion from the Utah State Tax Commission.
The
matter on which the opinion is requested involves several individual
ranchers/farmers who prior to last year owned and maintained an electric power
line to their farms located outside of XXXXX and XXXXX who provided power
through these lines and who now has ownership of these electric power lines.
The
various ranchers/farmers and XXXXX agree that if the ranchers/farmers would
bring the lines “up to code” that XXXXX would then accept ownership and
maintenance responsibility for these lines in the future.
The
materials for the upgrade of the line was purchased by the ranchers/farmers
from XXXXX and XXXXX charged sales tax on the materials.
A
representative of the ranchers/farmers contacted the State Tax Commission and
then provided information noting that sales tax should not be charged to the
individuals who paid for the upgrade based on (1) the operation was
agricultural in nature and/or (2) the line is now in the ownership of XXXXX.
In
a previous conversation with the State Tax Commission XXXXX was advised that
the sales tax was chargeable in this case and we are requesting a written
statement from the State Tax Commission as to whether or not we should be
charging sales tax as we want this transaction to be correct and fair to all
parties.
Thank
you in advance for your cooperation in this matter.
Sincerely,
XXXXX
XXXXX
Advisory
Opinion - Application of sales tax on materials purchased to upgrade electrical
lines.
Dear
XXXXX
We have received your request for an
opinion as to the application of sales tax on purchases of materials to upgrade
electrical power lines that supply power to farms in your area.
As
we understand the situation, XXXXX entered into an agreement with some farm
owners to transfer ownership of an electrical power line system from the farm
owners to the city on condition that the farm owners would upgrade the
system. We assume that the materials
were purchased by the farm owners before the city accepted ownership of the
line.
Although the city, as a political
subdivision of the state, is entitled to purchase items of tangible personal
property tax free, it has no authority to grant or extend its tax exempt status
to a private landowner. The fact that
the line is now owned by the city does not confer an exempt status on the farm
owners who purchased the materials for the upgrade. The farm owners must pay sales tax on their purchases from the
city unless the their purchases fall under some other exemption.
A farmer may purchased tangible
personal property tax free if the item is used or consumed primarily and
directly in farming operations.
Although electricity purchased for use in agricultural operations may
qualify for exemption, the lines over which the electricity is transmitted are
only incidental to the farming operations.
In fact, the lines serve non-agricultural activities on the property as
well as agricultural operations.
Therefore, purchase of materials to upgrade the lines are not exempt
under the agricultural exemption.
Under the facts presented, we
conclude that the city was correct to collect sales tax on sales of materials
to the farm owners. If you have
additional questions, please let us know.
For the
Commission,
Alice
Shearer,
Commissioner