97-010

Response February 28, 1997

State Tax Commission:

I am writing to express my total frustration in trying to collect proper Sales Tax for the Utah State Tax Commission.

We are a manufacturing firm in Utah. We do a lot of work for agricultural producers. I have honestly tried my best to collect the proper Sales Tax due I have spent many hours on the telephone trying to clarify unclear or gray areas concerning Sales Tax on agricultural buildings. I was basically told that because the buildings were converted to real estate, they are subject to Sales Tax (your 195 form Agricultural Producers #2, line d.). Because of what I was told by a representative of the State Tax Commission I charged Sales Tax Now, three and four years later the farmers are coming to be reimbursed for the sales tax they paid in '93 - 196. The work and the hours that this will require on my part is over whelming and frustrating, as this could have all been avoided if I had been given the proper information in the first place.

Before I refund the Sales Tax to the farmers. I would appreciate a letter from you clarifying exactly what is EXEMPT from Sales Tax and what is NOT EXEMPT.

I would sincerely appreciate any help you could give me concerning this.

Thank You,

NAME

February 28, 1997

NAME

ADDRESS

CITY STATE ZIP

Advisory Opinion - Sales of items used in agricultural operations

Dear NAME,

We have received your request for information regarding the application of the agricultural exemption to sales by your company. As we understand your letter, your company sells manufactured buildings to agricultural producers. We offer the following guidance:

Under Utah Code section 59-12-104 (21), sales of tangible personal property used or consumed primarily and directly in farming operations are exempt from sales tax, whether or not the item becomes part of real estate. With regard to manufactured buildings, the Commission has long acknowledged this exemption so long as the building is used for a qualifying purpose. Recently the Commission reviewed its position on building materials used to construct qualifying agricultural buildings. We determined that the plain language of the statute extends the exemption to building materials which are converted to real property so long as the finished structure is used for a qualifying purpose.

To qualify for exemption, the structure must be used primarily and directly in commercial farming operations. Items used in any activities other than farming, such as office equipment and supplies, items used in sales and distribution, or transportation do not qualify for this exemption. A commercial farming operation is evidenced by the filing of a federal Farm Income and Expenses Statement (Schedule F) for federal tax purposes.

An agricultural producer may claim the exemption with a properly filed exemption certificate. If a contractor is purchasing materials for conversion to a qualifying building, we suggest that you require the contractor to obtain and deliver to you an exemption certificate signed by the agricultural producer. So long as you accept the exemption certificate in good faith, you will not be held responsible for collecting sales tax on these kinds of sales. If questions arise concerning a particular sale, we will look to the agricultural producer who signed the certificate. Incidently, the exemption certificate was revised in June of 1996 (copy enclosed). The language of limitation that appeared on older versions of this form has been removed.

As you are probably aware, you may request a refund within three years of the overpayment. Normally, you will refund the tax to your customer, then take an adjustment for the refunded tax on your next sales tax return. If you or your customers have questions or problems concerning specific refund claims, please contact NAME of our Customer Service Division at #####. NAME or any member of her staff will be happy to work with you.

Please let us know if you need further information or clarification.

For the Commission,

Joe B. Pacheco,

Commissioner