98-086

Response January 29, 1999

REQUEST LETTER

November 17, 1998

Mr. Pacheco,

As per our conversation today, I am writing to you to ask for clarification regarding shipping material to Utah. We have recently opened an office in CITY, however, our plant is in CITY,

Oregon.

My questions for the commission is if we hire an independent trucking company (common carrier) to deliver our materials to Utah, we do not need to collect or pay tax on the material. I understood you to say that is also the case Ir our customer hires a common carrier to deliver their material to Utah.

I would also like to know it we need to collect and pay tax on any labor that we charge customers when we send crews to Utah to build a Pole Building.

If you could please respond in writing to my questions as soon as possible, I would greatly appreciate it.

Sincerely,

NAME

RESPONSE LETTER

January 29, 1999

RE: Advisory Opinion - Tax Obligations on Construction Materials and Labor

Dear NAME,

We have received your request for an advisory opinion concerning the sales and use tax obligations of COMPANY (ACompany@) now that it has opened an office in Utah and constructs Apole buildings@ in Utah. As an entity with sales and use tax nexus with Utah, the Company is required to collect and remit those taxes to Utah.

For purposes of this opinion, we will assume that a pole building is a real property improvement upon its completion. If so, then Utah Admin. Code R865-19S-58 (copy enclosed) sets forth your sales tax obligations as the company that both sells or provides the construction materials and provides the labor to build the pole building. Let us first discuss charges for labor and then charges for construction materials.

Labor. Under Utah law, the sale of real property is not subject to sales tax. Neither is labor performed on real property. Thus, the sale of a pole building to a property owner, or any charges to a property owner for labor to build a pole building, are not subject to sales tax.

Construction Materials. Under Rule R865-19S-58, a vendor who sells items of personal property to the final consumer must collect sales tax on the sale. Accordingly, if a contractor purchases construction materials, uses those materials to build a real property improvement, then sells the finished improvement to the property owner, the contractor is responsible for paying sales tax on his purchase of the materials from the supplier because he is the last person to own the materials in their status as personal property. This situation would arise should the Company purchase any construction materials from a supplier in Utah that are then incorporated into a real property improvement. The Company would remit the sales tax to the supplier at the time of the sale. No sales tax would be charged to the property owner purchasing the pole building.

Similarly, a contractor who stores, uses, or consumes tangible personal property in Utah, the sale of which was not subject to Utah sales tax, must pay a use tax on the property. Utah Admin. Code R865-21U-1 (copy enclosed). This situation arises if the Company contracts to build a pole building and itself supplies the construction materials, which are brought in from outside of Utah. Though obtained from outside of Utah, the construction materials are consumed in Utah and have not been subject to Utah sales tax. Thus, the Company would need to pay Utah use tax on any purchase price it has paid for these items and remit the tax on its Utah sales tax return. No sales or use taxes would be charged to the property owner.

On the other hand, if the property owner purchases the construction materials directly from the Company=s Utah office, the Company must collect sales tax from the property owner on the full purchase price, if that personal property is shipped into Utah from out of state. No tax is due if the personal property is shipped from outside of Utah to another site outside of Utah. Should the property owner purchase the construction materials from a Company office outside of Utah and it is shipped into Utah, the Company must collect Utah use tax from the property owner on the full purchase price and remit it on its Utah sales tax return. Utah Admin. Code R865-21U-3 (copy enclosed).

You mention in your letter tax may not be due if a common carrier is used to deliver the construction materials. We believe you have confused the sales described above with an interstate sale, which is defined in Utah Admin. Code R865-19S-44 as a sale made in Utah where the goods are shipped out of Utah. This situation does not arise when the pole buildings are built in Utah, and thus the use of a common carrier to deliver the goods from another state into Utah is not relevant to the taxable status of those goods.