REQUEST LETTER

99-032

April 1,1999

RE:             Request for Advisory Opinion on Utah Code Ann. 1 59-12-104(22)

Dear Commissioners;

I represent COMPANY ("COMPANY"), a sod farm located in CITY, STATE. COMPANY grows and sells sod commercially, and makes a substantial portion of its sales to Utah-based customers. COMPANY has been selling sod in Utah for many years. For the first several years, COMPANY collected Utah sales tax. Approximately three years ago, the Utah State Tax Commission informed COMPANY that sod was exempt from sales tax and that COMPANY should stop collecting it. The Tax Commission went so far as to cancel COMPANY's sales tax number. Recently, the Tax Commission conducted an audit of COMPANY, due to its failure to collect sales tax. When COMPANY explained the Tax Commission's previous actions, the Tax Commission decided against requiring reimbursement for the previous three years, but informed COMPANY that it must resume collecting sales tax.

COMPANY seeks your guidance on the applicability to out-of-state entities of the Utah state sales tax exemption found in Utah Code Ann. 1 59-12..104(~") That subsection provides an exemption for:

[E]xclusive sale of locally grown seasonal crops, seedling plants, or garden, farm, or other agricultural produce is sold by a producer during the harvest season[.]

It is unclear what is the exact scope of the subsection's language "locally grown." The scope of such language could plausibly correspond to: (1) within state boundaries; or (2) a reasonable distance regardless of state boundaries. An interpretation holding "locally grown" to correspond with "in state" would be anomalous in several scenarios. One (as would be the case with my client) is where a STATE company making sales to COUNTY would not be considered "local," while a COUNTY vendor would Arguably, for purposes of COUNTY purchasers, a CITY STATE vendor is much more 'local" than a CITY vender. Also, an "in state" definition would do little to resolve the situation where a vendor sells products grown on land straddling state boundaries. Finally, an "in state" definition would probably violate the commerce clause, the privileges and immunities clause and/or the equal protection clause of the U.S. Constitution by discriminating against interstate commerce and nonresidents of Utah. On the other hand, an interpretation holding "locally grown" to be a function of distance rather than state boundaries is probably too indefinite to be enforceable, since it does not indicate the exact distance or scope needed to be "local."

Therefore, my client seeks an advisory opinion from you regarding the scope and meaning of the phrase "locally grown" as used in Utah Code Ann. 1 59-12-104(22), and how such scope and meaning applies to out-of-state entities making sales to Utah purchasers. Any guidance you can provide will be most welcome.

Sincerely,

NAME

RESPONSE LETTER

May 9, 2000

RE:       Sales Tax Exemption for Locally Grown Seasonal Crops

Dear NAME,

On behalf of your client, COMPANY, you have requested an advisory opinion regarding the scope and meaning of the phrase “locally grown” as used in Utah Code Ann. '59-12-104(22) and how the term is applied to out-of-state entities making sales to Utah purchasers. COMPANY is a sod farm located in CITY STATE, that grows and sells sod commercially, with a substantial portion of its sales made to Utah-based customers. The Auditing Division of the Utah State Tax Commission has recently informed COMPANY that it should collect sales tax on its sales made to Utah customers.

Section 59-12-104(21) provides an exemption from Utah sales and use tax for the “exclusive sale of locally grown seasonal crops, seedling plants, or garden, farm, or other agricultural produce is sold by a producer during the harvest season[.]” The Tax Commission believes that, for purposes of the exemption, the Legislature intended the term “locally grown” to be interpreted to include those seasonal crops grown within the boundaries of Utah but to exclude those seasonal crops grown outside the state's boundaries.

You state that such an interpretation impermissibly discriminates against interstate commerce and, thus, violates the commerce clause of the U.S. Constitution. Whether this is true or not, the Tax Commission does not have the jurisdiction to determine the constitutionality of laws enacted by the Legislature. Instead, the Tax Commission has a duty to enforce any law enacted by the Legislature. Until the Legislature changes the law or a court that has jurisdiction declares the law unconstitutional, the Tax Commission is required to enforce the law as intended by the Legislature.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

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