No. 35606 (5-year Review): Rule R865-19S. Sales and Use Tax

DAR File No.: 35606
Filed: 01/03/2012 11:34:04 AM

NOTICE OF REVIEW AND STATEMENT OF CONTINUATION

Concise explanation of the particular statutory provisions under which the rule is enacted and how these provisions authorize or require the rule:

Section 10-1-303 defines terms used in the Municipal Energy Sales and Use Tax Act. Section 10-1-306 grants Tax Commission rulemaking power to establish the delivered value and the point of sale of taxable energy. Section 10-1-307 establishes a method for collection of municipal energy sales and use tax by the Tax Commission; provides circumstances under which an energy supplier shall pay the tax directly to a municipality. Section 10-1-405 requires the commission to collect the municipal telecommunications license tax pursuant to a uniform interlocal agreement between the municipalities that impose the tax and the commission; requires commission to develop the uniform interlocal agreement by rule. Section 19-6-808 provides guidelines for payment of the waste tire recycling fee. Section 59-12-102 defines terms used in the Sales and Use Tax Act. Section 59-12-103 establishes a sales and use tax base, the state sales tax rate, and earmarking of certain sales tax revenues. Section 59-12-104 lists sales and uses that are exempt from sales and use tax. Section 59-12-104.1 exempts sales made by or to religious or charitable organizations from sales and use tax law. Law provides that the exemption shall, with exceptions, be administered as a refund; requires Tax Commission to promulgate refund procedures by rule. Section 59-12-105 requires certain exempt sales to be reported to the Tax Commission by the owner or purchaser. Provides penalties for failure to report these exempt sales and gives the Tax Commission the right to waive, reduce, or compromise the penalties. Section 59-12-106 requires all persons required by law to collect sales and use tax to have a license issued by the Tax Commission, prior to the collection of tax; requires vendors to obtain an exemption certificate at the time of sale to evidence the sale qualifies for an exemption. Section 59-12-107 requires each vendor with nexus in this state to collect and remit sales and use tax to the Tax Commission, on forms prescribed by the Tax Commission; allows Tax Commission to require security. Law also provides credits for prepaid sales and use tax, and provides penalties for violation of law. Section 59-12-108 requires any vendor whose annual tax liability exceeds $50,000 for the previous year to file with the Tax Commission on a monthly basis; requires vendors whose annual tax liability exceeds $96,000 for the previous year to file monthly tax returns by electronic funds transfer; allows vendors required to file monthly to retain a portion of the sales tax they collect; gives Tax Commission rulemaking power for the procedures necessary to determine tax liability for purposes of this section. Section 59-12-109 establishes that confidentiality of sales and use tax returns and other information filed with the Tax Commission is governed by Section 59-1-403. Section 59-12-111 requires all Utah vendors holding a state sales tax license to keep accurate records of all sales made for a period of three years. Law requires them to be accessible to authorized Tax Commission employees upon request. Section 59-12-112 creates a tax lien on any unpaid sales taxes when a business is sold; clarifies the liability of the purchaser of the business when the previous owner has not paid the sales tax. Section 59-12-118 grants the commission exclusive authority to administer, operate, and enforce the provisions of Chapter 12, Sales and Use Tax Act; includes a grant of rulewriting authority to enforce the chapter. Section 59-12-211 requires the commission to promulgate a rule that indicates how to determine the location of a transaction for the use of computer software at more than one location. Section 59-12-301 allows a county legislative body to impose a transient room tax for every occupancy of public accommodations. Section 59-12-352 allows a municipality to impose a municipal transient room tax for every occupancy of public accommodations. Section 59-12-353 allows a municipality to impose an additional transient room tax for every occupancy of public accommodations to repay bonded or other indebtedness. Section 59-12-1102 allows a county to impose an additional sales and use tax on all taxable transactions; sets forth the procedures a county must follow in order to impose the tax; provides for the distribution of the revenue collected from the imposition of this tax.

Summary of written comments received during and since the last five-year review of the rule from interested persons supporting or opposing the rule:

None.

Reasoned justification for continuation of the rule, including reasons why the agency disagrees with comments in opposition to the rule, if any:

Section R865-19S-1 distinguishes between sales and use taxes. Section R865-19S-2 describes sales and use taxes as transaction taxes rather than taxes on articles sold; explains that purchaser pays the tax, not the vendor. The vendor merely remits the tax to the state. Section R865-19S-4 indicates that, unless otherwise provided by statute, an invoice or receipt shall show sales tax as a separate line item or in the underlying books and records kept in the vendor's ordinary course of business. If vendors collect an excess amount of tax, they must refund the tax to customers or remit excesses to Tax Commission. Indicates circumstances under which an over collection of taxes may be offset against an under collection of taxes. Section R865-19S-7 explains sales tax license requirements for businesses. Outlines rules for business address changes and business closures. Section R865-19S-12 prescribes the basic form for vendor tax returns. Outlines commission rules for timely filing and extensions. Distinguished between annual filing status and quarterly filing status requirement. Explains alternative sales tax deposits (daily, weekly, or monthly) if necessary for the remittance of tax. Section R865-19S-13 explains confidentiality of returns and states that persons requesting a copy of their own tax returns must present proper identification. Section R865-19S-16 clarifies vendor procedure when vendor has collected excess taxes. Section R865-19S-20 defines the term "total sales" for sales tax purposes. Enumerates the circumstances under which the Tax Commission will give adjustments and credits. Vendor commissions are not deductible. Section R865-19S-22 describes the proper method of sales and use tax record keeping for retailers, lessees, and lessors. Discusses proper microfilm and microfiche methods and ADP accounting system records. Explains Tax Commission prerogatives if records are not prepared and maintained in the prescribed manner. Section R865-19S-23 describes the exemption certificate requirement for vendors of exempt tangible personal property. Section R865-19S-25 requires sales tax license holders to return tax licenses for cancellation upon sales of business. Requires sales tax license holders to retain business records for three years after discontinuation of business. Section R865-19S-30 lists the evidence required for calculating sales and use tax for vehicle sales with or without a trade-in vehicle used as partial payment. Section R865-19S-31 time and place of sale determined by contract between seller and buyer. The intent of the parties is subject to generally accepted contract law. Section R865-19S-32 explains sales tax implications for leases, rentals, and conditional sales leases. Provides examples of taxable leases. Section R865-19S-33 defines "admissions," "annual membership dues," and "season passes;" clarifies what is not an admission; states that amounts paid for activities that are not admissions must be separately stated on the invoice. Section R865-19S-34 defines "place of amusement" as a definite location. Admission is subject to tax even though the charge includes the right to participate in an activity. Section R865-19S-35 clarifies definition of "residential use" to include nursing homes. Definition of "fuels" does not include explosives. Taxable status of fuel furnished through a single meter is determined by its predominant use. Section R865-19S-37 defines "commercials," "audio tapes," "video tapes," "motion picture exhibitor," and "distributor." Section R865-19S-38 clarifies definition of "isolated or occasional" sales. Section R865-19S-40 sales tax exemption for agricultural produce/agricultural products exchanges explained. Section R865-19S-41 clarifies, for purposes of the sales tax exemption for the U. S. government, when a sale is made to the U. S. government. Section R865-19S-42 clarifies when a sale is made to "state of Utah" for exemption purposes. Section R865-19S-43 outlines exemption qualification requirements for religious or charitable institutions. Section R865-19S-44 explains meaning of "sales made in interstate commerce." Section R865-19S-48 explains that returnable containers are not exempt from sales tax (although non-returnable containers are). Containers sold for final use to the consumer are not exempt. Deposits on containers are subject to sales tax; retailer may take tax credit if deposit refund is made to customer. Section R865-19S-49 defines "farming operations" for purposes of the agricultural exemption; food, medicine, and supplies for animals in agricultural use exempt from sales tax. Fur bearing animals raised for fur are exempt agricultural products. These exemptions are only applicable to commercial farming operations. Purchaser must supply exemption certificate to vendor. Explains that poultry, eggs, and dairy products are not seasonal products under Subsection 59-12-104 (21). Section R865-19S-50 defines flowers, trees bouquets, plants, etc. as agricultural products. Explains tax rules for florist telegraphic deliveries. Florist receiving the order from the buyer must collect tax. Section R865-19S-51 clarifies tax rules for manufacturing and assembling labor on tangible personal property. Sale of the personal property itself is not exempt unless specifically exempted. Section R865-19S-53 sales by finance companies of tangible personal property acquired by repossession or foreclosure are subject to tax. Section R865-19S-54 explains governmental sales tax exemption and lists state and federal governmental entities exempt from tax. Section R865-19S-56 explains that sales by employers to employees are generally subject to sales tax. Section R865-19S-57 retail sales of ice are taxable. Ice to be re-sold is not taxable. Contract sales of ice to railroads or freight lines are taxable; no deduction for services is allowed. Section R865-19S-58 explains that construction materials are taxable to contractor or repairman if contractor or repairman converts them to real property. Defines "construction materials." Sales of materials to contractors are taxable; sale of completed real property is not. Contractor is the final consumer when contractor converts tangible personal property to real property. Defines conditions under which sales of construction materials to religious or charitable institutions are exempt. Provides examples of items that remain tangible personal property even when attached to real property (and hence are taxable). Section R865-19S-59 defines sales of tangible personal property to repair persons or renovators as "for resale" sales, and there- fore exempt. Sales of supplies consumed by repair persons or renovators are taxable. Section R865-19S-60 explains that items sold to businesses for use in carrying on business are taxable. Gives examples of office supplies, trade fixtures, etc. that are subject to tax. Section R865-19S-61 clarifies definition of tax exempt meal sales. Meals available to general public not exempt. Defines "available to general public." Section R865-19S-62 meal tickets, coupon books, and merchandise cards, sold by persons engaged in selling those items, are taxable. Explains collection procedure. Section R865-19S-63 defines tombstones and grave markers as improvements to real property. Defines tax rules for sales of these items. Section R865-19S-65 clarifies tax rules for newspaper sales. Defines "newspaper" for tax exemption purposes. Explains rules for advertising inserts. Section R865-19S-66 distinguishes between services rendered and tangible personal property sold by optometrists, ophthalmologists, and opticians. Services are not taxable, but sales of the tangible personal property are taxable. Section R865-19S-68 defines premiums, gifts, rebates, and coupons as taxable tangible personal property. Explains tax rules for donations of these items. Section R865-19S-70 defines persons who render services (doctors, dentists, barbers, or beauticians) as the consumers of the tangible personal property dispensed during their services. Section R865-19S-72 explains sales tax exemption for trade-ins and exchanges of tangible personal property. Section R865-19S-73 explains the responsibility of trustees, receivers, executors, administrators, etc. of collecting and remitting sales tax on all taxable sales, including those made at liquidation. Section R865-19S-74 defines vending machine operators as retailers. Defines "cost" for the purposes of the 150% cost formula in Section 59-12-104(3). Requires vending machine operators to secure a sales tax license and to display license number on each vending machine. Section R865-19S-75 defines sales by photographers, photofinishers, and photostat producers as sales of tangible personal property. Requires these persons to collect tax on their services and on sales of related tangible personal property. Section R865-19S-76 defines charges for painting, polishing, washing, cleaning, and waxing tangible personal property as subject to tax, with no deduction allowed for the service involved. Explains that sales of items used in providing these services are subject to tax. Section R865-19S-78 explains that labor charges for installation, repair, renovation, and cleaning of tangible personal property are taxable; labor charges for installation of tangible personal property that becomes real property are not subject to tax. (Clarifies Subsection 59-12-103(1)(g)). Section R865-19S-79 defines "tourist home," "hotel," "motel," "trailer court," "trailer," and "accommodations and service charges." Section R865-19S-80 Defines "Pre-press materials" and "printer." Describes sales tax liability for sales and purchases made by printers. Section R865-19S-81 explains that the sale of artwork is taxable. Purchase of art supplies that become part of the finished product may be purchased tax free. Section R865-19S-82 outlines sales tax rules for items used for display, trial, or demonstration. Tangible personal property used for display, trial, or demonstration is not subject to tax. Demonstration items used primarily for company or personal use are subject to tax. Section R865-19S-83 describes procedure for tax reimbursement of purchases for construction of pollution control facilities. Provides that after a pollution control facility is certified qualifying purchases should be made tax exempt. Section R865-19S-85 defines "establishment," "machinery and equipment" and "manufacturer," for the purpose of the exemption for new and expanding operations and normal operating replacements; indicates when different activities performed at a single location constitute a separate and distinct establishment. Section R865-19S-86 outlines procedures for mandatory filers, defines "mandatory filer" and related terms; describes criteria for vendor reimbursement of the cost of collecting and remitting sales taxes. Delineates procedures for Electronic Funds Transfer (EFT) remittance of sales taxes. Section R865-19S-87 defines "tooling," "special tooling," "support equipment," and "special test equipment" for purposes of the aerospace or electronics industry contract exemption set forth in Section 59-12-104. Section R865-19S-90 defines "interstate," "intrastate," and "two-way transmission" for purposes of Section 59-12-103. Enumerates taxable telephone services and gives examples of nontaxable charges. Section R865-19S-91 explains that sales to government contractors are subject to sales tax if the contractor uses or consumes the property. Lists criteria for qualification as a purchasing agent for a government entity. Section R865-19S-92 defines "computer generated output;" indicates that prewritten computer software is subject to sales tax regardless of the form in which it is transferred; indicates that custom computer software is exempt from sales tax regardless of the form in which it is transferred. Section R865-19S-93 describes procedure for payment of waste tire recycling fees and clarifies what sales of tires are subject to the fee. Section R865-19S-94 distinguishes between taxable and non-taxable tips, gratuities, and cover charges at restaurants, cafes, and clubs. Section R865-19S-96 outlines assessment of the transient room tax. Section R865-19S-98 defines "use" for purposes of vehicle sales tax exemption for nonresidents. Describes qualifications for nonresident status. Describes qualifications for vehicles deemed not used in this state. Section R865-19S-99 explains that vehicles purchased in another state are exempt from Utah sales tax if sales tax has been paid in another state. Registration card from another state serves as evidence of such payment. Section R865-19S-100 explains procedures for sales tax exemptions and refunds for religious and charitable organizations. Section R865-19S-101 explains that document preparation fees assessed for motor vehicle sales are exempt from sales tax if separately identified and not included in the vehicle sale price. Section R865-19S-102 states that ski resorts that do not have a separate meter for their exempt purchases shall determine a methodology to calculate exempt electricity purchases, and to receive Tax Commission approval prior to using that methodology. Section R865-19S-103 defines "gas" and "supplying taxable energy" for purposes of the municipal energy sales and use tax. Also defines "delivered value" and "point of sale" of taxable energy. Sets forth responsibilities of an energy supplier and a user of taxable energy. Section R865-19S-104 clarifies that the annual distribution of the county option sales tax shall be based on a calendar year; adjustments shall be reflected in the February distribution. Section R865-19S-108 defines "user fee" for purposes of sales and use tax on admission or user fees. Section R865-19S-109 distinguishes between the taxable and non-taxable status of purchases and sales made by a veterinarian; provides that if a sale by a veterinarian includes both taxable and nontaxable items, the nontaxable items must be separately stated or the entire invoice is subject to tax. Section R865-19S-110 defines "advertiser." Clarifies taxable status of purchases and sales made by advertisers. Section R865-19S-111 clarifies when a graphic design service is non-taxable; provides that a vendor who provides both nontaxable graphic design services and taxable tangible personal property must separately state nontaxable amounts or the entire sale is taxable. Section R865-19S-113 defines "federal airway;" indicates when amounts paid for aircraft or watercraft tours are exempt from sales tax; indicates when sales tax shall be collected in Utah for a service that occurs in Utah and another state. Section R865-19S-114 defines items that constitute clothing in accordance with the Streamlined Sales and Use Tax Agreement. Section R865-19S-115 defines items that constitute protective equipment in accordance with the Streamlined Sales and Use Tax Agreement. Section R865-19S-116 defines items that constitute sports or recreational equipment in accordance with the Streamlined Sales and Use Tax Agreement. Section R865-19S-117 provides guidelines for rounding the computation of sales tax. Section R865-19S-118 provides the terms of the uniform interlocal agreement that governs the commission's administration of the municipal telecommunications license tax. Section R865-19S-120 defines terms for the sales tax exemption relating to film, television, and video; indicates transactions that do not qualify for the sales tax exemption. Section R865-19S-121 defines terms for purposes of the sales tax exemption for certain purchases by a mining facility; indicates the items the exemption applies to. Section R865-19S-122 defines terms for purposes of the sales tax exemption for certain purchases by a web search portal establishment; indicates the items the exemption applies to. Therefore, this rule should be continued.

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at [e-mail]

Authorized by:

Michael Cragun, Tax Commissioner

Effective:

01/03/2012

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