Knowledge Data Systems v. Utah State Tax Com'n Auditing Div.

• Decision Date: 21 December 1993
• Docket Number: No. 930323-CA,930323-CA
• Citation: 865 P.2d 1387
• Parties: KNOWLEDGE DATA SYSTEMS, Petitioner, v. UTAH STATE TAX COMMISSION, AUDITING DIVISION, Respondent.
• Court: Utah Court of Appeals

Page 1387

865 P.2d 1387

KNOWLEDGE DATA SYSTEMS, Petitioner, v. UTAH STATE TAX COMMISSION, AUDITING DIVISION, Respondent.

No. 930323-CA.

Court of Appeals of Utah.

Dec. 21, 1993.

R. Bruce Johnson and David J. Crapo, Salt Lake City, for petitioner.

Jan Graham, Gale K. Francis and Mark Wainwright, Salt Lake City, for respondent.

Before BENCH, JACKSON and ORME, JJ.

OPINION

JACKSON, Judge:

Knowledge Data Systems (Knowledge Data) appeals a decision by the Utah State Tax Commission (the Tax Commission) upholding the assessment of a tax on Knowledge Data's use of computer equipment received in trade. We reverse.

BACKGROUND

Knowledge Data is a retailer of computer systems, conducting its business both inside and outside the state of Utah. Knowledge Data sold computer systems to the University of Minnesota Hospital and Clinic (the University) and I.C.I. America (ICI), accepting used computer equipment as partial payment for both sales. Both the University and ICI operate outside Utah and neither is in the business of buying or selling computers. Knowledge Data used some of the equipment traded in by the University and ICI in its business operations and did not plan to resell it. ¹ Knowledge Data claims the "isolated or occasional sales" exemption applies to its use of the "trade-ins." We agree.

PROCEDURAL HISTORY

On March 29, 1991, the Auditing Division of the Tax Commission issued a statutory notice assessing a use tax of $15,396.99 against Knowledge Data. The notice alleged that the subsequent use of the computer equipment Knowledge Data received in its transactions with the University and ICI was subject to use tax. Knowledge Data filed for redetermination with the Tax Commission. After a hearing, the Tax Commission issued a Final Decision on the matter, affirming the initial assessment. Knowledge Data filed a Request for Reconsideration with the Tax Commission. On January 15, 1993, the Tax Commission issued a written order denying Knowledge Data's request. Knowledge Data then sought judicial review.

JURISDICTION

Prior to addressing the merits of this case, we address the timeliness of Knowledge Data's petition. Pursuant to statute, "A party shall file a petition for judicial review of a final agency action within 30 days after the date that the order constituting the final agency action is issued or is considered to have been issued under Subsection 63-46b-13(3)(b)." Utah Code Ann. § 63-46b-14(3)(a) (1989) (emphasis added). Section 63-46b-13(3)(b) states: "If the agency head, or the person designated for that purpose does not issue an order within 20 days after the filing of the request, the request for reconsideration shall be considered to be denied." The Tax Commission argues that under this section, if no order on the request for reconsideration is issued within twenty days of its request, the request is deemed denied and the thirty-day appeal period begins to run at that point. Our recent decision, 49th Street Galleria v. Tax Comm'n, 860 P.2d 996 (Utah App.1993), controls on this point. In Galleria, we pointed out that the disjunctive "or" in section 63-46b-14(3)(a) allows a party to file a petition for judicial review within thirty days after the order constituting the final agency action regardless of the "deemed denied" date established by section 63-46b-13(3)(b). Id. at 998. The Tax Commission issued its order on Knowledge Data's reconsideration request on January 15, 1993. Knowledge Data filed this appeal on February 12, 1993. Thus, Knowledge Data's filing was within thirty days of the order constituting final agency action. Accordingly, Knowledge Data's appeal was timely filed.

STANDARD OF REVIEW

Our review of this case is governed by Utah Code Ann. § 59-1-610 (Supp.1993). ² It directs this court to "grant the commission no deference concerning its conclusions of law, applying a correction of error standard, unless there is an explicit grant of discretion contained in a statute at issue before the appellate court." Because we find no explicit grant of discretion, we review the Tax Commission's decision without deference and for correctness.

ANALYSIS

Utah imposes a tax on "retail sales of tangible personal property made within the state." Utah Code Ann. § 59-12-103(1)(a) (1992). However, "isolated or occasional sales by persons not regularly engaged in business" are exempt from this tax. Id. § 59-12-104(14). Utah also imposes a tax on "tangible personal property stored, used, or consumed in this state." Id. at § 59-12-103(1)(l ). It is well-settled and that the sales and use taxes complement each other and their exemptions should be construed to effectuate the same purpose. Barrett Inv. Co. v. State Tax Comm'n, 15 Utah 2d 97, 387 P.2d 998, 999 (1964). Accordingly, if a purchase of tangible personal property is exempt from sales tax, its subsequent use is also exempt. Nucor Corp. v. State Tax Comm'n, 832 P.2d 1294, 1297 (Utah 1992); Barrett, 387 P.2d at 999; Union Portland Cement Co. v. State Tax Comm'n, 110 Utah 152, 176 P.2d 879, 881 (1947).

Knowledge Data argues that the "isolated or occasional sales" exemption applies to the University's and ICI's trade-in of used computer equipment and thus, Knowledge Data's own use of the equipment is exempt from use tax. We agree. The "isolated or occasional sales" exemption applies when the seller makes a sale of property, "not of the type ... regularly sold in the course of that seller's retail or wholesale business." Husky Oil Co. v. State Tax Comm'n, 556 P.2d 1268, 1269 (Utah 1976). The Tax Commission argues that the used computer equipment was not sold, but traded. Based on this perceived distinction, the Tax Commission argues that the "isolated or occasional sales" exemption does not apply. We disagree. Section 59-12-102 defines "sale" as "any transfer of title, exchange, or barter, conditional or otherwise, in any manner, of tangible personal property or any other taxable item ... for a consideration." Utah Code Ann. § 59-12-102(10) (1992). The trade-ins of computer equipment were exchanges of tangible personal property, and were for consideration. The transactions were, accordingly, sales by the University and ICI that can be exempt from sales tax as "isolated or occasional sales," depending on the nature of their respective business activities.

Knowledge Data purchased computer equipment from the University and ICI. The parties stipulated that the University and ICI were not in the business of selling new or used computer hardware. Thus, the sales of the computer equipment were isolated or occasional sales exempt from sales tax. Further, because sales tax exemptions apply to use tax, the use of the computer equipment should also have been exempt. ³

The fact that Knowledge Data purchased the computer equipment outside the state does not alter our analysis. In L.A. Young Sons Constr. Co. v. State Tax Comm'n, 23 Utah 2d 84, 457 P.2d 973 (1969), a Utah construction company purchased certain construction equipment in Wyoming from an Oklahoma corporation that was not in the business of selling the purchased equipment. The Utah Supreme Court held that the sale was exempt from sales tax as an isolated or occasional sale. Id. 457 P.2d at 974. It also held that "the purchase of tangible personal property if exempt under the Sales Tax Act, is also exempt under the Use Tax Act, and the fact that the property was purchased outside the state of Utah would not affect its exemption." Id.

The Tax Commission appears to argue further that the subsequent use of an item taken as a trade-in can be taxed regardless of whether the trade-in transaction itself was exempt. The Tax Commission relies on Utah R.Admin.P. R865-19-72S (1992), which states:

A. An even exchange of tangible personal property for tangible personal property is exempt from tax. When a person takes tangible...