Heritage Convalescent Center v. Utah State Tax Comm.

960328Utah24 de out. de 1997

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Texto completo

This opinion is subject to revision before final

publication in the Pacific Reporter.



IN THE SUPREME COURT OF THE STATE OF UTAH

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Heritage Convalescent Center,

Cedar Care Center, Woodland

Park Care Center, Fay Case

Nursing Home, Bennion Care

Center, Canyon Hills Care

Center, Richfield Care Center,

Eastridge Care Center, Willow

Wood Care Center, Olympus Care

Center, Porter's Nursing Home,

North Side Care Center, Linden

Care Center, East Side Care

Center, Midtown Manor, Bountiful

Care Center, Bungalow Care

Center, West Valley Care Center,

Hidden Hollow Care Center, Provo

Care Center, London Springs

Care Center, Rosewood Terrace

Care Center, Rivendell of Utah,

Ogden Care Center North, Alta

Care Center, Hillcrest Care

Center, Life Care Center,

and Washington Terrace,

Petitioners,

v.



Utah State Tax Commission,

Respondent.

___________________________________



Mountain View Hospital, HCA

St. Mark's Hospital, Davis

Hospital and Medical Center,

Pioneer Valley Hospital,

Lakeview Hospital, Ashley

Valley Hospital, Castle View

Hospital, and Brigham City

Community Hospital,

Petitioners,

v.

Utah State Tax Commission,

Respondent.

No. 960328, No. 960329

F I L E D October 24, 1997




Original Proceeding in this Court



Attorneys: David J. Crapo, Pamela B. Hunsaker, Salt Lake City,

for the hospitals and nursing care facilities

Jan Graham, Att'y Gen., Clark L. Snelson, Asst.

Att'y Gen., Salt Lake City, for the Commission


HOWE, Justice:



In these two cases, which we have consolidated for the purposes of this review,

petitioners, which are hospitals and nursing care facilities, seek review of a

decision of the Utah State Tax Commission that unitemized meals which those

institutions provided to their inpatients do not qualify for the sales tax

exemption granted by Utah Code Ann. § 59-12-104(13)(b) (1996). Therefore, the

Commission held that petitioners were not entitled to a refund of the sales tax

they had paid on their bulk purchase of the food used to prepare the inpatient

meals.

BACKGROUND

The Sales and Use Tax Act provides in relevant part:



The following sales and uses are exempt

from the taxes imposed by this chapter:



. . . ;



(13) sales of meals served by:



(a) churches, charitable institutions, and institutions of higher education, if

the meals are not available to the general public; and



(b) inpatient meals provided at medical or nursing facilities;



. . . ;



(27) property purchased for resale in this state, in the regular course of

business, either in its original form or as an ingredient or component part of a

manufactured or compounded product[.]



Utah Code Ann. § 59-12-104 (1996).



Petitioners filed a request with the Commission for a refund of sales tax that

they had paid on the bulk purchase of food used to prepare inpatient meals. The

Public Service Division of the Commission denied the refunds, and petitioners

sought a redetermination by the Commission. The Commission, relying upon one of

its rules, denied any refund to petitioners on the ground that in providing meals

to their patients, they do not make a "separate charge [or] a specific billing

amount" for the meals. Therefore, the Commission concluded that no "sale" of meals

was made by petitioners and that consequently petitioners were the ultimate

consumers of the bulk food and as such were liable for payment of the sales tax.

Petitioners now seek review by this court of the Commission's decision.

FACTS

The parties have stipulated to the relevant facts, including the following: (1) At

least three meals a day are provided to each patient as part of the patient's room

and board agreement; (2) these meals are not itemized or billed separately;

(3) petitioners purchase food in bulk, and the dietary staffs prepare and provide

the inpatient meals; (4) the food suppliers have generally imposed sales tax on

the bulk purchases of food; (5) there is no discount from the daily rate if a

patient eats less than normal or misses or skips a meal; (6) there is no discount

or extra charge for special diets; (7) the menu options patients are given do not

affect the daily rate charged; and (8) petitioners have not charged sales tax on

patient meals but have, or agree that they should have, charged sales tax on any

meals served to nonpatients.



In support of its decision, the Commission argues that the sales tax is a

transactional tax; it is imposed on the transaction, not on the item of service.

It asserts that in this case, the transaction upon which the sales tax has been

imposed, voluntarily paid, and remitted is petitioners' purchase of food, that

petitioners are the consumers of food used by them in providing care and services,

and that petitioners' requests for a refund were properly denied because

petitioners do not sell meals to their patients. The Commission points out that no

separate charge is made for the meals and that the price charged for patient care

is not affected by the number of meals consumed, the type of meals, the quality of

food, or the cost of special diets. The Commission concludes that because there is

no sale of meals by petitioners to their patients, the exemption relied on by

petitioners simply does not apply. The Commission concedes, however, that if the

meals were individually itemized and individually charged, the sales tax exemption

would apply.



The Commission relies on Tax Commission rule 865-19S-61, "Meals Furnished Pursuant

to Utah Code Ann. Section 59-12-104," which provides in relevant part:



A. The tax is imposed upon the amount paid for meals furnished by any restaurant,

cafeteria, eating house, hotel, drug store, diner, private club, boarding house,

or other place, regardless of whether meals are regularly served to the public.



1. By specific exemption, the following meal sales are exempt from taxation:



. . . ;



b. inpatient meals provided at medical or nursing facilities. Tax must be paid on

the purchase price of food by nonexempt medical or nursing facilities.



2. Ingredients which become a component part of meals subject to tax are construed

to be purchased for resale.



B. Where no separate charge or specific amount is paid for meals furnished but is

included in the membership dues or board and room charges; the club, boarding

house, fraternity, sorority, or other place is considered to be the consumer of

the items used in preparing such meals.



Utah Admin. Code R865-19S-61 (1996).



In determining whether petitioners sell meals to their patients, we look to Utah

Code Ann. § 59-12-102(19), which 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 or service . . . for a consideration." It

includes "any transaction under which right to possession, operation, or use of

any article of tangible personal property is granted under a lease or contract and

the transfer of possession would be taxable if an outright sale were made."

§ 59-12-102(19)(e) (emphasis added).



Both the language of section 59-12-103, which lists the many transactions to which

sales tax applies, and our case law indicate that the definition of "sale" is

deliberately broad to maximize the reach of the sales tax. There is no restriction

on the form or manner of the transaction. Early in the history of the sales and

use tax in this state, we decided Western Leather & Finding Co. v. State Tax

Commission, 87 Utah 227, 48 P.2d 526 (1935), in which we held that the delivery of

repaired shoes to their owner and the receipt of payment constituted a "sale" of

materials used in the repair of shoes, even though a custom existed among shoe

repairers not to make a separate charge for services rendered (which averaged

seventy percent of the total charge) and for materials furnished in doing the

repair (which averaged thirty percent of the total charge). We there wrote:



When a shoe repairer delivers the repaired shoes to the owner thereof and receives

payment therefor, the title to the materials used in the repair job passes to the

owner. The amount paid includes the price of the materials used. Such a

transaction possesses all of the elements of a sale of the materials used in the

repair job.

Id. at 528.

It is thus clear that the omission by the seller and the buyer to make a separate

charge for property transferred pursuant to a contract does not defeat the

existence of a sale.

In Matrix v. Auditing Division of the State Tax Commission, 868 P.2d 832 (Utah Ct.

App. 1994), the Tax Commission concluded that a sale and leaseback transaction was

taxable pursuant to section 59-12-103(1)(k) (1992). The court of appeals agreed,

noting, "Section 59-12-102(10)[(1)] plainly and unambiguously defines a sale as 'any

transfer of title.'" Id. at 833. There the court correctly relied on the plain

wording of the statute to rule in favor of the Tax Commission. However, in

Knowledge Data Systems v. State Tax Commission, Auditing Division, 865 P.2d 1387

(Utah Ct. App. 1993), as in the instant case, the Commission attempted to deny a

sales tax exemption by excluding the relevant transaction from the definition of

sale. The court of appeals disagreed, consistently adhering to the broad statutory

definition and holding that the "trade-ins of computer equipment were exchanges of

tangible personal property, and were for consideration" and therefore were sales

qualifying for the sales and use tax exemption for "isolated and occasional

sales." Id. at 1389.



We find nothing in the statutes or in our case law requiring a separate

itemization or a separate price affixed for a transaction to qualify as a "sale."

In the instant case, the Commission does not contend that the inpatients do not

actually receive the meals or that meals are provided free of charge. It is

apparent that the meals are provided as part of the contract for care entered into

between petitioners and their patients. Thus, in furnishing meals to the patients,

there is a transfer of tangible personal property for consideration, and a sale

has occurred, although the consideration is paid as part of the general billing

for care. If a separate itemization and a separate price were required for each

item of property transferred from one party to another in a contract, it would be

easy to disguise a sale and avoid the payment of sales tax by subtle means.

Consequently, we conclude that the inpatient meals are exempt from sales tax under

section 59-12-104(13)(b), and petitioners' bulk purchase of food is exempt under

section 59-12-104(27) (1996) because it is purchased for resale within the state.

The decision of the Commission is reversed.

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Chief Justice Zimmerman, Associate Chief Justice Stewart, Justice Durham, and

Justice Russon concur in Justice Howe's opinion.


1. Subsequently renumbered as Utah Code Ann. § 59-12-102(19).

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