Opinion ID: 2519779
Heading Depth: 3
Heading Rank: 1

Heading: Sale Transaction

Text: ¶ 16 Determining the meaning of the word sale under sections 59-12-102(1), -103(1)(a) (1992) is a question of law for which this court must grant the Commission no deference, applying a correction of error standard. Id. § 59-1-610(1)(b) (2000). ¶ 17 A sale for Utah sales tax purposes is defined 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 under Subsection 59-12-103(1), for a consideration. Id. § 59-12-102(24) (2000). [5] The Commission found that ZCMI transferred title of tangible personal property under the Agreement which states, The parties agree that title to the Equipment shall pass from the Seller [ZCMI] to the Buyer [Matrix] on the Closing Date. It is undisputed that sales tax is not imposed on this transaction since Utah Code Ann. § 59-12-104(26) (2000) exempts transactions where tangible personal property is purchased for resale. [6] The Commission does not dispute that Matrix's purchase of the property would be for resale within the ambit of the statute since Matrix intended to lease the property to ZCMI with the option to purchase the property at the end of the lease. ¶ 18 At issue is whether title actually passed from ZCMI to Matrix under this first transaction. If title passed to Matrix, the subsequent leaseback to ZCMI would be taxable. Id. § 59-12-103(1)(k). If a sale transaction did not occur, ZCMI retained title and the subsequent leaseback would be in form only, not in substance, and therefore could not be taxable. Matrix urges this court to analyze whether a transfer of property occurred under the Utah Uniform Commercial Code (UUCC), which Matrix argues requires the conclusion that title to the property was not actually transferred to Matrix. The Commission asserts that because a sale occurred under the Sales and Use Tax Act, title necessarily was transferred. For the reasons set out below, we hold that we need not analyze this transfer of title issue under the UUCC. ¶ 19 In support of its argument that the UUCC must be applied to assess whether a transfer occurred, ZCMI relies on Hales Sand & Gravel, Inc. v. Utah Tax Comm'n, 842 P.2d 887 (Utah 1992). In Hales, this court was faced with the question of whether title passed at the point of shipment or at the point of delivery where there was no explicit provision in the sales agreement. Id. at 891-94. Applying the UUCC, this court held that unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods. Id. at 892 (quoting Utah Code Ann. § 70A-2-401(2) (1997)). This section describes the point at which title transfers; it does not refer to whether title has passed and is therefore inapposite to the issue at hand. Further, the parties in the case at bar otherwise explicitly agree[d] in the Agreement that title passed at closing. Id. ¶ 20 In arguing that the UUCC should govern the transaction, Matrix has failed to address a central UUCC provision. Section 70A-1-102(3), entitled Purposes-Rules of construction, states: The effect of provisions of this act may be varied by agreement, except as otherwise provided in this act and except that the obligations of good faith, diligence, reasonableness and care prescribed by this act may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable. Utah Code Ann. § 70A-1-102(3) (1997) (emphasis added). ¶ 21 Under this section, the parties in the case at bar were free to enter into a contract inconsistent with the provisions of the UUCC, so long as the underlying obligations of good faith, diligence, reasonableness, and care were preserved and the standards in the contract not manifestly unreasonable. See id. ¶ 22 The Agreement states: 3. Title. The parties agree that title to the Equipment shall pass from Seller [ZCMI] to Buyer [Matrix] on the Closing Date. The contract is clear; title passed on the closing date from ZCMI to Matrix. Matrix cannot come before us now and undo its contract by reference to the UUCC when the UUCC itself states that an agreement between the parties as to issues pertaining to the transfer of title supersedes the UUCC. ¶ 23 Matrix and ZCMI also had before them the July 11, 1991, advisory opinion that sales tax would be due on the lease payments made by ZCMI. On July 16, 1991, Matrix and ZCMI entered into a Master Lease Agreement, a Sale and Leaseback Agreement, and Equipment Schedule No. 1. The terms of these agreements were identical, in all relevant respects to the proposed transaction on which Matrix had sought the advisory opinion. Matrix entered the transaction understanding the potential sales tax implications. We therefore hold that title passed to Matrix from ZCMI under the clear provision of the Agreement. This sale is tax exempt, however, as a purchase for resale. Utah Code Ann. § 59-12-104(26) (2000).