Opinion ID: 1372616
Heading Depth: 1
Heading Rank: 4

Heading: exemption requires a sale to the state

Text: We now turn to RME's contention that the sale to L.A. Young was exempt from sales tax because payment was made by a warrant issued by an agency of the State of Utah payable to RME as co-payee. Section 59-12-104 provides certain exemptions from taxation, including sales to the state, its institutions, and its political subdivisions. Utah Code Ann. § 59-12-104(2). The Commission enacted rule R865-19-42S pursuant to the statutory tax exemption for sales to the state. That rule provides: Sales made to the state of Utah, its departments and institutions or to its political subdivisions ... are exempt from tax if such property [is] for use in the exercise of an essential government function. If the sale is paid for by a warrant drawn upon the state's treasurer or official disbursing agent ... the sale is considered as being made to the state of Utah or its political subdivisions and exempt from tax. RME relies on the last sentence of the rule, contending that payment by a state warrant exempts it from sales tax. It argues that because it required L.A. Young to make RME a co-payee on the warrants, the sale is considered as being made to the state and is thereby exempt from taxation. RME's interpretation of the rule is incorrect. Rule 42S was enacted pursuant to section 59-12-104(2), which requires a sale to the state in order to qualify for an exemption from sales tax. RME's interpretation would result in a broader exemption than the statute allows. Rules are subordinate to statutes and cannot confer greater rights or disabilities. Sanders Brine Shrimp v. Audit Div., 846 P.2d 1304, 1306 (Utah 1993). Thus, where the statute allows an exemption for a sale to the state, a rule enacted pursuant to statute cannot confer a broader exemption. See Utah Concrete Prods. Corp. v. State Tax Comm'n, 101 Utah 513, 125 P.2d 408 (1942). The correct interpretation of rule 42S acknowledges that the first sentence requires a sale to the state or its political subdivisions. Accordingly, RME's transaction does not qualify under the exemption. RME's sale of slag was clearly to L.A. Young. It did not negotiate with UDOT nor was it a party to the contract between L.A. Young and UDOT. Thus, because RME did not make a sale to the state, the sale of slag to L.A. Young is a taxable transaction. See id. at 519, 125 P.2d at 411 (holding that sales made to contractor who builds roads for the state are not sales to the state and therefore are not exempt).