Utah: Protection from Lightning Strikes is Exempt
- Sales Tax News
- Jan 13, 2016 | Gail Cole
The Utah Supreme Court recently determined that fees for a liability waiver program are not subject to Utah sales and use tax under the state Tax Code.
The fees are charged by a rent-to-own business whose customers acquire ownership of rented property once they have paid its full value. Fees for the liability waiver program are separate from the rental fees and are separately itemized on customer invoices. The liability waiver program ensures renters are not held liable for the cost of a rented product if it is damaged or destroyed due to fire, flood, smoke, theft, windstorm, or (my favorite) lightning.
The rental business has never applied sales or use tax to the rental fees and was found liable for those taxes during an audit conducted by the Utah State Tax Commission. In court, the Commission argued the fees were subject to tax because they were charged “in connection with the rental of tangible personal property.” Leases and rentals are taxable under Utah Code section 59-12-103(1)(k).
The Commission also based its case on its own regulation (UTAH ADMIN. CODE R865-19S-32(1)(a)), which reads as follows:
“A lessor shall compute sales or use tax on all amounts received or charged in connection with a lease or rental of tangible personal property.”
In its opinion, the Utah Supreme Court noted that participation in the liability waiver program is not mandatory for consumers and that at any time participation can be stopped. It found that “the administrative regulation impermissibly broadens the language of the statute.” To wit:
“‘In connection with’ encompasses a wide variety of products and services that may be associated with the rental without actually being ‘for’ the rental.”
The Tax Commissions decision to apply sales tax to the liability wavier fees was therefore reversed. Read the opinion: 2016 UT 1.
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