Thorup and Judge Memorial entered into a written contract whereby Thorup would furnish all necessary materials and labor and construct an auditorium, a music room, and locker rooms for $1,973,400 in accordance with the plans and specifications. Subsequent change orders increased the contract price to $2,205,321.83. Judge Memorial was given the option in the contract to purchase major items of equipment or materials "to gain credit for sales tax." Thorup agreed to "consider the use of any donated equipment or services if they meet the requirements of the contract documents." Accordingly, Judge Memorial purchased $422,226 worth of materials which Thorup accepted. Thorup then gave Judge Memorial a credit on the contract for $447,580. Thorup converted these materials into real property as it used and consumed them in fulfilling its contract.
In footnote 1 in the majority opinion, it is stated, "By exercising its right to donate materials for the real property improvements, Judge Memorial effectively formed an install-only contract with Thorup regarding those materials." The majority then concludes that because Thorup did not "own" the materials, it incurred no liability for sales or use tax.
I do not agree with that analysis. When the materials were purchased by Judge Memorial, it was expressly stated on the purchase order that the invoices were not to be sent to Judge Memorial but were to be sent to Thorup "for approval." Thorup had agreed to "consider the use" of the materials "if they [met] the requirements of the contract documents." This procedure was agreed upon because Thorup was the ultimate consumer of the materials and it wanted to ensure that the materials met the specifications of the contract under which Thorup was required to erect a finished building in accordance with plans and specifications. If Thorup was a mere "installer" of these materials, as the majority insists, Thorup would have no concern whether they met the "requirements of the contract documents." Thorup then incorporated *Page 330 the materials into the construction in fulfillment of its contract after it had acquired the materials from Judge Memorial for a consideration, i.e., credit on the contract price. The materials were not "donated" as stated by the majority. Thorup acquired them for a consideration equivalent to a cash payment on the contract for $447,580.
The majority concludes that because Thorup did not "own" the materials, it is not liable for any tax. A solid argument can be made that Thorup purchased the materials from Judge Memorial by giving Judge Memorial a credit on the contract price, the same as it would have done had Judge Memorial made a cash payment on the contract. However, tax liability is predicated on use and consumption, not on ownership. Under Utah Code Ann. § 59-12-103(1) (1992), a tax is levied on "tangible personal property stored, used or consumed in this state." Thorup clearly used and consumed the materials in the performance of its contract. See Tri-State Generation, Inc. v. Department ofRevenue, 636 P.2d 1335 (Colo.Ct.App. 1981).
The majority artificially singles out these materials from the rest of the materials Thorup purchased directly from suppliers and concludes that as to the materials purchased by Judge Memorial, Thorup somehow was nothing more than a mere "installer" of Judge Memorial's materials. Not so. The written contract makes no such distinction between Thorup's responsibilities with respect to materials acquired from Judge Memorial and materials purchased by Thorup directly from suppliers. The majority argues that "had the materials been lost in a fire or had the project ended before completion, then Judge Memorial presumably would have been required to absorb the related costs." There is no basis for this gratuitous assumption. It would seem that once Thorup gave Judge Memorial credit for the materials on the contract price, the credit would not be reversed if the materials were destroyed or the project was not completed. But even if the majority's assumption is true, it does not detract from the fact that Thorup did in fact use and consume the materials and converted them into the real property of Judge Memorial. A taxable event then occurred. § 59-12-103(1).
In conclusion, I agree that an exempt entity like Judge Memorial could purchase materials such as fence posts and then hire someone to install them in the ground. In that case, there would not be a taxable event. But that is not what happened here, where Thorup had a contractual obligation to furnish the materials and the labor and to construct and deliver a completed building in compliance with the plans and specifications. It matters not whether Thorup obtained the materials from a supplier who was paid cash or from Judge Memorial who received a credit on the contract price.
For these reasons, I dissent from the reversal of the Commission's order. Where the legislature has granted an agency discretion in interpreting and administering statutes, such as our sale and use tax act, we review an agency decision only for an abuse of discretion. Morton Int'l, Inc. v. Auditing Div.,814 P.2d 581 (Utah 1991). No abuse is present here.
STEWART, J., concurs in the dissenting opinion of HOWE, Associate C.J.