When a ski resort buys a complete, installed passenger tramway system in a turnkey deal, which parts of that purchase — the tramway itself, its cement foundations, the lift house — qualify for Utah's passenger tramway sales tax exemption?

Plain-English summary

Ski resort owners asked the Commission to clarify an earlier April 1997 advisory opinion on Utah's passenger tramway sales tax exemption (§ 59-12-104(42)(c)), enacted to help resorts build trams and high-speed quad lifts in time for the 2002 Olympics. Their concern: passenger tramways are typically sold "turnkey" — a contractor builds the entire system (cement, cables, towers, everything) and hands it over to the resort in exchange for one payment. If the completed tramway counts as tangible personal property, that turnkey sale is exempt. If it counts as real property instead, the tax picture gets much more complicated, because real property sales aren't separately taxed but the contractor who converts materials into real property owes tax on its own purchase of those materials. The resorts argued the entire system — including the cement foundations — should be treated as personal property, citing Barrett Investment Co. v. Tax Comm'n (ski lifts are personal property) and BJ-Titan Services v. State Tax Comm'n (cement stabilizing a well is personal property because it doesn't become inseparably merged into a larger facility).

The Commission agreed with most of the resorts' position but drew one important line the resorts didn't want drawn:

• The tramway itself is tangible personal property, both before and after installation — including the towers and any accessories or lift houses that can be relocated and lack the characteristics of a permanent building. Because it's personal property, the turnkey sale of the whole tramway system to the ski resort is exempt under § 59-12-104(42)(c), whether sold by the installing contractor or directly by a vendor.
• But the cement foundations that anchor the tramway are converted to real property upon installation. The Commission's reasoning: the foundations are intended as permanent installations over their useful life, and even though the tramway itself can be moved or realigned, the foundations can't be removed intact and reused elsewhere (citing Nickerson Pump and Machinery Co. v. State Tax Commission). Because the foundations become real property, it's the installing contractor — not the ski resort — who owes sales tax on the foundation materials, and the § 59-12-104(42)(c) exemption doesn't reach them.
• Lift houses or other structures with the characteristics of permanent buildings are likewise treated as real property upon installation, while movable lift houses/structures without those characteristics stay personal property along with the rest of the tramway.

The Commission explained its reasoning partly through legislative history: when the Legislature created a similar contractor exemption for public schools (§ 59-12-104(3)(a)), it used "on behalf of" language letting contractors buy materials tax-free when installing them for the school. That same "on behalf of" language was considered — and deliberately dropped — from the tramway exemption, which the Commission read as signaling the Legislature intended tax consequences to fall on the contractor for whatever actually converts to real property, even in a tramway transaction.

Finally, the Commission flagged a separate, favorable wrinkle: for purposes of charges for repairs under a different rule (R865-19S-78(B)(2)), a tramway may be treated as real property if it meets that rule's own criteria — and since labor to repair real property is nontaxable, that distinction can actually work in the resort's favor on future repair bills, even though the tramway is personal property for purposes of the original sale.

What this means for you

Ski resorts buying turnkey tramway systems

Expect the tramway itself — towers, cables, and movable accessories/lift houses — to come through exempt under § 59-12-104(42)(c). But budget for sales tax embedded in the cost of the cement foundations, since your contractor (not you) legally owes tax on those materials as a real property contractor, and that cost typically gets passed through in your turnkey price regardless of how the invoice is itemized.

Contractors building or installing passenger tramways

You're liable for sales tax on the cement foundation materials you convert to real property, even while the tramway superstructure you install passes through to the resort tax-exempt as personal property. Structure your invoicing to reflect this split accurately.

Resorts negotiating future repair contracts

Ask your contractor whether the specific tramway components at issue meet Rule R865-19S-78(B)(2)'s real-property criteria — if so, repair labor charges on those components should be nontaxable, separate from how the original sale was classified.

Common questions

Q: Is a passenger tramway sold to a ski resort exempt from Utah sales tax?
A: The tramway itself — as tangible personal property — is exempt under § 59-12-104(42)(c), even when sold turnkey as part of an installed system. The cement foundations underneath it are not exempt.

Q: Who pays sales tax on the cement foundations for a ski lift?
A: The installing contractor, as the real property contractor who converts the foundation materials to real property — not the ski resort, and not covered by the tramway exemption.

Q: Are lift houses covered by the tramway exemption?
A: It depends on whether the lift house is movable and lacks the characteristics of a permanent building (then it's personal property, covered by the exemption) or has those permanent-building characteristics (then it's real property, not covered).

Q: Is labor to repair a tramway taxable?
A: It can be nontaxable if the specific tramway component is treated as real property under Rule R865-19S-78(B)(2)'s criteria for repair-labor purposes — a distinct question from how the original sale was classified.

Q: Does this ruling apply to my resort's or contractor's tramway project?
A: Not automatically. This is a private letter ruling binding only on the Commission as to this taxpayer's specific facts. It can't be relied on as binding by anyone else, though it may carry weight if your facts closely match.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-104(42)(c) (passenger tramway sales tax exemption)
• Utah Code Ann. § 59-12-104(3)(a) ("on behalf of" contractor exemption for public school construction — contrasted with the tramway exemption)
• Utah Admin. Rule R865-19S-58 (tangible personal property vs. real property conversion; contractor liability)
• Utah Admin. Rule R865-19S-78(B)(2) (real property treatment for repair-labor purposes)
• Barrett Investment Co. v. Tax Comm'n, 387 P.2d 998 (Utah 1964); BJ-Titan Services v. State Tax Comm'n, 842 P.2d 822 (Utah 1992); Nickerson Pump and Machinery Co. v. State Tax Commission, 361 P.2d 520 (Utah 1961)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/97-081.pdf

Original ruling text

97-081

Response February 3, 1998

December
18, 1997

Re: Clarification on the Tax Commissions
April 24,1997 Advisory Opinion Relating to the Passenger Tramway Sales Tax
Exemption

Dear
Commissioner Pacheco:

We
are writing on behalf of a ski resort owner to request clarification on the Tax
Commission's April 24, 1997 advisory opinion relating to the passenger tramway
sales tax exemption (attached). Utah Code Ann. §59-l2-104(42)(c) provides that
sales to a ski resort of "passenger tramways" are exempt from sales tax. In
its advisory opinion, the Commission declared that purchases of cement used in
building passenger tramways are exempt from sales tax if the ski

resort
makes payment for the materials directly to the vendor." The opinion also stated that the
"[cement] foundations which secure
the tramway are an integral part of and appurtenant to the tramway.

Ski
resort owners remain unclear as to how to apply the passenger tramway exemption
to all aspects of a passenger tramway purchase. Typically, passenger tramways
are sold through a "turnkey" transaction, where a contractor
constructs the entire passenger tramway system, including cement, cables,
towers, etc., then "hands over" the tramway to the ski resort in
exchange for payment. As you know, if a passenger tramway is considered
tangible personal property, rather than
real property, the turnkey sale of the tramway is tax exempt. If the tramway is
real property, then the tax issues become more complex.

Ski
resort owners believe Utah law is clear that tramway systems are personal
property before, during and after construction and sale to the ski resort
owners. We request a confirming opinion
that the tramway systems are personal property and the sale of component parts
directly to the ski resort owner or sale of the entire completed tramway system
are sales tax exempt under §59-12-04(12)(c).
In furtherance of clarity, please reconfirm that the cement used to
affix the tramway to the real property is an integral part of the tramway
system entitled to exemption as well.

Our
research shows that the entire tramway system is personal property. The
legislative history is clear that proponents of the 1996 bill creating the
tramway exemption were trying to facilitate construction of trams and high
speed quad lifts in time for the Olympics. If the passenger tramways had been
considered to be real property, the recent legislative exemption would have
been redundant and superfluous because real property is not subject to sales
tax. No tax would have been due from owners to contractors at the time of the
turnkey sales. The legislators
obviously believed they were exempting tramway sales to resort owners. Until
new exemption legislation was passed, tramways would have been sales taxable as
sales of personal property. Sales of tramway systems after the effective date
of this new statute are exempt from sales tax.

We
believe the Legislature was aware that the Utah Supreme Court had previously
held ski lifts to be personal property in the case of Barrett Investment Co. v.
Tax Comm'n, 387 P.2d 998 (Utah 1964). Since this was the case and the
legislature desired to boost tramway development, it exempted purchases from
sales tax as an incentive for the ski resort owners to construct them in time
for the Olympics.

We
also believe the Legislature was aware of Tax Commission rule R865-195-58(E)(3)
and (4), which contemplates that properties like tramways remain personal
property even when attached to real property.

While
the part of the tramway above ground seems clearly to be personal property, we
also believe ample support exists for finding that the cement, a necessary
component used in constructing the tramway system, is considered personal
property. The Utah Supreme Court has held that cement used to stabilize a well
is tangible personal property because the purchaser "does not seek to
purchase real property, nor does the cement become inseparably meshed into a
greater facility which itself is the object of the transaction." BJ-Titan Services v. State Tax Comm'n, 842
P.2d 822 (Utah 1992). In your April 24
opinion on this matter, you stated that the cement is an integral part of and
appurtenant to the tramway. Because the cement is purchased as an integral part
of a personal property transaction, the purchase of a functioning tramway
system should also be considered personal property.

Because
the entire tramway system is personal property, sales of anything that is part
of the tramway should be exempt when sold to the ski resort, whether by the
contractor, or directly by a vendor as your previous opinions held.

If
you need additional information to help resolve this issue, please let us
know. We appreciate your prompt advice
on this matter as several ski resorts are currently building or planning to
build passenger tramways and as the legislature noted, time is of the essence
if we are to be fully prepared for the Olympics.

Sincerely,

NAME

February
3, 1998

NAME

Regarding the legislative history of
this exemption, we are aware that the legislative committee that studied the
exemption considered whether to extend the exemption to contractors who install
tramways "on behalf of" a ski resort.
As you know, the legislature included "on behalf of" language in Utah
Code section 59-12-104 (3) (a) to allow contractors to purchase construction
materials tax free if the the materials are installed or converted to real
property that is owned by a public school.
When similar language was introduced as part of the tramway exemption,
the language was considered to be potentially problematic, so it is was
omitted. Because the "on behalf of" language was deliberately dropped from the
tramway exemption, we conclude that the
legislature intended the tax consequences to fall on the real property
contractor when items are converted to real property.

From an administrative point of
view, the legislative history creates a dilemma. By the plain language of the statute, the exemption applies only
if the tramway is sold as tangible personal property directly to the ski resort. Ski resorts typically contract to purchase
tramways completely installed.
If, by the nature of the installation, the tramway is deemed to be
converted to real property upon installation, the installer would be liable for
the sales tax on the materials installed.
There would never be a sale of tangible personal property to the ski
resort, and the exemption would have no effect.

We are primarily concerned with our
obligation to give effect to the legislature's intent. It is apparent that the legislature intended
the real property contractor to pay sales or use tax on the items that he
converts to real property. On the other
hand, we cannot construe the statute in a way that would render the exemption
entirely inoperative. On that basis, we
have concluded that, at minimum, the cement foundations which underly the
tramway are converted to real property upon installation. The cement foundations that support the
tramway are intended to be permanent installations over their useful life. Even if the tramway itself is moved, the
foundations cannot be removed in tact without harm and reused in other
locations. See, Nickerson Pump and
Machinery Co. v. State Tax Commission, 361 P.2d 520 (Utah 1961). We also conclude that lift houses or other
structures that have the characteristics of permanent buildings are treated as
real property upon installation.

As to the tramway itself, the
tramway and all of its essential parts or accessories are considered tangible
personal property, even upon installation.
Unlike the cement foundations, the tramway, including the tramway
towers, can be relocated or realigned as needed. Any item that is an integral accessory to the tramway will be
treated as tangible personal property for purposes of the sale of the tramway
under Utah Administrative Rule R865-19S-58, including any lift houses or
structures that can be moved and that do not have the characteristics of
permanent buildings.

While the sale of the tramway system
is deemed a sale of tangible personal property for purposes of R865-19S-58, it may or may not be treated as
tangible personal property after installation.
Your clients will be interested to know that for purposes of charges for
repairs under Utah Administrative Rule R865-19S-78, a tramway may be considered
real property if it meets the guidelines set out in subsection (B) (2) of that
rule. This distinction may work to your
clients' advantage because labor to repair real property is nontaxable.

Please let us know if you have other
questions.

For
the Commission,

Joe
B. Pacheco,

Commissioner