When Terrence Davis of Layton bought $2,200 worth of carpet and linoleum from RC Willey, he refused to pay the $100 sales tax on the purchase.
According to state tax laws, he didn't have to.
That's because vendors who sell wall-to-wall floor coverings as a "furnish and install" purchase are liable for the tax.
However, several Utah vendors, including RC Willey, let consumers pick up the tab, according to a lawsuit filed in 3rd District Court against the Utah State Tax Commission.
That lawsuit may end the practice. And even if it doesn't, RC Willey chief executive officer Scott Hymas said he is anxious to see the issue resolved.
"I came to the forefront. I did not shy away from this lawsuit," Hymas said. "I provided information to the plaintiffs. I would like us all to sit down and resolve it."
Five plaintiffs a Salt Lake City woman and four businesses have joined in the pending class-action lawsuit. The case has since been referred to Tax Judge Lynn W. Davis in the 4th District.
"If part of what you are paying is for them to come out and install it, and that is part of the contract, then it is inappropriate for them to charge sales tax," said Greggory Savage, a Salt Lake attorney representing the plaintiffs.
Janice Perry Gully, Tax Commission spokeswoman, was unwilling to comment on the litigation but did acknowledge that a commission Web site bulletin accurately portrays who should pay sales tax.
According to the site, a vendor who sells and installs wall-to-wall carpet, or other floor coverings, is acting as a "real property contractor" and is subject to pay the sales tax of the materials installed.
But that's not what happened in the case of Dorothy Monson, one of the plaintiffs in the lawsuit.
Last year Monson purchased and agreed to have installed approximately $2,000 worth of carpet for her home. Included in the final bill was a $93.68 sales tax charge.
According to Davis, a certified public accountant, RC Willey should have paid the tax.
Davis estimates RC Willey and other businesses are saving tens of thousands of dollars annually by passing the tax on to consumers.
"They have overcharged all of these people," Davis said. "The Tax Commission, in my opinion, is participating in this."
But Hymas said the sales tax has always been charged to consumers in sales involving installation.
"I have been through a number of sales-tax audits where the state Tax Commission says, 'This is fine. This is what you should be doing,' " Hymas said.
Hymas said RC Willey has not been enriched by passing the tax on to consumers.
"I collect the money for the state of Utah and remit it to them," he said, adding that the price of the carpet would increase if RC Willey had to pay the tax.
Davis counters that RC Willey is collecting the tax improperly in order to maintain a competitive advantage.
"First of all, their costs are lower, and therefore their gross profits are higher than people who are doing it right," Davis said.
That's because vendors who charge the tax on sales involving installation advertise their carpet at one price while tacking on the sales tax as a separate itemization charge.
Rick Willey, owner of Mason's Interiors, a floor covering business with locations in Salt Lake and West Valley, is one vendor who pays the tax correctly.
At first glance, consumers may believe they are being charged more per yard for carpet at Mason's Interiors. However, the carpet's price also includes the cost of the tax the business must pay the Tax Commission.
Unlike other vendors, invoices involving installation of a floor covering at Mason's Interiors include no itemization charge for sales tax, Willey said.
He said the Tax Commission has created a double standard that isn't fair.
"It doesn't affect my business enormously, but it does affect it, sure it does," he said.
When consumers purchase carpet and hire a third-party contractor to install the material, the consumer must pay sales tax at the point of sale, according to the commission's Web site.
However, a vendor or contractor who purchases materials for conversion as real property improvements i.e. wall-to-wall floor coverings is responsible for paying the sales tax.
That's because the vendor, the bulletin said, "is the last person to own the materials in their state as personal property."
"Despite what we think are clear statements from the Tax Commission, there is still some confusion in what the Tax Commission tells the vendors," Savage said. "Hopefully, this lawsuit will clarify for the vendors what they ought to be doing."
Should the case be certified as a class-action lawsuit and the plaintiffs prevail, Utah consumers who purchased floor coverings within a three-year period would be entitled to a portion of any judgment entered.A motion to dismiss the lawsuit has been filed by the Tax Commission. No dates for hearings have yet been scheduled.