Income Tax

Signed 6/19/02









v. ) Appeal No. 00-1099



THE UTAH STATE TAX ) Tax Type: Income Tax


) Judge: Phan

Respondent. )




Jane Phan, Administrative Law Judge



For Petitioner: PETITIONER REP



For Respondent: Tim Bodily, Assistant Attorney General

Dan Engh, Manager, Income Tax Auditing

Steve Nelson, Senior Auditor



This matter came before the Utah State Tax Commission for a Formal Hearing on April 23, 2002. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. Petitioner is appealing an audit deficiency of Utah individual income tax, penalties and interest assessed against him for the tax year 1996.

2.                  Petitioner had failed to file a Utah Individual Income Tax Return for tax year 1996.

3.                  Respondent received information from the Internal Revenue Service ("IRS") indicating that Petitioner had sufficient federal taxable income to have a state income tax liability for tax year 1996.

4.                  The Statutory Notice of Estimated Income Tax for the 1996 tax year was issued on August 4, 2000. Additional tax of $$$$$ was assessed against Petitioner as well as penalties totaling $$$$$ and interest of $$$$$. Interest continues to accrue on the unpaid balance.

5.                  Petitioner acknowledges that during the tax year 1996 he was a resident of Utah. Petitioner did not claim to have a domicile in any other state.

6. Petitioner acknowledges that he received $$$$$ in income during 1996 from a former employer. The income was an early pay out from the prior employer's retirement plan for Petitioner and was part of the compensation package Petitioner had earned while working for that employer. Petitioner was not retired, nor was he at retirement age during 1996.


The state of Utah imposes income tax on individuals who are residents of the state, in Utah Code Ann. '59-10-104 as follows:

...a tax is imposed on the state taxable income, as defined in Section 59-10-112, of every resident individual . . .


"Resident individual" is defined in Utah Code Ann. '59-10-103(1)(k) as:

(i) an individual who is domiciled in this state for any period of time during the taxable year, but only for the duration of such period; or (ii) an individual who is not domiciled in this state but maintains a permanent place of abode in this state and spends in the aggregate 183 or mores days of the taxable year in this state. For purposes of this Subsection (1)(k)(ii), a fraction of a calendar day shall be counted as a whole day.


State taxable income is defined in Utah Code Ann.'59-10-112 as follows:

"State taxable income" in the case of a resident individual means his federal taxable income (as defined by Section 59-10-111) with the modifications, subtractions, and adjustments provided in Section 59-10-114 . . .


Federal taxable income is defined in Utah Code Ann. '59-10-111 as follows:

"Federal taxable income" means taxable income as currently defined in Section 63, Internal Revenue Code of 1986.

Taxable income is defined in the Internal Revenue Code at 26 U.S.C. 63 as:

Except as provided in subsection (b), for purposes of this subtitle, the term Ataxable income@ means gross income minus the deductions allowed by this chapter (other than the standard deduction).


Gross income is defined in the Internal Revenue Code at 26 U.S.C. 61(a) as:

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; ...


The Utah Legislature has specifically provided that the taxpayer bear the burden of proof in proceedings before the Tax Commission. Utah Code Ann. '59-10-543 provides the following:

In any proceeding before the commission under this chapter, the burden of proof shall be upon the petitioner . . .


Petitioner's position that the income he received in 1996 was not subject to state income tax is completely without merit. The statutes and case law clearly support individual income tax.[1] In addition the state has the authority to issue a state income tax assessment regardless of whether the IRS has issued an assessment.[2] Petitioner argues that only a trier of fact can determine the amount of an income tax assessment, but he provides no basis in statute or case law for this argument, as there are none. The Tax Commission has the authority to issue a tax assessment and collect the deficiency pursuant to provisions set out at Utah Code Ann. '59-10, Part 5. Petitioner does, however, have further appeal rights, one of which includes the right to appeal this decision to District Court or the Supreme Court.

Petitioner also argues that congress does not have the authority to assess tax, stating that congress does not have the right to assess tax on intrastate commerce, unless, argues Petitioner, the 16th Amendment to the Constitution overrides Article 1. Again this argument has no legal basis and is without merit. The Sixteenth Amendment to the United States Constitution explicitly recognizes that congress has the right to levy an income tax which is not apportioned between the states.[3] Since the Sixteenth Amendment allowed that the income tax did not have to be apportioned between the states, the Sixteenth Amendment is an amendment to the original Constitution and, yes, it does supersede the original portion of the Untied States Constitution that is to the contrary.[4]


1. Petitioner was a "resident individual" of Utah during the tax year at issue pursuant to the definition set out at Utah Code Ann. '59-10-103(1)(k).

2. As Petitioner was a "resident individual" during the year at issue, Petitioner is liable for Utah individual income tax on his state taxable income. Utah Code Ann. '59-10-104.

3. Petitioner did not dispute that he received income during the year at issue, nor question the dollar amount of the income as determined by Respondent. This income was compensation for services and as such is includable in Petitioner's state taxable income. Utah Code Ann.'59-10-112; Utah Code Ann. '59-10-111; 26 U.S.C. 63; 26 U.S.C. 61(a).

4. Penalties were appropriately assessed for the 1996 tax year pursuant to Utah Code Ann. Sec. '59-1-401. Petitioner presents no reasonable cause for their waiver. Petitioner's arguments were patently friviouls. Interest was properly assessed pursuant to Utah Code Ann. Sec. 59-1-402.


Petitioner's claims have no merit. The Tax Commission sustains the audit assessment of additional income tax, penalties and interest against Petitioner for the 1996 tax year. It is so ordered.

DATED this 19th day of June , 2002.



Jane Phan

Administrative Law Judge



The Commission has reviewed this case and the undersigned concur in this decision.

DATED this 19th day of June , 2002.



Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner






Palmer DePaulis Marc B. Johnson

Commissioner Commissioner

[1]See United States v. Mann, 884 F.2d 532 (10th Cir. 1989). In that case, Mann offered many theories as to why he was not required to file income tax returns. The court stated, AHis many theories include the asserted beliefs that 1) the United States Supreme Court has declared that the sixteenth amendment applies only to corporations, 2) the Internal Revenue Service (IRS) has no jurisdiction over him, 3) he is not a Aperson@ within the meaning of 26 I.R.C. '7203, 4 ) wages are not income, 5) federal reserve notes are not legal tender, and 6) the income tax is voluntary.@ The court in Mann responded to these assertions as follows, A. . . each of the views offered by Mann, whether found in his published materials or articulated additionally at trial, falls somewhere on a continuum between untrue and absurd.@

See also United States v. Collins, 920 F.2d 619 (10th Cir. 1990), cert. denied, 500 U.S. 920, (1991); Cox V. Commissioner of Internal Revenue,99 F.3d 1149 (10th Cir. 1996); Baker v. Towns, 849 F. Supp. 775 (D.Utah 1993); West v. Peterson 1993 U.S. Dist. Lexis 16495(D.Utah 1993); United States v. Hanson, 2 F.3d 942 (9th Cir. 1993); United States v. Koliboski, 732 F.2d 1328 (7th Cir. 1984)and Granzow v. C.I.R., 739 F.2d 265, 267 (7th Cir. 1984).

[2]See the Utah Supreme Court decisions in Nelson v. Auditing Div., 903 P.2d 939 (Utah 1995) and Jensen v. State Tax Commission, 835 P.2d 965(Utah 1992).

[3]The constitutional right to tax income has never been invalidated. Rather, the tax had previously been held

unconstitutional because it was a direct tax that was not apportioned among the states according to their population, as

required by Article I, Section 2. The Sixteenth Amendment authorized a direct tax on incomes without apportionment among the states according to population. See Stanton v. Baltic Mining Co., 240 U.S. 103, 112 (1916) and Brushauber v. Union Pacific Railroad Co., 240 U.S. 1 (1916).

[4]The Sixteenth Amendment to the Untied States Constitution was properly ratified. See Lonsdale v. United States, 919 F.2d 1440, at 1448 (10th Cir. 1990). The Tenth Circuit held that taxpayers arguments that the Sixteenth Amendment was not properly ratified were, Acompletely lacking in legal merit and patently frivolous@ as to warrant the imposition of sanctions.