BEFORE THE UTAH STATE TAX COMMISSION
PETITIONER, ) FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
Petitioner, ) AND FINAL DECISION
v. ) Appeal No. 00-1489
) Account Nos. #####
TAXPAYER SERVICES DIVISION OF )
THE UTAH STATE TAX ) Tax Type: Personal Penalty
) Judge: Phan
Marc Johnson, Commissioner
Jane Phan, Administrative Law Judge
For Petitioner: ATTORNEY FOR PETITIONER
For Respondent: Susan Barnum, Assistant Attorney General
Stan Allen, Assistant Director Taxpayer Services Division
Linda Pringle, Tax Compliance Agent
STATEMENT OF THE CASE
This matter came before the Utah State Tax Commission for a Formal Hearing on May 16, 2002, and the hearing was continued and then reconvened on June 26, 2002, to allow the parties time to obtain additional information. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. The assessment in question is a personal penalty assessment, made against Petitioner for the unpaid sales and withholding tax of COMPANY A d.b.a. COMPANY B ("COMPANY B"). The Statutory Notice, issued on November 16, 2000, indicated a deficiency of $$$$$.
2. The periods in question are those from April 1999 through May 2000. For the period of April through June 1999, “COMPANY B” filed a quarterly sales tax return. For all remaining periods “COMPANY B” was a monthly filer on both the sales and withholding tax accounts.
3. In 1992 Petitioner worked as the outside accountant for COMPANY C and in 1995 he began working for COMPANY C as a full time employee. COMPANY C changed its name in 1998 to COMPANY B. During the period of 1995 through part of 1998, Petitioner was a corporate officer of COMPANY B, he managed the accounting department, prepared tax returns and in addition he signed the company's checks and had some say in determining which creditors were paid. There is no COMPANY B sales or withholding tax deficiency from this period.
4. Sometime in 1998 Petitioner made a decision to pay one business creditor rather than make a loan payment which was secured by the residence of OWNER OF COMPANY C. OWNER OF COMPANY C was a shareholder and principal of COMPANY B. Petitioner was terminated because OWNER OF COMPANY C was unhappy with this decision. However, OWNER OF COMPANY C subsequently asked Petitioner to resume employment with the understanding that Petitioner could no longer sign the company's checks or decide which creditors would be paid.
5. Petitioner thought that his name was removed from the company's checking account after the termination and subsequent resumption of employment. Neither party was able to obtain the checking account signature card for this period. However, Petitioner did make available all the canceled checks on the account and it is clear from the evidence presented that Petitioner did not sign any checks on the business account from April 1, 1999 through April 30, 2000.
5. During the period of time from the beginning of April 1999 to the end of April 2000, although Petitioner did not sign any checks, Petitioner was the corporate secretary and possibly the treasurer for COMPANY B. He was a full time employee with no ownership interest in the company. He continued to manage the accounting department. His duties included preparing the financial statements, supervising payroll and accounts receivable, reconciling bank statements, managing the accounting personnel and preparing and signing the tax returns. Petitioner knew that the taxes were not being paid and testified that he continually told OWNER OF COMPANY C, the person Petitioner felt had the authority to make that decision, about the tax deficiencies. It was Petitioner's understanding that he had no authority to determine which creditors would be paid. He would let OWNER of COMPANY C know of the liabilities and OWNER of COMPANY C would choose who to pay.
6. During this same period of time, Petitioner continued to be the contact person who had discussions with Tax Commission employees on resolving unpaid accounts of some COMPANY B’s subsidiaries. He negotiated an offer in compromise on the subsidiary accounts and he remained the person that Taxpayer Services Division representatives would contact about any tax issues. However, despite the fact that he was the contact person with the Tax Commission, the evidence indicates that he did not have the authority to direct which creditors COMPANY B would pay, nor did he have the ability to write a check to the Tax Commission on COMPANY B’s account.
7. In May 2000 Petitioner began the process of purchasing the assets of COMPANY B from the shareholders, including OWNER of COMPANY C. In this process he was put back on the account to pay some of the outstanding liabilities and settle the debt of COMPANY B. Petitioner started signing checks on the company account on May 1, and he issued checks of significant dollar amounts after May 24, 2000. Petitioner determined which creditors to pay at this point and did not pay the April or May 2000 sales or withholding taxes. Petitioner did know that there were tax deficiencies at this time. The April 2000 return was not due until the end of May 2000.
Utah Law provides for a personal penalty assessment for a company's unpaid withholding tax liabilities. It is listed in Utah Code Ann. '59-1-302 and provides in pertinent part:
(1) The provision of this section apply to the following taxes in this title: (a) state and local sales and use tax under Chapter 12, Parts 1 and 2; . . .(g) withholding tax . . .
(2) Any person required to collect, truthfully account for, and pay over any tax listed in Subsection (1) who willfully fails to collect the tax, fails to truthfully account for and pay over the tax, or attempts in any manner to evade or defeat any tax or the payment of the tax, shall be liable for a penalty equal to the total amount of the tax evaded, not collected, not accounted for or not paid over. This penalty is in addition to other penalties provided by law . . .
(7)(a) in any hearing before the Commission and in any judicial review of the hearing, the commission and the court shall consider any inference and evidence that a person has willfully failed to collect, truthfully account for, or pay over any tax listed in Subsection (1).
(b) It is prima facie evidence that a person has willfully failed to collect, truthfully account for, or pay over any of the taxes listed in Subsection (1) if the commission or a court finds that the person charged with the responsibility of collecting, accounting for or paying over the taxes:
(i) made a voluntary, conscious, and intentional decision to prefer other creditors over the state government or utilize the tax money for personal purposes;
(ii) recklessly disregarded obvious or know risks, which resulted in the failure to collect, account for, or pay over the tax; or
(iii) failed to investigate or to correct mismanagement, having notice that the tax was not or is not being collected, accounted for, or paid over as provided by law.
CONCLUSIONS OF LAW
Although Petitioner was aware of the sales and withholding tax deficiencies for the period from April 1, 1999 through March 31, 2000, Petitioner did not have the authority or ability to make the payment to the Tax Commission, so Petitioner could not have consciously preferred other creditors over the Tax Commission. Petitioner was not a person charged with the responsibility of remitting the tax pursuant to Utah Code Ann. '59-1-302. The Commission notes that when Petitioner had the authority to make the determination as to which creditors were paid prior to this period, the taxes for COMPANY B were paid. However, for the last two periods at issue, April and May 2000, Petitioner did have the authority and he was one of the parties who signed on the account and determined which creditors would be paid. In fact, he paid a number of other creditors over the Tax Commission. The personal penalty was properly assessed pursuant to Utah Code Ann. '59-1-302 for the April and May 2000 periods.
DECISION AND ORDER
Based upon the foregoing, the Tax Commission abates the personal penalty for the period from April 1, 1999 to March 31, 2000 and assesses the personal penalty for the period of April 1, 2000 through May 31, 2000. It is so ordered.
DATED this 2nd day of October , 2002.
Administrative Law Judge
BY ORDER OF THE UTAH STATE TAX COMMISSION:
The Commission has reviewed this case and the undersigned concur in this decision.
DATED this 2nd day of October , 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson