BEFORE THE UTAH STATE TAX COMMISSION
PETITIONER, ) FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
Petitioners, ) AND FINAL DECISION
v. ) Appeal No. 01-0485
AUDITING DIVISION OF )
THE UTAH STATE TAX ) Tax Type: Income Tax
) Judge: Phan
Jane Phan, Administrative Law Judge
For Petitioner: PETITIONERíS REP
For Respondent: Susan Barnum, Assistant Attorney General
Beckie McKenzie, Senior Auditor
STATEMENT OF THE CASE
This matter came before the Utah State Tax Commission for a Formal Hearing on September 17, 2002. Petitioner was granted the right to file a post-hearing brief in this matter and did so on October 9, 2002. Respondent did not file a response. Based upon the evidence and testimony presented at the hearing, and considering Petitioner's post hearing brief, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. Petitioner is appealing income tax, penalty and interest deficiencies against him for the tax years 1996 and 1998. Petitioner was notified of the audit deficiencies by a Statutory Notice of Audit Change, for the tax year 1996, dated February 15,2001, and a Statutory Notice of Estimated Income Tax, for the 1998 tax year, dated February 15, 2001. Petitioner timely filed an appeal of the deficiencies and the matter proceeded to the Formal Hearing.
2. The amount of the deficiencies determined by Respondent are as follows:
Year Tax Penalty Interest as of Notice Date
1996 $$$$$ $$$$$ $$$$$
1998 $$$$$ $$$$$ $$$$$
3. Interest continues to accrue on the unpaid balance. The penalties were issued pursuant to Utah Code Ann. Sec. '59-1-401.
4. Petitioner had filed a Utah Individual Income Tax Return for the 1996 tax year. He filed the return with the filing status of "Married filing separate return." On the return he claimed five total exemptions. He also indicated on the return, on the signature line, that the return was being filed by order of the judge in a bankruptcy proceeding as well as the Chapter 13 Bankruptcy Trustee. Petitioner did not file a Utah Individual Income Tax Return for the 1998 tax year.
5. Respondent received a document from the Internal Revenue Service ("IRS"), titled Income Tax Examination Changes. This document is routinely provided by the IRS to the Utah Tax Commission. The Utah State Tax Commission in turn utilized this information in its regular course of business. The IRS Income Tax Examination Change indicates that the IRS disallowed four of the exemptions, allowing only one exemption. Based on this change, Respondent disallowed four of the five exemptions claimed on the Utah return and issued the Statutory Notice of Audit Change on February 15, 2001. The IRS information indicates the income which Petitioner received during the 1996 tax year was wage income paid to Petitioner by EMPLOYER.
6. For the 1998 tax year, Petitioner did not file a Utah Individual Income Tax return. The audit deficiency for this year is based on information provided by the IRS which indicated that Petitioner had received wages in the amount of $$$$$ from EMPLOYER as well as a small amount of interest income. This information is again the type routinely provided by the IRS to the Utah Tax Commission where it is utilized in the Tax Commission's regular course of business. Respondent issued the Statutory Notice of Estimated Income Tax to Petitioner on February 15, 2001.
7. Petitioner did not dispute that he received wages from EMPLOYER during the years at issue, nor did he dispute the dollar amount as indicated in the information provided by the IRS. Petitioner did not provide any information to indicate that he was entitled to five total exemptions on his Utah return for the tax year 1996.
8. During 1996 and 1998 Petitioner resided within the geographical boundaries of Utah and was a Utah "resident individual" for the purposes of Utah Code Ann. '59-10-103(1)(k) and '59-10-104.
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 representative makes a number of arguments as to why the audit deficiencies should be abated. However, the Commission finds every argument made by Petitioner and his representative to be without merit. Most have been addressed, at least to some degree, and rejected in the courts or previously by the Tax Commission. The case law clearly supports the legality of the individual income tax.
Petitioner argues that Respondent should carry the burden of proof and that the evidence offered by Respondent was insufficient to support an assessment of income tax. It was Petitioner's position that the Administrative Procedures Act as well as other legislation provided that the burden should be on the Respondent. The Commission disagrees with this position. The legislation specifically places the burden of proof on the Petitioner and Petitioner clearly failed to meet the burden of proof. See Utah Code Ann. '59-10-543.
As for the documents upon which Respondent relied in issuing the audit deficiency they are documents routinely provided by the IRS to the Tax Commission and used by the Tax Commission in its regular course of business. In addition Petitioner did not dispute in any manner the information contained in the documents. Petitioner did not dispute that he worked at EMPLOYER during the years at issue, nor the dollar amount of the wages he received as reported in the documents. He did not provide any argument as to why he might be entitled to five total exemptions for the 1996 year. He provided nothing to call into question the accuracy of the information contained on the documents upon which Respondent relied.
A second argument offered by Petitioner's representative was the assertion that the state can not tax a fundamental right like the right to labor. As Petitioner's representative is aware, the Tax Commission has rejected this argument in previous appeals. There is no support for this argument in either the statutes or case law. There have been a number of cases that have considered directly the question of whether wage income is subject to individual income tax and the courts have held that it is subject to income tax. In Charles C. Stewart Machine Co. v. Davis, 301 U.S. 548, 580-581 (1937), the United States Supreme Court stated:
"But natural rights, so called, are as much subject to taxation as rights of lesser importance. An excise is not limited to vocations or activities that may be prohibited altogether. It is not limited to those that are the outcome of a franchise. It extends to vocations or activities pursued as of common right."
A third argument offered by Petitioner is that he is not the type of resident of Utah or the United States to be subject to income tax laws. It is Utah law that is applicable in determining whether a person is a "resident individual" for purposes of the Utah individual income tax laws. However, for Petitioner's benefit similar arguments as to his that he is somehow not the type of citizen of the Untied States to be subject to federal tax, have been rejected by the Courts on so many occasions as to constitute a frivolous argument and have often resulted in sanctions.
However, for state tax purposes, the federal definition of citizen or resident is largely irrelevant, as a resident subject to Utah income tax is defined by Utah state statute. Utah Code Ann. '59-10-104 imposes a tax on every "resident individual." AResident individual@ is defined at Utah Code Ann. '59-10-103(1)(k), which states, ""Resident individual" means: (i) an individual who is domiciled in this state for any period of time during the taxable year, . . . 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 more days of the taxable year in this state."
Petitioner clearly is a resident individual he did not dispute that he resided in Utah during the period at issue. However, Petitioner argues that although he resides in Utah he is not a resident of "this state," that "this state" in Utah Code Ann. '59-10-103(1)(k) refers to something other than Utah. He alleges "this state" of Utah is a separate jurisdiction from "the state" of Utah and that Petitioner lives within one of these jurisdiction and not the other. Obviously this argument has no merit. This distinction is not supported by case law or statute.
A fourth argument offered by Petitioner's representative is that Petitioner is not liable for "state qualified individual income tax" so he is not liable for "any tax." He presents a lengthy circuitous argument on this issue and the Commission rejects it outright as it has done in prior decisions. Part 5 of the Individual Income Tax Act uses at times the term "any tax" imposed under this chapter to refer to taxes imposed. Although the chapter in which this occurs is the Individual Income Tax Act, Petitioner's representative insists that "any tax" does not include income tax, that it instead refers to a "state qualified individual income tax." The Commission rejects Petitioner's argument as there is no support in traditional rules of statutory construction for this interpretation.
The state tax provisions are clear. They are not difficult or ambiguous. Utah "resident individuals" are subject to state income tax on their state taxable income. "State taxable income" is defined at Utah Code Ann. '59-10-112 and Utah Code Ann. '59-10-111 as "federal taxable income" as defined in Section 63, Internal Revenue Code of 1986. When the statutory links are followed, state taxable income is income from whatever source derived and specifically includes compensation for services.
Considering the penalties assessed in this matter, Petitioner provided no reasonable cause for their waiver. He failed to file and failed to pay income taxes for the 1998 year. He filed significantly late for the 1996 year and his filing was in error.
CONCLUSIONS OF LAW
1. The Commission has made a finding of fact that Petitioner was Utah resident individual throughout the tax years at issue. For this reason the Commission concludes that Petitioner is liable for Utah individual income tax on his state taxable income. Utah Code Ann. '59-10-104.
2. Petitioner did not dispute that he received income during the years at issue, nor provide any significant rebuttal as to the dollar amount of the income as determined by Respondent. This income came primarily from compensation for his services in the form of wages from EMPLOYER. Compensation for services is clearly included in Utah 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). Petitioner's arguments that his income is not subject to state income tax are without merit and have no support in statute or case law.
3. No reasonable cause has been shown for waiver of penalties pursuant to Utah Code Ann. Sec. 59-10-401(10).
DECISION AND ORDER
Petitioner's arguments are without merit. The Tax Commission sustains the audit assessments of additional income tax, penalties and interest against Petitioner for the years 1996 and 1998. It is so ordered.
DATED this 19th day of December , 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 19th day of December , 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson
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); United States v. Lonsdale, 919 F.2d 1440 (10th Cir. 1990); Cox V. Commissioner of Internal Revenue, 99 F.3d 1149 (10th Cir. 1996); Baker v. Towns, 849 F. Supp. 775 (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).
The 5th Circuit stated "it is clear beyond peradventure that the income tax on wages is constitutional." Stelly v. Commissioner, 761 F.2d 1113, 115 (1985). See also Granzow v. C.I.R., 739 F.2d 265, 267 (1984) in which the Seventh Circuit stated, AIt is well settled that wages received by taxpayers constitute gross income within the meaning of Section 61 (a) of the Internal Revenue Code . . . and that such gross income is subject to taxation.@ In United States v. Koliboski, 732 F.2d 1328, 1329 fn 1 (1984), the Seventh Circuit stated Athe defendant=s entire case at trial rested on his claim that he in good faith believed that wages are not income for taxation purposes. Whatever his mental state, he, of course, was wrong, as all of us already are aware. Nonetheless, the defendant still insists that no case holds that wages are income. Let us now put that to rest: WAGES ARE INCOME.@
See Lonsdale v. United States, 919 F.2d 1440, 1448 (10th
Cir. 1990); United States v. Collins, 920 F.2d 619, 629 (10th Cir. 1990); United States v. Hanson, 2 F.3d 942,945 (9th Cir. 1993); United States v. Studley, 783 F.2d 934, 937, n. 3 (9th Cir. 1986); United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991), cert. den. 112 S.Ct. 940 (1992); United States v. Kruger, 923 F.2d 587, 587-588 (8th Cir. 1991); United States v. Gerads, 999 F.2d 1255 (8th Cir. 1993); United States v. Slater, 96 F.R.D. 53, 55-56 (D. Del. 1982); and United States v. Mundt, 29 F.3d 233,237 (6th Cir. 1994). The courts have also rejected the argument that only government employees or officials are subject to the federal individual income tax. See United States v. Latham, 754 F.2d 747,750 (7th Cir. 1985) and Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986).
The issue of domicile for Utah individual income tax purposes has been considered by the Utah Supreme Court and the Court of Appeals in the following cases, none of which purport to make a distinction between "this state" of Utah and "the state" of Utah: Lassche v. State Tax Comm=n 866 P.2d 618 (Utah Ct. App. 1993); Clements v. State Tax Comm=n, 839 P.2d 1078 (Utah Ct. App. 1995), O=Rourke v. State Tax Comm=n, 830 P.2d 230 (Utah 1992), and Orton v. State Tax Comm=n, 864 P.2d 904 (Utah Ct. App. 1993).