01-1282
Income Tax
1/7/03
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
)
PETITIONER, ) FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
Petitioner, ) AND FINAL DECISION
)
v. ) Appeal No. 01-1282
)
AUDITING DIVISION OF )
THE UTAH STATE TAX ) Tax Type:
Income Tax
COMMISSION, )
) Judge: Phan
Respondent. )
_____________________________________
Presiding:
Jane Phan,
Administrative Law Judge
Appearances:
For Petitioner: PETITIONER
For Respondent: Laron Lind, Assistant Attorney General
STATEMENT
OF THE CASE
This matter came before the Utah State Tax
Commission for a Formal Hearing on November 6, 2002. Based upon the evidence and testimony presented at the hearing, and
considering Petitioner's post hearing filing, the Tax Commission hereby makes
its:
FINDINGS
OF FACT
1. Petitioner is appealing an income tax,
penalty and interest audit deficiency issued against him by Respondent for the
2000 tax year. The Statutory Notice of
Audit Change was issued to Petitioner on July 26, 2001. Petitioner timely
filed a Petition for Redetermination with the Utah Tax Commission and the
matter proceeded to the Formal Hearing.
2.
As
of the date of the Statutory Notice of Audit Change, the amount of the
deficiency was $$$$$ in tax, $$$$$ in interest and a penalty of $$$$$. Interest continues to accrue on the unpaid
balance.
3.
The
penalty was assessed pursuant to Utah Code Ann. '59-1-401 (7).
4. Petitioner filed a Utah Individual
Income Tax Return for the tax year 2000 on which he claimed $$$$ federal
adjusted gross income and $$$ total adjusted income. On the return Petitioner requested a refund of $$$$ for the total
amount of withholding Petitioner's employer had paid to the Utah Tax Commission
on Petitioner's behalf. Petitioner also
filed a U.S. Individual Income Tax Return for the 2000 tax year on which he
claimed $$$$ in total income and requested a full refund of all federal
withholding. These returns were both
erroneous as Petitioner received taxable income during the tax year at issue.
5. Petitioner received $$$$$ in federal
adjusted gross income during the tax year 2000. This amount is supported by a W-2 filed with the Internal Revenue
Service by Petitioner's employer.
Petitioner provided no evidence to dispute that he received this income
from his employer as wages, nor did he present evidence to dispute the dollar
amount of the wages received during the tax year at issue.
6. Petitioner was a Utah "resident
individual" for purposes of Utah Code Ann. Sec. 59-10-104 as he remained
domiciled in Utah during the year in question.
Petitioner had been a Utah resident prior to the period at issue. Petitioner maintains that he changed his domicile
from Utah to STATE. However, he failed
to abandon his Utah ties and took no meaningful steps toward establishing a new
domicile in STATE during the period at issue.
Throughout 2000, Petitioner was an interstate truck driver and most of
the time he resided in his truck.
During the tax year 2000 Petitioner retained his Utah drivers license,
his mailing address was the Utah address of his parents, he voted in Utah, and he obtained a resident fishing
license. He maintained that it was more
convenient for him to vote and get his mail in Utah because he was in Utah more
often than STATE. However, this points
to the position that he was domiciled in Utah, not STATE. Utah was the place to which he returned
whenever he was absent. Petitioner did
not rent or purchase a residence in STATE for any period during 2000. He did not receive mail in STATE. He did not obtain a STATE drivers license or
register to vote in STATE. He did not
establish a domicile in STATE during 2000.
7. The audit deficiency tax amount was
based on Respondent's assertion that Petitioner was a Utah resident during the
year 2000.
8. Returns such as the one filed by
Petitioner, which are clearly erroneous and request a refund when one is not
due, impede the administration of the tax law.
9. Before filing his returns in the manner
in which he did, Petitioner states that he researched the matter and gave it
serious consideration. Filing a $$$$$ income
return was an intentional act on his part.
APPLICABLE
LAW
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.
For purposes of determining whether an individual is
domiciled in this state the Commission has defined "domicile" in Utah
Administrative Rule R865-9I-2(D) as follows:
the place where an
individual has a true, fixed, permanent home and principal establishment, and to
which place he has (whenever he is absent) the intention of returning. It is the place in which a person has
voluntarily fixed the habitation of himself or herself and family, not for a
mere special or temporary purpose, but with the present intention of making a
permanent home.
After domicile has been
established, two things are necessary to create a new domicile: first, an
abandonment of the old domicile; and second, the intention and establishment of
a new domicile. The mere intention to
abandon a domicile once established is not of itself sufficient to create a new
domicile; for before a person can be said to have changed his or her domicile,
a new domicile must be shown.
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 . . .
The Utah Legislature has
determined that a $500 penalty is necessary in the following
circumstances as set out in Utah Code Ann. '59-1-401(7):
If any taxpayer, in furtherance
of a frivolous position, has a prima facie intent to delay or impede
administration of the tax law and files a purported return that fails to
contain information from which the correctness of reported tax liability can be
determined or that clearly indicates that the tax liability shown must be
substantially incorrect, the penalty is $500.
ANALYSIS
This appeal presents two
issues to the Utah Tax Commission. The
first is whether or not Petitioner was domiciled in the state of Utah. The second issue is whether the wage income
Petitioner received is subject to income tax.
Petitioner was a
resident and domiciled in Utah during 1999.
Once a Utah domicile has been established, Petitioner must show: 1)
that he abandoned his Utah domicile; and 2) that he intended to, and did in
fact, establish a new domicile in STATE. See Utah Admin. Rule Rule R865-9I-2(D). Upon consideration of the facts, Petitioner did not complete
either and he, therefore, remained domiciled in Utah throughout the year at issue.
Petitioner acknowledges that he received wage
income for his employment and does not dispute the amount of the income he
received. He argues instead that his
wage income was not subject to income tax.
On several occasions, the courts have directly considered whether wages
are included in federal taxable income and have clearly concluded that wages
are taxable income.[1] Several of these cases and their holdings
have been cited to Petitioner in an order issued previous to the Formal
Hearing. However, in the Defense
Outline Summary that Petitioner submitted at the Formal Hearing, he states in
error, at Page 2-19, "Income has always been defined by the Courts as to
exclude wages." He goes on in his
summary to cite excerpts from several U.S. Supreme Court cases as support for
this contention. However, he is taking
the excerpts out of context, or failing to understand the holding of the
cases. The law and case law are clear
on this point. Wages are
included in taxable income both for federal and for Utah individual income tax
purposes. In fact, the statutes and
case law clearly support individual income tax.[2]
The appeal at hand deals with Utah Individual
Income Tax and Utah individual income tax is governed by Utah law. Petitioner's arguments as to why his wage income is not included as federal
taxable income are without merit.
However, for state tax purposes his arguments are largely irrelevant.
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. Utah law
does incorporate a specific section of
the Internal Revenue Code to define 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 currently 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. See Internal Revenue Code at
26 U.S.C. 63 and 61(a). Petitioner's
wages are compensation for services.
Turning to the issue of the $$$$ penalty,
Petitioner filed a return for the tax year 2000 which clearly indicated that
the tax liability shown was incorrect.
Petitioner intentionally filed this type of return in furtherance of a
frivolous position and it impeded the administration of the income tax laws. Petitioner states that he did some research,
but he disregarded all the information that indicated his wage income was
taxable.
CONCLUSIONS
OF LAW
1. The
Commission has made a finding of fact that Petitioner was a Utah resident
during the tax year 2000. For this
reason the Commission concludes that Petitioner is liable for Utah individual
income tax on his state taxable income.
Utah Code Ann. '59-10-104.
2. Petitioner
did not dispute that he had received income during the year at issue, nor did he
dispute the amount of the income as determined by Respondent. Petitioner's income was wage income and was
compensation for services which he rendered.
Compensation for services is clearly included in Utah taxable
income. Utah Code Ann.'59-10-112; Utah Code
Ann. '59-10-111; 26 U.S.C. 63;
26 U.S.C. 61(a). Petitioner's arguments
that his income was not subject to state income tax are without merit and have
no support in statute or case law.
3. The
$$$$$ penalty assessed in this matter is appropriate pursuant to Utah Code Ann.
'59-1-401(7).
DECISION AND ORDER
Petitioner's claims have no merit. The Tax Commission sustains the audit
assessments of additional income tax, $$$$$ penalty and interest against
Petitioner for the 2000 tax year. It is so ordered.
DATED this _____ day of _____________________,
2002.
_____________________
Jane Phan
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 _____ day of ____________, 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. Lonsdale, 919 F.2d
1440 (10th Cir. 1990)
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.@
[2]See United States v. Collins, 920 F.2d 619
(10th Cir. 1990), cert. denied, 500 U.S. 920, (1991); 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). Cox V. Commissioner of
Internal Revenue, 99 F.3d 1149 (10th Cir. 1996); Baker v. Towns, 849
F. Supp. 775 (D.Utah 1993);and United States v. Hanson, 2 F.3d 942 (9th
Cir. 1993);