BEFORE THE UTAH STATE TAX COMMISSION
PETITIONERS, ) ORDER
Petitioners, ) Appeal No. 01-1359
v. ) Account No. #####
AUDITING DIVISION OF ) Tax Type: Income Tax
THE UTAH STATE TAX )
COMMISSION, ) Tax Year: 1999
Respondent. ) Judge: Davis
G. Blaine Davis, Administrative Law Judge
For Petitioner: PETITIONER 1
For Respondent: Ms. Becky McKenzie, from the Auditing Division
Ms. Stacy Brown, from the Auditing Division
STATEMENT OF THE CASE
This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5 February 6, 2002.
Petitioner, PETITIONER, is a retired federal civil service employee. When he retired, he retained his mail handlers health care insurance on which he pays an annual premium of slightly over $$$$$ per year. In addition, the federal government pays an additional amount as part of his retirement benefit.
Prior to filing his 1999 Utah State Income Tax Return, Petitioner e-mailed the Tax Commission and asked whether he could deduct the health insurance premium paid. He received back a response by e-mail telling him he could take 60% of the premiums he paid, which were not reimbursed or refunded. Based upon that representation, Petitioner deducted an amount of $$$$$ on his 1999 Utah State Income Tax Return, although the method of calculating that amount was not clarified.
Respondent made an adjustment to the return and disallowed the $$$$$ deduction based upon Utah Code Ann. §59-10-114(3)(e).
Petitioner has challenged that audit made by Respondent. Petitioner maintains that the instructions issued by the Tax Commission for that year denied the deduction if the health insurance plan was partially funded by the employer or former employer, but the statute in question only denies the deduction for those who's plan is funded in whole or in part by the "taxpayer's employer" or the "taxpayer's spouse's employer".
Utah Code Ann. §59-10-114(2)(h) provides as follows:
(h) Subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:
(i) a deduction is allowed for the following:
(A) the taxpayer;
(B) the taxpayer's spouse; and
(C) the taxpayer's dependent's; and
(ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or 213, Internal Revenue Code, in determining federal taxable income for the taxable year;
Utah Code Ann. §59-10-114(3)(e) states the circumstances under which health insurance premiums may not be deducted as follows:
(e) for purposes of Subsection (2)(h), a subtraction for an amount paid for health care insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:
(i) for an amount that is reimbursed or funded in whole or in part by the federal government, the state, or an agency or instrumentality of the federal government or the state; and
(ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in whole or in part by the taxpayer's employer or the taxpayer's spouse's employer.
Utah Code Ann. §59-10-401(2) defines employer as follows:
(2) "Employer" means a person or organization transacting business in or deriving any income from sources within the State of Utah for whom an individual performs or performed any services of whatever nature, and who has control of the payment of wages for such services, or is the officer, agent, or employee of the person or organization having control of the payment of wages. It includes any officer or department of state or federal government, or any political subdivision or agency of the federal or state government, or any city organized under a Charter, or any political body not a subdivision or agency of the state.
In this matter, Petitioner did make one argument that he was entitled to the deduction because he was employed by one federal agency, but his retirement pay is being paid by a different federal agency. However, the Commission determines that the federal government was his employer, and the funds paying the portion of the premium not paid by Petitioner are paid by the federal government. Therefore, the portion of the health insurance premiums is being paid by his former employer.
In reviewing the definition of employer above, it includes an organization for whom an individual performs "or performed any services of whatever nature. . . ." Accordingly, the Commission determines that when Utah Code Ann. §59-10-114(3)(e) denies the deduction for health care insurance to taxpayers who are "eligible to participate in a health plan maintained and funded in whole or in part by the taxpayer's employer or the taxpayer's spouse's employer" that the statute is applicable to the situation of Petitioner. Here, Petitioner did perform services for the federal government, who is paying a portion of the health insurance premiums.
Therefore, Petitioner is not entitled to deduct, on his Utah Individual Income Tax Return, the amount of health insurance premiums or any portions thereof paid by him.
DECISION AND ORDER
Based upon the foregoing, the Commission determines Petitioner may not deduct the health insurance premiums because a portion of the health plan is maintained and funded by his former employer, which is his employer under the terms of the statute. Accordingly, the audit determination is hereby sustained, and the Petition for Redetermination is hereby denied. It is so ordered.
This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Failure to request a Formal Hearing will preclude any further appeal rights in this matter.
DATED this 25th day of February , 2002.
G. Blaine Davis
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 25th day of February , 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson