01-1406

Tourism (Restaurant)

Signed 1/31/02

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal No. 01-1406

) Account No. #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Tourism (Restaurant)

COMMISSION, )

) Judge: Rees

Respondent. )

_____________________________________

Presiding:

Irene Rees, Legal Counsel / Hearing Official

Appearances:

For Petitioner: PETITIONER REP, business owner

For Respondent: Susan Barnum, Assistant Attorney General, Rod Boogaard, Auditing Division

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission on Petitioner's request for relief from the assessment issued against her business for uncollected restaurant tax. Petitioner waived the Initial Hearing. A Formal Hearing was held January 14, 2002.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is the Tourism, Recreation, Cultural, and Convention Facilities Tax (more commonly know as "Tourism Tax" or "Restaurant Tax").

2. The audit period in question is April 1998 through March 2001.

3. Petitioner operates a retail "kiosk" business in a mall that specializes in sales of coffee drinks, prepackaged foods and coffee-related merchandise. There is no dispute that this business is a "restaurant" within the meaning of section 59-12-602 of the Utah Code.

4. Petitioner applied for a sales tax license in August 1997. In Section 1 of the application, Petitioner described the business as "espresso drinks/related coffee merchandise." In Section 2 of the application, Petitioner checked the box indicating "sales of goods or services from a place of business located in Utah." Petitioner did not check the box indicating "Restaurant sales of prepared foods, tourism and/or short term . . . rental or lease of motor vehicle."

5. Petitioner consulted with Tax Commission staff for instructions in completing the application form. Upon opening for business, Petitioner reported and remitted all sales tax collected in conformance with the tax return documents supplied by the Tax Commission.

6. On the basis of information supplied by Petitioner on the sales tax license application, Tax Commission staff correctly coded the business under SIC code 5812, which pertains to eating establishments.

7. Although Petitioner's establishment was properly coded as a restaurant, the Tax Commission failed to provide Petitioner with coupons for reporting and remitting the restaurant tax.

8. An audit conducted in 2001 revealed that Petitioner had failed to collect restaurant tax on sales made during the audit period. The Audit Summary prepared by Respondent indicates an uncollected tax in the amount of $$$$$. Interest in the amount of $$$$$ was imposed through August 25, 2001 and continues to accrue at $$$$$ per day.

APPLICABLE LAW

1. Utah Code Ann. '59-12-602 defines "restaurant" to include " any coffee shop, cafeteria, luncheonette, soda fountain, or fast-food service where food is prepared for immediate consumption."

2. Utah Code Ann. '59-12-603 authorizes a county legislative body to impose an additional tax on "all sales of prepared foods and beverages that are sold by restaurants."

DISCUSSION

Petitioner does not deny that she operates a business that is subject to the restaurant tax provisions, and she is currently in compliance with those provisions. However, Petitioner requests relief from the assessment for uncollected tax and interest based on the particular facts of her situation.

Petitioner opened her business under a licensing or franchise agreement. Because the franchiser provided no business consultation or support, Petitioner investigated the business and tax regulations on her own and consulted in a general fashion with friends who are attorneys to review contracts and legal documents. In preparing to register the business, Petitioner states that she contacted the Tax Commission for instructions in filling out the sales tax license application form. She states that she described her business as a "kiosk" business in operation to sell coffee espresso drinks and some prepackaged foods that she buys for resale, such as muffins. Additionally, she sells coffee beans and mugs and the types of flavorings that she uses in the coffees she prepares for immediate consumption. Petitioner's business is not set up or authorized under health regulations to prepare foods on site, and she is only authorized to serve coffee that is served for immediate consumption. It is Petitioner's understanding that in her conversation with Tax Commission staff, she was directed to check the top box under Section 2 of the application form. Thereafter, Petitioner reported and remitted sales tax in accordance to the documentation supplied by the Tax Commission. At hearing, Respondent pointed out that Section 2 of the application form includes a box for the applicant to indicate that the business engages in restaurant sales or prepared foods. Instead of checking that box, Petitioner incorrectly checked the box which mistakenly identifies her business as "sales of goods or services." Respondent pointed out that the Commission has held taxpayers liable for these kinds of mistakes in other cases. In particular, Respondent pointed to the Commission's decision in Appeal No. 01-0448, in which the taxpayer described his business as "Rest." in Section 1 of the form and checked the "sales of goods and services" box in Section 2.

In finding the taxpayer in that case liable for the uncollected tax, the Commission stated that due to the taxpayer's error on the form, the business was "not encoded as a restaurant on the computer so the tourism tax coupon were not sent to Petitioner. In addition Tax Bulletins concerning the tourism tax would not have been sent to Petitioner."

The circumstances in this case distinguish it from Appeal 01-0448 and tend to indicate that Tax Commission error or oversight may have contributed to Petitioner's misunderstanding of her obligations with regard to the restaurant tax provisions. First, in contrast to the taxpayer in Appeal 01-0448, Petitioner testified that she followed instructions from Tax Commission staff in completing the application form. Additionally, the copy of Petitioner's application form entered into evidence by Respondent clearly indicates that Tax Commission staff coded this business as a restaurant (SIC 5812), presumably on the basis of Petitioner's description of her business in Section 1 rather that the box checked in Section 2. The documentary evidence tends to indicate that the Tax Commission had notice that Petitioner was operating a restaurant type business and the appropriate tax coupons should have been prepared for Petitioner's use. Had Petitioner received the appropriate coupons and Tax Bulletins, she would have had immediate notice of her obligation to collect and remit the tax and she would not now be in the position of paying over her own funds to satisfy the deficiency.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission waives the assessment for uncollected tax and interest.

DATED this 31^st day of January , 2002.

____________________________________

Irene Rees, Legal Counsel

Hearing Official

BY ORDER OF THE UTAH STATE TAX COMMISSION:

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

DATED this 31^st day of January , 2002.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner