02-0087 and 02-0088

Special Fuel and Environmental Assurance

Signed 3/18/03







) Appeal Nos. 02-0087; 02-0088

Petitioner, )

) Account Nos. #####

v. ) #####


AUDITING DIVISION OF ) Tax Types: Special Fuel and

THE UTAH STATE TAX ) Environmental Assurance


) Audit Period: 7/1/98 – 6/30/01

Respondent. )

) Judge: Chapman




Kerry R. Chapman, Administrative Law Judge


For Petitioner: PETITIONER 1


For Respondent: Mr. Clark Snelson, Assistant Attorney General

Mr. Andy Coffman, from the Auditing Division

Mr. Doug Smith, from the Auditing Division



These matters came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5 on January 22, 2003.

Appeal No. 02-0087 concerns Auditing Division’s assessment of additional special fuel tax, penalty, and interest to the Petitioner. Appeal No. 02-0088 concerns Auditing Division’s assessment of additional environmental assurance fee, penalty, and interest to the Petitioner. The Petitioner is a special fuel supplier that did not pay or accrue the special fuel tax and the environmental assurance fee on certain transactions involving special fuel. Both parties have agreed to the amount of special fuel taxes and environmental assurance fees owed by the Petitioner, so the portions of the assessments relating to additional taxes and fees are not at issue. At issue, however, is the 10% negligence penalty imposed by Auditing Division on both assessments.

Auditing Division asks the Commission to sustain the penalties. It assessed a penalty on the Petitioner’s failure to pay the special fuel tax because of the serious revenue consequences of a supplier not paying the tax. Because the special fuel tax is $$$$$ cents per gallon of fuel, not paying the tax can result in a significant loss of tax revenue. Auditing Division asserts that the imposition of the penalty is to ensure that the supplier pays or accrues the tax.

Auditing Division also explains that it assessed a penalty on the Petitioner’s failure to pay the environmental assurance fee because the fee “piggybacks” on the payment or accrual of the special fuel tax. Because it determined that a 10% negligence penalty was warranted on the Petitioner’s non-payment of special fuel tax, it assessed a similar penalty on the non-payment of the environmental assurance fee.

The Petitioner asks the Commission to waive the penalty imposed in both appeals because one of the Petitioner’s distributors changed it billing method as it related to the Petitioner. Prior to January 17, 2000, this distributor charged the Petitioner the special fuel tax. On January 22, 2000, and afterwards, this distributor did not include the taxes on its invoices. Petitioner asserts the nonpayment of the special fuel tax and environmental assurance fee was due to a change in another company’s billing procedures, not its own negligence. Accordingly, it asks the Commission to waive the penalties associated with these appeals.

We should also note that the Petitioner has previously filed for bankruptcy protection and is currently within the realm of the bankruptcy court. Nevertheless, the Petitioner waived whatever rights it may have under bankruptcy law so that the Commission can determine the amount of its liability for penalties associated with these appeals. However, the Petitioner did not waive any protection from payment that is afforded by its having filed for bankruptcy.


The Tax Commission is granted the authority to waive, reduce, or compromise penalties and interest upon a showing of reasonable cause. Utah Code Ann. §59-1-401(10).


When totaled, the special fuel tax and the environmental assurance fee imposed on a gallon of special fuel is nearly $$$$$ cents. When the tax and fuel are not paid, the loss of revenue is significant in relation to the total amount of the transaction. Unless a supplier itself ensures that these taxes and fees are properly paid or accrued, the Commission rarely learns of the nonpayment, except during an audit. The Commission believes that a supplier should have sufficient business practices in place to ensure that errors resulting in nonpayment are caught and corrected. Petitioner blames its nonpayment of the tax and fee at issue on the actions of another party, but offers no explanation why it should not be responsible for discovering and correcting such errors on its accounts. Petitioner has not provided us any information to convince us that its not discovering and correcting a distributor’s billing mistake for over a year was reasonable or unavoidable, especially when the Petitioner is the party responsible for accruing the tax. For these reasons, we approve Auditing Division’s imposition of the 10% negligence penalty on each of the assessments at issue and do not find the existence of any reasonable cause to warrant a waiver of the penalty in either instance.


Based upon the foregoing, the Commission denies the Petitioner’s request to waive the 10% negligence penalties imposed by Auditing Division in Appeal Nos. 02-0087 and 02-0088. 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

Appeals Division

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 18th day of March , 2003.



Kerry R. Chapman

Administrative Law Judge




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

DATED this 18th day of March , 2003.





Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner





Palmer DePaulis Marc B. Johnson

Commissioner Commissioner