BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, ) Appeal No. 02-0227
v. ) Account No. #####
AUDITING DIVISION OF ) Tax Type: Income Tax
THE UTAH STATE TAX )
COMMISSION, ) Tax Year:
Respondent. ) Judge: Davis
G. Blaine Davis, Administrative Law Judge
For Petitioner: PETITIONER REP
For Respondent: Mr. Tim Bodily, Assistant Attorney General
Mr. Brent Taylor, from the Auditing Division
Ms. Becky McKenzie, 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, on July 17, 2002.
Petitioner did not file a Utah State Individual Income Tax Return for the years 1995, 1996, 1997, 1998, and 1999. Respondent has made an audit assessment for each of those years at issue. Respondent has accordingly issued a Statutory Notice of Estimated Income Tax for each of the years, and has added thereto penalties and interest at the statutory rate. The penalties added were a late filing penalty of 10% and a late payment penalty of 10%, pursuant to Utah Code Ann. §59-1-401(1)&(2).
For each of the years at issue, Petitioner was a resident of, and domiciled in, the State of Utah, and had wages and/or salaries paid to her and reported on W-2 forms by her various employers. Petitioner acknowledged receipt of the amounts shown on each of the W-2 forms. Each of the companies filing a W-2 form is in Utah, and the services for which Petitioner was paid were performed within the geographical boundaries of the State of Utah. At the time of the performance of the services for which Petitioner was compensated by said employers, she resided within the geographical boundaries of the State of Utah.
Petitioner does not dispute the facts upon which the statutory notices were prepared and served on Petitioner, and she did not present any evidence contrary to that presented by Respondent. Instead, the representative of Petitioner presented several unique theories and arguments to attempt to establish that the amounts shown on the W-2 forms are not income which is subject to Utah State Income Tax. Those theories and arguments include the following:
1. Petitioner is not a United States person.
2. Petitioner is not a transferee.
3. Petitioner is not a taxpayer.
4. Petitioner is not a person.
5. Petitioner is not a federal citizen.
6. Petitioner is a non-resident.
7. The labor of Petitioner is her personal property, which is a capital asset, the fruits of which are exempt from income taxation.
8. The state is taxing a fundamental right, i.e., the labor of Petitioner, which is prohibited by the Constitution.
9. The state is imposing a gross receipts tax on Petitioner, which is illegal.
10. This tribunal (State Tax Commission) has no jurisdiction to address this matter.
11. The preparation of a Statutory Notice of Estimated Income Tax is filing a tax return by the Auditor, who Petitioner alleges does not have authority to file a tax return for her, and Internal Revenue Service procedures do not permit agents to execute income tax returns.
12. The issuance of a Statutory Notice of Estimated Income Tax by Respondent constitutes the filing of a return for her, and she has not consented to the Respondent filing such a return. In addition, she argues, because it is a return it must be signed by the person preparing it, which was not done. Therefore, it is argued, the Notice was not valid.
13. Respondent has the burden of proof to establish the correctness of its audit determination.
The state of 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 . . ."
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 23 USC 63 as:
"Except as provided in subsection (b), for purposes of this subtitle, the term "taxable 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 23 USC 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 requirement to file a federal income tax return is established by IRC.§6012.
Utah Code Ann. §59-10-502, provides in relevant part:
"An income tax return with respect to the tax imposed by this chapter shall be filed by:
(1) Every resident individual, estate, or trust required to file a federal income tax return for the taxable year; . . . ."
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."
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 except for the following issues, as to which the burden of proof shall be upon the commission:
(1) whether the petitioner has been guilty of fraud with intent to evade tax. . ."
In a memorandum decision issued by the Utah Court of Appeals on November 16, 2001, in Leavitt v. Tax Comm'n, the Court of Appeals said that Mr. Leavitt's "various arguments that his income is excluded from taxation by operation of law are without merit." In this case, the various arguments that Petitioner's income is excluded from taxation by operation of law are also without merit.
Petitioner's claim that she had no taxable income is erroneous. Petitioner received compensation in wages for services that she provided to her employers. According to the Internal Revenue Code at 23 USC 61(a), "[c]ompensation for services" is income. Utah taxable income is based on federal taxable income. Therefore, to claim that she received no taxable income is not correct.
Petitioner argues that the Tax Commission has no authority or jurisdiction to issue the tax deficiency against Petitioner or to hear the appeal. The Tax Commission's authority, in part, is set out at Utah Code Ann. §59-10, Part 5 as well as general provisions of the Utah Tax Code at Part 1 and the Utah Administrative Procedures Act. Clearly the Tax Commission has statutory authority to issue an income tax assessment and jurisdiction over and appeal, including this appeal, over a Utah State income tax assessment.
A second argument offered by the representative of Petitioner is that Petitioner is not the type of citizen or resident of Utah or the United States that is subject to the tax laws of the State of Utah. It is argued that Petitioner is entitled to all of the constitutional protections and fundamental rights provided in the Constitution to citizens of the United States, but nevertheless, it is argues, she is not subject to the income tax because she is entitled to the "pursuit of happiness" free of taxation. The argument that Petitioner is somehow not the type of citizen of the United States to be subject to federal tax has been rejected by the Courts on so many occasions as to constitute a frivolous arguments which has often resulted in sanctions. There is nothing in the United States Constitution that limits the Power of Congress to tax only citizens, however defined. The power given to Congress by Article I, Section 8, of the Constitution, and by the 16th Amendment applies to all residents of the United States, whether or not they are citizens.
However, for state tax purposes, the federal definition of citizen or resident is largely irrelevant because 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." "Resident individual" is defined by 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 argues that although she resides in Utah, she is not a resident of "this state" because "this state" in Utah Code Ann. §59-10-103(1)(k) refers to something other than Utah. Following the rules of statutory construction, when the Utah Code says "this state", the plain and obvious meaning of the phrase is the State of Utah. There is no support in the statutes or case law for Petitioners' contorted interpretative technique that "this state" means something other than Utah.
There have been a number of decisions of the Utah Supreme Court of Utah Court of Appeals determining whether individuals are a "resident individual" for state income tax purposes. Petitioner was clearly a "resident individual" during the period at issue and therefore subject to Utah income tax. She resided full time in Utah during the audit period and worked in Utah during that time. She does not claim to have a domicile outside the boundaries of Utah. Petitioner's argument is frivolous and lacks merit.
Petitioner also uses this same type of contorted interpretative technique with the phrase "any tax". Part 5 of the Individual Income Tax Act uses at times the term "any tax" to refer to taxes imposed under that chapter. For example, Utah Code Ann. §59-10-528(3) states, "If any person liable under this chapter for the payment of any tax, . . . refuses to pay the same . . . the Commission may issue a warrant . . ." (Emphasis Added). Although the chapter in which this section is located is the Individual Income Tax Act, Petitioner does not interpret income tax to be included in "any tax" under this chapter. Instead of considering the plain and direct meaning of this phrase, Petitioner argues that you have to look to the Internal Revenue Code to define "any tax" and that under the Internal Revenue Code "any tax" is a "qualified tax". Petitioner's representative then points to some irrelevant sections in the Internal Revenue Code which have been repealed for the proposition that the state no longer has the authority to collect an income tax deficiency. Again, the Tax Commission rejects the argument of Petitioner in its entirety. There is no support in traditional rules of statutory construction for such an argument and it defies logic.
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 definitional links are followed, state taxable income is income from whatever source derived and specifically includes compensation for services. The Commission acknowledges that there are some statutory exemptions, but there are none that would exempt all of Petitioner's income. See Internal Revenue Code at 26 U.S.C. 63 and 61(a).
Petitioner's representative also argues that the state cannot tax a fundamental right such as the right to labor or the pursuit of happiness. Petitioner argues that there is no court case holding a tax can be levied upon an individual in his pursuit of happiness. Nevertheless, there is no case that supports Petitioner's contention that compensation for services, whether in the form of wage or income earned from self-employment, is not subject to tax. There have been numerous cases which have looked at the issue. All of those cases have upheld the constitutionality of the individual income tax on wages or income from self-employment. In Charles S. Steward 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."
Petitioner's argument that the individual income tax is unconstitutional is both frivolous and lacking merit because the 16th Amendment directly provides for an individual income tax without apportionment between the states. The federal and state tax is constitutional, and arguments that Petitioner has a constitutional right to be free of tax on earnings generated from her labor is without merit. Petitioner essentially thinks she is entitled to all the freedoms, rights and opportunities of living in the United States, and in Utah, without having to pay for the government which provide, protect and enforce those rights. To borrow from the United State Supreme Court, "Taxes are what we pay for civilized society." Cohn v. Graves, 300 U.S. 308 (1937).
CONCLUSIONS OF LAW
1. The Commission has made a finding of fact that Petitioner was a Utah resident throughout the tax years at issue. For this reason, the Commission concludes that Petitioner is liable for Utah individual income tax on her state taxable income. Utah Code Ann. §59-10-104.
2. Petitioner did not dispute that she received income during the years at issue, nor did she provide any significant rebuttal to the dollar amount of the income determined by Respondent. This income came primarily from compensation or wages for services. Utah Code Ann. §59-10-112; Utah Code Ann. §59-10-111; 26 U.S.C. 63; 26 U.S.C. 61(a). The arguments of Petitioner that her income was not subject to state income tax are without merit and have no basis in statute or case law.
Arguments similar to, and often identical to, Petitioner's arguments have been deemed to be without merit by courts in Utah and across the nation, in cases specifically dealing with individual income tax issues. It is frivolous for Petitioner to reassert arguments that have already been deemed without merit. Petitioner does not understand the cases upon which she relies. Clearly Petitioner did not look for cases that were directly on point.
During the course of the proceedings, Petitioner's representative moved for the Administrative Law Judge to recuse himself on the grounds that he was biased. During the hearing, the Administrative Law Judge denied the motion on the basis that no facts had been introduced demonstrating any bias or basis for recusal. The basis for the motion was simply that the Administrative Law Judge did not agree with the arguments of Petitioner's representative, and as was stated in United States v. Mann, 884 F.2d 532 (10th Cir. 1989), the arguments fall "somewhere on a continuum between untrue and absurd." Accordingly, the motion for recusal is denied.
DECISION AND ORDER
Based upon the foregoing, the Tax Commission sustains the audit assessment made by Respondent, including the late filing and late payment penalties, and interest thereon at the statutory rate. 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 18th day of August , 2003.
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 18th day of August , 2003.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson
 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 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: 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).
 The Utah Supreme Court has affirmed tax assessments against individuals on their income earned from self-employment. See Nelson v. Auditing Div., 903 P.2d 939 (Utah 1995) and Jensen v. State Tax Commission, 835 P.2d 965 (Utah 1992).
 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. "It 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 "the defendant's entire case at trial rested on his claimt hat 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 use already are aware. Nonetheless, the defendant still insists thatno case holds that wages are income. Let us now put that to rest: WAGES ARE INCOME."
 The constitutional right to tax income has never been invalidated. Rather, the tax had previously been held unconstitutional because it was a direct tax that was not apportioned among the states according to their population, as required by Article I, Section 2. The Sixteenth Amendment authorized a direct tax on incomes without apportionment among the states according to population. In Stanton v. Baltic Mining Co., at 240 U.S. 103, 112, the Supreme Court stated that Congress' power of income taxation was "completely and plenary . . . from the beginning."
See United States v. Koliboski, 732 F.2d 1328, 1329(7th Cir. 1984), The court stated “the 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 also Granzow v. C.I.R., 739 F.2d 265, 267(7th Cir. 1984),”It 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." The court in Granzow cited a number of decisions from several circuits.
See also 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, "His 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 "person" 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, "The government's expert on tax law, Mr. Chancellor, testified that the representation . . . that the Supreme Court has declared that the sixteenth amendment applies only to corporations -- is untrue . . . We agree and add that each of the views offered by Mann, whether found in his published materials or articulated additionally at trail, falls somewhere on a continuum between untrue and absurd."
In addition to the cases listed above, see Nelson v. Auditing Div., 903 p.2d 939 (Utah 1995). In Nelson the Utah Supreme Court stated, “Like most Utah residents, Nelson has a duty to file tax returns and pay state income taxes as they come due.” In that case the Utah Supreme Court upheld the assessment of Utah income tax as well as penalties and interest.