02-0662

Withholding Tax

Signed 9/10/02

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

PETITIONER, ) ORDER

)

) Appeal No. 02-0662

Petitioner, )

) Account No. #####

v. )

) Tax Type: Withholding Tax

TAXPAYER SERVICES DIVISION )

OF THE UTAH STATE TAX ) Tax Years: 01/00-03/00, 04/00-06/00

COMMISSION, ) & 07/00-09/00

)

Respondent. ) Judge: Davis

_____________________________________

 

Presiding:

G. Blaine Davis, Administrative Law Judge

Appearances:

For Petitioner: PETITIONER

For Respondent: Mr. Gale Francis, Assistant Attorney General

Ms. Donna Smith, from the Taxpayer Services 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 August 21, 2002.

This matter is a personal penalty assessment imposed upon Petitioner by Respondent for the payroll withholding taxes unpaid by COMPANY for the first, second, and third quarters of 2000.

During all of the times at issue, Petitioner was the sales representative for COMPANY. However, until July or August 2000, he was not an officer or director in the company and did not have any authority to sign checks or to otherwise be responsible.

In either July or August 2000, following the termination of services of two of the other officers, the President of the company approached PETITIONER and indicated they did not have sufficient people on the Board to take the minutes and act as an officer. Petitioner was therefore asked to be the Secretary of the company, and to attend and take minutes. At that time, Petitioner was also given authority to sign checks on the bank account, and he did sign a number of checks from then until the company terminated business. Petitioner did sign some of the payroll checks from which withholding tax had been withheld which are at issue in this proceeding. Petitioner was also aware that there were taxes due to the State of Utah, but represented that the decision as to which bills were to be paid was not made by him, but was made by the President of the company.

COMPANY ceased its business operations in October 2000. When the company ceased operations, Petitioner was not responsible for the dissolution of the company or for the distribution of any assets.

APPLICABLE LAW

Utah Code Ann. 59-1-302 provides in relevant part:

(2) Any person required to collect, truthfully account for, and pay over any tax listed in Subsection (1) who willfully fails to collect the tax, fails to truthfully account for and pay over the tax, or attempts in any manner to evade or defeat any tax or the payment of the tax, shall be liable for a penalty equal to the total amount of the tax evaded , not collected, not accounted for, or not paid over. This penalty is in addition to other penalties provided by law.

(7) (a) In any hearing before the Commission and in any judicial review of the hearing, the commission and the court shall consider any inference and evidence that a person has willfully failed to collect, truthfully account for, or pay over any tax listed in Subsection (1).

(b) It is prima facie evidence that a person has willfully failed to collect, truthfully account for, or pay over any of the taxes listed in Subsection (1) if the commission or a court finds that the person charged with the responsibility of collecting, accounting for, or paying over the taxes:

(i) made a voluntary, conscious, and intentional decision to prefer other creditors over the state government or utilize the tax money for personal purposes;

(ii) recklessly disregarded obvious or known risks, which resulted in the failure to collect, account for, or pay over the tax; or

(iii) failed to investigate or to correct mismanagement, having notice that the tax was not or is not being collected, accounted for, or paid over as provided by law.

(c ) The commission or court need not find a bad motive or specific intent to defraud the government or deprive it of revenue to establish willfulness under this section.

 

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).

DISCUSSION

In this matter, Petitioner was clearly not a person required to collect, truthfully account for, and pay over the tax for the first and second quarters of the year 2000. He did not have any authority or responsibility to collect or pay over the taxes to the Utah State Tax Commission.

However, for some or all of the third quarter of 2000, Petitioner was the Secretary of the company, participated in meetings in which he became aware that the taxes were not being paid, had check-signing authority and, in fact, signed some of the payroll checks from which withholding taxes were withheld. He represented that decisions regarding who should be paid were made by another individual. However, when an individual is in a position of authority to see that payment of taxes is made, such a person becomes a responsible person under the law if he does not take whatever steps are legally possible to pay such taxes to the Tax Commission. In addition, Petitioner signed checks for the payment of other bills and obligations during that time period, and therefore he made a voluntary and conscious decision to prefer other creditors over the state government. However, there is no testimony that he utilized any of the tax money for personal purposes other than the receipt of his regular paycheck, which was also signed by other individuals in the company.

DECISION AND ORDER

Based upon the foregoing, the Commission hereby determines that Petitioner was a person required to collect, truthfully account for, and pay over the withholding tax, and that he willfully failed to do so by preferring other creditors over the state government. Accordingly, the determination of the division that Petitioner is liable for the penalty assessed by Utah Code Ann. 59-1-302 is hereby upheld for the third quarter of 2000. The determination to impose such penalty on Petitioner for the first and second quarters of 2000 is not sustained. The penalty sustained hereby for the third quarter of 2000 is in the amount of $$$$$. 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 10th day of September , 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 10th day of September , 2002.

 

 

 

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

 

 

 

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner

 


 

02-0662

Withholding Tax/Personal Penalty

Signed 3/17/03

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

) AND FINAL DECISION

Petitioner, )

)

v. ) Appeal No. 02-0662

) Account No. #####

TAXPAYER SERVICES DIVISION )

OF THE UTAH STATE TAX ) Tax Type: Withholding Tax / Personal Penalty

COMMISSION, ) Tax Year:

)

Respondent. ) Judge: Davis

_____________________________________

 

Presiding:

G. Blaine Davis, Administrative Law Judge

 

Appearances:

For Petitioner: PETITIONER

PETITIONER REP

For Respondent: Mr. Gale Francis, Assistant Attorney General

Ms. Donna Smith, from the Taxpayer Services Division

 

 

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on February 24, 2003. 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 a personal penalty assessment of withholding tax.

2. The periods in question are the third quarter of 2000.

3. Petitioner was a sales representative for COMPANY. However, until approximately July 2000, he was not an officer or director in the company and did not have authority to sign checks or to otherwise be responsible for the actions of the company.

4. In approximately July 2000, following the termination of services of two of the other officers of the company, the President of the company, XXXXX, approached Petitioner and indicated they did not have sufficient people to take Minutes at their Board Meeting, so he requested that Petitioner come and take the Minutes at the meeting. Petitioner was pleased that they had sufficient confidence in him to have him take that action. He was thereafter deemed to be the Secretary of the company and was later given authority to sign checks on the bank account. The primary purpose for him signing checks was so he could sign the check of the President, and the President would always sign his check so there would be no question about the authority for either of them to receive their paychecks. He indicated he may have signed a few other checks when they were presented to him, but he did not make out any checks and did not calculate the payroll for any of the employees, although he may have signed a few of the payroll checks. He also did not know the amount of the withholding taxes from the paychecks of any other employees, and did not have access to the payroll records to determine any amounts due to the State Tax Commission.

5. Petitioner was aware there was a tax obligation to the Internal Revenue Service because he saw a Notice of Intent to Levy, which arrived from the Internal Revenue Service. However, he testified he did not know about any obligation to the Utah State Tax Commission and he was never asked to prepare any returns or make out any checks to the Tax Commission. Petitioner represented that he never attended any formal management meetings and was not involved in the decision making process of who received payments and who did not receive payments. He did state that the company was undergoing substantial cash-flow problems, but he testified that XXXXX and a XXXXX were the individuals who determined who would be paid.

6. He did sign one document, an agreement to guarantee obligations, which was signed by XXXXX, and he was asked to sign it as the Secretary of the Corporation, but that document does not involve tax obligations to the State of Utah.

7. Petitioner was listed as the Secretary of the Corporation, but he was not a Director of the Corporation at the time that it went out of business.

8. The company was out of business by November or December of 2000, so Petitioner served as the Secretary for approximately three to four months. He was not a stockholder or owner of the company.

APPLICABLE LAW

Utah Code Ann. 59-1-302 provides in relevant part:

(2) Any person required to collect, truthfully account for, and pay over any tax listed in Subsection (1) who willfully fails to collect the tax, fails to truthfully account for and pay over the tax, or attempts in any manner to evade or defeat any tax or the payment of the tax, shall be liable for a penalty equal to the total amount of the tax evaded , not collected, not accounted for, or not paid over. This penalty is in addition to other penalties provided by law.

(7) (a) In any hearing before the Commission and in any judicial review of the hearing, the commission and the court shall consider any inference and evidence that a person has willfully failed to collect, truthfully account for, or pay over any tax listed in Subsection (1).

(b) It is prima facie evidence that a person has willfully failed to collect, truthfully account for, or pay over any of the taxes listed in Subsection (1) if the commission or a court finds that the person charged with the responsibility of collecting, accounting for, or paying over the taxes:

(i) made a voluntary, conscious, and intentional decision to prefer other creditors over the state government or utilize the tax money for personal purposes;

(ii) recklessly disregarded obvious or known risks, which resulted in the failure to collect, account for, or pay over the tax; or

(iii) failed to investigate or to correct mismanagement, having notice that the tax was not or is not being collected, accounted for, or paid over as provided by law.

(c ) The commission or court need not find a bad motive or specific intent to defraud the government or deprive it of revenue to establish willfulness under this section.

 

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).

DISCUSSION

In this matter, there is no evidence that Petitioner was a person charged with the responsibility of collecting, accounting for, or paying over the withholding taxes to the Utah State Tax Commission. There is no testimony or evidence that he made a voluntary, conscious, or intentional decision to prefer other creditors over the state government, or to utilize the tax money for personal purposes. There is also no testimony or evidence that he recklessly disregarded obvious or known risks, which resulted in the failure to collect, account for, or pay over the tax, nor is there any evidence that he had notice that the tax was not being collected, accounted for, or paid over as required by law.

Based upon the evidence presented, there is not sufficient evidence in this matter to find that Petitioner willfully failed to collect, truthfully account for, or pay over the withholding taxes at issue in this case.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission hereby determines that Petitioner was not liable for the penalty assessed by Utah Code Ann. 59-1-302. The determination to impose the penalty is therefore not sustained and Petitioner is relieved of that liability. It is so ordered.

DATED this 17th day of March , 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 17th day of March , 2003.

 

 

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

 

 

 

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner