Successor Liability Assessment
BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 02-0725
TAXPAYER SERVICES DIVISION OF ) Tax Type: Successor Liability Assessment
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
Jane Phan, Administrative Law Judge
For Petitioner: PETITIONER REP, Attorney at Law
For Respondent: Tim Bodily, Assistant Attorney General
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 October 2, 2002.
Petitioner is appealing a successor liability assessment issued against Petitioner for the unpaid tax, penalties and interest of PETITIONER which did business as COMPANY. The assessment was issued against Petitioner pursuant to Utah Code Ann. Sec. 59-10-112. As of the hearing, the amount of the tax owed by COMPANY was $$$$$.
The tax imposed by this chapter shall be a lien upon the property of any person who sells out his business or stock of goods or quits business. Such person shall complete the return provided for under Section 59-12-107, within 30 days after the date he sold his business or stock of goods, or quit business. Such a person's successor in business shall withhold enough of the purchase money to cover the amount of taxes due and unpaid until the former owner produces a receipt from the commission showing that the taxes have been paid, or a certificate that no taxes are due. If the purchaser of a business or stock of goods fails to withhold such purchase money and the taxes are due and unpaid after the 30-day period allowed, he is personally liability for the payment of the taxes collected and unpaid by the former owner. (Utah Code Ann. 59-12-112.)
The debt at issue was incurred by the business COMPANY. Petitioner took over the business in June 2001. Petitioner is clearly a successor in business as it took over the lease of the real property and began to operate the same type of business using the same name, COMPANY. Although Petitioner incorporated under the name PETITIONER, the business is essentially operated by Petitioner using the previous name, COMPANY. Petitioner purchase a new sign but with the previous name, not the new corporate name. This previous name is also used on the business letterhead. In addition Petitioner uses the same telephone number as the prior business. Petitioner did not acquire any of the prior business inventory as the motor vehicles had been repossessed by the creditors. However, Petitioner was operating the same type of business at the same location, using the same name and goodwill of the prior owner and was a successor to the business.
Although Petitioner was a successor to the business, Petitioner's representatives claim that Petitioner paid no money to acquire the business. Respondent did not refute this contention. The only evidence Respondent presented was an unsigned document titled Proposed Terms and Conditions for the sale of COMPANY. Petitioner's representatives state that this document was prepared by the prior business owner, it had not been signed and Petitioner never agreed to the terms listed in the document. They explained that before they had reached an agreement with the prior owner, the prior owner lost his flooring credit line and all of the vehicles for sale on the lot were taken by the creditors. This put the prior owner out of business.
The issue before the Commission is whether a successor is personally liable for the prior owner's tax deficiency pursuant to Utah Code Ann. 59-12-112, if the successor paid nothing for the business. Utah Code Ann. Sec. 59-12-112 requires the successor to withhold enough of the purchase money to cover the amount of the tax deficiency of the prior owner. The statute goes on to state, "[i]f the purchaser of a business or stock of goods fails to withhold such purchase money and the taxes are due and unpaid after the 30-day period allowed, he is personally liable for the payment of the taxes collected and unpaid by the former owner."
In the circumstances at hand, Petitioner did not fail to withhold purchase money as apparently no purchase money was paid. For this reason, Respondent has improperly issued the successor personal liability deficiency in reliance on the statue. There was no showing that there was a contractual or other basis for imposing the prior owners tax deficiency on Petitioner. The Commission notes that had Petitioner assumed liabilities of the prior owner, that may be construed as payment for the business, giving rise to successor liability. Or if Petitioner employed the prior owner in the new business but the compensation terms were not reasonably related to the scope of the employment, this may also be construed as payment for the business, giving rise to successor liability. However, the information before the Commission at the Initial Hearing is that no payment of any type was made for the business and on this basis the Commission issues this decision.
In addition to the personal successor liability provision, Utah Code Ann. Sec. 59-12-112 provides for a lien for unpaid tax upon the property of any person who sells or quits business. Had there been any inventory or property left from the prior business this lien provision is applicable. However, the information presented at the hearing indicated that there was no inventory, the real property was merely leased, and there was only minimal personal property with little value.
DECISION AND ORDER
Based on the foregoing, the successor in business liability issued by Statutory Notice dated April 3, 2002, is hereby abated. 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 14th day of April , 2002.
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 14th day of April , 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson