02-0899

Successor Liability Assessment

Signed 2/20/03

 

                                          BEFORE THE UTAH STATE TAX COMMISSION

                                               ____________________________________

 

PETITIONER,                                                   )  FINDINGS OF FACT,

)  CONCLUSIONS OF LAW,

         Petitioner,                                                 )  AND FINAL DECISION

) 

v.                                                                     )  Appeal No.        02-0899

)  Account No.      #####

AUDITING DIVISION OF                                 ) 

THE UTAH STATE TAX                                    )  Tax Type:          Successor Liability Assessment

COMMISSION,                                                 ) 

)  Judge:               Phan

Respondent.                                              ) 

                                              _____________________________________

 

Presiding:                          

Marc Johnson, Commissioner

Jane Phan, Administrative Law Judge

 

Appearances:

For Petitioner:          PETITIONER

For Respondent:       Tim Bodily, Assistant Attorney General

Stan Allen, Assistant Director Taxpayer Services Division

Craig Newton, Tax Compliance Supervisor

June Washington, Tax Compliance Agent

 

 

                                                         STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on  January 6, 2003.   Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

                                                              FINDINGS OF FACT

1.         Petitioner is appealing a successor liability deficiency made against it for the unpaid sales taxes of COMPANY.  The Statutory Notice of deficiency was issued on April 30, 2002.

2.         The amount of the deficiency had been $$$$$ which included sales tax, penalties and interest.  However, as of the date of the hearing the amount of the tax deficiency had been reduced to $$$$$, as Respondent had been able to collect some of the tax from the prior owner of the business.  


3.         The deficiency is from the fourth quarter of 2000 and the first quarter of 2001.

4.         Effective April 25, 2001, PETITIONER entered into a Purchase Agreement to purchase essentially all of the business assets of COMPANY.  The purchase included goodwill, trade name, customer lists, work in progress, raw materials, inventories, supplies, machinery, equipment, furniture, furnishings, permits, licenses, and production records.  Excluded from the purchase were work orders that had been completed, cash on hand and in the bank and accounts receivable owned by or arising prior to the closing date of the agreement.

5.         PETITIONER then leased or subleased the same business location of COMPANY.  After his purchase he continued the same business without interruption from the same location, with the same telephone number and using essentially the same name and customer base.  In this manner he was able to use the good will of the prior business.  PETITIONER operated the business first as a sole proprietorship and then later incorporating as COMPANY.  PETITIONER sole proprietorship and then the later corporation are clearly successors in interest to the prior business, COMPANY.

6.         The purchase price that PETITIONER paid for the business was $$$$$.  

7.         A provision of the April 25, 2001 Purchase Agreement was that PETITIONER would not assume any obligations or liabilities of the seller.

8.         PETITIONER testified that he had collected accounts receivable for work completed by the prior owner, and had turned the money over to her.  He stated that if he had known about the tax liability prior to when he paid the purchase price for the business or prior to when he had paid over the last of the accounts receivable, he would have withheld sufficient money to pay the sale tax liability.

                                                                APPLICABLE LAW


1.         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.).

2.         The penalties, interest, and other liabilities imposed by the provisions of Title 59 shall be paid by the taxpayer upon notice and demand by the commission, and shall be assessed and collected in the same manner as taxes.  Except as otherwise provided, any reference in Title 59 to "tax" includes penalties, interest and other liabilities.  (Utah Code Ann. 59-1-705.)       

                                                           CONCLUSIONS OF LAW

1.  The successor liability provision is a longstanding provision of law and it is the responsibility of the purchaser of a business to make sure there are no outstanding tax liabilities or to withhold sufficient of the purchase price to cover the tax liabilities.  Petitioner failed to do so and is personally liable for the unpaid sales tax portion of the deficiency pursuant to Utah Code Ann. 59-12-112.

2.  Utah Code Ann. 59-12-112 also provides for a lien upon the assets that Petitioner acquired from the prior business owner.  The amount of the lien may be for the tax, penalty and interest portion of the deficiency.   

DISCUSSION


As noted by Respondent in this matter there are two separate provisions in Utah Code Ann. 59-12-112, which are applied to a successor in business.  The first is that any unpaid "tax" imposed by Chapter 12 shall be a lien upon the property of the business.  "Tax" is defined by statute to include penalty and interest, "except as otherwise provided."  See Utah Code Ann. 59-1-705.  Based on these statutes Respondent is entitled to place a lien on the property of the business which was transferred from COMPANY, to Petitioner.  In looking at the definition of "tax," this lien not only includes the amount for unpaid sales tax, it also includes the amount for the penalty and interest.  

There is also a second provision in Utah Code Ann. 59-12-112 which makes the successor in interest personally liable for the payment of the taxes "collected and unpaid by the former owner."  Pursuant to this provision Petitioner, as the successor in interest, should have withheld sufficient sales tax from the purchase money to cover the sales tax deficiency of the prior owner.  However, it is the conclusion of the Commission that this second provision applies only to the tax portion of the deficiency, as only that amount would be the amount "collected" and unpaid by the former owner.    

                                                            DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that Petitioner was the successor in interest to COMPANY, and is personally liable for its unpaid sales tax.  However, the Commission abates the penalty and interest portion against this personal liability.  Respondent may however, place a lien on the property of the business in the amount of the tax, penalty and interest deficiency.  It is so ordered.

DATED this   20th   day of   February  , 2003.

 

_____________________

Jane Phan

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   20th   day of   February  , 2003.

 

 

Pam Hendrickson                                                                       R. Bruce Johnson

Commission Chair                                                                      Commissioner

 

 

 

Palmer DePaulis                                                                         Marc B. Johnson

Commissioner                                                                            Commissioner   

 

 

 

02-0899

Successor Liability Assessment

Signed 3/4/03

 

                                          BEFORE THE UTAH STATE TAX COMMISSION

                                               ____________________________________

 

PETITIONER,                                                   )  AMENDED

)  FINDINGS OF FACT,

         Petitioner,                                                 )  CONCLUSIONS OF LAW,

)  AND FINAL DECISION

v.                                                                     ) 

)  Appeal No.        02-0899

TAXPAYER SERVICES DIVISION                  )  Account No.      #####

OF THE UTAH STATE TAX                              ) 

COMMISSION,                                                 )  Tax Type:          Successor Liability Assessment

) 

Respondent.                                              )  Judge:               Phan

                                              _____________________________________

 

Presiding:                          

Marc Johnson, Commissioner

Jane Phan, Administrative Law Judge

 

Appearances:

For Petitioner:          PETITIONER REP

For Respondent:       Tim Bodily, Assistant Attorney General

Stan Allen, Assistant Director Taxpayer Services Division

Craig Newton, Tax Compliance Supervisor

June Washington, Tax Compliance Agent

 

 

                                                         STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on  January 6, 2003.   Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

                                                              FINDINGS OF FACT

1.         Petitioner is appealing a successor liability deficiency made against it for the unpaid sales taxes of COMPANY.  The Statutory Notice of deficiency was issued on April 30, 2002.

2.         The amount of the deficiency had been $$$$$ which included sales tax, penalties and interest.  However, as of the date of the hearing the amount of the tax deficiency had been reduced to $$$$$, as Respondent had been able to collect some of the tax from the prior owner of the business.  


3.         The deficiency is from the fourth quarter of 2000 and the first quarter of 2001.

4.         Effective April 25, 2001, PETITIONER REP entered into a Purchase Agreement to purchase essentially all of the business assets of COMPANY.  The purchase included goodwill, trade name, customer lists, work in progress, raw materials, inventories, supplies, machinery, equipment, furniture, furnishings, permits, licenses, and production records.  Excluded from the purchase were work orders that had been completed, cash on hand and in the bank and accounts receivable owned by or arising prior to the closing date of the agreement.

5.         PETITIONER REP then leased or subleased the same business location of COMPANY.  After his purchase he continued the same business without interruption from the same location, with the same telephone number and using essentially the same name and customer base.  In this manner he was able to use the good will of the prior business.  PETITIONER REP operated the business first as a sole proprietorship and then later incorporating as COMPANY.  PETITIONER REP's sole proprietorship and then the later corporation are clearly successors in interest to the prior business, COMPANY.

6.         The purchase price that PETITIONER REP paid for the business was $$$$$.  

7.         A provision of the April 25, 2001 Purchase Agreement was that PETITIONER REP would not assume any obligations or liabilities of the seller.

8.         PETITIONER REP testified that he had collected accounts receivable for work completed by the prior owner, and had turned the money over to her.  He stated that if he had known about the tax liability prior to when he paid the purchase price for the business or prior to when he had paid over the last of the accounts receivable,  he would have withheld sufficient money to pay the sale tax liability.

                                                                APPLICABLE LAW


1.         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.).

2.         The penalties, interest, and other liabilities imposed by the provisions of Title 59 shall be paid by the taxpayer upon notice and demand by the commission, and shall be assessed and collected in the same manner as taxes.  Except as otherwise provided, any reference in Title 59 to "tax" includes penalties, interest and other liabilities.  (Utah Code Ann. 59-1-705.)       

                                                           CONCLUSIONS OF LAW

1.  The successor liability provision is a longstanding provision of law and it is the responsibility of the purchaser of a business to make sure there are no outstanding tax liabilities or to withhold sufficient of the purchase price to cover the tax liabilities.  Petitioner failed to do so and is personally liable for the unpaid sales tax portion of the deficiency pursuant to Utah Code Ann. 59-12-112.

2.  Utah Code Ann. 59-12-112 also provides for a lien upon the assets that Petitioner acquired from the prior business owner.  The amount of the lien may be for the tax, penalty and interest portion of the deficiency.   

DISCUSSION


As noted by Respondent in this matter there are two separate provisions in Utah Code Ann. 59-12-112, which are applied to a successor in business.  The first is that any unpaid "tax" imposed by Chapter 12 shall be a lien upon the property of the business.  "Tax" is defined by statute to include penalty and interest, "except as otherwise provided."  See Utah Code Ann. 59-1-705.  Based on these statutes Respondent is entitled to place a lien on the property of the business which was transferred from COMPANY, to Petitioner.  In looking at the definition of "tax," this lien not only includes the amount for unpaid sales tax, it also includes the amount for the penalty and interest.  

There is also a second provision in Utah Code Ann. 59-12-112 which makes the successor in interest personally liable for the payment of the taxes "collected and unpaid by the former owner."  Pursuant to this provision Petitioner, as the successor in interest, should have withheld sufficient sales tax from the purchase money to cover the sales tax deficiency of the prior owner.  However, it is the conclusion of the Commission that this second provision applies only to the tax portion of the deficiency, as only that amount would be the amount "collected" and unpaid by the former owner.    

                                                            DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that Petitioner was the successor in interest to COMPANY, and is personally liable for its unpaid sales tax.  However, the Commission abates the penalty and interest portion against this personal liability.  Respondent may however, place a lien on the property of the business in the amount of the tax, penalty and interest deficiency.  It is so ordered.

DATED this   4th   day of   March  , 2003.

 

______________________________

Jane Phan

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   4th   day of   March  , 2003.

 

 

Pam Hendrickson                                                                       R. Bruce Johnson

Commission Chair                                                                      Commissioner

 

 

 

Palmer DePaulis                                                                         Marc B. Johnson

Commissioner                                                                            Commissioner