02-1158
Income Tax
Signed 1/23/03
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
PETITIONER, )
) ORDER
Petitioner, )
) Appeal No. 02-1158
v. )
)
AUDITING DIVISION OF ) Tax Type:
Income Tax
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
)
Respondent. )
_____________________________________
Presiding:
Jane Phan,
Administrative Law Judge
Appearances:
For Petitioner: PETITIONER
For Respondent: Brent Taylor, Manger, Income Tax Auditing
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 November
25, 2002.
Petitioner is appealing an
audit deficiencies of additional income tax for the tax years 1998, 1999 and
2000. The deficiencies resulted from
three types of changes or disallowances made by Respondent during the audit. For 1998 Petitioner had filed as head of
household on his Utah return, while he had filed with a joint return status on
his federal return. This discrepancy
caused a tax adjustment for that year.
An issue with the 1998, 1999 and 2000 returns was the state tax add
back. A third issue, which was the one
contested by Petitioner, pertained only to the 2000 tax year. For the 2000 tax year, Respondent disallowed
Petitioner's deduction in the amount of $$$$ for health care premiums paid by
Petitioner.
APPLICABLE LAW
(1) There shall be added
to federal taxable income of a resident or nonresident individual: (a) the
amount of any income tax imposed by this or any predecessor Utah individual
income tax law and the amount of any income tax imposed by the laws of another
state, the District of Columbia, or a possession of the United States, to the
extent deducted from federal adjusted gross income, as defined by Section 62,
Internal Revenue Code, in determining federal taxable income. (Utah Code Ann. Sec. 59-10-114(1)(a).)
(2) There shall be
subtracted from federal taxable income of a resident or nonresident individual:
. .
. (h) subject to the limitations of Subsection (3)(e), amounts a
taxpayer pays during the taxable year for health care insurance . . . (Utah Code Ann. Sec. 59-10-114(2)(h).)
(3)(e) For purposes of
Subsection (2)(h), a subtraction for an amount paid for health care insurance
as defined in Title 31A, Chapter 1, General Provisions, is not allowed: (i) for
an amount that is reimbursed or funded in whole or part by the federal
government, the state, or an agency or instrumentality of the federal
government or the state; and (ii) for a taxpayer who is eligible to participate
in a health plan maintained and funded in whole or in part by the taxpayer's
employer or the taxpayer's spouse's employer.
DECISION
AND ORDER
In looking at the issue
of the state tax add back, the federal government allows a deduction for state
and local income taxes paid during the year so that amount is deducted from the
federal taxable income. Utah taxable income
starts with federal taxable income.
Since Utah does not allow a deduction for state income taxes, those
amounts are added back in determining the amount of Utah taxable income.
Petitioner in this
matter was mostly concerned with the disallowance of the deduction for the
amount he had paid out of pocket for health insurance premiums. He explained that he was a federal government retiree. He was able to maintain his federal
government health insurance but he had to pay a portion of the health care insurance
premium. The federal government also
paid a portion. The amount that
Petitioner deducted was only that portion that Petitioner had actually paid
out-of -pocket towards the premium.
Petitioner did not feel it was right that he could not deduct the
portion that he paid out of pocket. The
deduction for the health care premiums is statutory and the Tax Commission must
follow the law as it is written by the Utah Legislature. The applicable statute is Utah Code Ann.
Sec. 59-10-114(2)(h) and (3)(e). The
provision is understandably difficult for taxpayers to follow as subsection
(2)(h) appears to allow the deduction but does indicate that it is limited by
subsection (3)(e). Subsection (3)(e)
clearly disallows the deduction in Petitioner's case, as well as for many other
taxpayers. It would take a statutory
revision on the part of the Utah Legislature for Petitioner's out-of-pocket
expense for insurance premium to qualify for the deduction.
Based on the foregoing,
the audit deficiency of tax and interest for the tax years 1998, 1999 and 2000
is sustained. 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 23rd day of January
, 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 23rd day of January
, 2003.
Pam Hendrickson R.
Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc
B. Johnson
Commissioner Commissioner