BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 02-1318
v. ) Account No. #####
TAXPAYER SERVICES DIVISION OF ) Tax Type: Personal Penalty
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
Jane Phan, Administrative Law Judge
For Petitioner: PETITIONER REP, Attorney at Law
For Respondent: Susan Barnum, 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 30, 2002.
Petitioner is appealing a personal penalty assessment made against him for the unpaid sales tax of COMPANY, dba COMPANY B ("COMPANY"). The period at issue is May 2001 and the amount of the personal penalty is $$$$$. The amount is based on the unsigned sales tax return filed for the COMPANY for the May 2001 period which claimed as Utah sales tax for that period an amount of $$$$$. A credit of $$$$$ was indicated toward the amount due resulting in the balance of $$$$$ which was not paid by the business.
COMPANY sold restaurant equipment in Utah and other states. During May 2001 there were several sales in Utah according to the information filed with on the Utah sales tax return. COMPANY would include the sales on its sales tax return during the month that the invoice was issued to the customer, although the customer had thirty days to pay from the date of the invoice. This meant that often the sales tax had not been received by the time it was claimed on the sales tax return. It was Petitioner's representatives proffer that the invoices for the sales included on the May sales tax return for Utah would have been mailed late in May and payment for those sales would not typically be received until the end of June, if then.
However, on June 19, 2001, Petitioner made an assignment of COMPANY for the benefit of creditors under STATE law. This transferred all of the COMPANY assets to an assignee, who was charged with distributing the assets to creditors. As Respondent pointed out this assignment is similar to a Chapter 7 Bankruptcy proceeding, but under STATE law, does not require court supervision. Respondent indicates that there is also a similar mechanism available to debtors in Utah.
Once the assignment is made the assignee would liquidate the assets and distribute the proceeds to creditors based on an established priority. It was the assignee who prepared the May 2001 sales tax return for COMPANY and mailed it in with no payment. It was Petitioner's position that he had no control over the business at this point, that it was the assignee who collected the accounts receivable, liquidated the assets and determined which creditors to pay. According to Petitioner he had not collected the sales tax prior to making the assignment and had made the assignment prior to the time the sales tax at issue was due. At the time the tax was due, Petitioner proffers that he had not power or authority to issue checks in payment of taxes from company funds. It is his position that he did not willfully fail to pay over the taxes.
Utah Law provides for a personal penalty assessment for a company's unpaid withholding tax liabilities. It is listed in Utah Code Ann. '59-1-302 and provides in pertinent part:
(1) The provision of this section apply to the following taxes in this title: . . .(a) state and local sales and use tax under Chapter 12, Parts 1 and 2 . . .
(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 know 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.
DECISION AND ORDER
Since the assignment for the benefit of creditors was made prior to the time the sales tax had been collected the Commission finds Petitioner was not a party responsible to pay over the sales tax for the May 2001 period. The Commission abates the personal penalty assessment. 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 19th day of December , 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 19th day of December , 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson