02-1712

Withholding Tax Penalty

Signed 3/17/03

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER )

c/o OWNER, ) ORDER

)

Petitioner, ) Appeal No. 02-1712

)

v. ) Account No. #####

)

AUDITING DIVISION, ) Tax Type: Withholding Tax Penalty

UTAH STATE TAX COMMISSION, )

) Judge: Chapman

Respondent. )

_____________________________________

Presiding:

Kerry R, Chapman, Administrative Law Judge

Appearances:

For Petitioner: OWNER, Owner

PETITIONER REP, Accountant

For Respondent: Brent Taylor, from the Auditing Division

STATEMENT OF THE CASE

This matter came before the Commission for an Initial Hearing on March 4, 2003. Petitioner is appealing the penalty assessed pursuant to an audit of its 1999 withholding tax. The amount of the penalty was $$$$$.

Petitioner agreed that there was a discrepancy between the amount of withholding tax remitted to the state by the Petitioner and the amount of tax reported on the Petitioner’s Form TC-96R for the 1999 tax year. The amount of withholding tax remitted to the state during January through December 1999 was $$$$$. The amount of withholding reported on the Form TC-96R was $$$$$. The difference is $$$$$.

The Respondent assessed a 10% negligence penalty pursuant to Utah Code Annotated §59-1-401(5)(a) because the Petitioner failed to reconcile the tax withheld with the amount reported withheld on the Form TC-96R.

Petitioner asks that the penalty be abated. PETITIONER REP, accountant for the Petitioner, stated he gave one of the Petitioner’s employees an instruction to make an estimated payment of tax on the Petitioner’s behalf. In mistake, the employee added the amount of the payment to the Petitioner’s W-2 and Form TC-96R. Accordingly, the amount of withholding tax reported on the Form TC-96R was nearly double the actual amount withheld and remitted. Because this mistake was a non-intentional error resulting from misunderstood instructions, the Petitioner asks the Tax Commission to waive it.

APPLICABLE LAW

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

The Petitioner and his accountant offered information at the Initial Hearing indicating that the discrepancy between the taxes reported on the Form TC-96R and the taxes withheld and remitted was due to the misunderstanding of one of the Petitioner’s employees concerning a payment of estimated taxes. The Commission considers this mistake and the Petitioner’s lack of auditing procedures to catch such a mistake to exceed those errors that arise in the ordinary course of business. As a result, we determine that these actions rise to the level of negligence. Accordingly, we find that the Section 59-1-401(5)(a) negligence penalty can be justified.

However, we do not see these circumstances to be so careless or reckless as to show utter indifference to the resulting consequences. Nor were we supplied any evidence to convince us that the error rises to the level of gross negligence. In addition, we note that the Petitioner had never before made a mistake involving the reconciliation of the Form TC-96R with the actual taxes withheld and remitted. For these reasons and based on the evidence submitted at the Initial Hearing, we do not believe these circumstances rise to the level of gross negligence.

Although the Petitioner has often had errors concerning the late filing and paying of the withholding tax, the Petitioner has never had a reconciliation error of this type or been penalized for this type of error in the past. Accordingly, we consider this a first time error eligible for waiver.

DECISION AND ORDER

Based on the information available, there is cause for waiver of the negligence penalty in this matter because it qualifies as a first time error. Based upon the foregoing, the Commission waives the 10% negligence penalty of $$$$$ assessed for the tax year 1999. 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 17^th day of March , 2003.

____________________________________

Kerry R. Chapman

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 17^th day of March , 2003.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner