BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX, )
:
Petitioner, )
:
) INFORMAL
DECISION
:
)
AUDITING
DIVISION OF THE : Appeal Nos. 86 0190
STATE TAX
COMMISSION OF UTAH, ) 86 0232
: Audit
Period XXXXX
Respondent. ) through XXXXX
_____________________________________
STATEMENT OF CASE
An
Informal Hearing was held on XXXXX.
XXXXX, XXXXX staff attorney, represented Petitioner. XXXXX, Attorney, represented
Respondent. XXXXX also appeared for
Respondent. Commissioner G. Blaine Davis and Hearing Officer XXXXX heard the
matter for the Utah State Tax Commission.
At the outset Respondent request a dismissal of Appeal No. 86-0190 on
the grounds that there were no remaining issues to be resolved. XXXXX agreed and Appeal No. 86-0190 was
dismissed.
Respondent
audited Petitioner's withholding tax records for July 1, XXXXX, through
September 30, XXXXX, and issued a report on March 30, XXXXX, in which
Respondent determined that Petitioner had failed to withhold the mineral
production withholding tax during the third calendar quarter of XXXXX. Petitioner was notified of Respondent's
determination by a Statutory Notice of Deficiency dated April 4, XXXXX.
Petitioner
was an operator in the XXXXX and relied on instructions from the Tax Commission
which used the term "Royalty" as a base on which to withhold the
production tax. The third quarter of
XXXXX was the first
quarter of the mineral production withholding
tax. The Commission's guidelines and
interpretation of the new tax were used by Petitioner to comply with the
act. Subsequently, the Commission
issued a letter changing some of the guidelines previously issued. In particular, the guidelines indicated that
payments to working interest holders (not normally considered royalty owners)
were included in the statute and therefore, operators should withhold the
appropriate amount of payments to the working interest owners.
The
letter that was issued by the Commission containing the new guidelines was
dated September 21, XXXXX, and it indicated that the payments to the working
interest holders were subject to the withholding tax effective October 1,
XXXXX. Therefore, Petitioner argued
that it should not be liable for
the tax owed by the working interest holders
for the third quarter of XXXXX. Petitioner argued that the retroactive
modification of the Commission's September 21, XXXXX, guidelines violate due
process, and that it is apparent from the timing of the audit that Respondent was
attempting to circumvent the three year statute of limitations by auditing
Petitioner for a three year period rather than for the one quarter in question.
Respondent
argued that the new guidelines were issued on September 21, XXXXX, and the
quarterly returns for that period were not due until October 30th or 31st,
XXXXX. Therefore, Petitioner had notice
prior to filing the returns that payments to working interest holders should
have had tax withheld. Respondent pointed out that the Mineral Production Withholding
Tax Act clearly indicates that working interest owners are included and that
the Tax Commission was not authorized to issue guidelines controverting a
statutory mandate. Therefore, Petitioner was not justified in relying on the
Commission's guidelines. Respondent did
however recommend that penalties not be imposed. Respondent also pointed out
that estoppel normally does not apply against governmental agencies.
DECISION AND ORDER
It
is the Decision and Order of the Utah State Tax Commission to grant
Petitioner's Petition for Redetermination for Appeal No. 86-0232 and to dismiss
Appeal No. 86-0190. Because the letter
which was sent by the Respondent giving the guidelines for implementing the
withholding tax stated it was effective October 1, XXXXX, and because that day
also started a new quarter, it was reasonable for the Petitioner to interpret
that letter to impose the withholding requirements only on payments made after
October 1, XXXXX. The letter was not
clear as to whether it was to apply to payments made or returns filed after
October 1, XXXXX, and it would, therefore, be unreasonable to require
withholding on payments which may have been distributed prior to receipt of
notice of a withholding requirement.
Dated
this 11 day of December, 1987.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner