86-0243 - Corporation Franchise



XXXXX,                                                                                 )


            Petitioner,                                                         )


v.                                                                                 )           INFORMAL DECISION



AUDITING DIVISION OF THE                                :           Appeal No. 86 0243

STATE TAX COMMISSION OF UTAH,                  )           Acct. No. XXXXX


            Respondent.                                                     )



            An Informal Hearing was held on XXXXX.  James E. Harward, Hearing Officer, heard the matter for the Utah State Tax Commission.  XXXXX represented the Petitioner, and XXXXX and XXXXX appeared on behalf of the Petitioner.  XXXXX, XXXXX, XXXXX, and XXXXX represented the Respondent.

            At issue is Respondent's assessment of corporate franchise tax for the tax year XXXXX.  Petitioner is a Utah corporation, incorporated prior to XXXXX. Its corporate franchise tax was paid on the "prepaid basis."  A corporation paying on the prepaid basis is not required to file a corporation franchise tax return for the year in which the corporation legally terminates its existence.

            Evidence presented by the Petitioner shows that on XXXXX, the shareholders of the Petitioner corporation adopted a resolution to dissolve the corporation.  Petitioner ceased doing retail business on XXXXX, and on XXXXX,  requested from the State Tax Commission an audit of the sales and use tax prior to going out of business.  On XXXXX, XXXXX and XXXXX of the State Tax Commission audited Petitioner's sales, use and withholding accounts.  XXXXX, Director of the Auditing Division, informed Petitioner on XXXXX, that the audit had been completed.  Petitioner's Statement of Intent to Dissolve is dated XXXXX, and was received by or delivered to the Department of Business Regulations, Corporation Division.  It was not until XXXXX, that the Department of Business Regulations sent an Intent to Dissolve memo to the State Tax Commission.  On XXXXX, the Tax Commission mailed clearance memos to Tax Commission divisions and to the Department of Employment Security in order to prepare a tax clearance for Petitioner.  On XXXXX, the Tax Commission received the last of the six tax clearance memos from the various departments; however, Petitioner's fiscal year end was XXXXX, one week prior.

            Petitioner argued that the XXXXX, audit by the State Tax Commission showed that there were no taxes due and owing to the state of Utah and that the Commission is precluded by the principle of equitable estoppel from assessing corporate franchise taxes against the Petitioner for the tax year XXXXX.  Petitioner urges that the Statement of Intent to Dissolve was filed early enough before XXXXX, for the Tax Commission to have issued its tax clearance since the necessary audits had been previously completed.  Petitioner feels it should not be penalized because of the inaction of the Tax Commission.

            Respondent testifies that it did not receive official notice of Petitioner's Statement of Intent to Dissolve until XXXXX, only four days before Petitioner's fiscal year end.  Respondent denied that it could have received the necessary tax clearances by XXXXX, because the audit in XXXXX, by the State Tax Commission was for sales and use tax only.  Respondent argued that Petitioner was not diligent in pursuing the dissolution because it waited several months after it decided to dissolve to make formal application for dissolution.  Respondent also urges that it acted diligently and expeditiously although the Department of Business Regulation did not forward Petitioner's Statement of Intent to Dissolve for 18 days.


            1.  Respondent contends that in order for Petitioner to escape paying a XXXXX corporation franchise tax, it must have terminated its corporate existence in XXXXX.

            Utah Code Ann. Section 16-10-80 (Supp. 1986) provides that: a corporation wishing to dissolve must deliver a Statement of Intent to Dissolve to the Division of Corporations and Commercial Code.  "If the [division] finds that the statement conforms to law, it shall, when all fees have been paid as prescribed in this title, and tax clearance from the State Tax Commission has been obtained and filed with it" file the original Statement of Intent to Dissolve.  Section 16-10-81 provides that the corporation shall cease to carry on its business when the Statement of Intent to Dissolve is filed, but that its corporate existence shall continue until a certificate of dissolution has been issued by the Division.  Section 82 sets forth activities the corporation shall carry on subsequent to filing the Statement of Intent to Dissolve including notifying creditors, collecting assets, and distributing assets.  Section 87 provides: "[W]hen all debts, liabilities, and obligations of the corporation have been paid and discharged, or adequate provision has been made therefor, and all of the remaining property and assets of the corporation have been distributed to its shareholders, articles of dissolution shall be signed by the corporation. . . .".  Section 88 provides for filing the articles of dissolution and for the issuance of a certificate of dissolution which marks the termination of the corporate existence.

            2.  The Commission finds that a tax clearance and cessation of business is required during the year for which Petitioner seeks to avoid paying a corporation franchise tax.  Had the Department of Business of Regulations forwarded Petitioner's Statement of Intent to Dissolve to Respondent in a timely manner, the proper tax clearance would have been issued by Petitioner's fiscal year end (XXXXX).  After the hearing on the above matter, Hearing Officers, XXXXX and James E. Harward, inquired of the Department of Business Regulations why the department took so long to forward a Statement of Intent to Dissolve memo to the Tax Commission.  A Department of acinous Regulations representative indicated that they had no explanation for "sitting on" Petitioner's Statement of Intent to Dissolve, and that it normally takes one to two days to forward a memo to the Tax Commission.

            3.  The Commission finds that the proper tax clearance was not issued during Petitioner's fiscal year XXXXX through no fault of Petitioner nor Respondent.  Because Petitioner had in fact ceased doing business in XXXXX and had pursued an audit of its tax liabilities, the Commission finds that it pursued dissolution diligently and should not be held liable for a tax of approximately $$$$$ when the Department of Business Regulations, without explanation, failed to forward a Statement of Intent to Dissolve memo to Respondent.


            Based on the foregoing facts and the evidence presented, it is the Decision and Order of the Utah State Tax Commission that Petitioner's Petition for Redetermination be granted.  Respondent is ordered to adjust its records accordingly.

            DATED this 17 day of December, 1986.


R. H. Hansen                                                                Roger O. Tew

Chairman                                                                      Commissioner

Joe B. Pacheco                                                            G. Blaine Davis

Commissioner   Commissioner