BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX, )
:
Petitioner, )
:
v. ) INFORMAL DECISION
:
)
AUDITING
DIVISION OF THE : Appeal No. 86 0243
STATE TAX
COMMISSION OF UTAH, ) Acct. No. XXXXX
:
Respondent. )
_____________________________________
STATEMENT OF CASE
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.
FINDINGS
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.
DECISION AND ORDER
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.
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