Signed 12/9/87









Petitioner, )








Respondent. )




This matter came before the Utah State Tax Commission for an Informal Hearing on October 6, 1987, James E. Harward, Hearing Officer, heard the matter for the Tax Commission. XXXXX appeared representing the Petitioner. XXXXX appeared representing the Respondent.

In XXXXX an application to engage in business as XXXXX was made which listed XXXXX as a managing partner and XXXXX as owner. XXXXX was a garage and service station owner who had a business located where XXXXX is. XXXXX is XXXXX's son‑in‑law, and XXXXX's wife is XXXXX's only child. In XXXXX the partnership was dissolved and incorporated as XXXXX. No new sales tax number was requested by the new corporation, and no final return was filed by the partnership for sales tax purposes.

The Respondent was not notified of the change in ownership. The Tax Commission continued to receive returns on the partnership forms supplied by the Tax Commission to the organization. Three or four years after the incorporation, the XXXXX, incurred liability for sales tax.

The Tax Commission contends that where evidence of liquidation and winding up of affairs cannot be shown, i.e., through the filing of the final tax return, the partnership has not been legally terminated and continues still in which case tax warrants are correctly placed against the partner XXXXX. The Petitioner is a partner by estoppel because by word or conduct the Petitioner has represented himself as a partner in an actual or apparent partnership resulting in credit being given by a third person on the faith of such representation. The Petitioner argues that the failure to file a final statement is purely administrative and does not in and of itself create a tax liability for mere failure to adhere to the requirement of filing the final return.


The Petitioner relies upon a Michigan Supreme Court Case which has virtually identical facts and circumstance. The case is Detroit Hilton Ltd. Partnership v. the Department of Treasury Revenue Division, 422 Michigan, 422, 373 N.W 2d 586 1985. In this case, the Petitioner was a limited partnership operating a hotel in the City of Detroit. Up until August of 1974, the Petitioner operated the hotel business. However after August of 1984, the corporation known as the Detroit Hotel Operating Company was created. The Petitioner, Hilton, leased the hotel building and transferred all of the operating assets to the Detroit Hotel Operating Company (DHOC). DHOC then operated the company using the Hilton sales tax license number. The statutes of Michigan required that a person subjected to sales tax register with the Department of Treasury, and also when he ceased doing business that a final return must be made within fifteen days of the date of selling or quitting business. The Hilton did not file such a return or notify the Department of Treasury that it had transferred the hotel business to new corporate entity.

The statute of Michigan are very similar to those of the State of Utah. In making its decision, the courts stated that "the successor in certain instances can be held liable for taxes unpaid by the predecessor. Neither position indicates that the predecessor can be held liable for taxes due while the business is operated by the successor." Detroit, Supra, 589. The court in Detroit went on to dispose of the estoppel argument on the grounds that the affirmative acts which mislead the Department of Treasury, were those done by the successor in interest and not by the predecessor in interest. Therefore, the predecessor in interest would not be held responsible for those acts which were done by the purchaser or successor in interest. Detroit, Supra at 589.

The court concluded, the predecessor in interest would not be held responsible for taxes incurred by the predecessor of interest in using the same business license as the predecessor in interest. The court specifically found a failure to file a closing statement, giving notice to the taxing entity, was not sufficient grounds to impose the tax liability of the successor upon the predecessor.

The Respondent, on the other hand, has argued partnership law that requires for a specific act of dissolution. Further, the Respondent claims that the act of a partner upon which a creditor would rely would bind the partnership even after dissolution of the partnership had the transaction bound the partnership had there been no dissolution.

The Tax Commission finds the Respondent's argument distinguishable from those facts at hand. The partner in this case which the Respondent claims has bound the partnership even after dissolution, would be that entity known as the XXXXX. However, XXXXX was not a partner to the partnership, it is a complete and separate entity which has violated the statutes by continuing to file returns on a partnership return which has been dissolved. The statutes of State of Utah provide penalties for such action. Those penalties go against the successor in interest, XXXXX, and its officers and directors who are responsible for the collection/remittance and reporting of taxes.

The Tax Commission is persuaded by the decision made by the Michigan Supreme Court, and find that the decision made by the Michigan Supreme Court is virtually four square dispositive of the issues at hand.


Therefore, it is the conclusion and order of the Tax Commission that the assessment made against XXXXX be set aside insofar as it relates to any partnership tax liability commencing after the incorporation of the business.

DATED this 9 day of December, 1987.



R.H. Hansen Roger O. Tew

Chairman Commissioner


Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner


NOTICE: You have 30 days after the date on the Mailing Certificate to request a Formal Hearing.