SALES
86-0608
Signed 12/9/87
BEFORE
THE STATE TAX COMMISSION OF UTAH
_____________________________________
XXXXX, )
:
Petitioner, )
:
v. ) INFORMAL DECISION
:
)
AUDITING DIVISION OF THE : Appeal No. 86 0608
STATE TAX COMMISSION OF UTAH, ) Account No. XXXXX
:
Respondent. )
_____________________________________
STATEMENT
OF CASE
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.
DISCUSSION
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.
CONCLUSIONS
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.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
ABSENT
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.
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