BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX ) AMENDED
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW
v. : AND FINAL DECISION
: Appeal No.
87-0011
AUDIT DIVISION
OF THE :
STATE TAX
COMMISSION OF UTAH, )
Respondent. :
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a Formal Hearing on
XXXXX. XXXXX, Presiding Officer, heard
the matter for and in behalf of the Tax Commission. Present and representing the Petitioner was XXXXX. Present and representing the Respondent was
XXXXX, Assistant Attorney General.
After
reviewing the evidence and testimony presented at the hearing, the Tax
Commission hereby makes its:
FINDINGS OF FACT
1.
The tax in question is franchise tax.
2.
Petitioner is a Utah company incorporated under the laws of Utah on XXXXX.
3.
From XXXXX, and subsequent thereto, Petitioner had been and remained in good
standing under Utah corporate law and had not had its authority to do business
in the state suspended and subsequently reinstated.
4.
Petitioner's taxable year had been from XXXXX, to XXXXX.
5.
Petitioner dissolved and legally terminated its existence as a Utah corporation
on XXXXX, prior to the end of its taxable year XXXXX.
6.
At the time of dissolution, Petitioner had a balance of deferred and unreported
gain arising out of certain installment sale transactions which had been
entered into in prior years that Petitioner had been properly reporting on the
installment sale method.
7.
Petitioner had filed all franchise tax returns required under the laws of the
state of Utah, including, without limitation, its franchise tax return based on
income for its taxable year ending XXXXX and paid all taxes shown as due.
8.
Petitioner's payment of the franchise tax based on income for its taxable year
ending XXXXX, constituted a payment of franchise tax for the privilege of
exercising its corporate franchise or of doing business in the state of Utah in
the taxable year ending XXXXX.
9.
As a result of the Petitioner's dissolution prior to the end of its taxable
year ending XXXXX, the Respondent assessed a tax deficiency of $$$$$ against
the Petitioner for the taxable period XXXXX which was based upon the amount of
deferred gain from installment sale transactions remaining unreported as of the
end of such period.
CONCLUSIONS OF LAW
A
corporation incorporated or qualified to do business in this state prior to
XXXXX is not liable for filing a return or paying tax measured by income for
the taxable year in which it legally terminates its existence. Utah Code Ann. §59-7-123(5).
When
the entire income arising from the sale or other disposition of property on a
deferred or installment basis has not been reported prior to the year-end that
the taxpayer ceases to be subject to the tax imposed under the Utah Corporation,
Income, and Franchise Tax Acts, the unreported income is included in the return
for the last year in which the taxpayer is subject to the tax. (Utah State Tax Commission Administrative
RuleR865-6F-15).
FINAL DECISION
In
the present case, the Petitioner argued that the assessment by the Respondent
of the $$$$$ deficiency was improperly attributed to the XXXXX tax year. It was the Petitioner's position that under
the Utah State Tax Commission Administrative RuleR865-6F-15 (Rule 15F), any
unreported income is to be included in the last year in which the taxpayer is
subject to the tax. The Petitioner went
on to argue that in this case, XXXXX was the year of dissolution of the
corporation and was the last year in which the Petitioner was subject to the tax. Therefore, under Section 59-7-123(5), they
are not liable for filing a return or paying a tax measured by income for XXXXX
which was the year it legally terminated its existence.
Alternatively,
the Petitioner argued that if Rule 15F is interpreted to include deferred
income in the year prior to the year in which a corporation is dissolved, then
the regulation is in conflict with Section 59-7-123, and to the extent that it
is, it is preempted by the code.
Upon
first impression, Section 59-7-123, and Rule 15F seem to indicate that in this
case a deficiency assessed should be attributed to the year in which the
Petitioner terminated its corporate existence thus releasing the Petitioner
from liability for paying taxes thereon.
A closer reading of the two provisions of the law show that a contrary
result is correct. RuleR865-6F-15
states in relevant part: A rule allowing deferment of reporting such income is
only one of postponement of the tax and not one of exemption from the tax
otherwise lawfully due. . . . When the
taxpayer elects to report income arising from the sale or other disposition of
property as provided in Utah Code Ann. § 59-7-119, and the entire income
therefrom has not been reported prior to the year that the taxpayer ceases to
be subject to the tax imposed under the Utah Corporation Income and Franchise
Tax Acts, the unreported income is included in the return for the last year in
which the taxpayer is subject to the tax. (Emphasis added.)
Under
the terms of Rule 15F it is clear that the last year in which the taxpayer is
subject to the tax is the year preceding the year it terminates its
existence. In the present case, the
Petitioner ceased its existence in XXXXX and thereby was not liable for paying
tax measured by income for that year as provided for by Utah Code Ann.
§59-7-123. However, they were liable
for the amount of installment income not previously reported and such income
should be included in the term for XXXXX.
The
Commission finds that there is no conflict between Section 59-7-123 and Rule
865-6-15F. When read together, the two
provisions of the law are in harmony with each other.
It
should be noted that the statutory provision which allows taxpayers to defer
reporting gain from installment sale transactions is found in Section 59-7-119,
which in effect states that such treatment of deferred installment gains are
governed by rules prescribed by the Tax Commission. Section 59-7-119(1) states: "Under rules prescribed by the
Commission a taxpayer who regularly sells or otherwise disposes of personal
property on the installment plan may return as income therefrom in any taxable
year that proportion of the installment payments actually received in that year
which the gross profit realized, or to be realized when the payment is
completed, bears to the total contract price." It was pursuant to that statute, the Commission promulgated Rule
15F.
Since
Rule 15F is specifically provided for
by statute, if there is as the Respondent suggests, a conflict between Rule 15F
and Section 59-7-123 then such conflict is actually between §§59-7-119 and
59-7-123 of the code. If this is so,
then it is a well recognized rule of statutory construction that when two
statutes are in apparent conflict with one another then the statute
specifically dealing with the issue at hand governs over the more general
statutory provision.
In
the present case, the treatment of income received from installment sales is
specifically dealt with by Section 59-7-119.
Therefore, Section 59-7-119 and the properly promulgated rule arising
therefrom would control the issues in this case.
As
a final argument, the Petitioner contends that application of Rule 15F violates
the tax accounting rule that each tax year stands on its own as a closed
accounting period. The Petitioner
maintained that the dissolution of the Petitioner's corporation was a taxable
event subsequent to the close of the accounting period for XXXXX which, if
application of Rule 15F were followed, improperly triggered additional tax
consequences for the year in question.
The
Commission finds the Petitioner's argument that the dissolution of the
Petitioner's corporation was a subsequent event which had an impact on the
determination of tax for prior year and therefore impermissible, is without
merit. The dissolution of the
corporation did not have an effect on the amount of taxes owed by them since
that amount had been previously determinated at the time the installment was
made. Rule 15F clearly indicates that
deferment of reporting the income from installment sales is only an allowance
for the postponement of tax but not one of exemption. Therefore, the dissolution of the corporation did not increase
the tax liability of the Petitioner, it only changed the time in which the
payments on such liabilities had to be made.
ORDER
Based
on the foregoing, the Utah State Tax Commission hereby finds that in the
present case, the unreported income arising from installment sales is properly
included in the Petitioner's XXXXX tax year which was the last year in which
the Petitioner was subject to the corporation franchise tax and the Auditing
Division's determination of a tax deficiency in the amount of $$$$$ plus
interest for the period XXXXX is affirmed. It is so ordered.
DATED
this 8 day of February, 1990.
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