BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX
Petitioner, : INFORMAL DECISION
v. :
COLLECTION
DIVISION OF THE : Appeal No. 87-0142
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 and XXXXX,
represented Petitioner. Petitioner is
requesting a waiver of penalty and interest assessed against the late filing of
occupation and conservation reports and taxes for the XXXXX tax years. The
occupation and conservation taxes were due on the following oil and gas wells
located in XXXXX County: XXXXX. In
XXXXX XXXXX was the operator of each of the wells. XXXXX owned non-operated working interests in the XXXXX and the
XXXXX. XXXXX did not own interest in
the other well. Subsequently, XXXXX
merged into Petitioner, XXXXX. The
wells were completed in XXXXX, and XXXXX billed the working interest owners for
their proportionate shares for the drilling, completing, and operating costs
including taxes due the state of Utah. XXXXX paid the amounts billed to
XXXXX. In late XXXXX and early XXXXX,
XXXXX was incurring significant financial problems. Some of XXXXX creditors were considering filing a petition in
bankruptcy against XXXXX, and XXXXX was considering filing a voluntary petition
in bankruptcy. In XXXXX, the working
interest owners retained counsel and hired XXXXX to investigate XXXXX financial
problems and to help resolve the problems.
An audit investigation determined that XXXXX had total claims and liens
on the wells in the amount of $$$$$.
This amount did not include tax liability to the State of Utah or XXXXX
County. XXXXX had no assets and the
wells were shut-down because XXXXX could not pay the nominal operating
expenses. At this point, the
alternatives were to file a petition in bankruptcy against XXXXX or to try to
work out an out of court resolution of the problem. XXXXX creditors determined that an out of court resolution to the
problem would be the most logical because if XXXXX were in bankruptcy the
unsecured creditors would receive nothing and litigation would use up
assets. Consequently, XXXXX agreed to
give its working interests in the subject wells and to assign the interest to
the other working interest owners. The working interest owners including XXXXX
use the money to help satisfy the financial claims. Currently XXXXX total claims and liens of well over $$$$$ have
been reduced to less than $$$$$.
Petitioner argues that the %%%%% non-filing penalty found in Utah Code
Ann. 59-5-70 (Supp. 1986) will be waived when the taxpayer can show that the
failure to file the return was due to reasonable cause and not due to willful
neglect. The occupation tax filing is
required under Section 59-5-68(3) (Supp. 1986) which provides that every
producer engaged in producing oil and gas shall file a return. A producer is a working interest owner in
the lands or in the oil and gas field from which oil and gas is produced under
Section 59-5-66(10)(b) (Supp. 1986).
Petitioner argues that during the tax years in question Petitioner was
not a producer and because Utah law placed the obligation to file on the
producer imposition of the non filing penalty on Petitioner is improper because
the Petitioner had no individual duty to file.
Moreover, Petitioner argues that
to the extent that XXXXX is subject to the tax on its interest in two of the
wells, it paid its taxes to XXXXX in the expectation that XXXXX would file the
returns timely and pay the tax timely.
Petitioner argues that there was no willful neglect on the part of XXXXX
and that this belief was reasonable because Utah law and regulations place the
obligation to file on XXXXX. With
respect to interest, Petitioner argues that interest charges are intended to
offset the advantage a taxpayer obtains from delaying his tax payments. Petitioner enjoyed no advantage from
delaying his tax payment because (1) with respect to three of the wells,
Petitioner had no tax liability because it owned no interest, and (2) for the
other two wells, Petitioner enjoyed no advantage from delaying tax payments
because it did not delay its tax payments to XXXXX.
FINDINGS
The
Commission finds that were it not for Petitioner's actions in taking over the
XXXXX wells and reducing the claims against XXXXX, XXXXX would have been forced
into bankruptcy, whether voluntarily, or involuntarily, and although the
state's claim for taxes would not have been dischargeable, its ability to
collect the taxes would have been jeopardized.
The Commission lauds Petitioner's efforts to prevent XXXXX bankruptcy
and its efforts to request audit by the state in order to determine any
outstanding tax liabilities. Petitioner's actions in requesting an audit in
order to clear claims and liens have benefitted many parties of which the state
is only one. Therefore, the Commission
agrees to waive the penalty and interest assessed against the late filing of
the XXXXX occupation and conservation taxes because without Petitioner's
actions the tax may never have been collected and with respect to interest
because Petitioner never had economic benefit of the money.
DECISION AND ORDER
Based
on the foregoing, it is the Decision and Order of the Utah State Tax Commission
to grant Petitioner's request for waiver of penalty and interest. Therefore,
Respondent is ordered to adjust its records in order to reflect the decision of
the Commission
DATED
this 2 day of September, 1987.
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