BEFORE THE STATE TAX COMMISSION OF UTAH
Petitioner, : INFORMAL DECISION
COLLECTION DIVISION OF THE : Appeal No. 87-1298
STATE TAX COMMISSION OF UTAH, )
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for an Informal Hearing on XXXXX. James E. Harward, Hearing Officer, heard the matter for the Tax Commission. XXXXX was present. XXXXX appeared representing the Respondent. The Petitioner began work for a company called XXXXX, in XXXXX. At that time the accounting system was already in place and approximately $$$$$ was due in federal payroll taxes and some unknown sum was due to the Utah State Tax Commission for withholding tax and sales tax. Through XXXXX, the Petitioner caught up the taxes, and through XXXXX remained current and timely. In the fall of XXXXX, the president of XXXXX began a project for the construction of an insulation plant which project caused a severe cash flow problem in the company. During XXXXX, it became apparent that the company would suffer financial collapse if an infusion of money were not made. Numerous attempts and applications were made for loans by the president of XXXXX. During this time the Petitioner was responsible for the collection and payment to tax and also the payment creditors as it related to the ongoing operation of XXXXX and the construction of the insulation plant. It was clear that during this period of time, the president of the company as well as Petitioner, were aware of the outstanding obligations including outstanding taxes. Discussions were held weekly regarding the costs of the projects, the expenses, and the inability to meet those costs and expenses. In addition, several financial statements were prepared which bear the signature of the president of XXXXX which show outstanding tax liabilities. The Petitioner signed checks for the company and was responsible for the payment of debts and obligations of the corporation. In XXXXX, the Petitioner left the corporation and was no longer responsible for the collection, assessment, and payment of taxes. After the Petitioner left the corporation, the corporation was liquidated and the assets have apparently been transferred to another company. XXXXX was owned solely by XXXXX, the President, his wife and his children. The Petitioner made the decision to pay certain creditors and not pay others. As a result it was his decision not to pay the Tax Commission. That decision was based on the inability to pay all of the creditors. At the hearing, the Petitioner admitted that the creditor who was making the most noise got paid.
DECISION AND ORDER
Utah Code Ann. 59-1-1321(3) requires that "any person required to collect, truthfully account for, and pay over the sales, use, or withholding tax imposed by law who willfully (a) collect the tax (b) fails to truthfully account for, or (c) attempts in any manner to evade or defeat any tax or the payment of the tax shall in addition to other penalties provided by law be liable to a penalty equal to the total amount of tax evaded, not collected, not accounted for or paid over." The statute sets up two criteria required to subject a person to this penalty. Those criteria are (1) a person who is required to collect and truthfully account for and pay over the tax, and (2) the failure to do any of the above has to be willful. Subsection (8) of 1321 provides some clue as to what conduct would constitute willful. That section states "the following shall be non exclusive prima facie evidence that a person has willfully failed to collect, truthfully account for and pay over sales use or withholding tax imposed by law (a) finding that the person charged with the responsibility of collecting, accounting for and paying over the sales, use, withholding or corporate franchise tax and made a voluntary conscious and intentional decision to: (i). Prefer other creditors over state government or to (ii). Utilize the tax money for personal purposes." The Tax Commission, after reviewing the evidence and the recommendation of the hearing officer, are convinced that Petitioner falls within the strict interpretation of the statute. The Petitioner candidly admitted that he was responsible for the collection and payment of tax and consciously chose to pay other creditors, who made the most noise, over the Tax Commission. The Tax Commission is further convinced after reviewing the documentation and evidence submitted by the Petitioner that the President of the corporation, XXXXX, is equally responsible. He consciously chose a project and its obligations over the payment of tax. Therefore, the Tax Commission shall affirm the assessment against the Petitioner in part, i.e., that the assessment up to and including the fourth quarter of XXXXX shall be affirmed. However, this affirmation shall be held in abeyance until a jeopardy assessment can be made against XXXXX, and all remedies, hearings, and administrative appeals and collections be exhausted against XXXXX before collection can be made against XXXXX.
DATED this 19 day of January, 1988.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis