87-3139 - Sales





Petitioner, : FINDINGS OF FACT,





Respondent. :



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Joseph G. Linford, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX, Attorney at Law, and XXXXX. Present and representing the Respondent was XXXXX, Assistant Attorney General, and XXXXX of the Auditing Division of the Utah State Tax Commission. An informal hearing in this matter was held on XXXXX, and an informal decision was issued by the Commission, dated XXXXX. It is from that informal decision that Petitioner now appeals. After reviewing the evidence and arguments of the parties in the record and the recommendation of the presiding officer, the Tax Commission hereby makes its:


1. The tax in question is sales and use tax.

2. The period in question is XXXXX.

3. XXXXX has been an XXXXX for more than 20 years. XXXXX testified at the hearing that he and another XXXXX created XXXXX with the intent to buy and sell vehicles and then to lease these vehicles to their clients who had wrecked their own vehicles and who required temporary vehicles for transportation.

4. Petitioner applied for an exemption certificate from the Tax Commission and exemption number XXXXX was issued to the Petitioner.

5. XXXXX testified that the leasing business never "got off the ground" because it could not compete with the established rental car companies. Nothing was ever leased out by the Petitioner; there was no bank account established; there was little, if any, advertising or stationery printed; and there are little, if any, other indications that Petitioner was ever an operating business. XXXXX testified that he made no real effort to lease anything, although he stated that he did have the intent to do so. His partner in the enterprise, XXXXX, had not had anything to do with the business of Petitioner since its inception and all of the transactions and issues in this case have arisen out of the actions of XXXXX.

6. Petitioner's application for license to engage in business states that the primary nature of Petitioner's business would be leasing boats. Every quarterly sales tax return filed by XXXXX during the audit period shows no tax due, and XXXXX has never reported his personal use of any of the items which were purchased tax exempt by the Petitioner.

7. A XXXXX was purchased new on XXXXX, from XXXXX. Petitioner has never leased the XXXXX, although XXXXX has driven it extensively himself.

8. A XXXXX was purchased on XXXXX, from XXXXX and has never been leased. XXXXX testified that this motor has never been installed or used and has merely been sitting idle since it was purchased.

9. A XXXXX was purchased on XXXXX, by XXXXX, from XXXXX, and was subsequently used by XXXXX for his personal use. This vehicle was never leased by Petitioner.

10. Petitioner purchased new a XXXXX in XXXXX, and XXXXX has used it extensively for his personal use. Petitioner has never leased this vehicle. Petitioner contends that the purchase of the XXXXX was a trade-in and, therefore, Petitioner should at least receive some credit for the value of the vehicle traded in. The purchase agreement for the XXXXX from XXXXX indicates that Petitioner purchased the XXXXX from XXXXX on XXXXX. The authenticity of this document is questionable at best in that the Articles of Incorporation for XXXXX, which was the previous name for XXXXX, were not filed until XXXXX, well after the date on the purchase agreement. Also, the application for title and registration for this vehicle show an XXXXX, purchase date. This application also lists the owner's name as XXXXX dba XXXXX, lists the previous owner as XXXXX, and states that the vehicle was previously registered in XXXXX. This purchase agreement was not found in the original audit by Respondent, but was first produced by Petitioner at the informal hearing. All of these facts call into question the authenticity of the trade-in of the XXXXX towards the purchase of the XXXXX as alleged by Petitioner. Respondent testified that no credit was given for the trade-in because no documentation was present to substantiate the trade-in and the documentation that has been produced since the audit is questionable as outlined above.

11. The regular Sales and Use Tax Exemption Certificate states under the resale or re-lease provision that:

I certify that I am a dealer in tangible personal property or services, and that the tangible personal property or service purchased is for resale or re-lease. If I use or consume any tangible personal property or services which I purchase tax free for resale or if my sales are of food, beverages, dairy products and similar confections dispensed from vending machines (see Rule A12-02-S74), I will report and pay sales tax on the proper cost thereof directly to the State Tax Commission on my next regular sales and use tax return. On none of the quarterly sales tax returns filed by Petitioner, all of which stated that no tax was due for every quarter during the audit period, did Petitioner report and pay sales tax on any of the items included in the audit. The instructions on the Sales and Use Tax Exemption Certificate and the instructions on the Sales and Use Tax Return are clear, easy to follow and understand. Despite this, Petitioner apparently did not follow these instructions for a long period of time.

12. The Tax Commission finds that Petitioner has failed to meet its burden of proof to establish that sales and use tax was not properly due on any of the items in question. The items included in the audit report were, therefore, subject to Utah sales and use tax and were properly included in the audit.


1. Utah Code Ann. 59-12-107(3) provides that sales made by wholesalers to retailers upon the representation of the retailer that the item purchased is for resale and the property purchased is not thereafter resold, then the wholesaler is not responsible for the collection and payment of the tax imposed on the sale, but the retailer is solely liable for such tax.

2. Utah Code Ann. 59-1-401(3)(d) and59-12-110(6) provide that when deficiencies in payment of sales tax occur due to fraud with the intent to evade the tax, then a penalty shall be assessed of the greater of $500 per period or 100% of the deficiency.

3. Petitioner asserts that there was no fraud, nor intent to evade tax in this case and that the 100% fraud penalty which has been assessed is improper. An assertion of fraud puts upon the Respondent, the one making the assertion, the burden of proof to establish that fraud, and it must be proved by clear and convincing evidence that the deficiency was due to a deliberate and fraudulent intent of the Petitioner to evade taxes. Drieborq vs. Commissioner, 225 F2d 216 (6 Cir. 1955). Since direct evidence of fraud is seldom available, then the burden of proving fraud can be met through circumstantial evidence. Stone vs. Commissioner, 56 TC 213 214 (1971) (intent may be inferred from circumstantial evidence. Powell vs. Granquist, 252 F2d 56 (9th Cir. 1958)).

4. The accumulated weight and effect of the evidence produced indicates that Respondent has met its burden of showing fraud with intent to evade taxes in this case. The extensive personal use by XXXXX of each of the vehicles in question; the fact that not a single vehicle was ever leased and that Petitioner made no effort at all to lease them; that Petitioner signed sales and use tax exemption certificates for the items in question, but then never did lease them; and the fact that Petitioner filed returns stating that there were no taxes due for every quarter of the audit period and did not report any of the items purchased tax free by Petitioner but then used for personal use by XXXXX, all indicate that something beyond mere negligence is apparent here. Gross negligence may be imputed under such circumstances for a short period of time but, in this case, for a period of more than two years Petitioner continued this same pattern with no attempt to lease the vehicles purchased tax free and no attempt to pay any sales taxes on the vehicles that were never leased but were used personally by XXXXX. Such gross negligence may also be inferred if only one or two items were involved, but here Petitioner purchased several vehicles and a boat motor, all tax free, and never leased them, and, indeed, used them for his own personal use. The Tax Commission finds that there is more than sufficient evidence here to indicate a fraudulent intent to evade sales taxes and that the 100% fraud penalty is appropriate.


Based upon the foregoing, it is the decision and order of the Utah State Tax Commission that the informal decision of XXXXX, is sustained and the audit report for the period XXXXX, including the assessment of the 100% fraud penalty, is affirmed.

DATED this 8 day of August, 1990.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner