BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
AUDITING
DIVISION OF THE : Appeal No. 87-3139
UTAH STATE TAX COMMISSION, : Account
No. XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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.
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner