88-0694 - Sales






            Petitioner,                                                         :           FINDINGS OF FACT,

v.                                                                                 :           CONCLUSIONS OF LAW

                                                                                    :           AND FINAL DECISION

AUDITING DIVISION OF THE                                :

            UTAH STATE TAX COMMISSION             :           Appeal No. 88-0694

            Respondent.                                                     :



            This matter came before the Utah State Tax Commission for a formal hearing on XXXXX.  Paul F. Iwasaki, Presiding Officer, heard the matter for and in behalf of the Commission.  Present and representing the Petitioner was XXXXX, Attorney at Law.  Present also were XXXXX. Present and representing the Respondent were XXXXX.

            Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


            1.  The tax in question is withholding tax.

            2.  The period in question is XXXXX through XXXXX.

            3.  XXXXX is a XXXXX corporation.  In XXXXX and XXXXX the corporation obtained some XXXXX properties in Utah and began operations there.

            4.  When the Utah operations were started up, XXXXX requested information from the Tax Commission as to how the necessary withholding taxes were to be handled.

            5.  XXXXX received a booklet from the Tax Commission entitled "Utah Mineral Production Tax Guidelines" to aid them in the handling of withholding tax.

            6.  The constant referral to "royalties" within that booklet as well as the reference to "royalties" on the return filed by XXXXX led XXXXX to believe that withholding taxes need only be paid on royalties.

            7.  Based upon the belief that withholding need only be made on royalty payments, XXXXX did not withhold taxes on payments made to working interest owners.  The Petitioners were not aware of the requirement to withhold such taxes until XXXXX and thereafter began to withhold the necessary taxes.

            8.  An audit conducted by the Auditing Division for the period XXXXX through XXXXX established a deficiency for the failure to withhold the taxes in question as well as established a penalty for the failure to do so.

            9.  Negotiations between XXXXX and the Auditing Division led to an agreement whereby further proceedings on the matter were stayed until XXXXX had an opportunity to contact those persons to whom non-mineral production payments had been made and no withholding taken out.  Once contacted those individuals were allowed time to file amended income tax returns to state such income.

            10.  All but three of the individuals so affected filed the amended return or had already included the income in their income tax returns.

            11.  The entire tax deficiency had been paid by the individual taxpayers.  The individual taxpayers who had not included the income in their original returns were assessed a penalty.


            The Tax Commission is granted the authority to waive, reduce or compromise penalties and interest upon a reasonable showing of reasonable cause. (Utah Code Ann. 59-1-401(8).)


            Based upon the facts that the Petitioner may have been confused as to the appropriate withholding taxes necessary to be withheld because of the communications and the information provided by the Tax Commission and based upon the fact that the taxes have been satisfied , the Tax Commission finds that sufficient cause exists to waive the penalty and interest for the audit period XXXXX through XXXXX.

            DATED this 20 day of April, 1990


R. H. Hansen    Roger O. Tew

Chairman                                                                      Commissioner

Joe B. Pacheco                                                            G. Blaine Davis

Commissioner   Commissioner