BEFORE THE UTAH STATE TAX COMMISSION
: FINDINGS OF FACT,
v. ) CONCLUSIONS OF LAW
: AND FINAL DECISION
AUDITING DIVISION OF THE )
STATE TAX COMMISSION OF UTAH, : Appeal No. 89-0005
STATEMENT OF CASE
This matter came before the Utah State Tax Commission pursuant to the Rules of Administrative Procedure and the Administrative Procedures Act for a formal adjudicative proceeding on XXXXX. XXXXX, Commissioner, heard the matter for and in behalf of the Tax Commission. XXXXX, Assistant Attorney General and XXXXX, Field Auditor, appeared representing the Respondent. XXXXX, Attorney, represented the Petitioner XXXXX, who was also present.
The issue presented at the hearing was the purchase of six motor vehicles by a XXXXX corporation, which the Respondent claims was legally nonexistent, but purchased by XXXXX, a corporate officer as an individual. The motor vehicles were used in the State of Utah by Utah residents as well as use in other states outside of XXXXX subsequent to the signing of nonresidence affidavits.
Based on these facts and evidence presented at the hearing, the Tax Commission makes its:
FINDINGS OF FACT
1. The tax in question is sales tax.
2. The time period in question is XXXXX to XXXXX.
3. The purchase of six motor vehicles during the time period from XXXXX, a Utah Dealer, by a XXXXX Corporation signed for by the corporation president, XXXXX.
4. The Petitioner presented evidence that XXXXX bought all of the outstanding stock of XXXXX, Inc., a XXXXX Corporation, in May XXXXX.
5. The Petitioner stated that he is a resident of Utah, is self-employed and owns seven motels throughout four western states including the motel owned by the corporation XXXXX, Inc. Mr. XXXXX is a Utah resident, and was at the time of acquisition of the corporate stock and purchases of vehicles. His wife is a resident of XXXXX, Utah and his children attend Utah schools. Mr. XXXXX stated that he travels a great deal throughout the western states doing business in those states. Mr. XXXXX stated he owns a XXXXX residence and has a XXXXX drivers License.
6. The motel owned by XXXXX, Inc. was sold in XXXXX. The motel was the major asset, so the decision was made to dissolve the company after the sale. The accountant for the corporation was handling the preparation of the tax returns. However, the accountant lived in Hawaii at the time the corporation needed to be closed out and he did not file the XXXXX tax returns until XXXXX.
The accountant intended to dissolve the corporation in XXXXX. The XXXXX tax return was filed in XXXXX as the last and final return for the corporation. The Petitioner stated that he now believes that the accountant was probably not trained to do complex corporate tax work.
7. The Petitioner believed that all the purchases of vehicles were being made in the corporate name. He thought he was operating a foreign corporation unaware that it had been involuntarily dissolved.
8. The Petitioner believed that all purchases were corporate assets because he thought the corporation was still in existence and he had no knowledge that the involuntary dissolved action had taken place. The Petitioner relied on XXXXX's statement that purchases by a XXXXX corporation were not subject to tax. The Petitioner also stated that he talked to someone at the Utah State Tax Commission who informed him that the purchase of a XXXXX Corvette by a XXXXX corporation was not subject to Utah sales tax.
9. The Respondent submitted evidence from the Secretary of State, State of XXXXX, which showed the corporation involuntarily dissolved on XXXXX and a copy of the corporations last annual report filed XXXXX.
Further evidence showed that the annual report dated XXXXX listed all of the old officers and directors rather than the new stockholders, officers and directors pursuant to the stock purchase in XXXXX. The Annual Report did not show the mailing address of the new registered agent nor any notification to the Secretary of State of a change of address. All correspondence through XXXXX was addressed to the old registered agent. The Respondent stated that four of the vehicle purchases took place after XXXXX in Utah, after the corporation had been involuntarily dissolved. Further, the purchases were made in Utah, the vehicles were used in Utah and driven by a Utah resident.
9. The Respondent presented evidence that four of the vehicles were purchased after the corporation was involuntarily dissolved by the State of XXXXX. The Respondent contends that all vehicles which were purchased were brought back into Utah and used in Utah which was the taxpayers home base of operation. The Respondent also contends that the vehicles had minimal use in XXXXX.
10. The Petitioner stated he was not represented by legal counsel when he bought 100% of the stock in the corporation and had no knowledge of the requirements of corporate filings. He relied on the prior stockholders to file all of the necessary papers with the State of XXXXX. The Petitioner said the State of XXXXX never notified him of any actions with regard to filings. The Petitioner presented no evidence of any documents being filed with the State of XXXXX nor produced any evidence of corporate minutes or Board of Directors meetings. There was no evidence that actions of the Corporation were approved or disapproved by any Board of Directors or shareholders other than the testimony of XXXXX at this hearing. There was no evidence that the vehicle purchases were to be transacted in the corporate name or approved in a corporate manner.
11. The Petitioner believes that the purchases made prior to XXXXX were made while the corporation was legally in existence and therefore were corporate assets and that the taxes on the two purchases prior to that date are due from the corporation. The petitioner believes that a person cannot demonstrate good faith and fraud at the same time, the vehicles had nominal use in Utah and the corporation had legal existence until XXXXX.
12. Respondent believes that the 100% penalty under Utah Code Ann. §59-1-302(3) should apply because the Petitioner purchased vehicles which were later brought back and used in Utah, continually purchased vehicles after the corporation had been dissolved and further had minimal use for corporate business.
Based on the foregoing Findings of Fact, the Commission now makes and enters its:
CONCLUSIONS OF LAW
1. Pursuant to §59-12-104(9) Utah Code Ann. 1953, as amended, the only vehicles which are exempt from the payment of sales tax are those where sales are made to bonafide nonresidents of the State of Utah and are not thereafter registered or used in the State of Utah except as necessary to transport them to the borders of the State of Utah.
2. Four of the vehicles in question were purchased after XXXXX within the State of Utah by the Petitioner, XXXXX, who is a Utah resident. The purchases were made on behalf of the corporation, which had been legally dissolved on XXXXX. Two of the vehicles were purchased prior to XXXXX. All of the vehicles were used in Utah after purchase; therefore, the transactions were subject to sales tax within the State of Utah.
3. The Petitioner had the burden of proof to show that the sales tax was improperly applied to these transactions by the Auditing Division, and the Petitioner failed to sustain this burden of proof.
4. The Respondent had the burden of proving that the 100% penalty imposed by Utah Code Ann. §59-1-302(3) should be applied to these transactions. The Commission concludes that the Petitioner did not attempt to evade or defeat the payment of the sales tax, and that the 100% penalty should not apply.
5. When officers and directors of corporations deal with the assets of the corporation as though they did not need approval from any other individual, board, or shareholders, they become personally responsible for these actions or inactions of that corporation.
6. The Commission finds that the Petitioner was negligent in the way corporate matters were handled. The Petitioner had the responsibility to report to the XXXXX Secretary of State with regard to changes in filings and Corporate Registered Agents, Directors and Shareholders, the Petitioner did not do that and as a result the corporation was involuntarily dissolved. The Commission believes that the penalty of 10% shall apply for negligence as provided by Utah Code Ann. §59-1-401(3).
7. The Petitioner, XXXXX, is also personally responsible for the tax, penalty and interest in this proceeding because of the provisions of Section 70A-3-403, Utah Code Annotated 1953, as amended.
Based on the foregoing Findings of Fact and Conclusions of Law, the Commission now makes and enters its:
DECISION AND ORDER
It is the decision and order of the State Tax Commission that the audit be sustained, that the vehicles in question were purchased by XXXXX who is individually liable and responsible for the sales tax on the purchase price of said vehicles, a 10% penalty and the interest thereon until paid.
Dated this 31st day of
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis