BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX )
:
Petitioner, )
: FINDINGS
OF FACT,
v. ) CONCLUSIONS OF LAW
: AND FINAL
DECISION
AUDITING
DIVISION OF THE )
STATE TAX
COMMISSION OF UTAH, : Appeal No. 89-0005
)
Respondent. :
___________________________________
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
August, 1989.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
ABSENT
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner