BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________________
XXXXX )
FINDINGS OF FACT,
Petitioner : CONCLUSIONS OF LAW,
vs )
AND FINAL DECISION
:
AUDITING
DIVISION OF THE )
Appeal No. 89-0535
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. Alan Hennebold, Presiding
Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was
XXXXX. Present and representing the
Respondent was XXXXX, Assistant Utah Attorney General
Based
upon the evidence and testimony presented at the hearing, the Tax Commission
hereby makes its:
FINDINGS OF FACT
1. The tax in question is individual income
tax.
2. The periods in question are tax years XXXXX
and XXXXX.
3. The Petitioner is an enrolled member of the
XXXXX Indian Tribe. His wife is an enrolled member of the XXXXX Indian Tribe.
4. The Petitioner was employed at the XXXXX at
XXXXX, Utah beginning in XXXXX and extending to XXXXX. Both the Petitioner's place of employment
and his residence were on the XXXXX and XXXXX of the XXXXX Tribe.
5. At the time the Petitioner commenced his
employment at the XXXXX, he was provided a form entitled "Withholding
Exemption Certificate", which stated:
For use by Indian employees who live and are
employed within an Indian reservation and thereby claim that no Utah State
Income Tax liability exist. Based on the decision
by the Supreme Court of the United States in McClanahan v. Arizona State Tax
Commission, Case No. 71-834 (March 29, 1973).
The
Petitioner completed the foregoing form, submitted it to his employer, and as a
consequence no state income tax was withheld from his earnings.
6.
The Petitioner filed a federal income tax return establishing his
federal adjusted gross income at $$$$$$ for XXXXX. He filed no state income tax return for that year.
7. During XXXXX, the Petitioner moved to
XXXXX. During the spring of XXXXX, he
filed a XXXXX federal income tax return showing adjusted gross income of
$$$$$$. He also filed a XXXXX Oregon
state income tax return, reporting all his earnings for the year as taxable in
Oregon. His Oregon income tax return
established a liability of $$$$$, which was satisfied from funds withheld from
his salary in Oregon.
8. The Commission's Auditing Division
discovered that the Petitioner had resided in Utah during XXXXX and XXXXX and
had reported earnings from his Utah employment to the federal government, but
had not filed Utah state income tax returns for those years. It therefore calculated Petitioner's state
income tax liability for both years from information obtained from his federal
returns. The Audit Division assessed
tax liability of $$$$$ against Petitioner for XXXXX, together with late filing
and late payment penalty of $314.58 and associated interest. The Audit Division assessed tax liability of
$$$$$ for XXXXX, together with late filing and late payment penalty of $$$$$
and associated interest.
CONCLUSIONS OF LAW
Utah
State income tax is imposed on the state taxable income of every resident
individual. (Utah Code Ann. §59-10-104)
"Resident individual" is any individual domiciled in this state for
any period of time during the taxable year.
(Utah Code Ann. §59-10-103(1)(j).)
"State taxable income" is defined as federal taxable income,
with certain adjustments that do not apply under the facts of this case. (Utah Code Ann. §59-10-112)
The
Tax Commission is granted the authority to waive, reduce, or compromise
penalties and interest upon a showing of reasonable cause. (Utah Code Ann.
§59-1-401(8).)
DECISION AND ORDER
The
first issue before the Tax Commission is whether Petitioner's earnings from the
XXXXX at XXXXX are subject to Utah state income tax.
It
is undisputed that Petitioner is an enrolled member of an Indian tribe other
than the XXXXX Indian Tribe, on whose reservation the XXXXX is located. As a general rule, all income from
employment in the state of Utah is subject to state income taxation. No specific exemption exists for income
earned from employment on Indian reservations.
However, federal law as interpreted by the U.S. Supreme Court in
McClanahan, supra, exempts income earned by enrolled members of an Indian tribe
on that tribe's reservation.
Under
the facts of this case, the foregoing exemption does not apply to the
Petitioner's earnings at the XXXXX, because he was not a member of the XXXXX
Tribe on whose reservation the XXXXX was located. This conclusion is supported by Washington v. Confederated Tribes
of The Colville Indian Reservation, 447 U.S. 134 (1980), holding that Indians
working on the reservation of another tribe are not exempt from state taxation.
The Commission therefore finds that the Petitioner's income earned during XXXXX
and XXXXX from the XXXXX in XXXXX was subject to Utah state income tax.
The
available evidence supports the Audit staff's determination of Petitioner's
state income tax liability for the XXXXX tax year, since the Petitioner resided
in Utah throughout that year and derived all his income from the XXXXX. The Petitioner is therefore liable for tax
of $$$$$ for XXXXX. With respect to
XXXXX, the evidence establishes that Petitioner was employed and residing in Utah
for only a small portion of the year.
Most of his income for XXXXX is attributable to Oregon. The Audit Division's determination of tax
for XXXXX fails to take that fact into account. The Audit Division is therefore instructed to recompute Petitioner's
tax liability for XXXXX by allocating his income between Utah and Oregon.
The
final issue before the Tax Commission is whether the Petitioner should be
assessed non-filing and non-payment penalties with respect to his XXXXX and
1985 income tax liability. The record
establishes that Petitioner relied upon information provided by his employer in
concluding that he was exempt from state taxation. Since being notified by the Audit Division of its conclusion that
additional tax is due, Petitioner has been cooperative and forthcoming with
necessary information. The Commission
therefore concludes that reasonable cause exists to waive the non-filing and
non-payment penalties assessed against Petitioner. Interest is not waived.
In
summary, the Audit Division's determination of tax liability for XXXXX is
affirmed. The Audit Division is
instructed to recompute Petitioner's tax liability for XXXXX in accordance with
this decision. Penalty charges are
waived, but interest is not waived. It
is so ordered.
DATED
this 17th day of September, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes*
Commissioner Commissioner