89-2470 - Sales





Petitioner, : FINDINGS OF FACT,




: Appeal No. 89-2470


Respondent. :



This matter came before the Utah State Tax Commission pursuant to a stipulation of the parties to the effect that the case would be considered and decided Upon briefs submitted by the parties without formal hearing. The final brief was received by the Tax Commission on XXXXX. Joseph G. Linford, Administrative Law Judge, considered the matter for and on behalf of the Commission. Representing the Petitioner was XXXXX, attorney at law. Representing the Respondent was XXXXX, Assistant Attorney General.

Based upon the evidence and testimony presented by the parties, and on the briefs and other documents in the file, the Tax Commission hereby makes its:


1. The tax in question is sales and use tax.

2. The period in question is the Audit period XXXXX through XXXXX.

3. Petitioner is a family owned corporation which, during the audit period, had corporate headquarters in XXXXX state. They also have offices and warehouses in several other states, including Utah. Petitioner distributes parts and supplies for XXXXX. Until the end of XXXXX, Petitioner's management was almost entirely XXXXX.

4. In XXXXX, during an audit by the Tax Commission of XXXXX Company in XXXXX, Utah, Respondent discovered that XXXXX had been purchasing materials from Petitioner, but that Petitioner, up until XXXXX, had not been adding sales tax to the prices on the invoices sent to XXXXX. XXXXX had been, on its own, calculating the sales tax on the invoices, and then paying the invoice amounts plus the tax to Petitioner.

5. An audit of Petitioner conducted by Respondent as a result of this discovery revealed that Petitioner was not licensed to collect sales tax in Utah and had not been remitting the sales tax it had received from XXXXX to the state. In addition, Respondent discovered that Petitioner had collected sales tax from several of its other customers from as far back as XXXXX and had not remitted the tax to the Commission.

6. Respondent attempted several times to contact Petitioner in order to perform the audit, but was unsuccessful in obtaining information or cooperation from Petitioner. Later, at Petitioner's invitation, Respondent's auditors went to Petitioner's XXXXX headquarters in order to conduct an audit and meet with Petitioner officers. When the auditors arrived in XXXXX, however, Petitioner refused to allow them access to any documents and refused to cooperate in any manner.

7. As a result of the above, Respondent had to estimate a deficiency amount based on the best evidence available to Respondent. This amount appears on a XXXXX, Statutory Notice of Deficiency as being $$$$$, which included a XXXXX penalty, which is the penalty for intent to evade the tax.

8. On XXXXX, Petitioner submitted its Petition for Redetermination and included with that request, a check for $$$$$ which was Petitioner's best estimate of the actual sales tax liability based upon Petitioner's records which Petitioner still had not revealed to Respondent.

9. During this time, the end of XXXXX, Petitioner changed its management. The new management discovered that such difficulties were not unique to Utah, but were pervasive throughout Petitioner's operations in the United States. The new management began to cooperate with Respondent and an actual audit of Petitioner's records was then completed.

10. During the audit it was discovered that most of Petitioner's customers had been self-assessing the sales tax on the materials sold to them by Petitioner and were then paying the tax with their quarterly sales and use tax returns. After the audit was completed, an amended audit summary dated XXXXX, showed a balance remaining of $$$$$. This took into account previous payments by Petitioner, plus a penalty of $$$$$ and interest of $$$$$. The total additional tax amount determined under the audit was $$$$$.

11. The parties have agreed to the amount of tax that is due. The only issue in this proceeding is whether the Petitioner should be subject to the XXXXX intent to evade penalty or a lesser penalty.


1. Utah Code Ann. 59-1-401(3)(a), (b), and (c) provides:

The penalty for underpayment of tax is as follows:

(a) If any underpayment of tax is due to negligence, the penalty is XXXXX of the underpayment.

(b) If any underpayment of tax is due to intentional disregard of law or rule, the penalty is XXXXX of the underpayment.

(c) For intent to evade the tax, the penalty is the greater of $$$$$ per period or XXXXX of the tax due.

2. This case was presented to the Commission on written briefs from the parties, and no testimony or evidence was presented on the issue of intent. In reviewing the parties' briefs, there may have been sufficient cause for the XXXXX penalty, but the factors supporting the imposition of that penalty are insufficiently proven. The attachments included with the briefs do not have supporting documentation on the issue of intent, and the facts stated in the briefs have not been sufficiently supported by evidence. The Commission is constrained not to sustain the XXXXX penalty. Based only on the submission of a case only on the briefs may sustain a tax, penalty, and interest assessment, but a case such as this where the justification for the imposition of a XXXXX intent to evade penalty must be proven is usually not one of them. The Commission cannot make a finding or conclusion of "intent to evade" from the briefs as presented.

3. The facts as submitted show that Petitioner disregarded sales tax requirements, but may not have had the specific intent to evade the tax. It may be that Petitioner merely did not bother to attempt the collection and remittance of sales tax. This does not necessarily amount to an intent to evade, but it is sufficient to show that Petitioner intentionally disregarded the tax laws and rules of the state.

4. As to Petitioner's conduct in initially rebuffing Respondent's attempts to audit Petitioner, while this may be some evidence of an intent to evade, it is, nevertheless, after the alleged evasion of the collection and remittance of the tax during the audit period. This after-the-fact conduct by Petitioner indicates that Petitioner at first resisted the audit, but does not necessarily indicate that Petitioner specifically intended to evade the collection and remittance of the tax in the first place. While Petitioner's conduct does indicate an intent to disregard state law and its enforcement, it does not, by itself, warrant a penalty for intent to evade.

5. The Commission finds that a XXXXX penalty for intentional disregard of law or rule is appropriate. The facts as submitted amply justify this penalty. Petitioner is a large national operation with sufficient sophistication to be aware of the tax laws in the states in which it operates. Nevertheless, Petitioner was not licensed to collect sales tax in the state of Utah, and tax amounts that were paid by its customers to Petitioner were kept by Petitioner and never remitted to the state. However, the amount collected and unremitted is undetermined and unproven, and, therefore, the Commission does not know whether it was a substantial or minimal amount. If it was minimal then it may have been an oversight, whereas if it was substantial it would be evidence of intent to evade.

6. Petitioner initially refused any and all attempts by tax auditors to have access to Petitioner's records and Petitioner totally failed at first to cooperate with Respondent's personnel. Cooperation and a release of Petitioner's records came only after Respondent sent the Statutory Notice of Deficiency to Petitioner and the change in Petitioner's management.

7. Petitioner made no attempt to file tax returns for the period in question or to otherwise comply with the sales tax laws and rules until after the Statutory Notice of Deficiency.

8. All of these factors together indicate that there was something more in this case than mere negligence and that there was an intentional disregard of the state's laws or rules.


Based upon the foregoing, it is the decision and order of the Utah State Tax Commission that the tax and interest assessments are sustained. The penalty is reduced to a XXXXX penalty for intentional disregard of law or rule. It is so ordered.

DATED this 17th day of January, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner