BEFORE THE UTAH STATE TAX
COMMISSION
___________________________
XXXXX
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
:
AUDITING
DIVISION OF THE : Appeal No. 90-0994
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. Paul F. Iwasaki, 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 Attorney General.
Based
upon the testimony and evidence presented at the hearing, the Tax Commission
hereby makes its:
FINDINGS OF FACT
1.
The tax in question is corporate franchise tax.
2.
The audit periods in question are XXXXX.
3.
During the years in question, the Petitioner was engaged in operating a XXXXX
and XXXXX school.
The
Petitioner was incorporated as a Subchapter S corporation.
4.
In XXXXX, one of the Petitioner's 13 shareholders moved to XXXXX, because of a
job reassignment. The
secretary/treasurer of the corporation was informed of the move and was
instructed to forward the shareholder's mail to XXXXX.
5.
The K-l forms for XXXXX, which were filled out for the out of state
shareholder, indicated a XXXXX address.
Those forms were remitted by the Petitioner with its returns for the
years in question. It was not known
what happened to the XXXXX K-l form for the out of state shareholder.
6.
The Petitioner's representative testified that the corporation believed that
the out of state shareholder's move to XXXXX was a temporary one. Further, the Petitioner's representative
testified that the out of state shareholder retained ties to Utah which
included an ownership interest in an electronic's shop in XXXXX, and also
included the registration of a boat and vehicles in Utah.
7.
During the years in question, the Petitioner received no net income.
CONCLUSIONS OF LAW
Small
business corporations which qualify as Subchapter S corporations of the
Internal Revenue Code, and which also have nonresident shareholders are not
exempt from the payment of corporate franchise tax. (Utah Code Ann. §§59-7-102 and59-7-105(3)(c).)
DECISION AND ORDER
Since
the provisions of Utah Code Ann. §§59-7-102 and59-7-105, when read together,
require a Subchapter S corporation to pay a corporate franchise tax of not less
than $$$$$ when one or more of its shareholders is a nonresident of Utah, the
only remaining issue before the Commission is to determine whether or not the
shareholder in the present case was indeed a nonresident.
It
should be noted that the Petitioner's representative was not fully prepared to
address the residency issue. The Petitioner's
representative's principal contention was that, to his knowledge and belief, a
Subchapter S corporation was exempt from the corporate franchise tax
requirements regardless of the residency status of any of its shareholders.
Under
the facts of the present case, the Tax Commission finds that although the
Petitioner may have had a good faith belief that it was exempt from the
corporate franchise tax requirements, that belief was a mistaken one and as
such does not relieve the Petitioner from complying with the requirement. The Tax Commission further finds that at
least one of the shareholders in question was a nonresident of the state of
Utah as evidenced by the XXXXX address listed by that shareholder on his K-l
returns. The Tax Commission notes that
the Petitioner received actual notice as to that shareholder's move to XXXXX
and should have realized from the fact that the K-l returns were listing a
XXXXX address, that the shareholder was indeed an out of state resident.
Based
upon the foregoing, the Tax Commission affirms the determination of the
Auditing Division and denies the Petition for Redetermination of the
Petitioner. It is so ordered.
DATED
this 21 day of March, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner