BEFORE THE UTAH STATE TAX COMMISSION
In Re: ) FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
XXXXX ) AND FINAL DECISION
: Appeal No. 90-1613
: Account No. XXXXX
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. XXXXX, Petitioner's Director of Taxes, participated by telephone. XXXXX, Assistant Utah Attorney General, represented the Auditing Division.
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 use tax.
2. The period in question is XXXXX to XXXXX.
3. Petitioner provides XXXXX services to various client companies. Its facility in XXXXX collates and mails XXXXX to households in Utah, XXXXX and XXXXX.
4. In some cases, Petitioner's clients supply their own XXXXX. In other cases, Petitioner purchases the advertising materials, then incorporates the cost of such materials in its service fee.
5. Petitioner did not report or pay use tax on most of its purchases of advertising materials. In several instances, it issued sales tax exemption certificates to in-state vendors.
6. Following an audit of Petitioner's compliance with Utah's use tax law for the period in question, the Auditing Division assessed Petitioner with additional tax liability of $$$$$, a negligence penalty of XXXXX of the additional tax, plus associated interest. Subsequent corrections to the audit reduced Petitioner's tax liability to $$$$$, with corresponding reductions in penalty and interest.
7. Petitioner does not contest the additional tax assessed against it by the audit.
8. On XXXXX, after Petitioner had filed its appeal in this matter, an additional XXXXX penalty was erroneously imposed against Petitioner. This second penalty has now been removed from Petitioner's account.
9. The tax found due by the audit in this matter represents XXXXX of Petitioner's total sales and use tax liability for the period in question.
CONCLUSIONS OF LAW
Utah law authorizes imposition of a 10% penalty for negligent underpayment of tax. (Utah Code Ann. §59-1-401(3).)
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 Petitioner admits its failure to properly report and pay use tax on purchases of printed advertising material. It has now paid such tax and associated interest.
Petitioner's responsibility for its failure to report and pay the use tax in question is aggravated by the magnitude of the underpayment of tax when compared to the amount of tax which was originally reported by Petitioner, and by its issuance of exemption certificates to its vendors. To Petitioner's credit, it appears that the underpayments and issuance of exemption certificates arose from an ill-advised but honest misunderstanding of the taxability of the transactions in question.
Based on the foregoing, the Commission concludes that the negligence penalty of XXXXX imposed against Petitioner by the Auditing Division is appropriate. The Commission notes that a second XXXXX penalty erroneously imposed against Petitioner has been withdrawn by the Auditing Division.
In summary, the Commission finds reasonable cause has not been shown to justify reduction of the penalty associated with the Petitioner's use tax liability for the period in question. The Commission therefore affirms the audit determination, including its imposition of the XXXXX penalty and interest. It is so ordered.
DATED this 3rd day of December, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco S. Blaine Willes