BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX,
Petitioner, : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION.
AUDITING
DIVISION OF THE : Appeal No. 90-1645
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 evidence and testimony presented at the hearing, the Tax Commission
hereby makes its:
FINDINGS OF FACT
1. The tax in question is sales tax.
2. The audit period in question is XXXXX
through XXXXX.
3. The Petitioner operates a retail store which
sells novelty items, party decorations, and numerous other items. Prior to XXXXX, the Petitioner handled its
tax exempt sales transactions in a correct manner. That is, when a tax exempt sale was made, the Petitioner would
have the purchaser complete a tax exemption certificate.
4. In XXXXX, the Petitioner changed its
procedure for handling tax exempt sales.
The reason for the change was that the Petitioner was led to believe by
other parties that it could merely keep a tax exempt number for each
organization on file and refer to those exemption numbers when tax exempt sales
were made. Thereafter, the Petitioner
no longer required a separate certificate made for each tax exempt sale.
5. Based upon the Petitioner's newly adopted
method of handling tax exempt sales, it became impossible to distinguish which
sales were tax exempt sales and which were not.
6. The audit deficiency was based upon the use
of projecting the estimated yearly deficiencies from a sample of the first
quarter's actual figures. Using that
methodology, an error ratio of XXXXX, XXXXX, and XXXXX was used for the years
XXXXX, XXXXX, and XXXXX respectively.
7. The Petitioner requested that a more
equitable result would be reach if those percentages were added up and then
divided to obtain an average error rate to be used for each of the three years.
8. As a result of the audit, a deficiency
amount of $$$$$, which included interest, was assessed.
CONCLUSIONS OF LAW
Taxpayers
selling tangible personal property or services to exempt customers are required
to keep records verifying the nontaxable status of such sales. Records shall include:
1. Sales invoices showing the name and identity
of the customer; and
2. Exemption certificates for exempt sales of
tangible personal property or services if the exemption category shows on the
exemption certificate form.
The
burden of proving that a sale is for resale or otherwise exempt is upon the
person who makes the sale. If any agent
of the Tax Commission requests the vendor to produce a valid exemption
certificate or other similar acceptable evidence to support the vendor's claim
that a sale is for resale or otherwise exempt, and the vendor is unable to
comply, the sale will be considered taxable and the tax shall be payable by the
vendor. (Utah State Tax Commission
Administrative RuleR865-19S-23.)
DECISION AND ORDER
In
the present case, although the Petitioner may have satisfied itself that the
sales it made to tax exempt organizations were indeed legitimate by checking
those purchases with the tax exempt information contained in its files, the
Petitioner erred in not requiring a tax exemption certificate to be completed
for each sale or otherwise maintaining sales invoices for such sales.
The
failure of the Petitioner to keep adequate records prevented the Auditing
Division from distinguishing those sales which were legitimately made tax
exempt from those which were not. It is
to prevent such a problem from occurring that the rule exists.
The
Petitioner does not deny that the procedures it used were incorrect. The Petitioner does, however, request that
some form of equitable relief be provided because although the exemption certificates
were not individually filled out for each separate purchase, the legitimacy of
each person was checked with its own files.
Therefore, sales tax was not collected where valid exemptions existed
and collected, and remitted where they did not. Thus, the state was never
without any funds to which it otherwise would not be entitled to.
Alternatively,
the Petitioner requests that the projection methodology employed in estimating
the amount of deficiency be adjusted by averaging the error rate over the three
year period rather than establishing a separate error rate for each separate
year in the audit.
With
respect to the exemption certificate issue, the Tax Commission finds that the
Petitioner failed to adequately document those sales which were tax exempt and,
thus, did not comply with requirements of the rule. Therefore, the determination of the Auditing Division in
assessing the sales tax deficiency is affirmed.
With
respect to the projection methodology issue, the Tax Commission finds that the
methodology employed by the Auditing Division was reasonable, and accurately
reflected the proper amount of sales tax deficiency. The Tax Commission rejects the Petitioner's recommendation that a
substitute method be employed because that method does not accurately represent
the estimated tax due.
Based
upon the foregoing, the determination of the Auditing Division is
affirmed. It is so ordered.
DATED
this 8 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