BEFORE THE UTAH STATE TAX COMMISSION
In Re: ) FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
XXXXX, ) AND FINAL DECISION
: Appeal No. 91-0323
: Account No. XXXXX
: Tax Type: Penalty/Int.
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 Petitioner were XXXXX and XXXXX of XXXXX, XXXXX, the Petitioner's Comptroller, and XXXXX, its accountant. Present and representing Respondent were XXXXX and XXXXX of the Commission's Audit Division and XXXXX, Assistant Utah Attorney General.
Based upon the evidence and testimony presented at the hearing, the Commission hereby makes its:
FINDINGS OF FACT
1. The tax in question is sales and use tax.
2. The period in question is XXXXX through XXXXX.
3. An audit of Petitioner's liability for sales and use tax for the period of XXXXX through XXXXX disclosed that Petitioner had failed to report and pay sales and use tax in two types of situations. First, Petitioner did not pay use tax to Utah on items purchased elsewhere, then stored in Utah for later use in other states. Second, certain taxable purchases were made in Utah without payment of sales tax, Petitioner having provided exemption certificates to the vendors, Petitioner does not contest the audit's assessment of additional tax in either category and has paid the full amount of such additional tax.
4. The audit assessed additional tax of $$$$$ which assessment is approximately 2 1/2 times the amount of tax originally reported by Petitioner. The audit also assessed a negligence penalty of 10% of the additional tax against Petitioner, plus interest. Petitioner's payments to the Commission were applied first to penalty, then interest, resulting in a tax due balance that continues to accrue interest.
5. By way of explanation of its under reporting of its sales tax, the Petitioner testified that in XXXXX it purchased a locally owned enterprise which thereafter operated as one of Petitioner's divisions. The division's former owner continued to manage it with minimal oversight from Petitioner. It was this division that issued the improper exemption certificates, thereby avoiding sales tax on taxable purchases in Utah.
6. As to Petitioner's failure to pay use tax on items stored in Utah, the Petitioner explains it had experienced rapid growth coupled with relocation of its offices from XXXXX to Utah. As a result, it was unaware that Utah imposed use tax under such circumstances.
7. Since the audit, Petitioner has implemented procedures to correct the deficiencies identified in the audit.
CONCLUSIONS OF LAW
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
As noted, the tax deficiency in this matter arose from two areas where Petitioner failed to comply with Utah sales and use tax laws. Regarding Petitioner's failure to pay use tax on materials stored in Utah, the Petitioner explains that such a tax is relatively unique to Utah and that the company's rapid growth prevented it from becoming familiar with Utah tax law. However, it is Petitioner's responsibility to adequately investigate such matters. Rapid growth and movement into a new jurisdiction only accentuate the need for such investigation.
As to the use of exemption certificates to avoid payment of sales tax, the Petitioner explains that the division responsible for the exemption certificates operated outside typical corporate oversight. The Commission does not consider Petitioner's lack of control over its subordinate division mitigating Petitioner's negligence.
In the present case, the 10% negligence penalty assessed by the Auditing Division is justified by Petitioner's lack of control over its subordinate division and its failure to adequately investigate Utah tax laws. Interest charges levied against Petitioner are a reasonable charge for Petitioner's use of sales and use tax funds during the period those funds should have been in the possession of the Commission. Application of payments first to penalty, interest, then tax is in accordance with the established policy of the Commission.
Based upon the foregoing, the Tax Commission finds that sufficient cause has not been shown which would justify a reduction of the penalty or interest associated with Petitioner's sales and use tax liability for the period of XXXXX through XXXXX. The Respondent's audit determination is therefore affirmed. It is so ordered.
DATED this 18th day of September, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco S. Blaine Willes*