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
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes*
Commissioner Commissioner