BEFORE THE UTAH STATE TAX
COMMISSION
_____________________________
XXXXX )
Petitioner : FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. : AND FINAL DECISION
AUDITING
DIVISION OF THE : Appeal No. 91-0696
UTAH STATE TAX COMMISSION :
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 were
XXXXX, and XXXXX. Present and representing
the Respondent was XXXXX Assistant Utah 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. After a waiver of the statute of limitations
had been obtained from the Petitioner's representative, the Auditing Division
began its audit on approximately XXXXX.
On XXXXX, and within the period prescribed by the statute of limitations
waiver, the Auditing Division issued its preliminary findings. On XXXXX the Auditing Division's audit
became final, also within the time period prescribed by the statute of
limitations waiver.
4. The audit revealed that the Petitioner had,
prior to the audit period, entered into a lease agreement for the lease of
certain computer equipment. That lease
agreement did not provide for sales tax to be paid on the monthly lease
payments.
5. Prior to the lease agreement between the
Petitioner and lessor, the lessor had purchased the computer equipment in
question from a vendor and erroneously paid sales tax on that purchase.
6. The Petitioner and Respondent agreed that
credit for the sales tax erroneously paid by the lessor should be given to the
Petitioner to offset the sales tax the Petitioner should have been paying on
the monthly rental payments. The
parties differed, however, as to how that credit should be applied.
7. The Petitioner argued that the credit should
be given to the Petitioner in a lump sum for the first period within the audit
period. The Respondent argued that the
credit should be allocated to each of the monthly lease payments as they arose.
8. At the prehearing conference held on this
matter on XXXXX, both parties agreed that the issues to be presented at the
formal hearing would include, inter alia, the nature of the Petitioner's
business, i.e., either retail sales or a service, and the taxable treatment of XXXXX
used by the Petitioner in its business.
At the formal hearing, the Petitioner offered no evidence with respect
to either of these two issues.
CONCLUSIONS OF LAW
Any
amounts paid more than once or erroneously or illegally collected or computed,
shall be credited on any amounts then due from that person to the State of Utah
and the balance shall be refunded to that person or his successors provided
that a claim for such creditor refund is filed with the State Tax Commission
within three years from the date of over payment. (Utah Code Ann. §59-7-141, formally §59-15-8.)
DECISION AND ORDER
At
the prehearing conference held on this matter, as well as by way of subsequent
orders, the Petitioner presented several issues to be determined by the
Commission:
1. Did the statute of limitations bar the
assessing of a deficiency for the first three quarters of the audit;
2. Should amounts to be credited to the
Petitioner's account be paid on a lump sum basis or allocated over the life of
the lease;
3. Should all or part of the interest that had
accrued on the deficiency be waived;
4. Did the Petitioner operate as a retail
business or as a service oriented business; and
5. Are XXXXX used by the Petitioner in its
business subject to sales tax.
With
respect to the statute of limitations issue, both parties stipulated that the
assessment and collection of the first three quarters of the audit period was
barred due to the fact that the statute of limitations had run on those
periods.
With
respect to the nature of the Petitioner's business, i.e. retail or service and
shipping containers issues, the Tax Commission finds that the Petitioner
offered no evidence or presented any facts upon which the Commission can base a
decision. Because neither of these two
issues were contained in the audit, and because the Petitioner included these
in its petition in an attempt to obtain some sort of advisory ruling with
respect to the taxable nature of them, the Tax Commission specifically
withholds ruling on those issues and reaffirms the position taken by the
Auditing Division regarding the nature of the Petitioner's business. The Commission also reaffirms the advisory
opinion contained in the letter of XXXXX, signed by Commissioner XXXXX, dealing
with the taxable status of the XXXXX.
With
respect to the manner in which the sales tax credit should be applied, the
Petitioner argued that Utah Code Ann §59-158, and the Tax Commission's policy
number 00-04.00, effective January 1, 1984, require the credit to be paid back
in a lump sum allocated to the first quarterly sales tax period during the
audit period the Petitioner also argued that such treatment is also justified
by the fact that by not doing so, the Petitioner is denied the use of the money
and any interest that would accrue thereon.
The
Commission is not persuaded by the Petitioner's argument. While it is true that Utah Code Ann.
§59-15-8 requires a credit or refund of taxes erroneously paid, such credits or
refunds shall be given to the taxpayer and only if a request for the refund is
made within three years from the date of the overpayment.
Here,
the party that initially paid the sales tax in error is not the Petitioner and
is not the party requesting the refund.
Secondly, no such claim for refund was made within the three year period
of time. Nevertheless, because of the
Commission's desire to ensure that only the appropriate amounts of tax are
collected, the Commission has established a policy whereby credits for
overpayments erroneously made will be allowed to offset liabilities that arise
from related transactions.
Specifically, Utah State Tax Commission policy number 00-04.00
states: The Commission has determined
that under certain circumstances, if sufficient information is provided, credit
will be allowed to offset any liability that may arise from a related
transaction. For example, if a person
purchases equipment for a lease and pays Utah sales and use tax, the tax paid
in error on the purchase can be used as an offset against any sales or use tax
determined to be due on the lease agreement.
This method permits a correction without the lessor going back to the
suppliers for refunds and presents a practical solution to the problem created
by a person who initially pays the sales or use tax in error.
The
example given in the policy statement is precisely the same fact situation as
in the present case. That being so, the
Commission finds that the Auditing Division acted correctly in allocating the
credits to the monthly lease payments as they arose. The Commission also is not persuaded by the Petitioner's argument
that by not giving a lump sum creditor payment to the Petitioner deprives the
Petitioner of any use of the money or interest that would accrue thereon. In the present case it was not the
Petitioner who erroneously paid the sales tax.
The lessor of the equipment was the entity that paid the sales tax. Therefore, to credit the Petitioner's
account on amounts paid by its lessor would unjustly enrich the Petitioner.
The
Petitioner next argues that interest assessed by the Auditing Division should
be reduced because of the delays in issuing the final audit report. In its testimony, the Petitioner's
representative made reference to numerous occasions where, in his opinion, the
field auditor could have acted more quickly in performing his audit or in
obtaining information regarding the audit.
Thus, the Petitioner argued that approximately three months of the time
in which the audit was conducted could have been eliminated.
The
Tax Commission finds that the audit report was prepared within a reasonable
time and without any intentional delays caused by the field audit. Therefore, the Petitioner's request to waive
or reduce the interest associated with the audit period is denied.
Based
upon the foregoing, the Tax Commission affirms the determination of the
Auditing Division with respect to its findings and with respect to any interest
imposed. It is so ordered.
DATED
this 25th day of February, 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