91-0918 - Sales




In Re: )




: Appeal No. 91-0918

: Account No. XXXXX



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 the Petitioner was XXXXX.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. The tax in question is use tax.

2. The period in question is XXXXX through XXXXX.

3. Auditing Division staff conducted an audit of the Petitioner's compliance with Utah sales and use tax law for the period in question. As a result of that audit, additional use tax in the amount of $$$$$, was assessed against Petitioner.

A 10% negligence penalty in the amount of $$$$$, was also assessed against Petitioner, as was interest on the additional tax due.

4. The additional tax assessed under the audit was derived from three categories: first, non-inventory purchases made where tax was neither paid nor accrued; second, additional taxable amount of goods consumed by XXXXX out of inventory; and, third, assets purchased from out-of-state vendors.

5. The Petitioner does not contest the audit's additional tax audit except for two items. First, the Petitioner has identified a transaction dated XXXXX in which it purchased material for $$$$$ from XXXXX. The invoice establishes that tax on the transaction was paid at that time, but the audit does not credit the Petitioner with the amount of tax paid. The second item involves transactions in the amount $$$$$, made during the audit period. Tax on those transactions was accrued and paid during XXXXX and XXXXX, shortly after the audit period. The audit did not allow credit for the tax subsequently accrued and paid.

6. Approximately half of the total audit deficiency is attributable to two large purchases made during the audit period. The Petitioner contends that the tax resulting from those two items resulted in an audit deficiency which is larger than would typically occur.

7. The Petitioner was previously audited for the period of XXXXX through XXXXX. As a result of that audit, additional sales and use tax of $$$$$, and penalty of $$$$$, was assessed against Petitioner. The Commission has previously waived the penalty from that earlier audit.


Utah Code Ann. 59-1-402(3)(a) provides a penalty of 10% of the under payment of any tax, if that under payment is due to negligence.

Utah Code Ann. 59-1-402(8) provides that penalties or interest may be waived, reduced or compromised by the Commission for reasonable cause shown.


The Petitioner requests waiver of penalty on the grounds it substantially improved its compliance with Utah's sales and use tax law since the XXXXX audit. During the earlier audit, tax of approximately $$$$$ was imposed, while tax of only $$$$$ was imposed by the current audit. The Petitioner points out that its performance would have been even better except for two large items which distort the picture of the Petitioner's improved compliance with Sales and Use Tax Law.

Although Petitioner's tax compliance has improved, the fact remains that a significant underpayment of use tax continued during the current audit period. The Petitioner has identified no reasonable cause for the underpayment other than mis-communication between Petitioner's various divisions and locations. Under such circumstances a 10% negligence penalty is appropriately imposed against Petitioner.

While the Commission affirms the imposition of the negligence penalty in this matter, the two matters identified by the Petitioner require further attention. First, the existing audit determination for the period in question fails to credit the Petitioner with tax paid to XXXXX on a purchase of $$$$$ on XXXXX. The audit should be amended to reflect Petitioners' payment of tax on that transaction. Second, the Petitioner contends that the audit fails to give credit for tax paid after the audit period on taxable purchases of $$$$$ during the audit period. The Commission concludes that those transactions are properly included in the audit. However, if the Petitioner can document that it also paid the tax on such transactions during a later period, it may apply for an appropriate credit.

In summary, the Tax Commission affirms the imposition of penalty in the amount 10% of the additional tax assessed by the audit for the period in question. However, the Commission remands this matter to the audit division for correction of the error regarding the XXXXX matter.

After that correction is made, the auditing division is instructed to advise the Petitioner of the recomputed tax, penalty and interest due. It is so ordered.

DATED this 12th day of November, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner