91-1686 - Special Fuel





Petitioner, : FINDINGS OF FACT,






: Tax Type: Special Fuels

Respondent. :



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Alan Hennebold, Presiding Officer, heard the matter on behalf of the Commission. XXXXX, one of Petitioner's owners, and XXXXX, office manager, represented Petitioner. XXXXX, Assistant Utah Attorney General, with XXXXX and XXXXX of the Audit Division, represented Respondent.

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


1. The tax in question is special fuels tax.

2. The period in question is XXXXX through XXXXX.

3. Petitioner operates two service stations and a bulk plant in XXXXX. Among other things, Petitioner sells XXXXX.

4. On XXXXX, Respondent issued its audit, assessing Petitioner with additional special fuels tax of $$$$$, a XXXXX negligence penalty in the amount of $$$$$, and interest at the statutory rate of %%%%% per annum.

5. Petitioner filed a timely appeal of the foregoing assessment.

6. Respondent's audit is divided into five schedules. Petitioner does not contest schedules one, three, four or five. Petitioner does contest schedule two, which accounts for $$$$$ of the additional tax assessed by the audit.

7. Schedule two identifies, by a projection method, the amount of XXXXX which was sold by Petitioner during the audit period for which special fuels tax was not collected. In most cases, the transactions involved relatively small purchases of diesel fuel. Schedule two does not include transactions of less than five gallons. Respondent excluded such transactions because purchases of such small quantities were, in all likelihood, for exempt purposes. In such instances, the invoice would typically carry a notation such as "cash", "offroad" or "farm". Petitioner interprets the last two notations as indicating the use to which the fuel was to be put.

8. Petitioner had not previously been audited for compliance with the special fuels tax. Apart from the matter involved in this appeal, Petitioner has a good record of compliance with tax requirements. Petitioner has also been audited for federal motor fuel tax purposes and found to have properly reported and paid such tax.


Utah imposes a tax of 19 cents per gallon on the sale or use of special fuel. The tax is not imposed upon special fuel "sold or used for any purpose other than to operate or propel a motor vehicle upon public highways of the state." The foregoing exemption applies only where the purchasers or the users of special fuel establish that the special fuel was used for exempt purposes. (Utah Code Ann. 59-13-301.)

The Commission's RuleR865-4D-6 provides in material part as follows:

A. Every user-dealer or retail dealer of special fuel who sells special fuel exempt from tax must at the time of each sale and delivery issue an invoice to the purchaser.

1. If requested, an invoice must also be issued to the purchaser of special fuel that pays the tax at the time of purchase. This invoice shall serve as evidence that the special fuel tax has been paid.

B. Invoices must be numbered consecutively, made in duplicate, and contain the following information:

1. name and address of seller,

2. place of sale,

3. date of sale,

4. name and address of purchaser,

5. fuel type,

6. number of gallons,

7. unit number or other vehicle identification if delivered into a motor vehicle,

8. type of container delivered into if not a motor vehicle,

9. invoice number,

10. amount and type of state tax charged, if any.

C. The user-dealer must retain a copy of each tax exempt invoice and be able to account for each tax exempt delivery made.

D. The burden of proving that a sale of special fuel is exempt shall be upon the person who makes the sale. In any case, if during an audit or at other times upon request of any member or agent of the Tax Commission the user-dealer fails to produce an acceptable invoice or other acceptable evidence in support of the user-dealer's claim that a sale is exempt, the sale is considered taxable and the tax shall be payable by the user-dealer.

Utah Code Ann. 59-1-401(3) establishes a penalty of 10% if underpayment of any tax is due to negligence.

Utah Code Ann. 59-1-401(8) permits the Commission, upon reasonable cause shown, to waive, reduce, or compromise any penalties or interest imposed.


As a general rule, Utah law requires that tax be collected on all sales of special fuels. While sales for offroad or farm use are exceptions to this general rule, the statutes and rules cited above make it clear that dealers must either collect the tax or be prepared to document that the sale was exempt. Such documentation must, by rule, include the name and address of the purchaser and the type of container into which the special fuel was delivered.

In this case, Petitioner concedes that it failed to obtain all the information necessary to establish that certain sales of diesel fuel were for exempt use. While it may be true, as argued by Petitioner, that some sales were for exempt purposes, the lack of documentation prevents the exemption from being granted. Consequently, the Commission concludes that the audit's assessment of additional tax under schedule two is correct.

A 10% negligence penalty has also been assessed against Petitioner. Petitioner's errors in this matter are a small percentage of its overall fuel sales. Petitioner has not previously been audited, and so had not had the benefit of the education an audit provides at the time it made the mistakes which led to the present audit deficiency. Finally, Petitioner has cooperated with Respondent in the performance of the audit, and in compliance with other tax requirements. For these reasons, the Commission finds reasonable cause to waive the assessment of penalty.

With respect to interest, the Commission views such a charge as representing the time value of tax funds while such funds were in Petitioner's possession. Interest is therefore not waived.

In summary, the Commission affirms the assessment of special fuels tax as set forth in Respondent's audit. The Commission waives assessment of penalty, but does not waive interest. It is so ordered.

DATED this 10 day of June, 1993.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner