92-0327 - Sales





Petitioner, ) FINDINGS OF FACT,






) Account No. XXXXX


Respondent. )



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX, XXXXX. Alan Hennebold, 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 were XXXXX, Assistant Utah Attorney General and XXXXX of the Auditing Division.


1. The tax in question is sales tax.

2. The period in question is XXXXX XXXXX through XXXXX XXXXX.

3. Petitioner is in the business of selling fastening devices on both a retail and wholesale basis.

4. By its Amended Assessment dated XXXXX, XXXXX, Respondent assessed Petitioner with additional sales tax of ($$$$), a 10% negligence penalty of ($$$$), and interest accrued at the statutory rate of 12% through XXXXX, XXXXX in the amount of ($$$$).

5. By another Amended Assessment dated XXXXX, XXXXX, Respondent reduced its assessment of tax to ($$$$), penalty to ($$$$), and recomputed interest accordingly. In making the foregoing reductions to its assessment, Respondent corrected certain items identified by Petitioner in its Petition For Redetermination. In particular, Respondent withdrew its assessment of sales and use tax on certain items sold in interstate commerce, other items sold pursuant to valid exemption certificates, and items sold to consumers who had themselves paid use tax on the items.

6. Of the remaining tax assessed by Respondent, ($$$$) arises from Petitioner's sale of fasteners without either charging sales tax or obtaining an exemption certificate from the purchaser. Petitioner contends that at least some of the transactions in this category were for resale and therefore not subject to sales tax.

7. Of the remaining tax, ($$$$) arises from transactions where Petitioner actually billed sales tax to the purchaser, but the purchaser paid only the purchase price and failed to remit the tax amount.

8. Finally, the remaining ($$$$) of additional tax assessment was imposed to adjust Petitioner from a "cash" to an "accrual" basis for reporting its sales tax liability.

9. Respondent assessed a 10% negligence penalty against Petitioner on the basis that Petitioner had previously demonstrated an understanding of the necessity of exemption certificates by collecting them in some cases, but was negligent in not obtaining the certificates on a consistent basis, or alternatively, collecting the applicable sales tax. Petitioner has not previously been audited for sales tax compliance.


Sales or use tax is levied on the purchaser for the amount paid or charged for retail sales of tangible personal property made within Utah. (Utah Code Ann. 59-12-103(a).)

Every vendor is responsible for the collection of the sales or use tax imposed by Utah's Sales and Use Tax Act. (Utah Code Ann. 59-12-107.)

1. RuleR865-19S-20(B.), Utah Administrative Code 1992-1993, provides in material part as follows:

Justified adjustments may be made and credit allowed for cash discounts, returned goods, bad debts, and repossessions which result from sales upon which the tax has been reported and paid in full by the retailers to the Tax Commission.

2. In no case shall the credit be greater than the sales tax on that portion of the purchase price remaining unpaid at the time the goods are returned, the account is charged off, or the repossession occurs.

4. Sales tax credits for bad debts are allowable only on accounts determined to be worthless and actually charged off for income tax purposes.

Parties seeking exemptions from taxation bear the burden of proving that they qualify and are legally entitled to the exemption. (Parson Asphalt Products v. Utah State Tax Commission, 617 P.2d 397 (1980).)


Petitioner's primary argument in this matter is that provisions of Utah's Sales and Use Tax Act which require Petitioner to collect sales tax from its customers and remit such tax to the state are unconstitutional. Petitioner has failed to submit any precedent that supports its contention, and the Commission is unaware of any such precedent. Furthermore, the Commission is without authority to pass upon the constitutionality of legislative enactments. The Commission therefore concludes that the collection requirements of the Sales and Use Tax Act are constitutional.

Petitioner argues that some of its sales were for resale, and therefore exempt from tax. The Sales and Use Tax Act requires vendors to obtain exemption certificates in such cases. Petitioner failed to do so, despite a demonstrated familiarity with such exemption certificates.

Petitioner further argues that it cannot be compelled to remit tax in those instances where it has properly billed its customers for both the property sold and the applicable tax, but the customer has paid only the property's price and left the sales tax unpaid. The Commission has adopted rules, cited above, which provide for credit for sales tax on bad debts. Petitioner has not established that it is entitled to any such credits as provided by the rule.

With respect to imposition of negligence penalty against Petitioner, the Commission finds that the assessment of tax in this matter arises from Petitioner's haphazard compliance with the requirements of the Sales and Use Tax Act. This is not a case where the taxpayer was unaware of its obligations, but rather, is a case where the taxpayer did not make the minimal efforts necessary to comply with the requirements. The Commission therefore concludes that the imposition of a 10% negligence penalty is warranted.

In view of the foregoing, the Commission affirms Respondent's audit determination and assessment of XXXXX, XXXXX, including its imposition of tax in the amount of ($$$$), a 10% negligence penalty in the amount of ($$$$), and interest at the statutory rate. It is so ordered.

DATED this 5th day of March, 1993.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner