92-0361 to 92-0362 - Special Fuel, Sales and Withholding








v. )

: Appeal Nos. 92-0361



) Account Nos. XXXXX

Respondent. : and 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. XXXXX, of XXXXX, represented Petitioner. XXXXX, Assistant Utah Attorney General, represented Respondent.

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


1. The taxes giving rise to this matter are special fuels sales tax for the period of XXXXX through XXXXX, sales tax for the 3rd and 4th quarters of XXXXX, and withholding tax for XXXXX and XXXXX.

2. All the foregoing taxes were initially assessed against XXXXX ("XXXXX" hereafter). Neither Petitioner nor the XXXXX challenge the amount of such taxes. The only issue raised by this appeal is whether Petitioner is personally liable for payment of those taxes.

3. During the mid-XXXXX's, Petitioner incorporated the XXXXX as a combination truck stop, restaurant and convenience store. He had operated the same business as a sole proprietorship for approximately 12 years before its incorporation.

4. Petitioner did not involve himself in the financial aspects of the business. Instead, he supervised its day-to-day operations and left financial and accounting matters to staff and professional accountants. Petitioner did not complete or file any tax returns, or prepare checks for payment of tax liabilities.

5. After mid XXXXX, XXXXX, an officer and director of the XXXXX, prepared all tax returns and wrote the necessary checks for payment of taxes.

6. Beginning in early XXXXX, highway relocation and construction caused a steep decline in business. As a result, the XXXXX had difficulty paying it bills. XXXXX established a system of priorities for payment of creditors whereby wages were paid first, followed by taxes, then fuel and other suppliers.

7. XXXXX also made arrangements with the XXXXX bank to both speed the XXXXX cash flow and insure the XXXXX checks were not dishonored for insufficient funds. This was accomplished by XXXXX or his staff contacting the bank each day to determine whether any checks had been presented which required additional funds. If so, additional funds were deposited to cover such checks, or other arrangements were made.

8. Except for the special fuels sales tax, liability for the taxes involved in this matter were established by returns prepared and filed by XXXXX. The special fuels sales tax arose from a Tax Commission compliance audit.

9. XXXXX submitted the XXXXX sales tax report for the 3rd quarter XXXXX in a timely manner and enclosed its check for payment. The check was returned to the Commission marked "insufficient funds". XXXXX cannot explain why his system of contacting the bank each day did not prevent the check from being dishonored. The XXXXX was not notified by the bank or by Respondent that the check had been dishonored. However, in his monthly reconciliation process, XXXXX discovered that the check had not been cashed. After three months, XXXXX contacted Tax Commission staff and was told the XXXXX account was current. However, subsequent reconciliations continued to show the check had not been cashed. Following established procedure, the original check was canceled after six months and a replacement check was issued and mailed to the Commission.

10. Essentially the same circumstances repeated themselves with respect to the 4th quarter XXXXX sales tax return and payment. XXXXX filed the necessary return, accompanied by a check in payment of the tax due. The check was returned to the Commission for insufficient funds. The check was presumably referred to a collection agent. There is no evidence of any further collection activity or that Petitioner knew the check for the 4th quarter liability had not been paid.

11. With respect to the XXXXX withholding tax liability for the period of XXXXX, XXXXX was aware that the XXXXX contemplated filing bankruptcy, which would freeze the funds in its checking account. Consequently, XXXXX purchased a cashier's check in the amount of the tax due and mailed the check to Respondent with the withholding tax turn. The Commission has no record of receiving the check. However, the issuing bank confirms that the cashier's check was purchased but has not been presented for payment.

12. The compliance audit for special fuels sales tax was completed on XXXXX, prior to XXXXX involvement with the XXXXX. Matters pertaining to the special fuels audit were handled by XXXXX predecessor at the XXXXX, who neither paid the assessment nor advised XXXXX or Petitioner that it was due.

13. On XXXXX, the XXXXX filed for protection under Chapter 13 of the Bankruptcy Code. Respondent subsequently received notice that the bankruptcy trustee proposed to sell certain items of inventory to Petitioner for $$$$$. Respondent viewed the foregoing transaction as a depletion of the XXXXX assets which would have the effect of limiting Respondent's ability to collect the various unpaid taxes. For that reason, Respondent assessed Petitioner with personal liability for such taxes.

15. The XXXXX is no longer in business. Petitioner, who personally owns the assets which had been leased to the XXXXX, now leases those assets to an enterprise known as "XXXXX", which is operated by XXXXX. Petitioner is employed by XXXXX.


Utah Code Ann. 59-12-302 provides as follows:

Any person required to collect, truthfully account for, and pay over any tax listed in Subsection (1) who willfully fails to collect the tax, fails to truthfully account for and pay over the tax, or attempts in any manner to evade or defeat any tax or the payment of the tax, shall, in addition to other penalties provided by law, be liable for a penalty equal to the total amount of the tax evaded, not collected, nor accounted for, or not paid over.


The only issue presented to the Commission by this appeal is whether Petitioner may be held personally liable for withholding and sales taxes due from XXXXX. The parties agree that Utah Code Ann. 59-1-302 is the applicable provision of Utah's tax code under which Respondent's assessment of personal liability against Petitioner must be judged.

Section 59-1-302 establishes a two-part test before personal liability may be imposed. First, Petitioner must be found to be "responsible" for collecting and paying the tax. Second, Petitioner must have willfully a) failed to collect the tax, or b) failed to truthfully account for and pay over the tax, or c) attempted to evade or defeat the tax or its payment.

The first part of 59-1-302's two-part test requires a determination of those individuals "responsible" for payment of withholding and sales taxes. Neither party cites any Utah precedent guiding the determination of status as a "responsible" person. However, both parties cite decisions of federal tribunals interpreting similar provisions in the Internal Revenue Code. The cited federal decisions hold that the determination of status as a responsible person is fact-sensitive, and looks beyond organizational form to those individuals actually responsible for an employer's failure to pay over the tax.

In this case, the evidence presented at the formal hearing establishes that under the XXXXX long-established and uniformly followed practice, Petitioner played no party and had no knowledge of the collection, filing and payment of various payroll and sales taxes now in question. Those functions were the responsibility of XXXXX.

Based on the foregoing, the Commission concludes that Petitioner was not a "responsible person" for the collection and payment of the taxes in question. Consequently, Petitioner does not meet the first prerequisite for personal liability under 59-1-302(4), and cannot be assessed personal liability under that statute.

That Petitioner does not meet the requirements for personal liability in this matter does not, of course, preclude personal liability on the part of other individuals. Such other cases, if any, must be judged on their own particular facts and merits.

On the basis of the foregoing, the Commission concludes that Petitioner is not subject to personal liability pursuant to Utah Code Ann. 59-1-302(4) for the unpaid sales and withholding taxes of XXXXX. It is so ordered.

DATED this 9th day of December, 1992.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner