BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX, )
: FINDINGS
OF FACT,
Petitioner, ) CONCLUSIONS OF LAW,
: AND FINAL
DECISION
v. )
: Appeal
Nos. 92-0361
COLLECTION
DIVISION OF THE ) and 92-0362
UTAH STATE TAX
COMMISSION, :
) Account
Nos. XXXXX
Respondent. : and XXXXX
_____________________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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.
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner