BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX,
)
:
Petitioner,
) FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
v.
) AND FINAL DECISION
:
AUDITING
DIVISION OF THE
) Appeal No. 92-0878
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 at the hearing, the Tax Commission hereby makes
its:
FINDINGS OF FACT
1. The tax in question is special fuels tax arising
from Petitioner's sales of diesel fuel.
2. The period in question is XXXXX through
XXXXX.
3. Petitioner sells gasoline and diesel fuel to
the public at two different "XXXXX" service stations. Each station has its own special fuel tax
account.
4. Respondent audited both of Petitioner's
special fuel tax accounts for the period in question. On XXXXX, Respondent issued its statutory notice assessing
additional special fuel tax of ($$$$) to account number XXXXX. On XXXXX, Respondent issued its statutory
notice assessing special fuel tax of ($$$$) was assessed with respect to
account number XXXXX.
5. Petitioner filed timely appeals of each of
the foregoing assessments with the Commission.
For purposes of hearing and decision, the Commission consolidated both
appeals into this proceeding.
6.
The audits in this matter impose additional tax according to four separate
schedules. Petitioner concedes the
assessments made in schedules two through four. Petitioner contests only the tax imposed under schedule one,
arising from a discrepancy between the gallons of diesel Petitioner reported
selling, and the gallons recorded on
Petitioner's pump meters.
7. Schedule one was computed as follows: XXXXX
was selected as a test period. The diesel fuel sales from Petitioner's returns
were subtracted from the amount registered on Petitioner's pump meters. The
result was converted to a factor that was applied to reported sales during the
other portions of the audit period.
With respect to account XXXXX, the projection factor was 0.331%. For account XXXXX, the factor was 0.552%.
8. Petitioner does not challenge the data or
computations upon which Respondent's projection factors are calculated.
9. Prior to being audited, Petitioner filed
special fuel tax reports each month, as required. In completing the reports, Petitioner followed the instructions
and the report form itself, which required Petitioner to determine its total
fuel available for sale during the month, then subtract its exempt sales and
inventory available at the end of the month.
The difference, "net gallons", was then subject to the special
fuel tax of 19 cents per gallon.
Each month, Petitioner paid tax on the amount
shown as due on the report.
10. Petitioner did not reconcile the "net
gallons" shown
on its reports with the quantity of diesel
metered through Petitioner's pumps.
Neither the special fuel report form or associated instructions required
Petitioner to undertake such a reconciliation.
11. Petitioner suggests several possible explanations
for the discrepancy between its tax reports and its meters. Occasionally, individuals fail to pay for
their fuel. Some small amount may be
spilled. Approximately three times each
year, pumps are tested for accuracy, which takes about ten gallons per
test. Also, diesel fuel expands when
warm and contracts when cool, thereby affecting volume measurements. Petitioner purchases its fuel on a
"gross" basis in the winter and a "net" basis during the
summer. Consequently, the natural
expansion of the fuel works to Petitioner's benefit and tends to allow
Petitioner to pump more gallons of diesel than records would indicate it had
purchased.
CONCLUSIONS OF LAW
Utah's
Motor and Special Fuel Tax Act imposes a tax of 19 cents per gallon on the sale
or use of special fuel. (Utah Code Ann.
§59-13-301(1).)
The
"user-dealer" must pay the special fuel tax "in all cases where
the special fuel is sold within the state and delivered directly into the fuel
supply tank of a motor vehicle", subject to certain exceptions not
material here. (Utah Code Ann.
§59-13-301(3).)
"User-dealer"
is defined as any person who delivers special fuel into the fuel supply tank of
any motor vehicle operated or propelled upon the public highways of the
state. (Utah Code Ann. §59-13-102(9).)
"Use,"
is defined as the consumption of special fuel for the operation or propulsion
of a motor vehicle upon the public highways of the state and includes the
reception of special fuel into the fuel supply tank of a motor vehicle. (Utah Code Ann. §59-13-102(7).)
Each
user-dealer must file a monthly report on forms prescribed by the Commission
showing the amount of fuel sold during the preceding month and any other
information the Commission may require.
(Utah Code Ann. §59-13-307(1).)
Every
user-dealer must maintain complete records as prescribed by the Commission on
all purchases, sales, and inventories of special fuels. (Utah Code Ann. §59-13-309.)
The
Commission is charged with the enforcement of the special fuels tax and may
prescribe rules relating to its administration and enforcement. If the Commission has reason to question a
user-dealer's report, it may compute the amount to be paid based upon the best
information available to it. (Utah Code
Ann. §59-13-313.)
DECISION AND ORDER
Petitioner
has been assessed with additional special fuels tax based upon Respondent's
audit, which relied upon Petitioner's pump meters to determine the amount of
diesel fuel Petitioner had sold. The
amount so determined was only 0.5% more than Petitioner had previously
reported. Even though the percentage of
difference is small, it produces a substantial additional tax liability because
of Petitioner's high volume of sales.
The
essence of Petitioner's appeal is that it is fundamentally unfair for Respondent
to establish one method for determining tax liability (the
"inventory" method hereafter), then audit that tax liability using a
different method (the "meter" method).
Utah's
Motor and Special Fuels Tax Act requires Petitioner to pay the special fuel tax
on every gallon of special fuel "sold and delivered" by Petitioner,
unless such sales are to certain excluded customers or for certain excluded
uses. While Respondent has established the "inventory" method for
reporting such sales, it is the sale and delivery of the fuel that remains the
taxable event. Section 59-13-313of the
Act specifically authorizes Respondent to "compute the amount to be paid
based upon the best information available to it", if reason exists to
question a user-dealer's report. In
this case, Respondent used the "meter" method as an audit tool to
check the accuracy of Petitioner's special fuel reports.
The
meter method indicated an inaccuracy in the reports which Respondent's audit
corrected by reference to both the inventory" and "meter"
methods. Petitioner argues that because
Respondent required Petitioner to compute its special fuels tax on the
inventory method, Respondent is barred from using the meter method to audit
Petitioner's tax liability. The Utah
Supreme Court considered a similar argument with resect to sales tax in
Hinckley Inc. v. State Tax Commission, 404 P.2d 662 (1965). In Hinckley, the Commission established a
"bracketing" system for vendor's use in charging sales tax. The bracketing system did not charge tax on
sales less than 14 cents. As a result
of the bracket system, Hinckley did not charge tax on its sales of less than 14
cents. On audit, it was assessed a
sales tax deficiency for the cumulative tax due on such small
transactions. Hinckley argued that
because the Commission's own bracketing system did not require it to charge tax
on the small transactions, the Commission could not, at audit, impose a
different standard for computing the tax.
The Utah Supreme Court did not agree, concluding instead that the tax
was levied by statute on even the small amount sales and that if the bracket
system did not provide a proper method for calculating such tax, it need not be
the exclusive method. In conclusion,
the Court held Hinckley liable for the full amount of tax due on the small
sales. Applying the logic of Hinckley
to this case, Petitioner is liable for the full amount of tax due, even if
Respondent's reporting forms were not completely accurate in establishing that
liability. At audit, Respondent has a
duty to determine and assess the correct amount of tax, using the best
information available to it.
As
a secondary matter, Petitioner points to several possible events where diesel
might be pumped, and therefore recorded on the meters, but not "sold and
delivered". One such instance is
diesel pumped for the purpose of testing the accuracy of the pump meters
themselves. No specific documentation
was provided regarding the number of such tests, but it appears to approximate
30 gallons per pump per year. This
amount is inconsequential when compared to the audit deficiency. Nonetheless, Respondent concedes such amount
are not properly taxable if sufficient documentation is provided.
Another
instance of fuel pumped, but not sold, is that of "drive-offs". In such cases, individuals take fuel from
the pump, then drive off without paying for it. Respondent argues that such events are taxable. The Commission reaches no conclusion on that
point, since no documentation was provided to establish the extent to which
drive-offs happen. The Commission
notes, however, that to the extent such drive offs occur, they would be
reported as sales on the inventory method just as they were on the meter
method.
Finally,
both parties concede that diesel fuel expands as it warms, and that
Petitioner's purchasing patterns are designed to take advantage of that
fact. In effect, Petitioner tries to
buy denser "cold" fuel and sell less dense "warm" fuel. The result of this would be that Petitioner
pumps and sells more gallons of diesel than it purchases, and collects special
fuel tax on the
larger amount sold. Consequently, to the
extent that the 0.5% difference between Petitioner's inventory based reports
and Respondent's meter based audit results from the expansion of the diesel
fuel, there is no injustice in requiring Petitioner to remit the special fuel
tax collected on the expansion gallons.
Based
upon the foregoing, the Tax Commission affirms Respondent's audits with respect
to both account number XXXXX and XXXXX.
It is so ordered.
DATED
this 10th day of June, 1993.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Absent
Joe B.
Pacheco S.
Blaine Willes
Commissioner Commissioner