92-1243 - Corporate Franchise





Petitioner, ) FINDINGS OF FACT,






) Account No. XXXXX


Respondent. )


This matter came before the Utah State Tax Commission for a formal hearing on January 14, 1993. XXXXX, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX. Present and representing the Respondent was XXXXX, Assistant Utah Attorney General.

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


1. The tax in question is corporate franchise tax.

2. The period in question is XXXX.

3. The Petitioner is a cooperative association which is organized and operated on a cooperative basis. As such the Petitioner is exempt from corporate franchise tax.

4. The Petitioner is also exempt from the filing of a federal income tax return except to the extent that taxes have been imposed on unrelated business income and certain other activities pursuant to relevant provisions of the Internal Revenue Code.

5. In approximately XXXXX of XXXXX, the Internal Revenue Service released a Technical Advice Memorandum (TAM) which changed the ways revenues for cooperative associations are classified which would, in turn, change the taxability of the cooperatives.

6. A draft copy of the TAM was received by the Petitioner in approximately XXXXX of XXXXX.

7. Based upon the changes, the accountant for the Petitioner believed that the Petitioner would no longer meet the tax exempt status requirements. The accountant erroneously thought that access revenues would be subject to income tax. The effect of such a situation was to overestimate income which, in turn, would lead to an overpayment of taxes.

8. Based upon the erroneous interpretation of the changes, the Petitioner paid $$$$$ in state taxes. That amount was remitted when the Petitioner filed its request for extension of its corporate franchise tax return on XXXXX.

9. The Petitioner asserted that by way of a letter dated XXXXX, an independent auditor for the Petitioner requested a refund of the $$$$$ paid to the Commission in error.

10. The XXXXX Division denies receiving the letter of XXXXX.

11. By way of a subsequent letter dated XXXXX written by a tax representative of the Petitioner, the request for refund was renewed. That letter also requested that interest calculated at 12 percent per annum be returned to the Petitioner.

12. By way of a check dated XXXXX, the Petitioner was refunded the sum of $$$$$. The request for interest on that amount was denied. The Petitioner was made aware of that denial by way of a statutory notice dated XXXXX.

13. Had the Petitioner been liable for the payment of corporate franchise tax, and had the return and payment of such taxes not been timely made, penalties would have been assessed upon those amounts as provided for by Section 59-1-401 Utah Code Annotated.


Interest shall be allowed and paid upon any overpayment in respect of any tax imposed by this chapter at the rate prescribed in Section 59-1-402 as follows: . . . (2) in the case of a refund, from the date of the overpayment to a date preceding the date of the refund check by not more than thirty (30) days, such date to be determined by the Commission. (Utah Code Ann. 59-7-154.)

The rate of interest applicable to a tax provision administered directly by the Commission is 12 percent annually. (Utah Code Ann. 59-1-402.)

If an extension of time is necessary for filing a return, . . . payment must be made in amount equal to: (i) 90 percent of the total amount of tax due with the return when filed; (ii) 100 percent of the minimum tax due under Section 59-7-102, which ever is greater; or (iii) 100 percent of the tax paid for the previous year. (Utah Code Ann. 59-7-126(1)(b).)


In the present case, the issue to be determined by the Commission is whether there was an overpayment of taxes for which interest must be allowed.

The Respondent claims that here, there was no overpayment of tax. It is the Respondent's argument that since there was never any tax due, there could not have been an overpayment of such a tax. Respondent further argued that to qualify, the overpayment must have resulted from either an over-assessment by the government, or a self assessment by the taxpayer based upon a processable return. The Respondent claimed that in the present case there was no processable return filed by the taxpayer but rather, the Petitioner made a "casual deposit" of the sum in question.

The Tax Commission rejects the Respondent's characterization of the Petitioner's actions as having made a "casual deposit". The Tax Commission finds that under the circumstances, the Petitioner reasonably believed that it would no longer qualify for its tax exempt status. Based upon that reasonable belief, the Petitioner, in good faith, filed its request for extension and included in that request, the required sum of money.

It is important to note that had the Petitioner not acted as it did, and had it been found to be liable for the taxes it believed were due, the Petitioner would have been subjected to a substantial penalty for non filing and non payment of the taxes and would have been subject to interest at the rate of 12 percent per annum.

Based upon the foregoing, the Tax Commission finds that under the facts of the present case, the Petitioner is entitled to interest on the amount paid in error as overpayment of corporate franchise tax. The amount of interest due shall be calculated from the date on which the check and extension request were received to XXXXX, which is the date on the which the refund check was issued. It is so ordered.

DATED this 13th day of May, 1993.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner