92-1399 - Withholding

 

BEFORE THE UTAH STATE TAX COMMISSION

________________________________

In Re: )

:

XXXXX ) FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

: AND FINAL DECISION

:

: Appeal No. 92-1399

: Account No. XXXXX

_______________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Lisa L. Olpin, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX, an attorney. Present and representing the Respondent was XXXXX, Assistant Utah Attorney General.

After the formal hearing in this matter, the parties submitted a revised Exhibit A with a change in computation. This revised exhibit is admitted into evidence at this time.

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

FINDINGS OF FACT

1. The tax in question is mineral production withholding tax.

2. The audit period in question spans XXXXX-XXXXX.

3. As a result of a Tax Commission audit of Petitioner's mineral production withholding tax records for the years in question, the Commission determined Petitioner owed a delinquency of approximately $$$$$ in additional mineral production withholding taxes. Penalties in excess of $$$$$ were assessed plus $$$$$ in interest.

4. At Petitioner's request, the Commission later reviewed the penalty and interest amounts and ordered the penalty amount waived.

5. Petitioner is now seeking a reduction/waiver of the interest assessment.

6. During the period in question, Petitioner was the first purchaser of minerals produced or extracted from deposits in Utah.

7. Petitioner sent mineral production distribution payments to royalty interest owners and working interest owners during the audit period without first deducting any withholding tax as required by Utah statute.

8. Corporations comprised 87.7% of the total recipients of these payments. These corporations, in turn, reported and paid the tax quarterly on these mineral production distributions.

9. In fact, although the Auditing Division determined that Petitioner failed to remit approximately $$$$$ in mineral production withholding tax, the Auditing Division found that the recipient corporations had remitted to the state over $$$$$. After credits were applied, Petitioner ended up owing the difference of approximately $$$$$ in taxes.

10. Petitioner contends that the interest amount (which was calculated on the initial approximate $$$$$ in withholding taxes) is unjust given that these recipient corporations remitted the withholding taxes pursuant to their own filing obligations 15 days earlier on a quarterly basis than Petitioner was required to do so. In other words, because the recipient corporations were remitting the tax amount that Petitioner should have deducted in the first instance on an earlier time schedule, the state actually benefitted in that it received the tax money earlier than if Petitioner had remitted it on its own. (Corporations file by the 15th of each quarter's end; first purchasers of mineral production file by the 30th of each quarter's end.)

11. Petitioner also claims that the Auditing Division should not assess interest on distributions it paid out to the XXXXX because it believes that XXXXX is essentially a marketing agent of the XXXXX. Petitioner feels that XXXXX relationship with the XXXXX relieves Petitioner of any obligation to withhold tax on mineral production payments in the first place. (Utah Code Ann. 59-6-102(2)(c).)

12. The Auditing Division cited Utah Administrative Rule R865-14l-W(H), provided below, in support of its interest assessment.

If the producer, operator, or first purchaser fails to withhold the tax required under Section 59-6-102, and thereafter, the income subject to withholding is reported, and the resulting tax is paid by the recipient, any tax required to be withheld shall not be collected from the producer, operator, or first purchaser. However, the producer, operator, or first purchaser shall remain subject to penalties and interest on the total amount of taxes that should have been withheld.

CONCLUSIONS OF LAW

The Tax Commission is granted the authority to waive, reduce, or compromise penalties and interest upon a showing of reasonable cause. (Utah Code Ann. 59-1-401(8).)

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that sufficient cause has been shown which would justify a reduction of the interest associated with the mineral production withholding tax by 87.7%, leaving a balance of $$$$$. It is so ordered.

DATED this 3rd day of December, 1993.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner