92-1833 - Withholding

BEFORE THE UTAH STATE TAX COMMISSION

__________________________________

XXXXX. )

:

Petitioner, )

: FINDINGS OF FACT,

v. ) CONCLUSIONS OF LAW

: AND FINAL DECISION

AUDITING DIVISION OF THE )

UTAH STATE TAX COMMISSION, : Appeal No. 92-1833

)

: Account No. XXXXX

Respondent. )

__________________________________

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 were XXXXX, Petitioner's certified public accountant, and XXXXX, company secretary/treasurer. Present and Representing Respondent was XXXXX.

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 withholding tax.

2. The period in question is the year XXXXX.

3. As a result of an audit by the Tax Commission, Petitioner was penalized ten percent plus interest for underreporting withholding taxes due for the year in question.

4. Petitioner is requesting a waiver of the penalty and interest assessments.

5. Petitioner's secretary/treasurer, XXXXX, testified that he prepared all of Petitioner's withholding tax filings until he had open heart surgery in XXXXX. Just a month before XXXXX's surgery, Petitioner hired a new controller, XXXXX, to take over the filings, among other duties.

6. Six weeks after his surgery, XXXXX returned to work, but this time he left for the east coast to help out the corporate restructuring. Mr. XXXXX, a certified public account, continued to handle the withholding tax filings.

7. According to XXXXX, these filings should not have been difficult as an outside payroll service, XXXXX, computed the withholding amounts due monthly.

8. At the time, Petitioner owed withholding taxes in five states and was required to file in all of them.

9. On XXXXX, XXXXX returned to Utah and stopped in at Petitioner's office to check on how the new controller was handling the taxes then due. XXXXX helped XXXXX prepare the year-end reconciliation reports. He noticed that XXXXX did not seem to have a grasp of how to do the task nor realize its importance.

10. XXXXX admitted that he did not have time to double-check XXXXX's XXXXX reconciliation report prior to its filing, largely because XXXXX had not begun preparing it until the last minute.

11. Petitioner fired XXXXX soon thereafter and hired XXXXX as controller.

12. In her internal audit report, XXXXX determined that XXXXX had somehow erred in preparing Petitioner's XXXXX withholding tax filings. Petitioner had underpaid Utah and overpaid West Virginia; there were similar problems in other states.

13. Petitioner was aware of the XXXXX filing error in XXXXX.

14. In XXXXX, the Tax Commission also discovered a withholding deficiency for XXXXX and notified Petitioner.

15. Petitioner remitted the deficiency immediately.

16. Petitioner is requesting a waiver of the penalty and interest amounts, contending that the XXXXX filing mistake was unintentional. Apparently, the controller at the time was incompetent and should have discovered the error when he prepared the year-end reconciliation report.

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

In this case, Petitioner admits that its own employee was negligent in the preparation of the year-end reconciliation report which would have revealed the error. An employer is responsible for the mistakes of its employees.

Additionally Petitioner exacerbated the problem when it discovered the underreported taxes and then did not apprise the Tax Commission of the situation.

Based upon the foregoing, the Tax Commission finds that sufficient cause has not been shown which would justify a wavier of the penalty and interest assessments associated with the withholding tax due on the year XXXXX. It is so ordered.

DATED this 12th day of March, 1993.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

ABSENT

R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner