BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, ) FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
v. ) AND FINAL DECISION
OPERATIONS DIVISION OF THE ) Appeal No. 93-0788
UTAH STATE TAX COMMISSION, :
) Account No. XXXXX
STATEMENT OF CASE
This appeal came before the Utah State Tax Commission for a formal hearing on XXXXX. Alan Hennebold, Administrative Law Judge, heard the matter on behalf of the Commission. XXXXX, C.P.A., represented Ms. XXXXX. XXXXX, Assistant Utah Attorney General, represented the Operations Division.
Prior to the hearing, the parties submitted a stipulation of facts. Based on the parties' stipulation, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. The tax year in question is XXXXX.
2. The tax type is individual income.
3. Petitioner is a divorced single woman filing tax returns as head of household.
4. The Petition for Redetermination was filed after an adjustment to Petitioner's XXXXX individual income tax in the amount of $$$$$, plus penalty of $$$$$.
5. The additional tax assessed by the Division resulted from the Division's disallowance of the retirement income deduction of $$$$$ claimed by Petitioner on line 10 of her XXXXX TC40 return.
6. The income in question was paid to Petitioner pursuant to a Divorce Decree, Civil No. XXXXX, entered in the Second Judicial District Court for Weber County, Utah, on XXXXX.
7. During XXXXX, Petitioner received payments from the Air Force in the total amount of $$$$$.
8. Petitioner was not employed by the Air Force and is not a retired member of the Air Force.
9. Petitioner's former spouse is not deceased.
CONCLUSIONS OF LAW
Utah's Individual Income Tax Act imposes a tax on the state taxable income of every resident individual. (Utah Code Ann. '59-10-104.)
A Utah resident's "state taxable income" is the same as the resident's federal taxable income, as modified by adjustments provided in Utah Code Ann. '59-10-114. (Utah Code Ann. '59-10-112.)
Among the items identified in '59-10-114 to be deducted from federal taxable income to arrive at state taxable income is:
(d) amounts received by taxpayers under age 65 as retirement income which, for purposes of this section, means pensions and annuities, paid from an annuity contract purchased by an employer under a plan which meets the requirements of Section 404(a)(2), Internal Revenue Code, or purchased by an employee under a plan which meets the requirements of Section 408, Internal Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District of Columbia, to the employee involved or the surviving spouse;
The "tax imposing" provisions of Utah's Sales and Use Tax Act are construed in favor of the taxpayer. The exemption provisions of the Act are strictly construed against the taxpayer. Parsons Asphalt Products v. State Tax Commission, 617 P.2d 397, 398 (Utah 1980).
A penalty of 10% of the tax due or $50, whichever is larger, is imposed for late payment of tax. (Utah Code Ann. '59-1-401.)
For reasonable cause, the Commission may waive, reduce, or compromise any assessment of penalty or interest. (Utah Code Ann. '59-1-401(8).)
DECISION AND ORDER
The only issue in this appeal is whether Ms. XXXXX can deduct income received from the U.S. Air Force from her state taxable income. The authority cited for such a deduction is Utah Code Ann. '59-10-114(2), which allows deduction of retirement income from various specified sources when paid to "the employee or surviving spouse".
A great deal of attention has been paid to the question of whether Ms. XXXXX' income from the Air Force qualifies as one of the sources for which a deduction is allowed. Whether or not the payments qualify for the deduction, '59-10-114(2) imposes a second requirement: the payments must be paid to either the employee or the surviving spouse. Ms. XXXXX is clearly neither. Consequently, she may not deduct her payments from the Air Force from her state taxable income.
With respect to the issue of penalty, the Commission notes that Ms. XXXXX filed her income tax return on time and paid all but the disputed amount. Also, she relied upon advice of her C.P.A. in deducting the Air Force payments from her state taxable income. Although mistaken, Ms. XXXXX has clearly acted in good faith. The Commission therefore finds reasonable cause to waive the $$$$$ penalty in this matter. Interest is not waived.
In summary, the Commission affirms the Operations Division's denial of Ms. XXXXX' deduction of income received from the Air Force, but waives the $$$$$ late payment penalty. It is so ordered.
DATED this 12th day of January, 1994.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val Oveson Roger O. Tew
Joe B. Pacheco Alice Shearer
NOTICE: You have twenty (20) days after the date of the final order to file a request for reconsideration or thirty (30) days after the date of final order to file in Supreme Court a petition for judicial review. Utah Code Ann. ''63-46b-13(1), 63-46b-14(3)(a).