93-1057
INDIVIDUAL INCOME
Signed 9/21/94
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX AND )
XXXXX, :
Petitioners, : ORDER
:
v. : Appeal No. 93-1057
:
OPERATIONS
DIVISION OF THE : Account No. XXXXX
UTAH STATE TAX COMMISSION, :
:
Respondent. : Tax Type: INDIVIDUAL INCOME
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a Settlement Conference
pursuant to the provisions of Utah Code Ann. §59-1-502.5, on XXXXX. Lisa L. Olpin, Administrative Law Judge,
conducted the conference. Commissioners
Joe B. Pacheco, and Alice Shearer also
heard the matter for and on behalf of the Commission. Present and representing Petitioner was XXXXX. Present and representing Respondent was
XXXXX C.P.A., of the Operations Division of the Utah State Tax Commission.
FINDINGS
1. The tax in Question is Individual Income Tax
for the Year XXXXX (XXXXX to XXXXX).
2. Petitioner was aXXXXX in the U.S. Air Force
stationed at XXXXX Utah (XXXXX) for
the first 6 months of XXXXX.
3. Petitioner was a resident of Pennsylvania
during the time he was stationed at HAFB.
4. Petitioner retired from the Air Force on
XXXXX. Upon Retirement he purchased a
home in the State of Utah where he now resides as a Utah resident.
5. Petitioner had active duty pay for the first
half of XXXXX only and retirement pay for the balance of the year.
6. Petitioner was not required to file a
Pennsylvania return while in the military as military pay is exempt in that
state.
7. Petitioner contends that the method
prescribed by the Operations Division results in over taxation for the year
XXXXX because Utah law requires that federal adjusted gross income is the
starting point for the Utah Return.
Petitioner says that the standard method of using schedule A to
determine the percentage of tax liability in Utah is not a fair method when the
income earned out of state or as a non-resident is much higher than the income
earned in Utah. By starting with a
higher adjusted gross income initially, a larger percentage of income is taxed
at the 7.2% rate, and the schedule A method doesn't adequately compensate. Even though the Utah tax booklet states,
"Nonresidents who are stationed in Utah solely due to military orders are
not subject to tax on their military pay in Utah," the standard method on
the TC-40NR taxes all income, including military, nonresident pay. Petitioner submitted five examples to show
different tax results under various approaches to support his position.
8. Petitioner feels that the last example he
submitted represents the fairest treatment.
This method allocates all of the retirement pay earned in Utah,(last 6
months), and adds the actual interest and dividends earned in Utah. A reduction is made for half of the capital
loss and half of the partnership loss for an
adjusted Gross Income of $$$$$.
The AGI is further reduced by actual deductions related to Utah, half of
the church contributions and half of the personal exemptions. Petitioners method also takes a one-half
retirement income deduction as he is retired.
The resulting tax is $$$$$.
Petitioners' original return using a slightly different method, was
submitted with a tax liability of $$$$$
and was paid timely. Petitioner
requests the difference of XXXXX be refunded at this time.
9. The Operations Division used the standard
method which starts with Federal Adjusted Gross Income (FAGI) and proceeds to
allocate that income on schedule A, Page 2 of the State Return (TC- 40NR). The process used in Schedule A is to derive
a percentage that the Utah income bears to the total federal adjusted gross
income. This percentage is then multiplied by a pre-allocated tax which gives
the Utah tax liability.
The
pre-allocated tax is computed in the standard manner, that is, Utah taxable
income for the TC-40 NR is computed in the same manner as a full year resident
starting with Federal Adjusted Gross Income and results in a full year tax.
10. Respondent cites Utah Code §59-10-112 and
§59-10-116, and §59-10-121 which defines the taxable income for resident and
nonresident individuals. Respondent
concludes that the audited tax of $$$$$ reflects the correct tax due.
11. Utah Code Annotated §59-10-121,
provides for a proration when two returns are required. The statute allows the Tax Commission to
require an individual whose status changes from resident to nonresident, or
nonresident to resident, to file two part year returns. One return as a resident and one return as a
nonresident. The Code further states:
"the total of the taxes due thereon shall not be less than would be due if
the total of the taxable incomes reported on the two returns were includable in
one return." It would appear the
intent of the code is to assure the taxpayer files using the methods currently
prescribed, unless proration of the return would result in a higher tax
due. Since the proration requested by
the Petitioner would result in a lower
tax assessment, the Operations Division requests that the audited assessment
should be allowed to stand.
DECISION AND ORDER
The
Tax Commission considers the argument of the taxpayer to be the most persuasive
in this case. The Commission is
concerned that if the Respondent's position is adopted nonresidents stationed
in Utah would be subject to income tax for their military pay while on duty in Utah. In the case before
us, the military pay received by the taxpayer would be taxed under the standard
method of using Schedule A for the allocation.
The Commission determines that
military pay received by nonresidents stationed in Utah was not intended
to be taxed, therefore method Number 4 (Attachment 5 as presented by the taxpayer)
is the most acceptable determination of this taxpayers liability. The Tax Commission determines that this is a
unique case in that the allocation and division of taxpayer's income did not
fit the form for reporting and for that reason finds that the tax liability for
the year XXXXX is determined to be $$$$$ based on a Utah taxable income of
$$$$$. The Operations Division is
ordered to adjust their records and to refund the amount of $$$$$ together with
interest to the taxpayers. This
Decision and Order will become the Final Decision and Order of the Commission
unless any party to this case files a written request for a Formal hearing
within twenty (20) days of the date of this decision. Such a request shall be mailed to the address listed below and
must include the Petitioner's name, address, appeal number:
Utah State Tax Commission
Appeals Division
210 North
1950 West
Salt Lake City, Utah 84134
IT
IS SO ORDERED.
DATED
this 21st day of September, 1994.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
NOTICE: You have twenty (20)
days after the date of a final order to file a Request for Reconsideration with
the Commission. If you do not file a
Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.)
a Petition for Judicial Review in the Supreme Court, or b.) beginning July 1,
1994, a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5 (P) and
Utah Code Ann. §§59-1-601 (1),63-46b-13 (1), 63-46-14(3)(a).)
^^