Personal Penalty

Signed 8/18/95





Petitioner, : ORDER


v. : Appeal No. 93-1599





Respondent. : Tax Type: Personal Penalty



This matter came before the Utah State Tax Commission for an Settlement Conference pursuant to the provisions of Utah Code Ann. 59-1-502.5, on XXXXX. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner by telephone conference call was XXXXX. Present and representing Respondent were XXXXX, Assistant Attorney General, and XXXXX and XXXXX of the Collection Division.

A personal penalty assessment has been made against Petitioner resulting from the sales and withholding tax liabilities of XXXXX (Corporation). The penalty assessed against Petitioner for sales tax was for the third and fourth quarters of XXXXX and was in the amount of $$$$$ which represents one half of the Corporation's unpaid sales tax balance for that period. The penalty assessed against Petitioner for withholding tax was for the first through fourth quarters of XXXXX and was in the amount of $$$$$ which represents one half of the Corporation's outstanding withholding tax balance for that period. Of this amount the penalty relating to withholding tax for the first quarter was $$$$$ and for the second quarter was $$$$$.

Petitioner took issue with the personal penalty assessment for the first and second quarters of XXXXX because Petitioner asserted that he did not have sufficient control of the Corporation at that time to see that the withholding taxes were paid. Petitioner acknowledged that during the third and fourth quarters of XXXXX he was the president of the Corporation and had more responsibility.

In support of this position Petitioner stated that, although he had been the executive vice president of the Corporation during the first and second quarters of XXXXX, in reality he was involved only with the sale of the software produced by the Corporation. He stated that at that time he did not control the bank accounts or cut checks. Further, he alleged that he fought hard to change the management of the Corporation. Petitioner states that in XXXXX the Corporation was turned over to him and he was made President. At that time the Corporation was in serious financial trouble and there were no funds for taxes or even Petitioner's wages. Petitioner explained that the Corporation owed him back wages and travel expenses.

A second reason for waiver of the personal penalty assessment asserted by Petitioner was that payment would be a financial hardship for Petitioner and his family.

At the hearing Respondent explained that the personal penalty was based on one half of the Corporation's outstanding sales and withholding tax balance. It was assessed against Petitioner because Petitioner was an officer of the Corporation, had the ability to sign checks for the Corporation and money was withheld from employees and sales tax charged to customers but not delivered to the State of Utah. Further, Respondent provided documents that Petitioner had signed for the Corporation. These documents were a Utah sales tax form for the second quarter of XXXXX, a promissory note and UCC-1 financing statement filed on XXXXX. Respondent also provided copies of minutes from meetings of the Corporation's board of directors.

In response, Petitioner stated that in a perfect world the money charged as sales tax or withheld from employees would be put in a separate account, but the Corporation, despite Petitioner's efforts, was barely scraping by financially and the money was needed elsewhere, including to pay employees. Petitioner argued that due process should take into account the realities of small businesses.

Petitioner did not provide any documents to support the position that he did not have sufficient control of the Corporation to see that the taxes were paid for the first and second quarters of XXXXX. Further, Petitioner has admitted that he had control of the Corporation in XXXXX which was prior to the due date of the sales and withholding taxes for the second quarter. Petitioner admitted that because of the financial situation money that should have been put aside for state taxes went to other creditors or to pay employees.


The Utah Legislature has required that a penalty be assessed against officers, directors, or other responsible persons, for certain types of delinquent tax liability.

This provision is set out in Utah Code Ann. 59-1-302. In pertinent part this provision states that any person required to collect, truthfully account for, and pay over sales and withholding tax, who willfully fails to collect or fails to truthfully account for and turn over the tax, shall be liable for a penalty equal to the total amount of the tax not paid over. According to this section it is prima facie evidence that a responsible party has wilfully failed to collect, truthfully account for, or pay over any of the tax if the Commission finds that he or she made a voluntary, conscious, and intentional decision to prefer other creditors over the state. (Utah Code Ann. 59-1-302.)


In considering the information provided by both parties, Petitioner has admitted to responsibility for the third and fourth quarters of XXXXX. Petitioner stated that funds that should have been set aside for taxes were paid to other creditors or as wages and the evidence indicates that Petitioner had sufficient responsibility for paying over the tax payment for the second quarter. However, Respondent has not provided sufficient reason for the assessment of the personal penalty relating to the first quarter of XXXXX.

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission reduces the personal penalty assessment by the amount of $$$$$ which was the penalty relating to withholding tax for the first quarter of XXXXX so that the total personal penalty assessed against Petitioner relating to the Corporation's delinquent withholding taxes for XXXXX is $$$$$. The Commission does not waive or reduce the personal penalty assessment of $$$$$ relating to the sales tax liability for the third and fourth quarters of XXXXX.

This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

210 North 1950 West

Salt Lake City, Utah 84134

Failure to request a Formal Hearing will preclude any further administrative action or appeal rights in this matter.

DATED this 18th day of August, 1995.


W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner