Signed 1/31/94




In Re: :




: Appeal No. 93-1671


: Account No. XXXXX



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. Lisa L. Olpin, Presiding Officer, heard the matter for and on behalf of the Commission. Representing the Petitioner were XXXXX and XXXXX. XXXXX and XXXXX were present on behalf of the Auditing Division.

The Auditing Division of the Tax Commission audited Petitioner for the period XXXXX-XXXXX. This audit resulted in a tax deficiency in the amount of $$$$$ in unreported sales and use tax. A ten percent negligence penalty of $$$$$ was assessed along with $$$$$ in interest.

Petitioner claims that a new employee had inadvertently coded purchase orders of certain chemicals as tax exempt sales. These chemicals were namely caustic acid, ammonia and pet coke. Sales tax should have been collected on these items.

Petitioner claims that these chemicals were taxed properly before this new buyer made the error.

In earlier years, Petitioner had worked with the Commission to determine which chemicals Petitioner uses are taxable and which are not. Confusion had existed because some chemicals are consumed in the production process while others are not.

Petitioner admits it made errors in the past while trying to clarify the tax status of all of the chemicals. The tax deficiency that appeared in this audit in question, however, was caused by employee error. It asserts that this error is not the result of negligence as it is reasonable for a person to conclude that caustic acid is not taxable as Petitioner uses it.

Further, Petitioner explained that while the audit was still in process and when it was made known to Petitioner that these chemicals should have been taxed, Petitioner paid $$$$$ on XXXXX in an effort to avoid incurring more interest.

Petitioner paid another $$$$$ on XXXXX toward the tax and interest balance.

The final notice aka statutory notice of the results of the audit itself were not finalized until XXXXX. At that time, Petitioner was assessed $$$$$ in sales and use tax, the ten percent penalty and interest. The Auditing Division credited Petitioner $$$$$ which had been paid previously. This payment, however, was first allocated to the penalty, then interest and finally, to the tax amount. This left Petitioner with a tax amount owing of $$$$$ plus accruing interest.

The Auditing Division then allocated Petitioner's second payment of $$$$$ to interest and then tax, leaving a tax balance of $$$$$ when the statutory notice was issued.

Petitioner is requesting that the Commission credit Petitioner's two payments to tax and interest as there was no penalty assessed when the payments were made. Secondly, Petitioner wants the negligence penalty abated.

The Auditing Division explained that Petitioner was assessed a negligence penalty once before for failing to tax these same chemicals (audit period XXXXX-XXXXX). Petitioner concedes that this penalty was probably proper as Petitioner had just set up its new plant and was having difficulties categorizing which chemicals were taxable and which were not.

An interim audit for the period October XXXXX-XXXXX, however, was completed without a penalty assessment. The Auditing Division explained that this audit was not as in-depth as the previous audit. Petitioner, however, concluded that a negligence penalty was not assessed because Petitioner was in compliance.

Petitioner contends that the audit in question would have also been free of penalty but for the employee error in miscoding the tax status of these three chemicals.


Based upon the information presented at the conference, and the records of the Tax Commission, the Commission finds sufficient cause has been shown to waive the ten percent penalty assessed for the audit period of XXXXX XXXXX-XXXXX. Petitioner's payments are credited to its account, allocated first to interest and then to the tax deficiency. The interest is computed to XXXXX XXXXX.

This Decision and Order will become the Final Decision and Order of the Commission unless the parties to this case file a written request for a Formal Hearing within ten (10) 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, and appeal number:

Utah State Tax Commission

Appeals Division

160 East 300 South

Salt Lake City, Utah 84134

It is so ordered.

DATED this 31st day of January, 1994.


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 the final order to file a request for reconsideration or thirty (30) days after the date of the final order to file in District Court a petition for judicial review. Utah State Tax Commission Administrative Rule R861-5A-1(p) and Utah Code Ann. 63-46b-14(3)(a).