Sales and Use
BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, : FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
v. : AND FINAL DECISION
AUDITING DIVISION OF THE : Appeal No. 94-0223
UTAH STATE TAX COMMISSION, )
Respondent. : Account No.XXXXX
) Tax Type: Sales and Use
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for a Formal Hearing on XXXXX. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner were XXXXX. Present and representing the Respondent were XXXXX, Assistant Attorney General, and XXXXX XXXXX of the Auditing Division.
Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. At issue are XXXXX penalties relating to sales and use tax that were assessed against Petitioner following an audit. Petitioner is not appealing the additional tax assessed.
2. The audit period in question is XXXXX.
3. A XXXXX pursuant to Utah Code Annotated '59-1-401 in the amount of $$$$$ was assessed against Petitioner for Petitioner's failure to make the prepayment that was required by Utah Code Annotated '59-12-108 (1990). The penalty was calculated as XXXXX that should have been made by Petitioner.
4. A XXXXX based on the total additional tax determined from the audit was assessed against Petitioner in the amount of $$$$$. The assessment totaled $$$$$ and included additional tax on XXXXX. The additional tax on the XXXXX was $$$$$.
5. There had been a prior audit of Petitioner for the period of XXXXX pursuant to which additional taxes totalling $$$$$ were assessed against Petitioner including tax on XXXXX. The additional tax on the XXXXX was $$$$$. The XXXXX were the same XXXXX for both audit periods.
6. The total assessment for the subject period was less than the assessment for the prior audit. However, the prior audit period was XXXXX while the subject audit period was only XXXXX. Respondent provided at the hearing, which was entered as Respondent's Exhibit XXXXX, a XXXXX the prior audit to the subject audit.
7. The subject audit period began on XXXXX, immediately following the prior audit which ended on XXXXX.
8. The total additional assessment for the subject audit of $$$$$ was less than XXXXX of Petitioner's total sales during that period. However, the majority of sales made by Petitioner were for XXXXX. The error rate on taxable sales was approximately XXXXX.
CONCLUSIONS OF LAW
Certain taxpayers were required to make a prepayment of not less than XXXXX of their sales and use tax liability for the months of XXXXX of each year the prepayment requirement was in effect. The return and payment were due on or before XXXXX.
Failure to make the required prepayment by XXXXX resulted in penalties as provided in Utah Code Ann. ''59-12-108 and 59-1-401 (1990). 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) (1990).)
Utah Administrative Code XXXXX in pertinent part states:
The legislature has set out a penalty to be assessed when negligence is involved in an underpayment of tax. XXXXX which states, "XXXXXXXXXX."
I. PREPAYMENT PENALTY
At the hearing and in the documents supplied by Petitioner, Petitioner asserts that the prepayment penalty should be waived because Petitioner did not receive any notice of the newly imposed prepayment requirement nor did Petitioner receive any forms to submit such prepayment to the Tax Commission.
Although none of Petitioner's representatives at the hearing were employed by Petitioner during the period in question and none could testify with personal knowledge to the events that took place, Petitioner's representatives alleged that Petitioner did receive from the Tax Commission the regular preprinted quarterly tax forms. They further alleged that these forms did not indicate a prepayment could be necessary and Petitioner made payments in the usual manner in reliance on these forms without making a prepayment.
Further, Petitioner asserted that the Tax Commission has a responsibility to notify tax payers of the change in tax law and should have provided prepayment forms under Utah Adminstrtive Code R865-19-86S (1990).
Respondent objected to the testimony of Petitioner's representatives as it was not based on first hand or personal knowledge. It is Respondent's position that the duty to keep informed of the tax law remains with the tax payer and that the Tax Commission's failure to provide forms did not excuse the prepayment.
The language of Utah Adminstrtive Code R865-19-86S (1990) clearly establishes that non-receipt of the form did not excuse failure to timely pay the prepayment.
II. NEGLIGENCE PENALTY
Respondent assessed a XXXXX penalty because audit adjustments for the subject audit were for the same types of errors found in the prior audit, the amounts were significant, the percentage of the deficiency to the tax paid was too high and the deficiency was not the result of an unclear law.
Petitioner's representatives stated that Petitioner was not negligent and did in good faith attempt to fully comply with the Utah requirements, including take reasonable efforts to track taxable sales. Petitioner argues that because Respondent began the subject audit period immediately following the prior audit, Petitioner did not have the knowledge or opportunity to implement necessary changes before the subject audit began. Neither Petitioner nor Respondent provided the Statutory Notice of the results of the prior audit and it was unclear as to when it was mailed to Petitioner or if and when an audit exit interview was held. As none of Respondent's representatives at the hearing were personally or directly involved in either of these functions they could only testify that they assumed these things occurred around the end of the prior audit period.
Further, Petitioner's representatives stated that making it more difficult to correct the errors in time for the subject audit was the fact that the prior audit was not "resolved" until XXXXX, XXXXX into the subject audit. Respondent's representatives stated that this was only because Petitioner had filed an appeal of the negligence penalties and interest assessed in the prior audit. Petitioner paid the assessment for the prior audit in XXXXX and filed a waiver request, then an appeal, of the negligence penalty. Petitioner later withdrew the appeal.
Petitioner argued that the deficiency was small for the audit period compared to its total sales and taxable sales and therefore, Petitioner was not negligent. Petitioner was in compliance in excess of XXXXX of its total sales and XXXXX of its taxable sales. Respondent argued that Petitioner's errors had increased during the subject audit from the prior audit at a greater rate than Petitioner's increase in sales.
Although Respondent's representatives lacked first hand knowledge, Respondent asserted that the results of the prior audit and suggestions on how to correct errors would have been discussed with Petitioner during the prior audit and exit interview so that Petitioner was negligent in not making the corrections for the subject audit period.
DECISION AND ORDER
At the outset, the Commission notes that the prepayment sales tax requirement was an unusual circumstance that arose only when certain conditions were met. Nevertheless, the legislature by statute mandated the prepayment requirement and provided for penalties to be imposed for failure to comply with the statute. Only under extraordinary circumstances will the Commission waive the penalties imposed for having failed to comply with the prepayment provisions. Such extraordinary circumstances do not exist in the present case.
In considering whether or not to waive the negligence penalty the Commission notes that the penalty resulting from the subject audit was not the first negligence penalty assessed against Petitioner. A negligence penalty was assessed against Petitioner in the prior audit and the same errors were made in the subject audit as in the prior audit. Petitioner, who has the burden of proof in this appeal, did not provide a copy of the Statutory Notice, or other documents that might indicate when Petitioner was given notice of the results of the prior audit. Further, Petitioner did not provide a witness who could testify from first hand knowledge as to when Petitioner would have known of the results of the prior audit and the prior negligence penalty.
Based upon the foregoing, the Tax Commission finds that sufficient cause has not been shown which would justify a waiver of the $$$$$ XXXXX or the $$$$$ XXXXX associated with the XXXXX XXXXX audit period. It is so ordered.
DATED this 22nd day of June, 1995.
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 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.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1-5A(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13(1), 63-46-14(3)(a).)