94-0379

Corporate Franchise

Signed 3/26/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX,                                                                                 :           AMENDED

                Petitioner,                                                         :           FINDINGS OF FACT, CONCLUSIONS

                                                                                                                :           OF LAW, AND FINAL DECISION

v.                                                                                 :

                                                                                                                :

AUDITING DIVISION OF THE,                               :           Appeal No. 94-0379

                UTAH STATE TAX COMMISSION             :

                                                                                                                :           Account No. XXXXX

                                                                                                                :

                Respondent.                                                     :           Tax Type: Corporate Franchise

_____________________________________

STATEMENT OF CASE

                The final Order is hereby amended for correct language of the stipulated facts No. 2.

                This matter came before the Utah State Tax Commission for a Formal Hearing held on XXXXX.  Joe B. Pacheco, Commissioner, heard the matter for and on behalf of the Commission.  Present and representing Petitioner was XXXXX.  Present and representing Respondent were XXXXX, Assistant Attorney General and XXXXX of the Auditing Division.

                FINDINGS OF FACT

                1.  The tax in question is Corporate Franchise Tax.

                2.  The Period in question is: XXXXX through XXXXX.

                3.  This matter comes from a denial by Respondent of a claim for refund of franchise tax for the year ended XXXXX.  Respondent denied the refund claim because Respondent asserts that the statute of limitations for claiming the refund ended on XXXXX.

ANALYSIS

                The sole issue in this matter is whether or not the documents filed by Petitioner on XXXXX constitute a claim for refund. The Auditing Division’s position is that the documents represent nothing more than a protective claim.  Utah State statutes do not provide for a protective claim, however Auditing Division accepts such claims on an occasional basis.  Auditing Division procedures included acceptance of an informal claim provided the request is specific and provides a reasonable and verifiable closing date or event.  Protective claims are reviewed on a case by case basis.

                STIPULATED FACTS

                The parties to this appeal have stipulated to a number of facts which are:

                1.  On XXXXX, XXXXX filed its Utah corporation franchise tax return for the year ended XXXXX.  This return allocated $$$$$ of XXXXX income to Utah as non-business income.

                2.  On XXXXX, two documents were sent from XXXXX to the Utah State Tax Commission.  Attached hereto as Exhibit A. The parties cannot agree on the proper characterization of these documents.

                3.  On XXXXX, XXXXX wrote a letter to the Auditing Division of the Utah State Tax Commission inquiring about the status of its XXXXX correspondence.

                4.  On XXXXX, the Auditing Division informed XXXXX that the statute of limitations on its XXXXX return had expired on XXXXX and could not be re-opened.

                5.  On XXXXX, XXXXX filed an amended return requesting the refund of $$$$$ of Utah corporation franchise tax for the fiscal year ended XXXXX based on XXXXX contention that the Statute of Limitations had not expired.

                6.  The Auditing Division issued a Statutory Notice, dated XXXXX to XXXXX.  The Statutory Notice denied XXXXX request for a refund of Utah corporation franchise tax for the fiscal year ended XXXXX.

                7.  XXXXX filed a Petition for Redetermination dated XXXXX.

                8.  The Auditing Division filed its Answer to Petition for Redetermination dated XXXXX.

                9.  XXXXX filed a Written Reply to the Answer to Petition for Redetermination dated XXXXX.

                10.  Both parties agreed to set aside the issue of the proper Utah tax treatment of the gain on the sale of XXXXX stock (i.e.: whether the gain constitutes business or non-business income) until the issue of the Statute of Limitations is decided.

                DISCUSSION

                Petitioner maintains it filed a valid and timely claim for refund prior to the running of the Statute of Limitations in accordance with Utah State Statute 57-7-141 (2)(a).  Further, Petitioner says the Statute does not expire on a timely filed claim until a notice and an opportunity to be heard is given to the taxpayer.  Petitioner says that no such notice was given until XXXXX at the earliest, or at the latest XXXXX.  At both dates, Petitioner claims to have filed a timely Petition for Redetermination.

                Petitioner also maintains that the Utah State Tax Commission erroneously determined in its Decision and Order of the Informal Hearing that the Auditing Division had an established administrative procedure for allowing protective claims.  In addition, Petitioner says that the Utah State Tax Commission erred by saying the Auditing Division need only respond to claims for refund in the event that Petitioners specifically request a response.

                Petitioner maintains that there is well established Utah Jurisprudence that provides that on a question of Statutory  Construction the court first considers the plain language of the statute and it is only if the court finds some ambiguity that it needs to look further with respect to the aforementioned statute, Petitioner says that there is no ambiguity and thus the statute of limitations remains open awaiting the outcome of these and any other proceedings.  Petitioner says the statute remains open as no notice was given and Petitioner had no opportunity to respond, when notice was given, Petitioner timely filed a Petition for Redetermination.

                Respondent says the starting point for this issue begins with Petitioners filing of two documents on XXXXX.  One document, the cover letter, specifically starts by referencing the Utah Refund Statute 57-7-141 (2)(a) then continues by saying that the purpose for filing the document is a protective claim to extend the Utah Statute of Limitations to XXXXX.  Petitioner makes reference to “the Protective Claim” twice more in the cover letter and to the extension of the statute of limitations to XXXXX one other time.  The letter also says, “This Protective Claim is filed to insure XXXXX right to amend the FYE XXXXX Utah tax return prior to XXXXX.”  The letter describes transactions which have occurred with other state filings which necessitate an extension because the three year Utah statute of limitations will run before the other state issues can be resolved.

                The second document is a Utah Tax form TC-55A which is a standard Utah Claim for Refund form.  The form contains a notation across the top which says “Protective Claim filed under Utah Code 57-7-142 (2)(a).”

                In another part of the form a question asks, “The claimant believes that this claim should be allowed for the following reasons:” the Petitioner responded, “Pursuant to Utah Code 59-7-141 (2)(a), this claim is filed to extend the Statue of Limitations to XXXXX with regard to the apportionment of business income and the allocation of non-business income to Utah for the fiscal year ended XXXXX.  See the preceding letter for an explanation of the circumstances necessitating the filing of this Protective Claim.”

                Respondent notes that although the box noting claim for refund has been checked, Petitioner failed to show a computation of the net amount of refund they are asking for.  Petitioner instead shows only the total amount of tax originally paid as the amount of refund requested.

                Respondent acknowledges that an Auditing staff member signed and dated the letter and mailed an acknowledgment of its Receipt to Petitioner.

                Respondent says it interpreted these documents to be a Protective Claim.  Respondent treated these documents the same as other Protective Claims and ascertained that the letter contained a date certain that a close-out document would be filed, as the taxpayer asked for an extension of the filing to XXXXX.  Respondent based their interpretation on the clear language of the letter sent by the taxpayer.  The original return had been properly filed in the first place and the letter gave a definite date for closure.  In addition, no additional Protective Claims were filed to extend the Statute of Limitations beyond XXXXX with respect to the apportionment of business income or allocation of non-business income to Utah for the XXXXX return.

                Respondent points out that XXXXX filed an amended return requesting a refund of $$$$$ for the fiscal year XXXXX on XXXXX which was after the XXXXX extension had passed.  After receipt of the refund request, the Auditing Division issued a Statutory notice on XXXXX denying XXXXX request for refund of Utah Corporate Franchise Tax.  Respondent’s arguments are two fold: The Division correctly kept the Statute of Limitations open only until XXXXX based on their practice and based on the specific language of XXXXX protective claim.  Respondent claims that the Statute of Limitations for claiming a refund ended on XXXXX.  XXXXX filed their amended return after XXXXX which was the extension date specifically requested.  XXXXX is entitled to a refund only within three years from the time the tax was paid.

Utah Code Ann. §59-7-142 provides:

                Any taxpayer claiming to be entitled to a refund or credit under Section 59-7-141 may file a claim therefore with the Commission within the time provided in said section...

Utah Code Ann. § 59-7-142 (1987).  Section 59-7-141 (2)(a)

further provides:

                No such credit or refund shall be allowed or made after three years from the time the tax was paid, unless before the expiration of such period a claim therefore is filed with the commission by the taxpayer.

                Respondents position is that the statute of limitations for claiming a refund of taxes with respect to the period ending XXXXX tolled on XXXXX.  However, because XXXXX obtained an extension of the statute of limitations, by filing a protective claim, with respect to amending its XXXXX return to XXXXX the statue of limitations for claiming a refund of taxes was extended to XXXXX.

APPLICABLE LAW

Utah Code Ann. §59-7-142

                Any taxpayer claiming to be entitled to a refund or credit under Section 59-7-141 may file a claim therefore with the Commission within the time provided in said section...

Utah Code Ann. §59-7-142 (1987).  Section 59-7-141 (2)(a) further provides:

                No such credit or refund shall be allowed or made after three years from the time the tax was paid, unless before the expiration of such period a claim therefore is filed with the Commission by the taxpayer.

                DECISION AND ORDER

                The Commission has reviewed all of the facts of this appeal and determines that the documents submitted by the Petitioner are the focal point for deciding the issue in the appeal.  The Petitioner filed a protective claim and asked for an extension of time to file additional documents.  Petitioner set their own date of XXXXX as a time certain for a closure of the protective claim request.  The plain language of the documents substantiate what Petitioner was doing and saying.  Petitioner’s cover letter specifically states that a protective claim was being filed and that an extension of time to XXXXX was required, because the statute of limitations in Utah would run before issues involving matters with other state jurisdictions were resolved.

                Petitioner specifically states three times in their cover letter that they are requesting an extension to XXXXX.  In the fourth paragraph of their letter, Petitioner also says “This protective claim is filed to insure XXXXX right to amend the FYE XXXXX Utah tax return prior to XXXXX.”

                Petitioner’s letter also states it believed it properly reported income to Utah in its original return and makes no mention in its narrative of any reason why a claim for refund would be filed in Utah, except by inference.

                Petitioner’s treatment in the filing of form TC-55A is not clear.  The form clearly is the proper document for filing a claim for refund in the State of Utah.  Petitioner also clearly marked the box on the form that says “Claim for Refund” in addition to citing the correct statute No. 59-7-141 (2)(a) as the refund statute.  Petitioner departed from the true intended use of the form and instead used the form as backup for its cover letter.  The heading included a typed in statement saying “Protective Claim filed under Utah Code 59-7-141 (2)(a)”.  The explanation for the filing of the form directs the reader back to the cover letter for “an explanation of the circumstances necessitating the filing of the (this) protective claim.”

                Petitioner’s request clearly makes a statement that additional information will be filed by XXXXX, but Petitioner failed to do so, and thus missed the extended statute deadline and its opportunity to file an amended return and the corresponding claim for refund.

                The Commission therefore rules in favor of the Auditing Division and denies the claim for refund of the Petitioner.  The division honored the protective claim because the letter and the form both indicated a specific date when the protective claim would close.  The Commission concludes that had Petitioner expected more than the signed receipt of their original request they would have written for additional time, or filed an amended return, or perfected the claim for refund before XXXXX, the date they knew the statue of limitations would expire.  It is so ordered.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

                Dated this 26 day of March, 1996.

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 by trail de novo in district court.  (Utah Administrative Rule R861-1A-5 (P) and Utah Code Ann. §§59-1-601 (1),63-46b-13 et. seq.)

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