BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, : FINDINGS OF FACT,
) CONCLUSIONS OF LAW,
v. : AND FINAL DECISION
COLLECTION DIVISION OF THE : Appeal No. 94-1389
UTAH STATE TAX COMMISSION, )
Respondent. : Account No. #####
) Tax Type: Personal Penalty
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for a Formal Hearing on September 24, 1997. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was PETITIONERS REP., Esq. Petitioner was also Present. Present and representing the Respondent were Gale K. Francis, Assistant Attorney General, along with Janet Thomas of the Collection Division.
Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. The assessment in question is a personal penalty assessment, made against Petitioner for the unpaid sales, withholding and waste tire tax of COMPANY A, formerly COMPANY A.
2. There are a number of periods in question. They are intermittent throughout the time frame of April 1989 through October 1993.
3. From December 1, 1989, to November 1991, Petitioner was an employee and Secretary/Treasurer of COMPANY A. During this period Petitioner was not a corporate director, had no ownership interest in the corporation and did not have control over the financial arrangements.
4. In November 1991 the owner of COMPANY A, Mr.XXXXX, sold all the stock of COMPANY A, and all of the stock of a separate corporation COMPANY B, to Petitioner and Mr.XXXXX. COMPANY A owned and operated a Ford automobile dealership. COMPANY B owned and operated a Pontiac dealership. These dealerships were at two separate physical locations. Pursuant to the purchase, Petitioner became a 50% owner of each of the corporations, served as Secretary/Treasure, was on the Board of Directors and General Manger. However, he functioned as a Sales Manger for both automobile dealerships. Pursuant to the purchase Mr.XXXXX became a 50% owner of each corporation, the President of each of the corporations and oversaw the financial aspects of the businesses.
5. Mr.XXXXX was the Office Manger for COMPANY A from January 1992 to September 1992. At the time of the Formal Hearing she was no longer an employee of COMPANY A or any related company. While Office Manger for COMPANY A, Ms.XXXXX made bank deposits, reconciled bank statements and prepared checks for the business's payables. Ms.XXXXX answered to Mr.XXXXX, Mr.XXXXX decided who would get paid and was the "bottom line" when it came to finances. When Mr.XXXXX told her not to pay a certain bill it was not paid and when he said go into the overdraft to a pay a bill, Ms.XXXXX followed instructions. Ms. XXXXX did not discuss payment of outstanding obligations with Petitioner. At Mr. XXXXX's instruction, Ms. XXXXX prepared two large checks from the business account for Mr. XXXXX's personal benefit. One check was dated May 27, 1992, in the amount of $$$$$. The second check was dated June 2, 1992, in the amount of $$$$$. Both checks were accounted for by COMPANY A as accounts receivable from Mr. XXXXX. Ms. XXXXX did not see any repayment of these funds from Mr. XXXXX.
6. In July of 1992 Petitioner became aware that there was a state tax delinquency at COMPANY A when he met J.D. Heaton, Commission Collection Agent, and was informed by Mr. XXXXX that they had worked out a payment plan whereby the outstanding tax balance would be paid. On subsequent occasions he asked about the tax delinquency and was told it was being paid.
7. In August of 1992, without any prior discussion with Petitioner, Mr. XXXXX hired YYYYY to replace Petitioner as General Manger and Sales Manager of the XXXXX Ford dealership. Petitioner went to work one day in August at the COMPANY A dealership and was informed by his replacement that he no longer worked there. At this time Petitioner went to COMPANY B's Pontiac dealership where he began to work full time and he no longer had any influence at COMPANY A. Mr. XXXXX continued to manage the COMPANY A dealership. No portion of the assessment at issue comes from the business of COMPANY B.
8. In August of 1992 ZZZZZ became the Office Manger at the COMPANY A dealership. She handled the deposits, payables and reconciled bank statements. She answered to Mr. XXXXX until November 1992. Ms. ZZZZZ would present a list of payables to Mr. XXXXX and he would decide which creditors to pay. Petitioner no longer worked at COMPANY A and had no influence on financial or other matters. Mr. XXXXX also instructed Ms. ZZZZZ to write a check from the business account to himself personally. The check was dated September 25, 1992, and was for $$$$$. When she questioned Mr. XXXXX about the check he took offense. At this time COMPANY A's accounts receivable indicated that Mr. XXXXX owed the business $$$$$. Ms. ZZZZZ did not see any repayment of these funds from Mr. XXXXX. At the time of the Formal Hearing Ms. ZZZZZ was not an employee of COMPANY A or any related entity.
9. In September or October of 1992, Mr. XXXXX reported to Petitioner that he was behind on the payments to Mr.YYYYY, the former owner. They worked our an arrangement where Mr. YYYYY was given back a one-third interest in both corporations. Mr. XXXXX and Petitioner's ownership interests were reduced to one-third each. Mr. XXXXX and Mr. YYYYY ran the COMPANY A business while Petitioner continued to run the COMPANY B business. This arrangement lasted until approximately March of 1993.
10. Around March of 1993 Petitioner bought 100% of COMPANY B Mr. XXXXX worked out an arrangement where he acquired 100% of COMPANY A. Mr. COMPANY B changed the name from COMPANY A to COMPANY A INC.. Petitioner saw to it that COMPANY B paid all its delinquent state tax and that it remained current on taxes.
11. In November 1993 Petitioner began negotiations with Mr. XXXXX to acquire 100% of the shares of COMPANY A, now COMPANY A Inc. At this time Petitioner checked for tax liens and warrants against COMPANY A, and found that there were none. In December 1993 Petitioner purchased COMPANY A. Petitioner saw to it that state taxes were paid from this point forward.
12. In August 1993 Mr. Timothy had entered into an agreement with the State Tax Commission whereby they would remove the tax liens and warrants against COMPANY A. In return a lien was placed against Mr. XXXXX's personal residence. In November 1996 the Tax Commission did collect $$$$$ from Mr. XXXXX.
Utah Law provides for a personal penalty assessment for a company's unpaid sales and withholding tax liabilities. It is listed in Utah Code Ann. '59-1-302(1994) and provides in pertinent part:
(2) Any person required to collect, truthfully account for, and pay over any tax listed in Subsection (1) who willfully fails to collect the tax, fails to truthfully account for and pay over the tax, or attempts in any manner to evade or defeat any tax or the payment of the tax, shall be liable for a penalty equal to the total amount of the tax evaded, not collected, not accounted for or not paid over. . .
(7)(b) It is prima facie evidence that a person has willfully failed to collect, truthfully account for, or pay over any of the taxes listed in Subsection (1) if the commission . . . finds that the person charged with the responsibility of collecting, accounting for or paying over the taxes:
(i) made a voluntary, conscious, and intentional decision to prefer other creditors over the state government or utilize the tax money for personal purposes;
(ii) recklessly disregarded obvious or know risks, which resulted in the failure to collect, account for, or pay over the tax; or
(iii) failed to investigate or to correct mismanagement, having notice that the tax was not or is not being collected, accounted for, or paid over as provided by law.
CONCLUSIONS OF LAW
Petitioner was not a person responsible for paying over the withholding tax and Petitioner did not willfully fail to pay over the withholding tax as is required for assessment of a personal penalty pursuant to Utah Code Ann. '59-1-302.
DECISION AND ORDER
At the Formal Hearing the parties presented to the Commission two very different accounts of the events that occurred at COMPANY A from December 1989 through March of 1993. Testimony presented by Petitioner indicated that Petitioner did not know of the tax delinquency and that he was not involved in the accounting functions of COMPANY A. Testimony presented by Respondent was that Petitioner was not only aware of the tax delinquency, but that he participated in the decision as to which creditors should be paid. After weighing the testimony, witness credibility and documents presented by the parties in this matter the Tax Commission's finds Petitioner's position to be better supported.
Based upon the foregoing, the Tax Commission withdraws the personal penalty assessment made against Petitioner for the unpaid sales, withholding and waste tire tax of COMPANY A Inc., for the period from April 1989 through October 1993. It is so ordered.
DATED this 24 day of NOVEMBER, 1997.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val Oveson Richard B. McKeown
Joe B. Pacheco Pam Hendrickson