94-1575
Personal Assessment
Signed 12/7/95
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX, )
:
Petitioner, : ORDER
:
v. : Appeal No. 94-1575
:
COLLECTION
DIVISION OF THE : Account No. XXXXX
UTAH STATE TAX COMMISSION, :
:
Respondent. : Tax Type: Personal Assessment
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for an Initial Hearing
pursuant to the provisions of Utah Code Ann. §59-1-502.5, on XXXXX. W. Val Oveson, Commission Chairman, heard
the matter for and on behalf of the Commission. Present and representing Petitioner were XXXXX and XXXXX,
Attorney. Present and representing
Respondent were XXXXX, Legal Section Manager, XXXXX, Collection Manager, and
XXXXX, Collector.
1. The tax in question is Utah sales tax.
2. The years at issue are XXXXX through XXXXX.
3.
Petitioner was a shareholder in XXXXX operating in St. George, Utah. Petitioner was one of five (5) shareholders
who all owned an equal share of the "business." The business was managed by a President and
a CPA who was the bookkeeper.
4.
In December of XXXXX the business was moved into a larger building in St.
George. It was stated by Petitioner
that the President of the business was "over his head," and made
representations to the shareholders that were not true.
5.
Petitioner represented that in XXXXX the books and records of the business were
presented to the stockholders. The
bookkeeper represented that the business was losing money, but that there were
sufficient assets to cover the debts, including the current taxes.
6.
According to the testimony of Petitioner, in the summer of XXXXX the
shareholders met again. Representations
were made to the shareholders by management that the value of the inventory was $$$$$, and the debts were
less than $$$$$. Statements were made
at the hearing to the effect that, "It was represented by the bookkeeper
and the President that all taxes were paid." This statement is incompatible with the "Preliminary
Personal Assessment Questionnaire" where Petitioner responds to question
number 5, "When did you first know that taxes were not being paid? Answer, August of XXXXX.”
7.
In October of XXXXX a "Liquidator" was brought in to liquidate the
assets of the business. The liquidation
company had control of the books from the time they came in until they left in
early XXXXX. In November of XXXXX the
"Liquidator" informed the President that they had $$$$$ of inventory,
and not $$$$$ that was originally expected.
It was evident at that time that the business could not pay the bank
loan.
8.
In January of XXXXX the shareholders were able to get a picture of the
debts. They discovered at that time
that the payroll withholding and sales taxes had not been paid for the period
of time before the "Liquidator" took over. The "Liquidator" paid the tax generated from their
sales directly to the State.
9.
In January of XXXXX the other stockholders asked Petitioner to "look over
the shoulder" of the President and "see that he was paying bills of
the company." During that time the
bank came in and took every dime that came into the business.
10.
When the dust settled in March of XXXXX, several banks, the IRS, Respondent and
other unsecured creditors were not paid.
Petitioner stated that he was nothing more than a shareholder up to the
point where he was asked to "look over the shoulder" of the President
in January of XXXXX. He did not have
the power to make decisions by himself, but did have the authority to co-sign
checks. He only signed a "half
dozen" checks during that time.
11.
When Petitioner was presented with the "Preliminary Personal Assessment
Questionnaire," he completed the form promptly and completely. That questionnaire indicates that during
XXXXX, Petitioner did have some role in the decision to make payments, and did
know that there were taxes that were not paid.
12.
Petitioner feels that he has a moral obligation for the taxes in addition to
any legal obligation. Based on that
moral obligation, Petitioner has made a offer to pay one fifth of the tax,
which is approximately $$$$$. That offer was rejected by Respondent.
13.
It was represented at the hearing that the IRS made an analysis of the personal
assessments for withholding tax purposes and found 100% of the liability on the
President and the C.P.A. who was doing the bookkeeping.
14.
A final liquidation was made in March of XXXXX, and the business received ten
cents on the dollar, most of which was paid to the bank.
15.
Respondent feels that Petitioner was jointly and severally liable for the tax
for the first quarter of XXXXX. The amount
of sales and use tax for that quarter is $$$$$.
16.
Petitioner stated that it was in the latter part of January XXXXX when he was
asked to "look over the shoulder" of the President," and that if
Petitioner was liable for the first quarter it would only be from mid-February
to March. Petitioner stated that he
could not write checks on his own, and could not pay bills on his own. He was not in a position to do anything but
report to the other Board Members.
17.
It was represented by Petitioner that the books are in boxes in the attorney's
office and it would not be practical to go through them. It was represented that Petitioner did not
know who signed the sales and use tax returns.
APPLICABLE LAW
Section
59-1-302 outlines the applicability law relative to personal assessments of
sales and use tax. The statutes read as
follows:
(1) The provisions of this section apply to the
following taxes in this title:
(a) state and local sales and use tax under
Chapter 12, Parts 1 and 2;....
(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. This penalty is in addition to other penalties provided by law.
(3) (a) If the commission determines in accordance with
Subsection (2) that a person is liable for the penalty, the commission shall
notify the taxpayer of the proposed penalty.
(b) The notice of proposed penalty shall:
(I) set forth the basis of the assessment; and
(ii) be mailed by registered mail, postage
prepaid, to the person's last-known address.
(4) Upon receipt of the notice of proposed
penalty, the person against whom the penalty is proposed may:
(a) pay the amount of the proposed penalty at
the place and time stated in the notice; or
(b) proceed in accordance with the review
procedures of Subsection (5).
(5) Any person against whom a penalty has
been proposed in accordance with
Subsections (2) and (3) may contest the proposed penalty by filing a petition
for an adjudicative proceeding with the commission.
(6) If the commission determines that the
collection of the penalty is in jeopardy, nothing in this section may prevent
the immediate collection of the penalty in accordance with the procedures and
requirements for emergency proceedings in Title 63, Chapter 46b, Administrative
Procedures Act.
(7) (a) In any hearing before the commission and in
any judicial review of the hearing, the commission and the court shall consider
any inference and evidence that a person has willfully failed to collect,
truthfully account for, or pay over any tax listed in Subsection (1).
(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 or a court 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 known
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.
(C) The commission or court need not find a bad
motive or specific intent to defraud the government or deprive it of revenue to
establish willfulness under this section.
(d) If the commission determines that a person is
liable for the penalty under Subsection (2), the commission shall assess the
penalty and give notice and demand for payment. The notice and demand for payment shall be mailed by registered
mail, postage prepaid, to the person's last-known address.
ANALYSIS
Based
on the testimony presented at the hearing, it is a stipulated fact that
Petitioner was a responsible party for the payment of sales tax for part of the
first quarter of XXXXX. The question
that must be answered is the level of personal assessment demanded under the
law based on the facts presented.
Petitioner
was requested to represent the other four stockholders when they asked him to
"look over the shoulder" of the President. It is the opinion of the
Commission that Petitioner did not play a significant role in the operations of
the business, and did not have the authority to direct where scarce cash was
applied, although he did have the power to stop payments that he believed were
not appropriate.
Further,
Petitioner is being made to bear a disproportionate burden of this tax
liability because he responded to the "Preliminary Personal Assessment
Questionnaire" timely and completely. Petitioner should not be punished
for his timeliness and his honesty.
Respondent should diligently seek personal assessments from other
officers of the corporation who had more responsibility and authority to direct
the payment of bills than did Petitioner.
DECISION AND ORDER
Based
upon the information presented at the hearing, and the records of the Tax
Commission, the Commission finds sufficient cause has been shown to make a
personal assessment against Petitioner.
However, Petitioner's role in the operation of the business was not
significant enough to make him liable for the total amount. The Commission therefore fixes the personal
assessment at $$$$$. It is so ordered.
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 7th day of December, 1995.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
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