95-0564

Income Tax

Signed 1/24/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, )

Petitioners, ) ORDER

v. ) Appeal No. 95-0564

CUSTOMER SERVICE DIVISION OF )

THE UTAH STATE TAX COMMISSION,:

)

Respondent. : Tax Type: Income

_____________________________________

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 April 23, 1996. G. Blaine Davis, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present on the telephone and representing Petitioners was PETITIONERS REP., Certified Public Accountant. Present and representing Respondent were XXXXX, Assistant Attorney General, together with XXXXX and XXXXX, from the Customer Service Division.

1. Petitioners filed their Utah Individual Income Tax Return for 1986 on or before the due date of April 15, 1987. That return included all of their income for 1986, a portion of which was from a limited partnership. All of the taxes due pursuant to said return were timely paid.

2. On September 29, 1991, the State of Arizona assessed income taxes on a portion of the income from the limited partnership which had been included in the 1986 Utah return for Petitioners. That Arizona assessment was appealed through the Arizona appeals process, and an unfavorable decision was issued on August 19, 1993. Further appeal resulted in a final order which was issued by Arizona on May 6, 1994.

3. Following the receipt of the initial Arizona decision, Petitioners filed an Amended Utah return and a claim for refund on September 29, 1993. That claim for refund, based upon the amended return, was denied by the Customer Service Division on January 23, 1995. Petitioners filed their appeal on February 16, 1995.

4. Petitioners ask that the refund be granted for equitable adjustment reasons to grant them relief from double taxation. It is acknowledged that the claim for refund was not filed within the regular three-year statute of limitations. Respondent denied the claim for refund, and requests that the Commission affirm that denial of the refund.

5. Petitioners acknowledge that Utah Code Annotated '59-10-529(7) would normally require this type of refund to be filed within three (3) years from the time the tax was paid. However, Petitioner argues that the Commission should exercise its equitable adjustment powers, pursuant to Utah Code Annotated '59-10-115(4).

6. Section 59-10-115(4), provides:

(4) The Commission shall by rule prescribed

for adjustments to state taxable income of

the taxpayer in circumstances other than

those specified by Subsections (1), (2), and

(3) of this section where, solely by reason

of the enactment of this chapter, the taxpayer

would otherwise receive or have received a

double tax benefit or suffer or have suffered

a double tax detriment. Anything in this

section or this chapter to the contrary

notwithstanding, the Commission may not make

any adjustment pursuant to this section

which will result in an increase or decrease

of tax liability the amount of which is less

than $$$$$. (Emphasis added).

7. Section 59-10-115(4), U.C.A. permits the Commission to make equitable adjustments to prevent either double tax benefit or double tax detriment. Petitioners allege they have suffered a double tax detriment, and the Commission should relieve them of that problem and permit them to receive the refund.

8. In reviewing the facts, it is clear that Petitioners have paid an income tax on the same income to two different states, Arizona and Utah. Petitioners included the Arizona limited partnership income on their Utah income tax return because they are residents of Utah, but it is apparently not in dispute that the income was appropriately taxed by Arizona. Therefore, but for the three (3) year statute of limitations, Petitioners would be entitled to the requested refund.

9. Utah Code Annotated '59-10-536(5), permits the Commission to make an assessment beyond the Statute of Limitations if an adjustment is made to the federal return by the Internal Revenue Service, and requires the taxpayer to file an Amended Return to reflect any change in income made on the federal return by the Internal Revenue Service, even if the assessment is after the Statute of Limitations. That section of the statute provides as follows:

(5)(a) If a change is made in a taxpayer=s net

income on his or her federal income tax return,

either because the taxpayer has filed an

amended return or because of an action by

the federal government, the taxpayer must

notify the Commission within 90 days after the

final determination of such change. The tax-

payer shall file a copy of the amended federal

return and an amended state return which

conforms to the changes on the federal return.

No notification is required of changes in the

taxpayer=s federal income tax return which do

not affect state tax liability.

(b) The Commission may assess any deficiency in

state income taxes within three years after

such report or amended return was filed. The

amount of such assessment of tax shall not

exceed the amount of the increase in Utah tax

attributable to such federal change or correction.

The provisions of this Subsection (b) do not

affect the time within which or the amount for

which an assessment may otherwise be made.

However, if the taxpayer fails to report to

the Commission the correction specified in this

Subsection (b) the assessment may be made at

any time within six years after the date of

said correction.

10. Utah Code Annotated '59-10-529(14) deals with credits and refunds when changes or corrections are made to a taxpayer=s federal tax return, and that statute provides:

(14)(a) If a taxpayer is required to report

a change or correction in federal taxable

income reported on his federal income tax

return, or to report a change or correction

which is treated in the same manner as

if it were an overpayment for federal

income tax purposes, or to file an

amended return with the Commission, a claim

for credit or refund of any resulting over-

payment of tax shall be filed by the tax-

payer within two years from the date the

notice of the change, correction, or

amended return was required to be filed

with the Commission.

(b) If the report or amended return is not

filed within 90 days, interest on any

resulting refund or credit ceases to accrue

after the 90-day period.

not exceed the amount of the reduction in

tax attributable to the federal change,

correction, or items amended on the tax-

payer=s amended federal income tax return.

(d) Except as specifically provided, this

section does not affect the amount or the

time within which a claim for credit or

refund may be filed.

11. The legislature has established the policy that when the federal government requires changes or corrections to the tax return of a taxpayer, an amended Utah return is required to be filed with the Tax Commission within 90 days, with any claims for credit or refund to be filed within two years from the date the notice of change, correction, or amended return was required to be filed with the Commission.

12. The Commission is of the opinion that when any changes or corrections are required by another state, the taxpayer should be held to the same standards, and have the same rights, as if the changes and corrections were required by the federal government. Refunds caused by changes between states should be administered consistently and uniformly with refunds caused by changes by the federal government.

13. Petitioners fully complied with all of the filing procedures within the time limits required for changes and corrections made by the federal government.

14. The Commission therefore determines that this is one of the situations for which an equitable adjustment should be permitted pursuant to the provisions of Utah Code Annotated '59-10-115(4) to prevent the taxpayer from suffering a double tax detriment by requiring them to pay a state income tax on the same income to two different states.

DECISION AND ORDER

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission finds that the claim for refund of Petitioners should be granted.

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 24 day of January, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner