95-1214
Motor Fuel
Signed 1/4/96
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX, )
:
Petitioner, : ORDER
:
v. : Appeal No. 95-1214
:
AUDITING
DIVISION OF THE : Account No. XXXXX
UTAH STATE TAX COMMISSION, :
:
Respondent. : Tax Type: Motor Fuel
_____________________________________
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. The matter had originally been scheduled for
a Status Conference but the Status Conference was converted to an Initial
Hearing upon the approval of the parties.
Jane Phan, Administrative Law Judge, heard the matter for and on behalf
of the Commission. Present and
representing Petitioner by telephone conference call was XXXXX. Present and representing Respondent were
XXXXX, XXXXX and XXXXX of the Auditing Division.
Petitioner
is appealing the assessment of penalties in the amount of $$$$$ and interest of
approximately XXXXX resulting from a motor fuel tax audit for the period of
XXXXX through XXXXX. Petitioner is not
appealing the additional motor fuel tax assessment of $$$$$ for the audit
period. The penalty assessed was the
10% negligence penalty pursuant to Utah Code Ann. §59-1-401(5)(a)(I).
APPLICABLE LAW
Effective
as of January 1, 1992 the Commission set out by Utah Administrative Rule
865-13G-11 the requirement for consistent motor fuel reporting as follows:
A. Definitions: 1) "Gross
gallon" means the Untied States volumetric gallon with a liquid capacity
of 231 cubic inches. 2) "Net
gallon" means the gross metered gallon with temperature correction in
volume to 60 degrees Fahrenheit.
B. All Utah licensed
distributors shall elect to calculate the tax liability on the Utah Motor Fuel
Tax Returns on a consistent and strict gross gallon or net gallon basis. The election must be declared in writing and
must be sent to the Tax Commission.
The declared basis must be the exclusive basis used for 12 consecutive
months. Any licensed distributor
failing to make an election will default to the gross gallon basis and must
then report and pay the excise tax on that basis. Requests for changes in the reporting basis must be submitted in
writing and approved by the Tax Commission prior to any change in the reporting
basis. Changes in basis may occur only
on January 1 and must remain in effect 12 consecutive months.
C. If the election is made to
purchase under the net gallon basis, all invoices, bills of lading, and motor
fuel tax returns must include both the gross and net gallon amounts. Conversion from gross to net must conform to
the ASTM-API-IP Petroleum Measurement Tables.
D. All transactions such as purchases,
sales, or deductions, reported on the Motor Fuel Tax Return must be reported on
a consistent and exclusive basis. The
taxpayer shall not alternate the two methods on any return or during any 12
month period.
E. This rule shall take effect
January 1, 1992.
The
legislature has provided for the assessment of additional penalties as follows
in Utah Code Ann. §59-1-401:
(5)(a) Additional penalties for underpayments of tax are as follows:
(I) If any underpayment of tax is due to negligence, the penalty is 10%
of the underpayment.
(ii) If any underpayment of tax is due to intentional disregard of the
law or rule, the penalty is 15% of the underpayment.
(iii) For intent to evade the tax, the penalty is the greater of $500
per period or 50% of the underpayment.
(iv) If the underpayment is due to fraud with intent to evade the tax,
the penalty is the greater of $500 per period or 100% of the underpayment.
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(10).)
ANALYSIS
The
issue before the Commission in this matter is whether the 10% negligence
penalty was validly assessed pursuant to Utah Code Ann. §59-1-401(5)(a)(I) or
whether the Petitioner has shown reasonable cause for waiver or the penalty or
interest. Petitioner asserts that the
penalty and interest should be waived.
Respondent requests that the assessment of the penalty and interest be
upheld.
Petitioner
offers the following information in support of its position. At the hearing Petitioner's representative
explained that although Petitioner was aware of the change set out in Utah
Administrative Rule 865-13G-11 concerning reporting motor fuel tax liability on
a consist net or gross basis, Petitioner thought the rule would be overturned
or not enforced. Petitioner thought
this because of information provided by the XXXXX who were challenging the rule
with the legislature. XXXXX also stated
that they were taking legal action against the Commission on this rule. Petitioner provided two memos from XXXXX
which did reasonably support these allegations.
Petitioner
had filed under protest an election on Form TC-106 to report on a net gallon
basis, but Petitioner continued to report as it had for the past fifteen years,
thinking the rule would be changed.
Further, one of Petitioner's significant suppliers did not break the
numbers into both gross or net numbers which contributed to Petitioner's
rationale for not filing consistently on a net gallon basis.
A
small portion of the additional tax assessment had also been made against
Petitioner for sales made to XXXXX.
Petitioner had treated these sales as government sales. The Respondent disallowed the claim that
they were government sales and assessed additional tax. Petitioner's representative stated that
Petitioner relied on the information provided by XXXXX thinking that it should
be exempt.
Petitioner
states that failing to follow the new rule and relying on information from
XXXXX were honest mistakes and the assessment of the 10% negligence penalty was
extremely harsh.
At
the hearing Respondent explained that a change of the rule concerning
consistent basis reporting had been mailed to Petitioner and Petitioner had
returned, with a letter of protest, the Form TC-106 electing to report on a net
gallon basis. However, Petitioner then
failed to report consistently on the net gallon basis. Respondent stated that the majority of
distributors did follow the rule correctly.
Respondent did add that other than for the five months of XXXXX through
XXXXX Petitioner had reported correctly and continues to report
consistently. However, Respondent
maintains that the 10% negligence penalty was validly assessed and should not
be waived.
DECISION AND ORDER
With
full knowledge of the rule change set out in Utah Administrative Rule
865-13-11G Petitioner failed to follow the rule based on the rationale that the
rule would be overturned or set aside.
In some instances a change in rule or law can be considered sufficient
reasonable cause for waiver of penalties but only if the taxpayer could not
reasonably be aware of the change.
Further, although the Petitioner argues that the 10% negligence penalty
is harsh for what Petitioner feels is an honest mistake, it is the penalty
provided by the Utah Legislature. The
Utah Legislature has provided for much harsher penalties in instances where it
is deemed that the taxpayer intended to evade payment. Because Petitioner clearly had knowledge of
the rule change, the penalty was validly assessed. Petitioner has not presented sufficient reasonable cause for
waiver of the penalty and interest.
Based
upon the information presented at the hearing, and the records of the Tax
Commission, the Commission finds sufficient cause has not been shown to waive
the penalties of XXXXX and interest of approximately $$$$$ assessed from the
motor fuel audit for the period of XXXXX through XXXXX.
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 4th day of January, 1996.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val
Oveson Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco Alice
Shearer
Commissioner Commissioner
^^