95-1755

Sales

Signed 3/29/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX,

Petitioner, ) ORDER

:

v. ) Appeal No. 95-1755

:

AUDITING DIVISION OF THE ) Account No. XXXXX

UTAH STATE TAX COMMISSION, :

) Tax Type: Sales Tax Penalty

Respondent. :

) Audit Periods: XXXXX

_____________________________________

This matter came before the Utah State Tax Commission for a Status Conference on XXXXX. The Status Conference was converted to an Initial Hearing with the concurrence of both parties. The Initial Hearing was held pursuant to the provisions of Utah Code Ann. '59-1-502.5. Commission Chairman W. Val Oveson, heard the matter for and on behalf of the Commission. Present and representing Petitioner were XXXXX, General Counsel; XXXXX, Tax Manager; and XXXXX, Clerk. Present and representing Respondent were XXXXX, Deputy Director of Auditing and XXXXX, Audit Manager.

STATEMENT OF THE CASE

Petitioner was audited by Respondent for the period XXXXX through XXXXX and an assessment of sales tax, interest and a negligence penalty was assessed. Petitioner appealed the audit assessment to the Tax Commission, and the Tax Commission sustained the audit assessment and the penalty. Petitioner appealed to the Supreme Court, which assigned the case to the Court of Appeals. The Court of Appeals sustained the assessment and the negligence penalty on XXXXX.

On XXXXX, Respondent notified Petitioner of their intent to audit Petitioner for the period XXXXX through XXXXX. Petitioner informed Respondent of the former audit in appeals and Respondent agreed to delay the second audit until the appeal had been decided. Petitioner signed statute of limitation waivers on XXXXX, XXXXX and again on XXXXX, extending the audit period to XXXXX.

Respondent's second audit revealed that Petitioner had not changed their procedures for the first two years of the audit period and assessed additional tax, penalty and interest for the same issues that were discovered in the original audit. Petitioner agreed to the sales tax assessment and the interest, but appealed the XXXXX negligence penalty on the basis that Petitioner could not have complied with the order of the Court of Appeals in time to have had an effect on the second audit period.

Respondent asserts that because the original audit period penalty assessment had been sustained by the Tax Commission and the Court of Appeals, the penalty assessment for the identical issues should be sustained for the second audit period.

APPLICABLE LAW

Utah Code Annotated Section 59-1-401(5)(a)(I)allows the Audit Division the latitude to assess a 10% negligence penalty. The law reads:

(5) (a) Additional penalties for underpayment of tax are as follows:

(I) If any underpayment of tax is due to negligence, the penalty is 10% of the underpayment.

ANALYSIS

The issue in this case is not whether the original penalty was justified or supported by the Tax Commission and the Court of Appeals, the issue is whether Petitioner could have been or should have been reasonably expected to change their procedures and file amended returns in Utah, and the other jurisdictions where they file returns, in advance of a final determination of the original audit period. XXXXX, representing Respondent, testified that he did not think it logical that Petitioner would have made the changes necessary to avoid an assessment prior to the final determination of the Court of Appeals. The Commission agrees with XXXXX.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that the negligence penalty should be abated. 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 29 day of March, 1996.

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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