96-0322
Sales and Use

Signed 6/26/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX,

Petitioner, : ORDER

:

v. : Appeal No. 96-0322

:

AUDITING DIVISION OF THE : Account No. XXXXX

UTAH STATE TAX COMMISSION, :

:

Respondent. : Tax Type: Sales & Use

_____________________________________

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. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. This matter had originally been scheduled for a Status Conference, but was converted to an Initial Hearing at the request of the parties. Present and representing Petitioner were XXXXX and XXXXX, XXXXX. Present and representing Respondent was XXXXX.

Respondent performed an audit on the books and records of Petitioner for the audit period of XXXXX. As a result of the audit, a penalty of $$$$$ was assessed for Petitioner's failure to report, on its sales and use tax return, equipment purchases which qualified for exemption under Utah Code Annotated §59-12-104(16).

Petitioner's representatives explained that Petitioner is a small business. While considering some equipment purchases, it had retained XXXXX firm to look at whether the purchases would qualify for exemption from sales tax. XXXXX firm told Petitioner that the purchases qualified for the exemption and prepared a Form TC-721 Exemption Certificate for Petitioners. At that time, XXXXX firm was not retained to prepare the sales tax returns, and there was a misunderstanding as the Petitioner did not report the purchases on the sales tax return. Apparently, Petitioner's bookkeeper thought all that needed to be done was to retain the exemption certificate.

Respondent's representative explained that the purchases qualified for exemption under Utah Code Ann. §59-12-104(16) as items purchased for new or expanding operations. However, Petitioner is required to report the purchases on its sales tax return pursuant to Utah Code Ann. §59-12-105 (1995). This section provides that upon failure to report the full amount of the exemption on the return, the Commission shall impose a 10% penalty. Respondent's representative pointed out that prior to the XXXXX revision, the penalty had been 100%. Some of the purchases had occurred under the prior law, while others occurred after the effective date of the revision. He stated that Respondent had decided to assess the lesser, 10% penalty for all purchases.

DECISION AND ORDER

The legislature has provided certain manufacturers an exemption from sales and use tax on qualifying purchases of equipment for use in new or expanding operations. (Utah Code Ann. §59-12-104(16).) However, the legislature was concerned that it be able to obtain an accurate report on the amount of exemptions under this section. To insure proper reporting, it originally disallowed the exemption in its entirety if it was improperly reported. (Utah Code Ann. §59-12-105 (1994)). In XXXXX, the legislature revised the law requiring only a 10% penalty for failure to report a qualified exemption. Not knowing or understanding the reporting requirement is insufficient justification for waiver of the penalty. The Respondent has generously assessed only the smaller penalty for all of the purchases in this matter.

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission sustains the 10% penalty assessment in the amount of $$$$$ against Petitioner resulting from the audit for the period of 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 26 day of June, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew