96-0936
Income Tax
Signed 3/18/97
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
PETITIONER, :
:
Petitioner, : ORDER
:
v. : Appeal No. 96-0936
:
AUDITING
DIVISION OF THE : Account No.#####
UTAH STATE TAX COMMISSION, : #####
:
Respondent. : Tax Type: Income Tax
_____________________________________
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 March 10, 1997. Jane Phan, Administrative Law Judge, heard
the matter for and on behalf of the Commission. Present and representing Petitioner was PETITIONERS REP.,
CPA. Present and representing
Respondent were Gale K. Francis,
Assistant Attorney General, along with Dan Engh of the Auditing
Division.
Petitioners are
appealing the assessment of Utah individual income tax, penalties and interest
for the years 1991 through 1994.
Respondent made the assessment based on the assertion that Petitioners
were residents of Utah during this period.
Petitioner PETITIONER had not filed Utah resident individual income tax
returns for the years in question based on his assertion that he was a resident
of Nevada. Petitioner PETITIONER was a
resident of Utah and had not filed Utah resident returns based on the assertion
that she did not earn sufficient income for filing to be required.
Petitioners also
appeal the penalties assessed on the basis of reliance on their tax
advisor. For the tax years 1991 and
1994, both a 10% failure to file penalty and a 10% failure to pay penalty had
been assessed. The statutory basis for
these penalties is Utah Code Ann. §59-1-401.
Petitioners’ tax advisor represented Petitioners at the hearing and he
acknowledged that he had discussed with Petitioners at the time he prepared the
federal returns whether or not they were domiciled in Utah and had made a determination
that PETITIONER was not domiciled in Utah so Utah returns would not be
necessary. The tax advisor explained
that Petitioners relied on his advice.
APPLICABLE LAW
A tax is imposed on
the state taxable income of every resident individual for each taxable
year. (Utah Code Ann. §59-10-104).
Resident individual is
defined in Utah Code Ann. §59-10-103(1)(j) as follows:
A "resident
individual" is either:
(I) an individual who
is domiciled in this state for any period of time during the taxable year; or
(ii) an individual who
is not domiciled in this state but maintains a permanent place of abode in this
state and spends in the aggregate 183 or more days of the taxable year in this
state.
For purposes of
determining whether an individual is domiciled in this state the Commission has
defined "domicile" in Utah Administrative Rule R865-9I-2(D) as
follows:
the place where an
individual has a true, fixed, permanent home and principal establishment, and
to which place he has (whenever he is absent) the intention of returning. It is the place in which a person has
voluntarily fixed the habitation of himself or herself and family, not for a
mere special or temporary purpose, but with the present intention of making a
permanent home.
After domicile has been established, two things are necessary to create
a new domicile: first, an abandonment of the old domicile; and second, the
intention and establishment of a new domicile.
The mere intention to abandon a domicile once established is not of
itself sufficient to create a new domicile; for before a person can be said to
have changed his or her domicile, a new domicile must be shown.
The Utah Legislature
has specifically provided that the taxpayer bear the burden of proof in
proceedings before the Tax Commission.
Utah Code Ann. §59-10-543 provides the following:
In any proceeding before the commission under this chapter, the burden
of proof shall be upon the petitioner except for the following issues, as to
which the burden of proof shall be upon the commission:
(1) whether the
petitioner has been guilty of fraud with intent to evade tax;
(2) whether the
petitioner is liable as the transferee of property of a taxpayer, but not to
show that the taxpayer was liable for the tax; and
(3)whether the petitioner
is liable for any increase in a deficiency where such increase is asserted
initially after a notice of deficiency was mailed . . .
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 in this
appeal is whether Petitioner was a "resident individual" in the State
of Utah for the purposes of Utah Code Ann. §59-10-103(1)(j) for the years 1991
through 1994. From the information
presented, Petitioner Kenneth Flake did not spend in the aggregate more than
183 days per year in the State of Utah during the period in question. A resident individual, in the alternative,
is one who is "domiciled" in the State of Utah. PETITIONER was clearly a resident and
domiciled in the State of Utah prior to 1991.
In order to show that he was no longer domiciled in Utah during the
period in question PETITIONER must show: 1) that he abandoned his Utah domicile;
and 2) that he intended to and did in fact establish a new domicile in XXXXX.
Petitioner moved to
Utah in 1979 and there was no dispute that he became a Utah resident. While residing in Utah, Petitioner married
XXXXX in 1984. In 1987 they purchased
in joint tenancy a residence located in XXXXX, Utah. During the audit period the home was owned by a TDA Trust for the
benefit of PETITIONER and the children of PETITIONER from a previous
marriage. PETITIONER had no ownership
rights to the residence during the audit period. In 1987 PETITIONER'S company obtained a permit to build an
electrical plant in XXXXX. Petitioner
was the 50% owner of COMPANY A, Inc., which in turn owed 36% of COMPANY B., a
partnership located in XXXXX. COMPANY
B., built a power plant in XXXXX.
The first issue
presented to the Commission is whether or not PETITIONER abandoned his Utah
domicile at the end of 1990. PETITIONER
did not divorce or legally separate from PETITIONER. PETITIONER continued to reside at the XXXXX residence with a
minor child from a previous marriage.
Apparently she refused to move to XXXXX. Although during the audit period PETITIONER'S business and
employment were in XXXXX, he routinely returned to Utah to visit his family,
approximately three weekends per month during the audit period. When in Utah he resided at the XXXXX
residence with PETITIONER. During the
audit period PETITIONER financially supported PETITIONER and her minor child. A car, owned by the TDA trust is registered
in Utah and is maintained at the XXXXX residence for the exclusive use of
PETITIONER when he is in Utah.
PETITIONER'S name appeared in the phone book for the XXXXX
residence. Other utilities for the
XXXXX residence were not in PETITIONER'S name.
They were paid by PETITIONER.
During the audit
period PETITIONER owned four condominiums in Utah, which he maintained as
rental properties. He also owned a
residence in XXXXX, Utah. However, he
explained that his daughter and her family live at the residence and when they
are able to qualify for financing the property will be transferred to
them. PETITIONER also owned three
rental properties in XXXXX and unimproved property in XXXXX. From all these facts it appears that
Petitioner retained significant ties with Utah and did not abandon Utah domicile.
The facts as presented
by the parties indicate that PETITIONER had intended to establish a new
domicile in XXXXX in 1990 and that he did take steps towards doing so. He consulted with his tax advisor about
changing domicile. He rented a two bedroom condominium in XXXXX from December
1990 until January 1995 when he purchased a condominium in XXXXX. According to Petitioner’s representative,
Petitioner did not immediately purchase a residence in XXXXX because he was
waiting for PETITIONER to move to XXXXX with him. If this happened, it would affect the type of property PETITIONER
would have purchased. PETITIONER obtained a XXXXX drivers license in August of
1990. He registered to vote in XXXXX
and did in fact vote there in the 1992 and 1994 general elections. Petitioner was listed in the XXXXX phone
book at the XXXXX residence and paid utilities for the XXXXX residence. Petitioner opened bank accounts in XXXXX. He registered vehicles in XXXXX during the
audit period.
DECISION AND
ORDER
Based upon the
information presented at the hearing, and the records of the Tax Commission,
the Commission finds that although PETITIONER took a number of steps to towards
establishing domicile in XXXXX, he did not abandon his Utah domicile. Both prongs of the test need to be met and
Petitioner did not meet the first prong of the test. As for the penalties, Petitioners’ had relied on the incorrect
advise of their tax advisor. The Commission
finds this reliance to be sufficient reasonable cause for waiver of the penalties.
Based on the
foregoing, the Tax Commission sustains the audit assessment of additional Utah
income tax and the interest accruing thereon for the years 1991 through
1994. The Commission waives all
penalties assessed in this matter.
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 18 day of MARCH, 1997.
BY ORDER OF THE UTAH STATE TAX COMMISSION
W. Val
Oveson Richard
B. McKeown
Chairman Commissioner
Joe B. Pacheco Alice
Shearer
Commissioner Commissioner
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