97-0251

Personal Penalty

Signed 12/2/97

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, :

:

Petitioner, : ORDER

:

v. : Appeal No. 97-0251

:

COLLECTION DIVISION OF THE : Account No. #####

UTAH STATE TAX COMMISSION, :

:

Respondent. : Tax Type: Personal Penalty

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission pursuant to the Administrative Procedures Act and the rules of the Utah State Tax Commission for informal adjudicative proceedings. An Informal Hearing was held on June 30, 1997. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner was PETITIONER. Present and representing Respondent was RESPONDENT REP..

Petitioner is appealing the personal penalty assessment against him for the sales tax liability of the COMPANY A., for the period of July 1994 through June 1996. The total amount of the personal penalty assessment against Petitioner for this period is $$$$$.

Petitioner testified that he had been working for XXXXX as a cook at the COMPANY A. When XXXXX incorporated the restaurant, forming the COMPANY A., Petitioner became the President of the new corporation. He testified that after he had been President for a few months he came to the realization that some of the financial operations of the business were being handled inappropriately. As soon as Petitioner tried to take action to correct the situation he was locked out of the business. He was not allowed back into the business until he purchased the business. The purchase was accomplished by a Stock Purchase Agreement dated November 30, 1994. In the Agreement the sellers represented to Petitioner that there were no outstanding debts other than those listed in an exhibit. The outstanding tax liability was not listed. However, at that point the unpaid tax balance was relatively small. At the hearing Petitioner alleged that the seller of the business had taken funds from the business to which he was not entitled according to the terms of the Stock Purchase Agreement. He also felt that the seller had misrepresented the financial situation of the business. Petitioner acknowledged that after his purchase of the business on November 30, 1994, he was the person responsible for its operations including the day to day financial decisions. He knew the business was not meeting its financial obligations, including taxes, but he felt unable to close the business down because of the lease arrangement he had for the facility. The facility from which the business was operated was leased from a motel. Motel guests who ate at Petitioner's business generally charged their meals to their motel rooms. Then the motel would collect the funds in the motel bill. Petitioner explained that the motel would keep the funds, including the sales tax portion, to cover the rent for Petitioner's business. For this reason Petitioner felt that he had no control over this portion of the proceeds generated by the business and was not given the opportunity to make a choice of which creditor to pay.

Petitioner argued that the Tax Commission should have shut the business down during the period in question by revoking its sales tax license so that the liability would not continue to accrue. He explained that he did not take any money out of the business and often did not pay himself a salary, although he paid other employees. He finally closed the business during June 1996. He testified that his current financial situation was such that he could not afford to pay the personal penalty assessment. Petitioner had made an offer in compromise but the Collection Division had turned it down.

Petitioner also alleged that the lessor of the property at which the business operated, misrepresented himself to be an agent of Petitioner and obtained confidential information from a Tax Commission employee concerning Petitioner's tax delinquency. He asserted that it was because of this knowledge the lessor would not let him out of the lease. Petitioner had no first hand knowledge the incident. He said he found out from the Tax Commission collection agent who allegedly gave the information to the lessor. Petitioner asked the Tax Commission to consider Utah Code Ann. §59-1-403 in reference to this disclosure of confidential information.

APPLICABLE LAW

Any person required to collect, truthfully account for, and pay over any sales, withholding, or other listed taxes, who willfully fails to collect the tax, fails to truthfully account for and pay over the tax, or attempts in any manner to evade or defeat any tax or the payment of the tax, shall be liable for a penalty equal to the total amount of the tax evaded, not collected, not accounted for, or not paid over. It is prima facie evidence that a person has willfully failed to collect, truthfully account for, or pay over any of the taxes listed in Subsection (1) if the Commission or a court finds that the person was charged with the responsibility of collecting, accounting for, or paying over the taxes: (i) made a voluntary, conscious, and intentional decision to prefer other creditors over the state government or utilize the tax money for personal purposes; (ii) recklessly disregarded obvious or known risks, which resulted in the failure to collect, account for, or pay over the tax; or (iii) failed to investigate or to correct mismanagement, having notice that the tax was not or is not being collected, accounted for or paid over as provided by law. (Utah Code Ann. §59-1-302.)

DECISION AND ORDER

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission finds that after acquiring the business on November 30, 1994, Petitioner became the person responsible for collecting and paying over sales tax. Petitioner failed to meet this responsibly. He knew the taxes were being collected from the customers of the business and yet were not remitted to the Tax Commission. Petitioner paid employees and other creditors over the Tax Commission. He continued to operate the business knowing that tax was being charged to customers but not being paid over to the Tax Commission. The lease arrangement he had for the facility is insufficient justification for failing to remit sales taxes.

Therefore, the personal penalty assessment arising from the period beginning December 1, 1994 and going through June 30, 1996, is sustained. Prior to December 1, 1994, Petitioner was not the responsible party for collecting and remitting sales tax as he did not have sufficient power or control of the business. The personal penalty assessment relating to transactions prior to November 30, 1994, is disallowed. It is so ordered.

DATED this 2 day of DECEMBER, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

_____________________________

Jane Phan

Administrative Law Judge

The agency has reviewed this case and the undersigned concur in this decision.

DATED this 2 day of DECEMBER, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Pam Hendrickson

Commissioner Commissioner