97-0251
____________________________________
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