97-0511
PROPERTY
Signed 3/24/98
BEFORE
THE UTAH STATE TAX COMMISSION
____________________________________
PETITIONER, )
:
Petitioners, ) FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
v. ) AND FINAL DECISION
:
COLLECTION DIVISION OF THE ) Appeal
No. 97-0511
UTAH STATE TAX COMMISSION, : Account
No. xxxxx
)
Respondent. : Tax Type:
Property
_____________________________________
STATEMENT
OF CASE
This matter came before the Utah State Tax
Commission for a Formal Hearing on February 18, 1998. Administrative Law Judge Jane Phan and Commissioner Joe B.
Pacheco, heard the matter for and on behalf of the Commission. Present and representing Petitioners was
NAME. Petitioners were also
present. Present and representing
Respondent were Gale Francis, Assistant Attorney General, and Linda Pringle of
the Collection Division.
Based upon the evidence and testimony
presented at the hearing, the Tax Commission hereby makes its:
FINDINGS
OF FACT
1. Petitioners are appealing the assessment of
penalty and interest relating to sales tax for the second and third quarters of
1987 and the first and third quarters of 1988.
Petitioners have already paid the tax, penalty and interest for these
quarters at issue and are requesting a refund of the penalty and interest
portion.
2. In 1984 Petitioners began operating a business
as a partnership. The business evolved
into a retail store known as Bear Facts.
In June 1985 Petitioners formed a corporation with the name of COMPANY
A, and exchanged their partnership interests for shares of stock in the new
corporation.
3. Petitioners filed a final federal partnership
return for COMPANY A for the period of January 1, 1985 through August 31,
1985. Petitioners began filing federal
corporate income tax returns for PETITIONER, for the periods beginning June 4,
1985. Petitioners also filed Utah
corporate income tax returns for COMPANY A, for the periods June 4, 1985
through August 31, 1985 and September 1, 1985 through August 31, 1986. Petitioner NAME testified that Utah
Corporate returns had been filed for subsequent periods but she was unable to
find her copies of these returns.
Petitioners also filed annual reports with the Department of Commerce
for these same periods.
4. After
forming the corporation and commencing business as a corporation Petitioners
began withholding Utah taxes under a withholding number assigned to COMPANY
A. However, the Tax Commission on its
own initiative had also issued a withholding tax number to COMPANY A, the
partnership, and had apparently mailed withholding coupons to the business with
the partnership account number, as well as withholding coupons with the
corporate account number.
5. The
checking account for the business was under the name of COMPANY A. Both Job Service and Workers Compensation
considered the business to be a corporation.
6. On
May 11, 1988, the Tax Commission issued a Notice of Intention to Suspend
Corporation to COMPANY A, for failure to pay the corporation tax and the
corporation was involuntarily dissolved by the Department of Commerce in August
of 1989. The business had run into
financial difficulty in 1987 and in 1988 or 1989 was in bankruptcy. Due to the financial difficult the business
was late paying sales tax on a number of occasions and had been assessed penalties
and interest prior to the periods at issue in this appeal.
7. From
the time the partnership interests were transferred over to COMPANY A, the
business operated as a corporation and was recognized as a corporation by
several government agencies, including the Tax Commission. The one exception to this was the sales tax
number which had originally been issued to the partnership and which
Petitioners had inadvertently continued to use as they operated business as a
corporation. So for sales tax purposes
the Tax Commission continued to treat the COMPANY A business as a partnership
while for withholding and corporate franchise tax purposes the Tax Commission
recognized the business as a corporation.
8. Subsequent
to forming COMPANY A, Petitioners formed a second corporation entitled COMPANY
B. This corporation operated a retail
store at a different location from the
COMPANY A business. COMPANY B, also
became delinquent on its sales tax obligations and a personal penalty
assessment was issued against PETITIONER for the sales tax amount. Respondent did not assess the penalty and
interest from the COMPANY B account through to PETITIOENR personally. It was the testimony of Respondent's witness
that only the amount of tax owed by the corporation would be assessed to a
corporate officer, director or responsible person as a personal penalty
assessment. Interest and penalties
assessed to the corporation were not included in the personal penalty assessment. Eventually Respondent placed a lien against
PETITIONER's residence in the amount of $$$$$ for the unpaid COMPANY B personal
penalty assessment.
9. Petitioner
NAME learned of the lien against her residence while attempting to obtain a
second mortgage. The title search on
her residence turned up a lien for delinquent tax in favor of the Tax
Commission for $$$$$. PETITIONER
testified that she went to the Tax Commission specifically to see what she
needed to do to pay off the lien and was told that instead of the lien amount
she would now have to pay $$$$$. And
eventually, in order to obtain the loan the full $$$$$ was paid to the Tax
Commission. It was NAME's testimony
that she specifically asked if she could just pay the $$$$$ to have the lien
released and take care of the remainder later and she represents that Tax
Commission employees told her that she would have to pay the full amount of
$$$$$. Although the witness for
Respondent attempted to rebut this testimony in its clear from the facts
presented that had NAME paid only the $$$$$. Respondent would have released the
lien, and that Tax Commission employees did not tell NAME of this option. 10. The $$$$$ lien was for the personal penalty
against NAME from the COMPANY B account.
No lien or assessment had been made personally against NAME for the
COMPANY B sales tax account. However,
operating under the impression that COMPANY A was a partnership, Respondent saw
that the liability would flow through to NAME as a partner and added the
outstanding balance of sales tax, penalty and interest from COMPANY A to the
payoff given for NAME. Of the $$$$$
final payoff made by NAME only $$$$$ went to the COMPANY B account because of a
credit made to COMPANY B subsequent to when the lien was filed. The remaining $$$$$ of the final payoff was
for COMPANY A. Respondent's
representative testified that $$$$$ in penalties and interest had been paid
towards the COMPANY A sales tax account.
However, a portion of this had been paid prior to the final payoff.
CONCLUSIONS
OF LAW
The Tax Commission is granted the authority
to waive, reduce, or compromise penalties and interest upon a showing of
reasonable cause. (Utah Code Ann. '59-1-401(10).)
DECISION
AND ORDER
Petitioners' representative argues that the
business COMPANY A was a corporation and as such NAME, as an officer or
director, could only be held liable for unpaid tax and not the penalty and
interest portion. He asks that the full
$$$$$ in penalties and interest paid towards the COMPANY A sales tax account be
refunded or in the alternative the full $$$$$ of the final payoff which can be
attributed to COMPANY A be refunded.
However, even if COMPANY A had been treated as a corporation from 1985
forward in is sales tax account, the corporation would have been assessed
penalties and interest for every late filing and late payment of sales
tax. The COMPANY A business paid some
of the penalties and interest prior to the final payoff. The final payoff was the first time
delinquent COMPANY A taxes were personally assessed to NAME. As a result NAME is not entitled to a refund
of any portion of the penalties or interest paid prior to the final
payoff.
However, sufficient reasonable cause was
presented for waiver of all penalties and interest paid by NAME towards the
COMPANY A sales tax account in the final payoff.
Based upon the foregoing, the Tax Commission
waives the penalties and interest from
the COMPANY A sales tax account made by Petitioner in the final payoff and
orders Respondent to refund this amount to NAME. It is so ordered.
DATED this 24 day of March, 1998.
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 24 day of March, 1998.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val Oveson Richard
B. McKeown
Chairman Commissioner
Joe B. Pacheco Pam Hendrickson
Commissioner Commissioner
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