BEFORE THE UTAH STATE TAX COMMISSION
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.
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
Joe B. Pacheco Pam Hendrickson