97-0580
SALES
Signed 7/31/97
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
COMPANY B, )
:
Petitioner, ) DECISION
:
v. ) Appeal No. 97-0580
:
AUDITING DIVISION
OF THE ) Account No. #####
UTAH STATE TAX
COMMISSION, :
STATE OF UTAH, ) Audit Period: 1/1/93 - 11/30/95
:
Respondent. ) Tax
Type: Sales Tax
_____________________________________
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 an informal adjudicative
proceeding. A hearing was held on July
2, 1997. Joe B. Pacheco, Commissioner,
heard the matter for and on behalf of the Commission. Present and representing Petitioner was PETITIONER REP, Cost
Accounting Manager, together with PETITIONER REP, General Accounting
Manager. Present and representing
Respondent was Mr. Gil Naisbitt, of the Auditing Division.
This matter came
before the Utah State Tax Commission as a Status Conference but was converted
to an Informal Hearing.
There is only one
issue in this appeal and that is the imposition of penalties during the audit
period.
Based upon the
evidence in the file and presented at the hearing, the Commission makes its:
FINDINGS
1. Petitioner agrees with the tax assessment in
the audit report but requests that the penalties which total $$$$$ be waived.
2. The actual penalties assessed in the audit
report were $$$$$ representing a 10% penalty for exempt manufacturing purchases
that were not reported on the sales and use tax return and $$$$$ representing a
10% negligence penalty assessed on the remainder of the audit deficiency for
the same type of errors assessed in a previous audit.
3. The two penalties total $$$$$. A prior partial audit payment of $$$$$ was
applied by the Commission to the penalty leaving the balance of penalty at
$$$$$. That balance remains as the open
amount on the Tax Commission assessment.
The Petitioner is asking that the entire $$$$$ be considered for
waiver.
4. Petitioner=s position for requesting the waiver of the
penalties is based on many factors as follows:
A.
During the audit period in question, there was nearly a 100% turnover of
accounting personnel at COMPANY B
which is a division of the COMPANY A. The accounting personnel turnover included
the controller, the general accounting manager, the cost accounting manager,
and both accounting clerks as well as the purchasing manager, facilities
manager, aerospace group controller, and the COMPANY A controller.
B.
In addition to the total turnover of personnel, the company had the
absence of an on-going training program for new personnel in the area of sales
and use tax.
C.
The current accounting personnel hired an outside agency to represent
the company on the issues from the previous audit.
5. The current general accounting manager has
recognized the need for training in the area of sales tax and hired a training
session by an outside consultant, the company has required accounting personnel
attend tax seminars, as well as purchasing monthly publications to up-date
employees on new and changing issues regarding the tax law. In addition, an outside consultant has been
contracted to offer continuing education courses to the accounting employees in
the area of sales and use tax as it relates to the company and its industry.
6. The company points to the significance of
the penalties when, during the preliminary notice determination, the tax
liability was determined to be over $$$$$.
However, COMPANY B
personnel subsequently were able to work with
the Auditing Division to reduce the liability to less than $$$$$.
7. The Petitioner points out that the company
experienced back to back sales tax audits, the previous audit ending on December
31, 1992 and the current audit starting on January 1, 1993. Petitioner points out that the original
preliminary notice on the first audit period was mailed to the company on
August 31, 1993, and the second amendment to that audit was not completed until
November 8, 1994. The new accounting
personnel were caught in an untimely position between personnel changes and
on-going audits.
8. Petitioner points out that the previous
controller left the COMPANY B in April, 1994.
During the period April, 1994 through August, 1994, the company operated
with interim personnel in the controller=s position and between August 1994 and March
1995, there was no controller at COMPANY B.
9. Petitioner said that up through June of 1995
when XXXXX was hired as the General Accounting Manager that the company was in
turmoil and it was not until 1996 when the company was caught up with new
accounting procedures was about the time of the start of the second audit.
10. Respondent states that the penalties imposed
are proper and should be up-held by the Tax Commission. Respondent agrees that there has been
turnover during the audit period and during the prior audit, but the sales and
use tax returns have been filed every month without fail during both audit
periods.
11. Respondent points out that the failure to
report the exempt manufacturing amounts were pointed out in a prior audit and
since then, the law has been revised to impose only a 10% penalty rather than
the previous 100% penalty.
12. Respondent agrees that much is now being
done by Petitioner to make sure that the prior accounting problems are not
problems in the future. However, the
penalties imposed are for past negligence.
The Division considers it negligence in spite of the large employee
turnover that took place and when the prior audit revealed problems that were
basically ignored when the future returns were filed.
APPLICABLE 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).)
Additional
penalties for underpayment of tax are as follows: If any underpayment of tax is
due to negligence, the penalty is 10% of the underpayment. (Utah Tax Code '59-1-401(5)(a)(I).)
The amount of sales
or uses exempt under Subsections 59-12-104(16), (22), (42), and (43) shall be
reported to the Commission by the owner, vendor, or purchaser, as the case may
be. Upon failure by the owner, vendor,
or purchaser to report the full amount of the exemptions granted under
Subsections 59-12-104(16), (22), (42), and (43) on the original filed return,
the Commission shall impose a penalty that would have been imposed if the
exemption had not applied. The penalty
shall not be imposed if an amended return containing the amount of the
exemption is filed prior to notice of audit by the Tax Commission to the owner,
vendor, or purchaser. (Utah Tax Code '59-12-105.)
DECISION AND ORDER
The Commission
finds that the penalty for exempt manufacturing purchases which were not
reported on the sales and use tax return as required is correct and upholds the
Auditing Division.
The Tax Commission
finds sufficient cause does exist to waive a portion of the negligence penalty
associated with the sales tax audit for the period January 1, 1993 through
November 30, 1995. The Commission finds
that the 10% negligence penalty assessed on the audit deficiency assessed for
same type of errors found in a previous audit is troublesome. The company clearly had a complete turnover
of its accounting personnel but their presentation did not show the degree of
culpability of any of its personnel.
However, what was evident was that the Company, depending on its
personnel, was caught in an untimely change and were faced with back to back
audits before any changes could be initiated.
The company, has also demonstrated corrective action which will prevent
the same type of error from occurring in the future. Therefore, the Commission orders the 10% negligence penalty
reduced to $$$$$ and the total overall penalties be a total of $$$$$. It is so ordered.
DATED this 31 day
of JULY, 1997.
BY ORDER OF THE
UTAH STATE TAX COMMISSION.
JOE B. PACHECO
Commissioner
The agency has
reviewed this case and the undersigned concur in this decision.
DATED this 31 day
of JULY, 1997.
BY ORDER OF THE
UTAH STATE TAX COMMISSION.
W. Val Oveson Richard B. McKeown Pam Hendrickson
Chairman
Commissioner
Commissioner
^^