97-1292

SALES AND USE

Signed 2/17/99

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal No. 97-1292

) Parcel No. #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Sales and Use

COMMISSION, )

) Presiding: Davis

Respondent. )

_____________________________________

Presiding:

G. Blaine Davis, Administrative Law Judge

Appearances:

For Petitioner:

For Respondent: Mr. Gale Francis, Assistant Attorney General

Ms. Shelly Robinson, from the Auditing Division

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on July 28, 1998. At that time, the parties were given an additional period of thirty days in which to file briefs and memorandums of points and authorities. Near the conclusion of that time, the Administrative Law Judge was contacted by Petitioner, who indicated he desired additional time in which to contact an attorney to have him prepare and file a brief. ATTORNEY, from the Law Firm of XXXX thereafter filed a Notice of Appearance of Counsel and requested time in which to file a brief and memorandum of points and authorities. That memorandum was filed on October 7, 1998. Based upon the evidence and testimony presented at the hearing and the information provided in the memorandums, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is Use Tax.

2. The period in question is July, 1990 through March, 1997.

3. Petitioner is a roofing and general contracting company.

4. As a part of Petitioner's roofing business, it purchased roofing materials from a company named COMPANY B which was an out of state company which sold substantial products in the state of Utah. COMPANY B is now out of business.

5. Respondent audited Petitioner and on or about June 30, 1997, issued a statutory notice to Petitioner which made an assessment of additional use tax for purchases made from the vendor during the past seven years in an amount of $$$$$ plus interest at the statutory rate. Approximately $$$$$ of the asserted deficiency is attributable to the three years immediately prior to the assessment, and the remaining $$$$$ is attributable to periods occurring between three and seven years prior to the audit assessment.

6. Petitioner has acknowledged that none of the taxes have been paid, and now acknowledges that the amount of the asserted deficiency attributable to the three years immediately prior to the audit assessment are due and payable, but challenges the amount of tax attributable to years four through seven prior to the assessment on the basis that the statute of limitations has run on such amounts and therefore are unenforceable against him. The position of Respondent is that pursuant to Utah Code Ann. '59-12-1-10(9) it may make an assessment at any time even more than three years later because of Petitioners "failure to file a return."

APPLICABLE LAW

All references to statutes and rules are to the version of the statute or rule that was applicable during the audit period. Some of those statutes and rules have been modified and reorganized, although the substance of those statutes and rules have not been materially changed.

Utah Code Ann. '59-12-110(9) provides as follows:

In the case of a false or fraudulent return or payment with intent to evade tax or of failure to file a return, the tax may be assessed or a proceeding for the collection of the tax may commence without a assessment at any time.

Utah Code Ann. '59-12-108(1) provides as follows:

Any person whose tax liability under this part . . . was $50,000 or more for the previous year shall, on or before the last day of the month next succeeding each calendar month, file with the Commission a return for the preceding monthly period. The vendor shall remit with the return the amount of the state and local tax required . . . to be collected or paid for the period covered by the return. The Commission shall establish by rule the procedures and guidelines in determining the tax liability under this section.

Utah Code Ann. '59-12-111(2) provides as follows:

If any person not holding a sales tax license under '59-12-106 or a valid use tax registration certificate makes a purchase of tangible personal property for storage, use, or other consumption in this state and fails to file a return or pay the tax due within 170 days from the time the return is due, this person shall pay a penalty as provided in Section 59-1-401 plus interest at the rate and in the manner prescribed in Section 59-1-402 and all other penalties and interest as provided by this title.

Utah Code Ann. '59-12-107(4) provides as follows:

4(a) Except as provided in Subsection (5) and in Section 59-12-108 the sales or use tax imposed by this chapter is due and payable to the Commission quarterly, on or before the last day of the month next succeeding each calendar quarterly period.

(b) Each vendor shall, on or before the last day of the month next succeeding each calendar quarterly period, file with the Commission a return for the preceding quarterly period. The vendor shall remit with the return the amount of the tax required under this chapter to be collected or paid for the period covered by the return.

(c) Each return shall contain information and be in a form the Commission prescribes by rule.

(d) The sales tax as computed in the return shall be based upon the total nonexempt sales made during the period, including both cash and charge sales.

(e) The use tax as computed in the return shall be based upon the total amount of sales or purchase for storage, use, or other consumption in this state made during the period, including both by cash and by charge.

(f) The Commission may by rule extend the time for making returns and paying the taxes. No extension may be for more than 90 days.

(g) The Commission may require returns and payment of the tax to be made for other than quarterly periods if it deems it necessary in order to ensure the payment of the tax imposed by this chapter.

Utah Code Ann.'59-12-107(3) provides:

Each person storing, using or consuming tangible personal property under Subsection 59-12-103(1) is liable for the use tax imposed under this chapter.

Utah Administrative Code Rule R865-19S-12.D provides:

Sales and use tax returns shall be filed and paid quarterly beginning with first calendar quarter of business, or portion thereof, with the following exceptions:

Utah Code Ann. '59-12-107(1)(a) provides:

(1)(a) Each vendor shall pay or collect and remit the sales and use taxes imposed by this chapter if within this state the vendor:

(I) has or utilizes an office, distribution house, sales house, warehouse, service enterprise, or other place of business;

(ii) maintains a stock of goods;

(iii) engages in regular or systematic solicitation of sale of tangible or personal property, whether or not accepted in this state, by the distribution of catalogs, periodicals, advertising flyers, or other advertising by means of print, radio, or television, or by mail, telegraphy, telephone, computer data base, optic, microwave, or other communication system for the purpose of selling, at retail, tangible personal property;

(iv) regularly engages in the delivery of property in this state other than common carrier or United States mail; or

(v) regularly engages in any activity in connection with the leasing or servicing of property located within this state.

(b) If none of the conditions listed under Subsection (2) exist, the vendor is not responsible for the collection of the use tax, but each person storing, using, or consuming tangible personal property is responsible for remitting the use tax.

Utah Code Annotated '59-12-118 provides in relevant part:

Except as provided in Section 59-12-209, the commission shall have exclusive authority to administer, operate, and enforce the provisions of this chapter including:

(5) prescribing forms and rules to conform with this chapter for the making of returns and for the ascertainment, assessment, and collection of the taxes imposed under this chapter.

Utah Code Ann. '78-12-26, provides in relevant part as follows:

An action may be brought within three years;

. . .

(4) for a liability created by the statutes of this state, other than for a penalty or forfeiture under the laws of this state, except where in special cases a different limitation is prescribed by the statutes of this state;

ANALYSIS

Petitioner acknowledges the materials were purchased from an out of state vendor, and represents he did not have any idea there was additional tax due on the purchase, but instead he assumed any necessary tax was being collected and remitted by the seller. He did not review the invoices to determine whether sales tax was collected because he was not familiar with the tax laws, but he assumed the seller was collecting everything that was necessary to be paid for the products. However, now that the matter has been brought to his attention, he does not dispute that the law requires that use tax should have been paid on the roofing materials which he purchased, nor does he challenge the calculation of the amount. He therefore is willing to assume the responsibility to pay the amount of taxes due for three years prior to the audit, but believes he is not legally required to pay the use tax for periods more than three years prior to the audit because of the three years statute of limitations. In summary, the position of Petitioner is that there was a duty to pay the use tax, but there was not a legal requirement to file a use tax return, and therefore the statute of limitations ran upon the expiration of three years.

The primary position of Respondent is that Petitioner had a duty to file a returns and to pay the amount due, and because he failed to file a return, the provisions of Utah Code Ann .'59-12-110(9) permit them to make an assessment of tax at any time, even more than three years after the time when the taxes should have been remitted to the State Tax Commission.

The position of Respondent is that the duty to file a return is imposed under several statutes and rules. The first statute argued by Respondent is Utah Code Ann. '59-12-108(1) which requires the filing of a sales and use tax return on a monthly basis for taxpayers who had $50,000 or more of tax due for the previous year. Respondent makes the statement that no evidence exists to tell whether Petitioner fits the threshold. However, that is erroneous. The Auditing Division has preformed an audit for a total of seven years and has found an amount of $$$$$ due for all seven years, which averages approximately $$$$$ per year. That is prima facie evidence that Petitioner does not meet the $$$$$ per year threshold, and does not fall within the provisions of Utah Code Ann. '59-12-108(1) as stated above.

The second statute which Respondent argues required Petitioner to file a use tax return is Utah Code Ann. '59-12-111(2). However, that statute does not require persons to file a return nor does it fix a time for the filing of such a return. It simply says if they fail to file a return or pay the tax due within 170 days from the time the return is due, they shall pay a penalty as provided by statute. While that statute does imply that a return should be filed, it does not impose a specific filing requirement on Petitioner.

Respondent next argues that the provisions of '59-12-104(4) also imply that a return should be filed. It is true they do imply that a return should be filed because the tax is payable to the Commission quarterly, and subsection (e) provides the use tax will be computed in the return, but neither one of those provisions specifically requires the filing of a use tax return for someone who does not normally have a filing requirement.

Respondent further argues a return is required by the provisions of Utah Administrative Code Rule R865-19S-12, which provides that "sales and use tax returns shall be filed and paid quarterly beginning with the first quarter of business, or portion thereof." That rule also indicates that a return should be filed, but does not specifically impose the requirement to file a return on any specific date by a person who does not possess a sales and use tax license.

The only provision of the Utah Code which specifically requires the filing of a return is Utah Code Ann. '59-12-107 which establishes a duty to file a sales or use tax return. However, this section specifies the various circumstances under which a vendor is required to file a return as well as the single circumstance in which the consumer is required to file a use tax return. That statute specifies when the vendor shall pay or collect and remit the sales and use tax, and it does provide that if none of the conditions listed exist, the vendor is not responsible for the collection of the use tax, but then the person storing, using or consuming the tangible personal property is responsible for remitting the use tax. Nevertheless, the only requirement is to remit the tax, but the responsibility to file a return is placed upon the vendor.

Respondent, in its brief, has argued that a consumer has "the obligation to file use tax returns if the vendor failed to file sales tax returns and remits sales tax to the state." That argument is clearly erroneous. To accept that argument would require every taxpayer to examine the sales and use tax returns of every business at which any items were purchased to make sure the business properly filed the returns and paid the tax. That is an impossible burden to place upon every consumer. To try to comply with that requirement would require every consumer to check at every fast food location, grocery store, service station, clothing store, or any other place where they purchased an item on which sales tax was paid, and if that business did not properly file an pay, then each consumer would be required to prepare its own return and remit the tax to the State of Utah. The consumer would then have paid the tax twice. There is no logic or reason to such a requirement.

Respondent has further suggested that to not require Petitioner to pay the tax for a period more than three years prior to the audit will permit some taxpayers to escape the payment of use tax on items for which use tax is properly due. That is true. However, it is better to prohibit the collection of some taxes for periods more than three years prior to the discovery of such taxes than it would be to place an impossible burden on consumers. If the theory of Respondent is accepted, consumers would be subjected to audits and the imposition of tax for periods of five years, ten years, twenty years, or a hundred years after the transaction for which the Tax should have been paid. Under the argument of Respondent, their would be no time period that would be sufficient to avoid the payment of use tax, even if it was not known at the time of purchase that tax was due. That violates the public policy implemented by statute of limitation provisions to provide some finality to matters based upon the passage of time.

Utah Code Ann. '78-12-26 provides for a limitation of actions of three years for liability created by the statutes of this state, and that statute of limitations prohibits Respondent from imposing use tax liability on persons more than three years prior to the audit assessment.

Respondent has also argued that in Appeal Number 97-1344, the Commission sustained an audit assessment which was more than three years prior to the assessment. That is correct, but in that case, the taxpayer did have a sales and use tax license, but was improperly informed by Commission employees that it did not need to begin filing returns prior to April 1, 1994. The tax occured during the prior quarter when the taxpayer had already been issued its license, and did have a duty to file a return. That case is therefore distingishable from this case, wherein the taxpayer here does not have a sales tax license and did not have a duty to comply with the filing requirements for a sales tax license.

The decision of the Administrative Law Judge herein is consistent with another decision of the Commission in Appeal 97-0243. In that case, another roofing company was purchasing materials outside the state of Utah from Flexmembranes International without the payment of the use taxes. The Auditing Division made an assessment for use taxes for more than three years, but the Commission held that "it is hereby determined that the Petitioner is not to be assessed beyond the three year statute of limitations period."

DECISION AND ORDER

Based upon the foregoing, the Administrative Law Judge finds that the audit assessment against Petitioner for three years prior to the audit assessment should be sustained, but the assessment for periods more than three years prior should not be sustained and should be removed from Petitioner's records.

DATED this 17TH day of February, 1999.

_____________________

G Blaine Davis

Administrative Law Judge

FINAL AGENCY DECISION:

Pursuant to its automatic agency review process, the Commission has reviewed the above decision issued by the Administrative Law Judge and reverses the decision.

Utah Code Ann. '59-12-107(3) provides that "each person storing, using or consuming tangible personal property under '59-12-103(1) is liable for the use tax imposed under this chapter." Utah Code Ann. '59-12-103 actually imposes the tax on "tangible personal property store, used, or consumed in this state."

Petitioner does not challenge the amount set forth in the audit performed by Respondent, and does not have any dispute about the consumption and use of the tangible personable properties set forth in the schedules attached to that audit. Petitioner's only dispute relates to the tax imposed for property stored, used, or consumed more than three years prior to the audit.

Utah Code Ann. '59-12-111(2) implies that an individual who does not hold a sales tax license or a valid use tax registration certificate and makes a purchase of tangible personal property for storage, use, or other consumption in this state and fails to file a return or pay the tax due within 170 days from the time the return is due, . . . shall pay a penalty . . . plus interest . . . .

That statute intended to require a return and a payment of the tax, and the filing of a return and payment of the tax is consistent with all of the statutes relating to this matter.

Utah Code Annotated '59-12-118 specifically gives the Commission the authority to prescribe forms and rules for the making of returns, and the Commission has done so in this matter.

The Commission has also adopted Rule R865-19S-12 of the Utah Administrative Code, which requires consumers of tangible personal property to file a use tax return. That provision specifically says, "sales and use tax returns shall be filed and paid quarterly . . . ." That rule is consistent with Utah Code Ann. ' 59-12-118, and other statutes, and effectuates their intent and purpose and requires the filing of the use tax return.

Utah Code Ann. '59-12-110(8) and (9), specifically provides that;

(8) Except if a deficiency is due to . . . failure to file a return, the amount of taxes imposed by this chapter shall be assessed within three years after the return was filed and if not so assessed no proceeding for the collection of the taxes shall begun after the expiration of the period.

(9) In the case of a . . . failure to file a return, the tax may be assessed or a proceeding for the collection of the tax may commence without assessment at any time.

(The Statutes have been amended, but the above citation reflects the statutes in existence at the time of the transactions in this matter).

Further, in Appeal Number 97-1344, the Commission confirmed the principle at issue in this proceeding. In that matter, an audit was performed upon the taxpayer and an assessment made for more than three years, going back one quarter prior to the three year period. That opinion cited Utah Code Ann. ''59-12-107(4)(a) and 59-12-108(1), and concluded that, "these code sections make clear that Petitioner was liable to pay the use tax within the statutory time frames, whether on a quarterly basis or monthly basis. Therefore the Commission finds that Petitioner failed to file any return for the period January 1, 1994 to March 31, 1994 and under '59-12-110(6)(b), Respondent may assess the tax for that period at any time."

Accordingly, the decision herein is consistent with prior decisions of this Commission.

The Commission therefore determines that because Petitioner failed to file a return to report the use tax, the tax may be assessed at any time. The entire assessment herein is therefore affirmed, and the Petition for Redetermination is denied.

DATED this 17th day of February, 1999.

Richard B. McKeown Joe B. Pacheco

Chairman Commissioner

Pam Hendrickson R. Bruce Johnson

Commissioner Commissioner

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