98-1140

MOTOR FUEL

Signed 1/14/99

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, )

) ORDER

Petitioner, )

) Appeal No. 98-1140

v. ) Account No. #####

)

AUDITING DIVISION OF ) Tax Type: Motor Fuel

THE UTAH STATE TAX )

COMMISSION, ) Presiding: Phan

)

Respondent. )

_____________________________________

Presiding:

Jane Phan, Administrative Law Judge

Appearances:

For Petitioner:

For Respondent: Frank Hales, Assistant Director Auditing Division

Julie Jones, Tax Audit Manager

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5, on January 6, 1999. It had originally been scheduled for a Status Conference but at the approval of the parties the Status Conference was converted to the Initial Hearing.

Petitioner is appealing penalties and interest assessed pursuant to an audit of Petitioner's motor fuel account. The audit period at issue was September 1, 1993 through March 31, 1998. However the penalties arose from the period of approximately May 1997 through February 1998. During this period Petitioner did not pay motor fuel tax on the gasoline it purchased from an out-of-state supplier.

Petitioner's representatives explained that prior to May 1997 they had purchased their gasolene from an in-state supplier who had charged Petitioner the appropriate tax and filed the required returns. Sometime around May 1997, Petitioner changed suppliers to a company who represented to Petitioner that they would also pay the tax and file the returns. The first invoice from the new supplier indicated that sales tax had been charged. However, subsequent invoices did not charge the tax and the supplier credited back to Petitioner the amount listed for tax on the first invoice. This new supplier did not file motor fuel tax returns in Utah.

It was Respondent's position that the new supplier was an out-of-state business and since Petitioner was purchasing from an out-of-state supplier, Petitioner was required to file motor fuel tax returns and pay the tax directly to the State of Utah.

Petitioner's representatives explained that they were a small operation, struggling to keep up with all the work necessary to remain in business and the clerk who paid the invoices did not bring to their attention the fact that tax was not being charged by the new supplier.

Respondent's representatives explained that two 10% penalties had been assessed. One penalty was for failure to file the required returns. The second penalty was the negligence penalty. They acknowledged that this was a first time error for Petitioner and when Petitioner changed suppliers it would have been the first time that Petitioner was required to file the motor fuel return at issue. They also pointed out that interest is waived only in the event Tax Commission employee error caused the failure to file or pay and that no such error existed in the facts of this appeal.

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).

Negligence is generally recognized to be the omission to do something which a reasonablely prudent and careful person would do, or the doing of something which the reasonably prudent and careful person would not do. In a tax setting, the Utah Supreme Court has found that a negligence penalty is appropriate when the taxpayer fails to make a reasonable investigation into statutes and rules to determine if tax is due. Hales Sand & Gravel, Inc. v. State Tax Comm'n, 842 P.2d 887, 895 (Utah 1992). The Court further states that an error based on the good faith interpretation of an arguable point of law does not rise to the level of negligence. ID. Likewise, the Commission finds that an error based on a justifiable or honest mistake, when compared to the reasonable actions of other taxpayers, also does not rise to the level of negligence.

DECISION AND ORDER

The Commission has determined that first time error and first time filing are grounds for waiver of the 10% failure to file penalty. In considering whether the negligence penalty should be abated the Commission must determine whether Petitioner's actions were negligent. Having the new supplier not perform as represented is a mitigating factor. However, Petitioner had a duty to make sure the tax was paid and should have reviewed the invoices and become aware much earlier of the problem.

Based on the foregoing, the Commission waives the 10% failure to file penalty. The Commission abates that portion of the 10% negligence penalty that pertains to the first invoice that Petitioner received from the new supplier. However, the Commission upholds the remainder of the negligence penalty and the interest that has been assessed.

This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

210 North 1950 West

Salt Lake City, Utah 84134

Failure to request a Formal Hearing will preclude any further appeal rights in this matter.

DATED this 14TH day of January, 1999.

____________________________________

Jane Phan

Administrative Law Judge

BY ORDER OF THE UTAH STATE TAX COMMISSION.

The Commission has reviewed this case and the undersigned concur in this decision.

DATED this 14th day of January, 1999.

Richard B. McKeown Joe B. Pacheco

Chairman Commissioner

Pam Hendrickson R. Bruce Johnson

Commissioner Commissioner

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