Opinion ID: 1676311
Heading Depth: 1
Heading Rank: 3

Heading: Imposition of a Penalty.

Text: The department also contends the trial court erred in reversing its imposition of a penalty for Atlantic Bottling's failure to pay the use tax when it was due. Iowa Code section 423.18(1) (1983) provided for assessment of the penalty unless it is shown that the failure was due to reasonable cause. [This provision has since been amended; the department no longer may waive the penalty. Iowa Code § 423.18(1) (1985)]. A taxpayer can establish reasonable cause, as that term is used in tax penalty statutes, by establishing that it did all that ordinary business care and prudence would demand. See Armstrong's, Inc. v. Iowa Department of Revenue, 320 N.W.2d 623, 629 (Iowa 1982); 730 Iowa Admin.Code § 12.11(h) (Where the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return or monthly deposit within the prescribed time, then the delay is due to reasonable cause.) What constitutes ordinary business care and prudence is a determination to be made on the facts of each particular case. Armstrong's, Inc., 320 N.W.2d at 629. The burden was on the taxpayer, however, to establish reasonable cause by a preponderance of the evidence. 730 Iowa Admin.Code § 12.11(h); Rubber Research, Inc. v. Commissioner of Internal Revenue, 422 F.2d 1402, 1407 (8th Cir.1970); Heman v. Commissioner of Internal Revenue, 283 F.2d 227, 232 (8th Cir.1960); Fleming v. United States, 483 F.Supp. 284, 286 (E.D.Wis.1980). Because the agency found that Atlantic Bottling had not met its burden of proof, we will overturn the agency on that issue only if Atlantic Bottling established reasonable cause as a matter of law. See Good's Furniture House, Inc., v. Iowa State Board of Tax Review, 382 N.W.2d 145, 151 (Iowa 1986); Heidemann v. Sweitzer, 375 N.W.2d 665, 670 (Iowa 1985). Does the record establish, as Atlantic Bottling contends, that its failure to pay was consistent with ordinary business care and prudence as a matter of law? The record is not that solid. On the roof repair Atlantic Bottling simply stated that it had relied on the contractor to make a determination whether use tax was due. The bill itself showed only the total amount due for repairs, suggesting that the contractor had paid no use tax. The state of the record on this issue was aptly described by the department in its final decision: The Protestor has failed to establish reasonable cause for the failures to pay consumer use tax on the plastic bags and the roof repair.... There was no showing that the Protestor employed a tax specialist as in the Armstrong case or that the Protestor as a business investigated or inquired into its tax obligations. In addition the Protestor did not question [the contractor] regarding the roof repair bill which had just one figure of $16,736.50 and nothing indicated on the bill for any tax. The evidence did not establish that the Protestor was unable to pay the tax or would suffer an undue hardship if the tax was paid. Receipt of public revenue is essential to state government, and penalties for failure to pay are reasonably calculated to promote prompt payment. 72 Am.Jur.2d State and Local Taxation § 856, at 156 (1974). The object is not merely punishment of the taxpayer, but is in furtherance of public duty in the interest of the public welfare.... Id. at 156-57. Atlantic Bottling has not established as a matter of law that it had reasonable cause for failing to pay the use taxes when they came due. We reverse the judicial review decision of the district court and affirm the department's assessment of use taxes and the statutory penalty. REVERSED.