State Tax Commission v. Stevenson

2006 UT 84
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Utah State Tax Commission, 	No. 20050521
Petitioner,
v.
F I L E D
Eric Stevenson,
Respondent. 	December 15, 2006
---
Original Proceeding in the Utah Court of Appeals
Attorneys: 	Mark L. Shurtleff, Att’y Gen., Gale K. Francis,
Asst. Att’y Gen., Salt Lake City, for petitioner
Noel S. Hyde, South Ogden, for respondent
---
On Certiorari to the Utah Court of Appeals
PARRISH, Justice:
¶1 	The Utah State Tax Commission (the “Commission”) argues
that the Utah Court of Appeals misinterpreted Utah Code section
59-1-302 in reversing the Commission’s decision to personally
assess Eric Stevenson for withholding taxes owed by Tower
Communications, Inc. (“Tower”). 	We affirm in part and reverse in
part, concluding that Stevenson was not willful in failing to
collect the unpaid taxes.
BACKGROUND
I. 	FACTUAL HISTORY
¶2 	In 1999, Stevenson, Ken Steckelberg, and Brett Cherry
formed Tower as a Utah corporation that installed cable hardware
for communications businesses. 	Steckelberg served as president
and controlled the day-to-day management of Tower. 	His duties
included the preparation and review of all of Tower’s bills and

No. 20050521 	2
invoices. 	He performed these duties with the assistance of a
bookkeeper whom he hired and supervised.
¶3 	Stevenson was Tower’s secretary and treasurer. 	Even
though he was not involved in Tower’s day-to-day operations, he
had exclusive authority to sign checks for the business. 	He was
also concurrently employed full-time as a loan officer for the
Bank of Utah (the “Bank”) and visited Tower’s offices only about
once a month. 	During these visits, Stevenson signed checks
prepared by Tower’s bookkeeper, often doing so without reviewing
any accompanying documentation or company records.
¶4 	Tower filed timely state withholding tax returns for
the final quarter of 1999 and the first quarter of 2000. 	But
Tower failed to file any returns or make any tax payments for the
last three quarters of 2000. 	During this period, Steckelberg
assured Stevenson that Tower’s finances were in good order. 	In
November 2000, however, third parties alerted Stevenson to
financial troubles at Tower.
¶5 	With the help of an accountant, Stevenson undertook a
review of Tower’s financial status and discovered serious
problems, including Tower’s failure to pay withholding taxes
during the last three quarters of 2000. 	Stevenson and Cherry
immediately fired Steckelberg, dissolved the business, and hired
legal counsel to address Tower’s financial and legal problems.
¶6 	Tower owed the Bank over $80,000 on a loan that
Stevenson and Cherry had personally guaranteed. 	The loan was
secured by Tower’s accounts receivable, and the Bank had
perfected its security interest in those accounts receivable.
While winding up the business, Stevenson determined that XO
Communications (“XO”) owed Tower approximately $83,000 (the
“Account Receivable”), which XO refused to pay until Tower paid
the outstanding claims of several subcontractors and suppliers
(collectively, the “Subcontractors”). 	Using personal funds,
Stevenson purchased the claims of the Subcontractors for around
$16,000 (the “Personal Funds”), clearing the way for XO to pay
Tower. 	Rather than having XO pay Tower directly, however,
Stevenson arranged for XO to submit the payment directly to the
Bank, thereby repaying Tower’s loan and satisfying the Bank’s
security interest in Tower’s accounts receivable.
¶7 	In July 2002, the Commission assessed Stevenson a
personal penalty of $12,018.04 for Tower’s failure to pay
withholding taxes for the second, third, and fourth quarters of

3 	No. 20050521
2000. 	The record reveals no prior assessment made by the
Commission against either Tower or Stevenson. 	And at oral
argument, counsel for the Commission confirmed that the
Commission made no assessment for Tower’s unpaid withholding
taxes prior to the assessment against Stevenson in July of 2002.
II. 	PROCEDURAL HISTORY
¶8 	In a redetermination hearing, an administrative law
judge (the “ALJ”) concluded that Stevenson was liable for Tower’s
unpaid taxes as a responsible party under Utah Code section
59-1-302(2). 	More specifically, the ALJ determined that
Stevenson “willfully” failed to collect the tax by
(1) “recklessly disregard[ing] obvious . . . risks” of
nonpayment, and (2) making a “voluntary, conscious, and
intentional decision to prefer” the Bank over the state. 	Utah
Code Ann. § 59-1-302(7)(b) (2004).
¶9 	The Utah Court of Appeals reversed and remanded.
Stevenson v. Tax Comm’n, 2005 UT App 179, ¶ 26, 112 P.3d 1232.
Reviewing the ALJ’s determination of Stevenson’s willfulness as a
mixed question of fact and law, id. ¶ 10, the court of appeals
held that Stevenson did not recklessly disregard an obvious risk
of nonpayment, id. ¶ 17. 	In the court’s view, Stevenson’s
conduct constituted “mere negligence, not recklessness.” 	Id.
The court focused on two facts: 	(1) that Tower “had [no] history
of failing to pay taxes that would place [Stevenson] on notice”
of a risk of nonpayment, and (2) that Stevenson was “not directly
involved in the accounting and disbursement of taxes.” 	Id.
¶10 	The court of appeals also rejected the ALJ’s
determination that Stevenson preferred the Bank over the state by
arranging for XO to submit the Account Receivable directly to the
Bank. 	Recognizing that Utah courts had never interpreted section
59-1-302, the court turned to federal case law for guidance. 	Id.
¶¶ 15, 18. 	It applied the two-part test articulated by the U.S.
Court of Federal Claims under which a responsible party
voluntarily and intentionally prefers other creditors over the
state if he (1) “‘had actual knowledge of the specific tax
delinquency for which the penalty was assessed,’” and (2) had
“‘unencumbered funds available to pay the taxes at the time the
taxes came due.’” 	Id. ¶ 18 (quoting Ghandour v. United States,
36 Fed. Cl. 53, 62 (1996)). 	Because it is undisputed that
Stevenson had actual knowledge of the tax delinquency at the time
he directed the payment of the Account Receivable to the Bank,
the court focused its review on the second prong. 	Id.

No. 20050521 	4
¶11 	In determining whether the Account Receivable
constituted “unencumbered funds,” the court of appeals relied on
Honey v. United States, 963 F.2d 1083, 1090-92 (8th Cir. 1992),
in holding that “funds only become encumbered once a secured
creditor restricts the company’s use of the funds or otherwise
intervenes to prevent payment of taxes.” 	Stevenson, 2005 UT App
179, ¶ 19. 	In the court’s view, the Commission was therefore
required to “present evidence that the Bank . . . declined to
exercise its right to the [Account Receivable] and that Stevenson
was free to apply a portion of the [Account Receivable] to pay
Tower’s tax obligation.” 	Id. ¶ 23. 	Accordingly, the court
remanded the matter to permit the Commission to introduce
evidence that the Account Receivable was unencumbered. 	Id. ¶ 24.
¶12 	Despite the fact that the ALJ’s decision had not
referenced the Personal Funds, the court of appeals considered
the Commission’s argument that the Personal Funds Stevenson used
to purchase the outstanding claims of the subcontractors and
suppliers became unencumbered corporate funds available to pay
the withholding taxes. 	The court concluded that the Personal
Funds were “not available to pay Tower’s withholding taxes” and
“deem[ed] them encumbered” under its two-part “unencumbered
funds” test. 	Id. ¶ 22. 	Finally, the court of appeals adopted a
“reasonable cause” defense recognized by some (but not all)
federal circuit courts of appeals. 	Id. ¶ 25.
¶13 	The Commission petitioned for certiorari, which we
granted. 	We have jurisdiction under Utah Code section
78-2-2(3)(a), (e)(ii).
ANALYSIS
¶14 	Under Utah Code section 59-10-406, employers must file
quarterly withholding tax returns and pay withholding taxes to
the Commission. 	Funds withheld from employees’ paychecks are
held “in trust for the state.” 	Utah Code Ann. § 59-10-406(6)
(2004). 	If an employer fails to pay the taxes, the Commission
may levy a personal assessment against certain responsible
parties for the unpaid taxes:
Any person required to collect, truthfully
account for, and pay over any [withholding]
tax . . . who willfully fails to collect the
tax, fails to truthfully account for and pay
over the tax, or attempts in any manner to

5 	No. 20050521
evade or defeat any tax or the payment of the
tax, shall be liable for a penalty equal to
the total amount of the tax evaded, not
collected, not accounted for, or not paid
over.
Id. § 59-1-302(2) (emphasis added).
¶15 	For a responsible person’s conduct to be “willful,” he
need not possess any “bad motive or specific intent to defraud
the government or deprive it of revenue.” 	Id. § 59-1-302(7)(c).
The statute instead provides specific standards defining
willfulness:
It is prima facie evidence that a person has
willfully failed to collect, truthfully
account for, or pay over any [withholding]
taxes . . . if the commission or a court
finds that the [responsible] person . . . :
(i) made a voluntary, conscious, and
intentional decision to prefer other
creditors over the state government or
utilize the tax money for personal purposes;
(ii) recklessly disregarded obvious or
known risks, which resulted in the failure to
collect, account for, or pay over the tax; or
(iii) failed to investigate or to
correct mismanagement, having notice that the
tax was not or is not being collected,
accounted for, or paid over as provided by
law.
Id. § 59-1-302(7)(b) (emphasis added).
¶16 	It is clear from the language of Utah Code section
59-1-302 that our legislature patterned the willfulness framework
after the federal model. 	First, section 59-1-302(2), which
establishes personal liability for willfulness, mirrors its
federal counterpart, 26 U.S.C. § 6672(a) (2000), almost

1 Utah Code section 59-1-302(2) reads:
Any person required to collect, truthfully
account for, and pay over any tax listed in
Subsection (1) who willfully fails to collect
the tax, fails to truthfully account for and
pay over the tax, or attempts in any manner
to evade or defeat any tax or the payment of
the tax, shall be liable for a penalty equal
to the total amount of the tax evaded, not
collected, not accounted for, or not paid
over.
26 U.S.C. § 6672(a) reads:
Any person required to collect, truthfully
account for, and pay over any tax imposed by
this title who willfully fails to collect
such tax, or truthfully account for and pay
over such tax, or willfully attempts in any
manner to evade or defeat any such tax or the
payment thereof, shall, in addition to other
penalties provided by law, be liable to a
penalty equal to the total amount of the tax
evaded, or not collected, or not accounted
for and paid over.
No. 20050521 	6
entirely. 1 	Second, the three willfulness standards found in
subsections 59-1-302(7)(b)(i)-(iii) were taken almost verbatim
from well-developed federal case law. 	The Tenth Circuit case of
Denbo v. United States, 988 F.2d 1029, 1033 (10th Cir. 1993),
demonstrates the similarities:
Willfulness . . . means a voluntary,
conscious and intentional decision to prefer
other creditors over the Government. . . .
Although negligence does not give rise to
section 6672 liability, the willfulness
requirement is . . . met if the responsible
officer shows a reckless disregard of a known
or obvious risk that trust funds may not be
remitted to the government. . . . A
responsible person’s failure to investigate
or to correct mismanagement after being
notified that withholding taxes have not been
paid satisfies the . . . willfulness
requirement

7 	No. 20050521
(internal citations and quotation marks omitted) (emphasis
added); cf. Utah Code Ann. § 59-1-302(7)(b)(i)-(iii) (2004).
¶17 	Given the heritage of the language found in Utah Code
section 59-1-302, we believe it appropriate to look to federal
case law for guidance with respect to the interpretation and
application of the willfulness standards. 	We note, however, that
we do not have the same interpretative freedom enjoyed by the
federal courts. 	While the federal willfulness standards are
creatures of federal common law, the willfulness standards we
interpret today are statutory. 	We therefore look to the federal
courts for guidance but are mindful of the boundaries placed on
us by the plain language of the statutes we interpret.
¶18 	We now review the court of appeals’ application of
section 59-1-302, specifically subsections (7)(b)(ii) (“the
reckless disregard standard”) and (7)(b)(i) (“the preference
standard”). 	Because Stevenson does not dispute that he was a
responsible party under section 5-1-302(2), we focus on whether
his conduct constituted “willful[ness]” under that section. 	But
we first consider whether the court of appeals employed the
correct standard of review.
I. 	THE STANDARD OF REVIEW
¶19 	We review the decision of the court of appeals, not
that of the ALJ. 	State v. Topanotes, 2003 UT 30, ¶ 8, 76 P.3d
1159. 	We review the court of appeals’ decision for correctness
and grant no deference to its conclusions of law. 	Id. 	“One of
the components of the court of appeals’s decision that we examine
for correctness is the standard of review which it applied to the
ruling of the [ALJ].” 	State v. Brake, 2004 UT 95, ¶ 11, 103 P.3d
699.
¶20 	Utah Code section 59-1-610 establishes certain
standards of review to be used when appellate courts review
adjudicative decisions of the Commission. 	As required by Utah
Code section 59-1-610(1)(a), the court of appeals applied a
substantial evidence standard to its review of the ALJ’s findings
of fact, see Stevenson v. Tax Comm’n, 2005 UT App 179, ¶ 10, 112
P.3d 1232, and a correctness standard to the ALJ’s conclusions of
law, see Utah Code Ann. § 59-1-610(1)(b) (2004); Stevenson, 2005
UT App 179, ¶ 10. 	Looking to the Tenth Circuit’s decision in
Finley v. United States, 123 F.3d 1342 (10th Cir. 1997), the
court of appeals characterized the question of willfulness as a
mixed question of law and fact. 	See Stevenson, 2005 UT App 179,

No. 20050521 	8
¶ 10. 	Section 59-1-610, however, does not establish a standard
of review for such questions. 	The Commission challenges this
characterization and argues that the court erred by not employing
the substantial evidence standard in its review of the ALJ’s
determination of willfulness.
¶21 	There appears to be no clear consensus among federal
courts on how to characterize the question of willfulness. 	Some
courts perceive the question to be one of fact, see Rykoff v.
United States, 40 F.3d 305, 307 (9th Cir. 1994) (“Whether a
person has willfully failed to pay over withholding taxes is a
question of fact, the determination of which we review for clear
error.”), while others characterize it as one of law. 	See
Bradshaw v. United States, 83 F.3d 1175, 1182 (10th Cir. 1995)
(“Some circuits have held that the ultimate issue of willfulness
is subject to de novo review.”); Hochstein v. United States, 900
F.2d 543, 547 (2d Cir. 1990) (“[W]e believe that the issue . . .
presents a mixed question of fact and law. 	Therefore, we will
review the district court’s [factual] findings . . . for clear
error, and give plenary review to its conclusion[s].” (citation
omitted)). 	We conclude that the court of appeals was correct in
characterizing the question of willfulness as a mixed question of
law and fact.
¶22 	In State v. Pena, 869 P.2d 932, 936 (Utah 1994), we
explained that a mixed question involves “the application of law
to fact or, stated more fully, the determination of whether a
given set of facts comes within the reach of a given rule of
law.” 	The question of willfulness is certainly fact-dependent,
and the ALJ’s determinations consequently deserve some measure of
deference. 	But the determination of the question is also shaped
by the interpretation and application of law--namely, the
different willfulness standards found in Utah Code section
59-1-302(7)(b).
¶23 	We find persuasive the approach articulated by the
Second Circuit in Hochstein: 	“[W]e will review the district
court’s findings on [the plaintiff’s] control over [the
company’s] finances only for clear error, and give plenary review
to its conclusion that this control did not make him [a
responsible party] within the meaning of the statute.” 	900 F.2d
at 547. 	This is consistent with our general treatment of mixed
questions: 	“[A] trial court’s factual findings are reviewed
deferentially under the clearly erroneous standard, and its
conclusions of law are reviewed for correctness with some
discretion given to the application of the legal standards to the

9 	No. 20050521
underlying factual findings.” 	Brake, 2004 UT 95, ¶ 12 (internal
quotation marks and brackets omitted); accord State v. Levin,
2006 UT 50, ¶¶ 15-31, 144 P.3d 1096.
II. 	THE RECKLESS DISREGARD STANDARD
¶24 	Having established the appropriate standards of review,
we now review and affirm the court of appeals’ determination that
Stevenson’s conduct did not constitute “reckless disregard[] [of]
obvious or known risks” of nonpayment. 	Utah Code Ann.
§ 59-1-302(7)(b)(ii) (2004).
¶25 	We first note the type of conduct targeted by section
59-1-302(7)(b)(ii). 	By its express terms, section
59-1-302(7)(b)(ii) does not provide for strict liability, nor
does it trigger liability for mere negligence. 	Cf. Denbo v.
United States, 988 F.2d 1029, 1033 (10th Cir. 1993) (stating that
“negligence does not give rise to . . . liability” under the
federal willfulness scheme). 	Instead, the responsible party’s
conduct must be “reckless[],” and the risk of nonpayment must be
“obvious” or “known.” 	Utah Code Ann. § 59-1-302(7)(b)(ii)
(2004). 	Authorities have equated reckless disregard with gross
negligence. 	See Wright v. United States, 809 F.2d 425, 427 (7th
Cir. 1987) (holding that “gross negligence is enough to establish
reckless disregard”); Collier on Bankruptcy § 15.02[3](c)(i)
(15th ed. 2006) (stating that “[r]esponsible persons are guilty
of reckless disregard . . . if they are found to be grossly
negligent” (internal quotation marks omitted)); see also Utah
Code Ann. § 76-2-103 (2003) (stating that a person acts
recklessly in the criminal law context “when he is aware of but
consciously disregards a substantial and unjustifiable risk that
the circumstances exist or the result will occur. 	The risk must
be of such a nature and degree that its disregard constitutes a
gross deviation from the standard of care that an ordinary person
would exercise under all the circumstances as viewed from the
actor’s standpoint.”).
¶26 	Applying this lens to the record, we agree with the
court of appeals that Stevenson did not recklessly disregard
obvious risks of nonpayment. 	Stevenson was not involved in day-
to-day management of Tower or in keeping its books. 	Stevenson
relied on Steckelberg to manage Tower’s affairs and visited
Tower’s office only about once a month. 	Importantly, Stevenson
did not receive actual notice of Steckelberg’s mismanagement or
Tower’s financial problems until November 2000, several months
after Tower’s noncompliance began. 	As Tower’s treasurer and lone

No. 20050521 	10
check signatory, Stevenson was, by his own admission, negligent
in relying on Steckelberg’s assurances of Tower’s financial
health and in failing to follow up with Steckelberg or Tower’s
bookkeeper to ensure that taxes were being paid. 	Such reliance
and inaction, however, did not amount to reckless disregard under
section 59-1-302(7)(b)(ii).
¶27 	Courts applying the federal reckless disregard standard
have generally found liability only where responsible parties had
actual notice of facts evidencing a significant risk of
nonpayment, such as a history of nonpayment on the part of the
company or a deterioration in the company’s financial management.
The cases holding a responsible person liable
. . . based on reckless conduct generally
fall into one of three distinct fact
patterns. 	First, a responsible person may be
held reckless if he relies on someone who is
in control of the borrower’s finances,
knowing that this controlling person is
unreliable. 	Second, courts have held that
willful conduct also includes failure to
investigate or to correct mismanagement,
after having notice that trust fund taxes
were not remitted to the government. . . .
Third, courts have held that a responsible
person may . . . act willfully by paying
other bills, knowing of arrearages on payment
of . . . taxes.
1-7 Lender Liability Law and Litigation § 7.03[4][b][i] (2005)
(emphasis added).
¶28 	For example, in Wright, the Seventh Circuit affirmed a
district court’s determination of willfulness where a responsible
party knew that the company had a “history of noncompliance” and
that the company’s finances were in a “parlous state.” 	809 F.2d
at 428; see also Kalb v. United States, 505 F.2d 506, 511 (2d
Cir. 1974) (stating that reckless disregard “includes failure to
investigate or to correct mismanagement after having notice that
withholding taxes have not been remitted to the Government”
(emphasis added)); Hammon v. United States, 21 Cl. Ct. 14, 27-29
(1990) (finding liability where a responsible party was “well
aware” of the company’s past delinquencies, “improperly relied on
the same management which historically caused repeated tax

11 	No. 20050521
difficulties,” and “did not institute safeguards to ensure that
tax delinquencies would not recur”).
¶29 	We agree with this emphasis on actual notice. 	If a
responsible party learns of facts that indicate a significant
risk of noncompliance, he can then ascertain the current state of
compliance, review management’s actions, install safeguards, and
take other steps to ensure compliance. 	If he fails to take
commensurate action, his conduct can then be viewed as
recklessness or gross negligence or, in other words, “a gross
deviation from the standard of care that an ordinary person would
exercise” in the given circumstances. 	Utah Code Ann. § 76-2-103
(2003).
¶30 	Absent actual notice, courts have generally been
reluctant to impose liability where a responsible party “should
have known that taxes owed were not paid.” 	Kalb, 505 F.2d at
511. 	This makes sense: 	inaction where one “should have known”
of significant risks of nonpayment is less egregious--i.e., a
smaller “deviation from the standard of care that an ordinary
person would exercise,” Utah Code Ann. § 76-2-103 (2003), than
inaction where one actually knows of facts that signal
significant risks of nonpayment. 	We therefore conclude that
absent actual notice of such facts, Stevenson’s failure to
“inquire about the status of the taxes . . . [did] not equal
reckless disregard.” 	In re Macagnone, 253 B.R. 99, 102 (M.D.
Fla. 2000).
III. 	THE PREFERENCE STANDARD
¶31 	We next consider the court of appeals’ application of
the preference standard found in Utah Code section
59-1-302(7)(b)(i). 	We first set forth an interpretation of the
term “prefer.” 	We then vacate the court of appeals’ order to
remand, and we conclude that because the Bank’s interest in the
Account Receivable was superior to the interest of the state,
Stevenson did not prefer the Bank over the state. 	Finally, we
affirm the court of appeals’ conclusion that Stevenson did not
act willfully under section 59-1-302(7)(b)(i) by using the
Personal Funds to purchase the Subcontractors’ claims.
¶32 	Our task first requires us to engage in statutory
construction. 	When we interpret a statute, our “primary goal
. . . is to give effect to the legislative intent, as evidenced
by the plain language, in light of the purpose the statute was
meant to achieve.” 	State v. Holm, 2006 UT 31, ¶ 16, 137 P.3d 726

No. 20050521 	12
(internal quotation marks omitted). 	We “look first to the plain
language of a statute to determine its meaning,” MacFarlane v.
State Tax Comm’n, 2006 UT 25, ¶ 12, 134 P.3d 1116 (internal
quotation marks omitted), “and interpret its provisions in
harmony with other statutes in the same chapter and related
chapters,” Holm, 2006 UT 31, ¶ 16 (internal quotation marks
omitted). 	“Only when we find that a statute is ambiguous do we
look to other interpretive tools.” 	Id.
¶33 	We therefore begin with the plain language of Utah Code
section 59-1-302(7)(b)(i). 	This section renders Stevenson liable
for Tower’s delinquent withholding taxes if he “[1] made a
voluntary, conscious, and intentional decision, [2] to prefer
other creditors over the state government or [3] utilize the tax
money for personal purposes.” 	Utah Code Ann. § 59-1-302(7)(b)(i)
(2003). 	Because the Commission has not alleged that Stevenson
used the Account Receivable for personal purposes, the third part
of the statute is unimportant for our analytical purposes.
Similarly, Stevenson concedes that he made a “voluntary,
conscious, and intentional decision” to transfer the Account
Receivable to the Bank, and that he had actual notice of Tower’s
tax delinquency at the time of the transfer. 	See Ghandour v.
United States, 36 Fed. Cl. 53, 62 (1996) (interpreting “voluntary
and intentional” as requiring the responsible party to have had
“actual knowledge” of the tax delinquency at the time of the
transfer). 	As a result, we focus on the second part of the
statute--in particular, its critical verb: 	“to prefer other
creditors over the state government.” 	Utah Code Ann.
§ 59-1-302(7)(b)(i) (2003) (emphasis added).
¶34 	According to Black’s Law Dictionary 1197 (7th ed.
1999), the term “prefer” means “[t]o give priority to, such as to
one creditor over another.” 	Consistent with usage of the term in
federal bankruptcy law, see 11 U.S.C. § 547(b) (2000), we have
explained that transfers to creditors are “preferential when the
effect of the transfer may enable the creditor to obtain a
greater percentage of his debt than another creditor of the same
class would receive,” Wilcox v. CSX Corp., 2003 UT 21, ¶ 26, 70
P.3d 85 (internal quotation marks and brackets omitted). 	We
therefore interpret the term “prefer” as the act of making a
“transfer [that] enable[s] the creditor to obtain a greater
percentage of his debt than another creditor of the same class
would receive.” 	Id. (internal quotation marks omitted).
Therefore, under section 59-1-302(7)(b)(i), a responsible party
does not prefer a creditor over the state government when he

13 	No. 20050521
makes a transfer to a creditor whose interest is superior to that
of the state.
¶35 	We acknowledge that some federal circuit courts of
appeals have adopted the two-part test articulated in Honey v.
United States, 963 F.2d 1083, 1090 (8th Cir. 1992), which expands
the preference analysis. 	See Bell v. United States, 355 F.3d
387, 395 (6th Cir. 2004) (adopting Honey test); United States v.
Kim, 111 F.3d 1351, 1359 (7th Cir. 1997) (same); Barnett v. IRS,
988 F.2d 1449, 1458 (5th Cir. 1993) (same). 	Under the
Honey test, courts evaluate the creditor’s interest to determine
whether it was superior to the government’s interest and whether
it “would have prevented the use of the funds . . . for the
payment of the tax obligations.” 	963 F.2d at 1091. 	Courts will
find a preference if the creditor’s interest fails either prong
of the test. 	See id.
¶36 	We decline to adopt the Honey test, as it requires an
analysis of factors not included in the plain language of section
59-1-302(7)(b)(i). 	Indeed, the Honey test seems to be a product
of the fact that the federal willfulness standards are creatures
of the common law. 	The federal courts therefore possess
unfettered freedom to interpret and expand on their own
precedent. 	We, however, are constrained by the boundaries set by
the plain language of our legislature’s directives. 	If the
legislature wishes to follow the Honey model, it may evidence
that intent by amending section 59-1-302 accordingly. 	With these
principles in mind, we turn our attention to the Account
Receivable.
A. 	The Account Receivable
¶37 	We now determine whether the perfected security
interest held by the Bank in the Account Receivable was superior
to the state’s interest in those same funds. 	To evaluate the
nature of the state’s interest in the Account Receivable, we
review Utah Code sections 59-10-406(6) and 59-1-302.1, which
govern the creation and priority of tax liens.
¶38 	According to Utah Code 59-10-406(6)(c), withholding tax
liens have superpriority: 	they “shall be prior to any lien of
any kind, including existing liens for taxes” (emphasis added).
Withholding tax liens therefore have priority over all competing
security interests, including the type asserted by the Bank in
the Account Receivable. 	We have previously upheld the validity
of such liens, stating that the “Legislature has the undoubted

2 In Phillips, we interpreted section 59-14-71(3)(e), the
language of which was substantially the same as section
59-10-406(6). 	Section 59-14-71(3)(e) then read:
Every employer who deducts and withholds any
amounts under the provisions of this act
shall hold the same in trust for the state of
Utah for the payment thereof to the
commission in the manner and at the time
provided for in this act and the state of
Utah shall have a lien to secure the payment
(continued...)
No. 20050521 	14
right and power to make taxes a lien upon all the property of the
owner of the taxed property, and also to give such lien priority
over all other liens of whatsoever nature.” 	Union Cent. Life
Ins. Co. v. Black, 247 P. 486, 487 (Utah 1926); see also A.C.
Fin. v. Salt Lake County, 948 P.2d 771, 773 (Utah 1997)
(reaffirming Black and explaining that “as a general principle of
law . . . the Legislature has power to make its tax liens prior
to any other lien”). 	We do, however, construe tax lien statutes
“strictly so that liens are not expanded by implication.” 	A.C.
Fin., 948 P.2d at 779.
¶39 	Section 59-10-406(6)(b) states that “the state shall
have” a superpriority lien “so long as any delinquency
continues.” 	At first glance, this language seems to indicate
that the lien springs into existence the moment the taxpayer’s
delinquency begins. 	This section, however, must be read in
conjunction with section 59-1-302.1, which states that “[i]f any
person liable to pay any tax provided in Title 59 . . . neglects
or refuses to pay that tax after demand, the amount . . . is a
lien in favor of the state . . . . 	Unless another date is
specifically fixed by law, the lien imposed by this section for
unpaid taxes arises at the time the assessment is made” (emphasis
added). 	Section 59-1-302.1 thus clarifies that the state’s
superpriority lien for delinquent withholding taxes actually
arises at the time of assessment.
¶40 	Our decision in State v. I.M.C. Mint Corp., 610 P.2d
1265, 1267 (Utah 1980), lends support to this interpretation of
these two statutes. 	In that decision, we followed Phillips
Petroleum Co. v. Wagstaff, 450 P.2d 100, 102 (Utah 1969), in
which we held that “the lien of a state for delinquent
withholding taxes begins to run at the time notice thereof is
given by filing the warrant.” 2 	I.M.C. Mint, 610 P.2d at 1266.

2 (...continued)
of any amounts withheld and not remitted as
provided herein upon all of the assets of the
employer and all property, including stock in
trade, business fixtures and equipment, owned
or used by the employer in the conduct of his
business, so long as any delinquency
continues, which said lien shall be prior to
any lien of any kind whatsoever including
existing liens for taxes.
Utah Code Ann. § 59-14-71(3)(e) (1963) (emphasis added). 	Section
59-10-406(6) now reads:
(a) Each employer that deducts and
withholds any amount under this part shall
hold the amount in trust for the state for
the payment of the amount to the commission
in the manner and at the time provided for in
this part.
(b) So long as any delinquency
continues, the state shall have a lien to
secure the payment of any amounts withheld,
and not remitted as provided under this
section, upon all of the assets of the
employer and all property owned or used by
the employer in the conduct of the employer's
business, including stock-in-trade, business
fixtures, and equipment.
(c) The lien described in Subsection
(6)(b) shall be prior to any lien of any
kind, including existing liens for taxes.
Utah Code Ann. § 59-10-406(6) (Supp. 2006) (emphasis added).
3 The 1979 version of section 59-10-22 read:
(2) If any person liable to pay the Utah
sales and withholding tax neglects or refuses
to pay the same after demand, the amount,
including any interest, additional amount,
addition to tax, or assessable penalty,
together with any costs that may accrue in
addition thereto, shall be a lien in favor of
(continued...)
15 	No. 20050521
We noted in I.M.C. Mint, however, that the warrant requirement
had been superseded by amendments to section 59-10-22 (1979), the
predecessor to sections 59-1-302 and 59-1-302.1. 3 	Id. at 1267.

3 (...continued)
the State of Utah upon all property and
rights to property, whether real or personal,
belonging to such person.
(3) Unless another date is specifically
fixed by law, the lien imposed for state
taxes shall arise at the time the assessment
is made and shall continue until the
liability for the amount so assessed (or a
judgment against the taxpayer arising out of
such liability) is satisfied or becomes
unenforceable by reason of lapse of time.
Utah Code Ann. § 59-10-22 (Supp. 1981) (emphasis added). 	Section
59-1-302.1 now reads:
(1) If any person liable to pay any tax
provided in Title 59, except a tax imposed
under Chapter 2, 3, or 4, neglects or refuses
to pay that tax after demand, the amount,
including any interest, additional amount,
additional tax, or assessable penalty,
together with any costs that may accrue, is a
lien in favor of the state upon all property
and rights to property, whether real or
personal, belonging to that person.
(2) Unless another date is specifically
fixed by law, the lien imposed by this
section for unpaid taxes arises at the time
the assessment is made and continues until
the liability for the assessed amount, or a
judgment against the taxpayer arising from
that liability, is satisfied or becomes
unenforceable because of lapse of time.
Utah Code Ann. § 59-1-302.1 (2004) (emphasis added).
No. 20050521 	16
And we noted that under the amended statutes (which did not
control in I.M.C. Mint), “lien priority of tax debts is now
established by statute to date from the time a tax assessment is
made.” 	Id. 	Thus, our reading of sections 59-1-302 and
59-1-302.1 is consistent with our holding in I.M.C. Mint, as well
as our policy of construing tax lien statutes “strictly so that
liens are not expanded by implication.” 	A.C. Fin., 948 P.2d at
779. 	If the legislature intends for these superpriority liens to
arise automatically at the moment delinquency begins, it can
amend the language of sections 59-1-302 and 59-1-302.1 to reflect
this intent.

17 	No. 20050521
¶41 	The record does not reveal that the Commission made any
assessment against either Tower or Stevenson before the payment
of the Account Receivable to the Bank. 	And counsel for the
Commission affirmed at oral argument that no assessment was made
prior to the personal assessment made against Stevenson in July
2002. 	As a result, we conclude that the state’s tax lien had not
arisen at the time Stevenson arranged for the Bank’s receipt of
the Account Receivable. 	Because the Bank’s security interest in
the Account Receivable was superior to the interest of the state,
we hold that Stevenson did not make a “voluntary, conscious, and
intentional decision to prefer” the Bank over the state. 	Utah
Code Ann. § 59-1-302(7)(b)(i) (2004). 	We accordingly vacate the
court of appeals’ order to remand this issue for further
consideration.
B. 	The Personal Funds
¶42 	We finally turn to the court of appeals’ determination
that Stevenson’s use of the Personal Funds to purchase the
Subcontractors’ claims did not constitute willfulness under
section 59-1-302(7)(b)(i). 	The Commission contends that the
Personal Funds were unencumbered corporate funds that were
available to pay Tower’s tax obligation. 	We disagree.
¶43 	In support of its argument, the Commission points to
the Ninth Circuit’s decision in Sorenson v. United States, 521
F.2d 325 (9th Cir. 1975). 	In that case, a business owner used
personal funds to pay his employees’ net wages. 	Id. at 327. 	The
court held that the “personal funds became funds of the
corporation” because they were used to pay “corporate
obligations.” 	Id. (internal quotation marks omitted). 	The court
reasoned that by using these funds to pay wages rather than the
company’s withholding tax obligation, the owner “prefer[red]
creditors holding wage claims over tax claims held by the
[government].” 	Id. at 328.
¶44 	Sorenson is distinguishable. 	In this case, Stevenson
used the Personal Funds to purchase the Subcontractors’ claims
against Tower; he did not satisfy them. 	Stevenson’s use of the
Personal Funds did not satisfy or extinguish any “corporate
obligations”-–those obligations remain unpaid. 	Id. at 327.
Because Stevenson’s use of the Personal Funds did not result in
any payment of “corporate obligations,” the Personal Funds never
“became funds of the corporation.” 	Id. 	As a result, the
Personal Funds were never available to pay Tower’s tax

No. 20050521 	18
obligations. 	We therefore affirm the court of appeals’
conclusion that Stevenson’s use of the Personal Funds did not
constitute a willful failure to pay withholding taxes.
CONCLUSION
¶45 	We affirm the court of appeals’ determination that
Stevenson did not recklessly disregard any obvious risks of
nonpayment, as well as its determination that Stevenson did not
act willfully with respect to the Personal Funds. 	But we
disagree with the court of appeals’ conclusion that the matter
should be remanded to allow the Commission to present further
evidence on the preference issue. 	Instead, we hold that
Stevenson did not make a voluntary decision to prefer the Bank
over the state. 	Because Stevenson is not liable for the
withholding taxes under any of the theories advanced by the
Commission, we reverse the court of appeals’ order to remand the
matter for redetermination by the ALJ.
---
¶46 	Chief Justice Durham, Associate Chief Justice Wilkins,
Justice Durrant, and Justice Nehring concur in Justice Parrish’s
opinion.