Friday, October 21, 2011

Summary 2011 WY 146

Summary of Decision October 21, 2011

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Summaries are prepared by Law Librarians and are not official statements of the Wyoming Supreme Court

Case Name: Wyoming Department of Revenue v. QWEST Corporation

Citation: 2011 WY 146

Docket Number: S-11-0002


Appeal from the District Court of Laramie County, Honorable Peter G. Arnold, Judge

Representing Appellant (Petitioner): Gregory A. Phillips, Wyoming Attorney General; Michael L. Hubbard, Deputy Attorney General; Cathleen D. Parker, Senior Assistant Attorney General; Martin L. Hardsocg, Senior Assistant Attorney General.

Representing Appellee (Respondent): Michael Rosenthal and Lucas Buckley, Hathaway & Kunz, P.C.; Larry H. McMillin and Roy A. Adkins, Qwest Corporation, Denver, Colorado.

Date of Decision: October 21, 2011

Facts: After an audit by the Department of Audit (DOA), the Department of Revenue (DOR) determined that Appellee was not entitled to a refund of sales tax which was incorrectly collected from its customers and remitted to the state because Appellee did not provide data showing the actual amount of tax collected and remitted by month and by county. Appellee appealed the DOR’s determination to the State Board of Equalization (SBOE), asserting it did not retain that type of information and its refund should be estimated using a process employed in a prior audit to assess sales tax. The SBOE held a contested case hearing, then stayed the matter to give the parties an opportunity to settle their differences. Two months after the evidentiary portion of the contested case hearing concluded, Appellee produced to the DOR the actual sales tax information it had claimed did not exist. It explained that another department of the Appellee organization had the material and Appellee employees involved with the DOA audit were not previously aware that the information existed. The SBOE supplemented the record with the actual data, reversed the DOR’s decision that Appellee was not entitled to a refund and remanded the case to the DOR to accomplish the refund in accordance with the newly produced evidence. The DOR petitioned the district court for review, it affirmed, and the DOR appealed to this Court.

Issues: Whether the SBOE erred by considering, in a contested case proceeding, Appellee’s evidence of the actual sales tax collected when Appellee did not provide such information to the DOR/DOA prior to the final assessment, despite repeated requests by the DOR/DOA for such information. Whether there is substantial evidence in the record to support the SBOE’s ruling that Appellee was entitled to a refund of sales tax.

Holdings: Sales tax payers have an obligation to preserve tax records and make them available for examination by the DOR and failure to comply with the record retention requirement will result in the taxpayer bearing the burden of proof as to the correctness of the assessment. Consistently, the DOR Rules require the taxpayer to provide information to support refund claims.

Wyo. Stat. 39-15-107(a) (ix) requires the DOR to examine each sales tax return and determine if the amount of tax remitted is incorrect. If the amount paid exceeds that which is due, the excess shall be refunded to the taxpayer or credited against subsequent tax liability. The statutes do not, however, answer the question of whether a taxpayer can withhold or fail to produce tax information to the DOR/DOA and then have such withheld information considered in a subsequent contested case hearing before the SBOE.

The SBOE was charged with determining whether the DOR erred by denying Appellee a refund on the grounds that it did not provide the actual sales tax data. It was not charged with determining de novo, without any consideration of the state of the record at the time of the assessment decision, whether Appellee was entitled to a refund. The SBOE’s role is limited to considering the factual record which was available to the DOR/DOA during the assessment process. The burden is on the taxpayers to provide the information necessary for DOR to prepare an accurate valuation of the properties and to prove at the contested case hearing before SBOE that the methodology used and valuations reached by DOR were not supported by substantial evidence available in the agency record.

Here, the DOR/DOA sought specific information from Appellee, including the amounts of actual sales tax collected by month and by county. Appellee did not provide that information at the time of the audit. Following the hearing, Appellee revealed the requested information did exist and it wanted to use the information to support its claim that it was entitled to a refund. By allowing the late produced information to be admitted into evidence in the contested case proceeding, the SBOE denigrated the entire assessment and audit process.

The SBOE erred by allowing Appellee to submit evidence that it did not make available to the auditors. The SBOE should have restricted its decision to the record existing at the time of the audit and assessment. Nevertheless, the SBOE was correct in ruling that Appellee (and ultimately, its Wyoming telephone customers) was entitled to a refund. Once it was clear the charges were not taxable and Appellee had collected the tax, the DOR/DOA was required to refund the excess tax to the taxpayer. Wyo. Stat. 39-15-109 (c) states: “Any tax, penalty or interest which has been erroneously paid, collected or computed shall either be credited against any subsequent tax liability of the vendor or refunded.” The use of the word “shall” in a statute makes the provision mandatory.

Wyo. Stat. 39-15-107(a)(iv) states that the DOR should use the best information available to determine an assessment of taxes when the taxpayer has not supplied sufficient information. There is no reason why, when it is clear as it was here that a taxpayer is entitled to a refund, the best information available to the DOR/DOA should not be used to calculate the refund/credit. The DOA had determined that the best information available to calculate the sales tax deficiency for the previous audit was the 911 and Customer Access Line Charge (CALC) ratio. By refusing to use the data available to it, the DOA/DOR expended significant time and taxpayer money in litigation when it was clear, as a matter of law, the taxpayer was entitled to a refund.

In one respect Appellee will endure the consequences of failing to provide that information because the amount of refund it will be entitled to using the estimate procedure is less (though not a great deal) than the amount it would have been entitled to had the actual sales tax data been used. The parties do not direct us to any other statutory penalties which may be imposed against a taxpayer that fails to provide data in its possession to the auditors. It may be worth the Wyoming Legislature’s time to study the issue to determine whether it believes the DOR/DOA has sufficient statutory authority to compel taxpayers to preserve information and provide it to the taxing authorities and whether some sort of statutory sanction should be imposed for the failure to do so. Such authority could, possibly, prevent a recurrence of this type of litigation which has resulted in a waste of time and taxpayer money.

The SBOE’s decision that Appellee is entitled to a refund is affirmed. The SBOE erred, however, by ordering the DOR to use the actual sales tax data which was not provided to the DOA during the audit process to determine the refund amount. The DOR/DOA should have used the best information available to it during the audit, i.e., the 911 and CALC ratio data, to estimate the amount to be refunded to Appellee. Therefore, the action is remanded for a recalculation of the refund amount in accordance with the estimate methodology and the information available to the DOA during the audit. These actions should be taken with haste so the proper amounts may be refunded to Wyoming customers who paid the tax in the first place and continue to bear the burden of the parties’ failure to act in the customers’ best interests.

Affirmed in part, reversed in part, and remanded for further proceedings consistent with this decision.

C.J. Kite delivered the opinion for the court.

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