BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
BIG HORN COAL COMPANY FROM A ) Docket No. 2003-116
SALES & USE TAX AUDIT ASSESSMENT )
BY THE EXCISE DIVISION OF THE )
DEPARTMENT OF REVENUE )
(Audit Period 1/1/00 - 12/31/02) )
FINDINGS OF FACT, CONCLUSIONS OF LAW, DECISION AND ORDER
APPEARANCES
Andrew E. Ottinger and James Erwin filed pleadings and other documents for Big Horn Coal Company, Petitioner, but did not appear at the hearing of this matter (Petitioner).
Ryan T. Schelhaas, Assistant Attorney General, for the Department of Revenue, Excise Tax Division (Department).
DIGEST
This appeal arises from the Department’s assessment of additional sales tax, interest and penalty against Petitioner, based on an audit of it’s sales by the Wyoming Department of Audit for the period from January 1, 2000, through December 31, 2002. The Wyoming State Board of Equalization (Board) consisting of Roberta A. Coates, Chairman, and Thomas R. Satterfield, Board Member, held a contested case hearing in this matter on August 2, 2004. The Department appeared and presented testimony and evidence at the hearing. The Petitioner, failed to attend the hearing. Alan B. Minier, Vice-Chairman, considered the matter by reviewing the tape of the hearing, Board file and exhibits, and participated in the Decision and Order.
JURISDICTION
Upon application of any person adversely affected, the Board is mandated to review final Department actions concerning state excise taxes and to “[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act and its own rules and regulations of practice and procedure.” Wyo. Stat. Ann. §39-11-102.1(c)(iv). The Board is required to “[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes, in accordance with the rules, regulations, orders and instructions prescribed by the department.” Wyo. Stat. Ann. §39-11-102.1(c)(viii). The rules of practice and procedure for appeals before the Board involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Wyoming State Board of Equalization, Chapter 2, §3. The rules require that appeals be filed with the Board within thirty days of any final administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, §5(e). The Department’s audit assessment was dated September 15, 2003. [Board Record; Exhibit 507]. Petitioner’s Notice of Appeal was filed with the Board on October 14, 2003. [Board Record]. Therefore, the Board has jurisdiction to decide this matter.
DISCUSSION
The Wyoming Department of Audit audited Petitioner’s sales in Wyoming for the period from January 1, 2000, through December 31, 2002. Based on that audit, the Department of Revenue assessed Petitioner additional sales tax, interest and penalty. On appeal, Petitioner does not dispute the Department’s assessment of additional tax and interest. It only disputes the penalty assessed in the amount of $2,385.31. [Stipulated Updated Summary of Uncontroverted Facts]. In its Notice of Appeal, Petitioner sought relief from the penalty on the general ground that its various failures to pay taxes were not the result of negligence or intentional disregard of Wyoming law. The Petitioner subsequently modified its claims to assert that Petitioner and Petitioner’s parent company, Level 3 Communications, Inc., had prudently “outsourced all aspects of [Petitioner’s] mining operations to [an unspecified] third party....and therefore any penalty that is based on a negligence standard should be abated.” Petitioner was not sufficiently committed to this novel theory to appear at the hearing of this matter.
The Board may impose sanctions, including the dismissal of an appeal, for failing to appear and present evidence at a hearing. Rules, Wyoming State Board of Equalization, Chapter 1, §10. The Board has instead chosen to issue a decision and order in this case based on the evidence presented at the hearing. For the reasons set forth in this decision we affirm the Department’s imposition of a penalty.
FINDINGS OF FACT
1. Petitioner, owned by Level 3 Communications, operates a coal mine near Sheridan, Wyoming. Petitioner has been conducting business in Wyoming since approximately September 1944. [Stipulated Updated Summary of Uncontroverted Facts.]
2. The Wyoming Department of Audit conducted a sales and use tax audit of Petitioner’s business for the period beginning January 1, 2000 and ending December 31, 2002. [Stipulated Updated Summary of Uncontroverted Facts.] The audit contained findings in five areas: under-reporting of taxable sales; retail sales of tangible personal property without a resale or exemption certificate; purchase of equipment, supplies and other materials consumed in the operation of the business; rental of equipment used in the operations of the business and not for subsequent sale; and repairs, alterations or improvements to tangible personal property. [Exhibit 512, p. 34]. Of these five areas, the bulk of the findings were related to the sale of tangible personal property. [Exhibit 500].
3. Based on the Department of Audit’s findings, the Department of Revenue issued an assessment to Petitioner on September 15, 2003. The assessment included a tax deficiency of $23,853.10, interest of $7,008.15 and a penalty of $2,385.31, for a total assessment of $33,246.56. [Stipulated Updated Summary of Uncontroverted Facts; Exhibit 507.]
4. Petitioner agreed with the Department’s final assessment of unpaid tax and interest. [Stipulated Updated Summary of Uncontroverted Facts]. Petitioner paid the taxes and interest as assessed and appealed the penalty assessment. [Board Record; Exhibit 508].
5. The evidence is un-refuted that Petitioner failed to pay sales tax when due.
6. At the hearing, Mr. Dan Noble, Administrator of the Excise Tax Division of the Department of Revenue, testified that this was not the first time the issue of the imposition of penalties had been raised by the Excise Division of the Department in regards to Petitioner. The Department uses penalties to encourage compliance with the rules and regulations. [Tape of Hearing].
7. On July 15, 1988, Petitioner paid $2,472.63 penalty concerning an audit on production from September 1, 1984 to September 30, 1987. [Exhibit 510].
8. On July 1, 1992, Petitioner paid $1,937.09 penalty after negotiation concerning an audit on production from July 1, 1988 to June 30, 1991. [Exhibit 511].
9. In each of these prior audits, the issues identified for which additional sales tax was imposed were the same as the issues found in the current audit. [Tape of Hearing].
10. Petitioner had prior knowledge of its obligation to report and pay taxes for the transactions identified in the current audit based on the prior audits. Therefore we find that Petitioner’s failure to properly report and pay taxes with that knowledge was negligent. Petitioner’s concession that the assessment of additional taxes and interest was correct supports this finding.
11. Petitioner failed to appear at the hearing of this matter. [Tape of Hearing]. No evidence or testimony was presented at the hearing from which the Board may make findings regarding the ownership or management of Petitioner.
CONCLUSIONS OF LAW
12. Petitioner’s notice of appeal was timely filed and the Board has jurisdiction to determine this matter. See: Jurisdiction, supra.
13. The Board’s rules provide in relevant part as follows:
Except as specifically provided by law or in this section, the Petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action. For all cases involving a claim for exemption, the Petitioner shall clearly establish the facts supporting an exemption.
Rules, Wyoming State Board of Equalization, Chapter 2, §20.
14. Petitioner had the burden of going forward and the ultimate burden of persuasion in this case. By failing to appear and present evidence at the hearing, Petitioner failed to meet both its burden of going forward and its burden of persuasion in this case.
15. Wyoming Statute section 39-15-108(c)(I) provides that a ten percent (10%) penalty be added to the taxpayer’s deficiency if any part of the deficiency is due to negligence or intentional disregard of rules and regulations of the Department.
16. Negligence is the failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation. Black’s Law Dictionary, 7th Ed., p. 1056 (West Group 1999); Downtown Auto Parts, Inc. v. Toner, 91 P.3d 917, 2004 WY 67, ¶ 8 (2004); Cervelli v. Graves, 661 P.2d 1032, 1036 (Wyo.1983)
17. The Department demonstrated that in prior audits Petitioner had failed to pay sales tax on the same type of transactions identified by the current audit. Petitioner does not dispute the tax deficiency. [Stipulated Updated Summary of Uncontroverted Facts].
18. Based on the results of the prior audits, Petitioner knew or should have known that the transactions identified in the current audit were subject to sales tax.
19. Petitioner’s prior knowledge of the obligations imposed upon it by Wyoming’s sales tax statutes and its failure to remit those taxes when due, constitute a failure to exercise the standard of care that a reasonable prudent person would have exercised in a similar situation.
20. Therefore, we conclude that Petitioner was negligent and the imposition of a penalty by the Department was appropriate.
21. In the alternative, we conclude that Petitioner failed to meet its burden of production and burden of proof in this matter when it chose not to appear and present evidence at the hearing in this matter.
22. Finally, Petitioner asserts that it should avoid the penalty because Big Horn Coal Company and its parent corporation, Level 3 Communications, Inc., had outsourced its mining operations. In apparent support of this claim, Petitioner’s pre-hearing list of exhibits included an Amended and Restated Management Services Agreement between KCP Inc. and Kiewit Mining Group Inc., dated March 30, 1998. Because Petitioner did not appear, this agreement was not admitted in to the hearing record, and cannot be an element of our decision. However, the corporations named in the Agreement may have some grounds for concern that this ostensibly confidential document is now freely available to the public in the Board’s files.
23. Even if the Petitioner had presented evidence, the Board has difficulty with the legal premise of Petitioner’s claim. It is our custom to make every effort to make sense of the legal premises that litigants would have us consider, even when those premises are not well stated. Nonetheless, we can see no reason why the Petitioner should be excused from a tax penalty simply because the Petitioner and a parent company engaged professional management to operate Petitioner – if that is indeed what Petitioner contends. This premise is not supported by any argument.
24. In the alternative, we conclude that Petitioner has failed to meet either its burden of production or proof regarding relationship between Petitioner, Level 3 Communications and the management company. Absent that evidence, we are constrained to reject Petitioner’s argument.
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ORDER
IT IS THEREFORE HEREBY ORDERED that the decision of the Department of Revenue is affirmed.
Pursuant to Wyo. Stat. Ann. § 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in at the appropriate district court by filing a petition for review within 30 days of the date of this decision.
Dated this 14th day of September, 2004
STATE BOARD OF EQUALIZATION
________________________________
Roberta A. Coates, Chairman
________________________________
Alan B. Minier, Vice-Chairman
______________________________
Thomas R. Satterfield, Board Member
ATTEST:
Wendy. J. Soto, Executive Secretary