BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
SHAMROCK FOODS FROM A SALES )
& USE TAX AUDIT ASSESSMENT BY ) Docket No. 2003-53
THE EXCISE DIVISION F THE )
DEPARTMENT OF REVENUE )
(Audit Period 1/1/99 to 12/31/01) )
FINDINGS OF FACT, CONCLUSIONS OF LAW,
DECISION AND ORDER
Mr. Lawrence J. Wolfe, P.C., and Ms. Jenifer E. Scoggin of Holland and Hart, LLP, for Shamrock Foods Company (Petitioner).
Ms. Cathleen D. Parker, Assistant Attorney General, for the Wyoming Department of Revenue (Department).
The Wyoming State Board of Equalization (Board) consisting of Roberta A. Coates, Chairman, and Alan B. Minier, Vice Chairman, held a contested case hearing in this matter on January 26, 2004. Thomas R. Satterfield, Board Member, recused himself from participation in this matter at the beginning of the hearing. This appeal arises from the Department’s sales tax assessment against Petitioner based on an audit of Petitioner’s sales in Wyoming by the Wyoming Department of Audit for the period from January 1, 1999, through December 31, 2001.
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 April 21, 2003. [Exhibits 100, 500]. Petitioner’s Notice of Appeal was filed with the Board on May 20, 2003. [Board Record]. Therefore, the Board has jurisdiction to decide this matter.
The Wyoming Department of Audit audited Petitioner’s sales in Wyoming for the period from January 1, 1999, through December 31, 2001. Based on that audit, the Department of Revenue assessed Petitioner additional sales tax and interest. Of the three issues identified in the audit, Petitioner has raised a question on appeal concerning a portion of one of the issues. As stated by Petitioner, the primary issue presented for our determination is:
Were Shamrock’s sales to customers from which Shamrock did not obtain an exemption certificate exempt wholesale sales or sales to purchasers engaged in manufacturing, processing or compounding?
[Petitioner’s Proposed Findings of Fact, Conclusions of Law and Order, p. 4].
For the reasons set forth in this decision we affirm the decision of the Department.
FINDINGS OF FACT
1. Petitioner is a full service food distribution house selling about 17,000 different products. [Transcript p. 46]. Its products range from sugar packets to steaks, sea food and produce, to packaged candy bars and potato chips to plates, detergents, cleaning supplies and stoves used by restaurants and food service providers. [Transcript pp. 45-46]. Of these 17,000 products, Petitioner estimates that approximately 4 percent are cleaning products or supplies of a taxable nature to the purchaser. [Transcript p . 46].
2. In Wyoming, it sells its products to approximately 170 customers. The majority of Petitioner’s customers are either chain or independent restaurants, but it also sells to hospitals, schools, and the air force base. [Transcript p. 45].
3. The Department of Audit conducted an audit of Petitioner’s sales for the period from January 1, 1999, through December 31, 2001. [Parties Stipulation, ¶1]. As a result of the audit, the Department of Audit issued its final audit findings on March 24, 2003, indicating that Petitioner owed $43,015.30 in additional sales taxes plus interest and penalty. [Exhibit 101]. On April 21, 2003, the Department issued its final assessment to Petitioner based on the final audit for $43,015.30 in additional taxes and 14,294.51 in interest for a total due from Petitioner of $57,309.81. No penalty was assessed. [Exhibits 100, 500].
4 Petitioner filed a notice of appeal of the Department’s final assessment with the Board on May 20, 2003. [Board Record].
5. A random number generation program was used by the Department of Audit to select a sample of Petitioner’s invoices to examine. [Transcript p. 34]. Any errors discovered on review of the invoices were entered in a spreadsheet. [Transcript p. 23; Exhibit 501]. Those itemized transactions where errors were discovered were then used to project an error rate by county by month which was applied to Petitioner’s gross sales for each month of the audit period. [Transcript pp. 23, 38-40; Exhibits 501, 502, 503].
6. Three errors were discovered during the audit: 1) Sales of tangible personal property where no sales tax was collected by Petitioner; 2) Missing invoices; and 3) Failure to apply the correct tax rate. [Exhibit 101, p. 024, Exhibit 501].
7. The findings related to sales of tangible personal property where no sales tax was collected involved two separate types of transactions: sales of non-food products that were taxable, and sales of products to a customer where Petitioner did not have a exemption certificate. [Exhibit 101, pp. 015-022, Exhibit 501, pp. 003-010]. Approximately 30% of the findings on this issue were related to sales of taxable non-food items. The remainder of the findings related to the absence of exemption certificates. [Transcript pp. 25-26]. If Petitioner did not have an exemption certificate on file or did not produce an exemption certificate later, the auditor included the total sale as taxable. [Exhibit 101, pp. 015-022, Exhibit 501, pp. 003-010; Transcript pp. 22, 24, 26].
8. In conducting the audit, the auditor would not accept a sales tax license as evidence that a purchaser intended the purchase to be for resale. As the auditor stated: “We cannot make that determination for the purchaser as to whether or not they are going to make the – they wanted those sales to be exempt.” [Transcript pp. 26, 41-42]. The Department accepted this rationale in its final assessment based on the audit. [Transcript p. 88].
9. The Department’s rules specifically require vendors to obtain completed exemption certificates for all sales transactions where sales tax is not collected from the purchaser at the time of sale. [Exhibit 504].
10. The Administrator of the Excise Tax Division of the Department explained the purpose behind this rule. The exemption certificates are for the benefit of the seller. [Transcript p. 81]. The exemption certificates are a declaration made by the purchaser of a product that the purchaser has a valid exemption from paying the sales tax to the seller at the point of the transaction which relieves the seller from the duty to collect sales tax. [Transcript pp. 81, 85]. “Failure to obtain a properly completed exemption certificate at the time of the transaction may result in the seller being held liable for all sales tax not collected.” [Transcript p. 86]. [A copy of the current exemption certificate in use in Wyoming may be found at Exhibit 505].
11. The audit spreadsheets show sales to twenty-three purchasers for which Petitioner did not have an exemption certificate on file. [Exhibit 101, pp. 015-022, Exhibit 501, pp. 003-010]. Of those twenty three purchasers, the majority, fourteen of twenty three, had a Wyoming sales/use tax license and paid sales taxes to Wyoming during the audit period. [Parties’ Stipulation ¶ 3; Exhibit 104].
12. Although some of the invoices that were determined taxable because of a lack of exemption certificates were to establishments that had sales and use tax licenses, some were not. Some of the sales were during periods of time when the purchaser’s sales and use tax license had expired and the purchaser was no longer remitting sales tax to the State of Wyoming. [Compare: Exhibit 102, pp. 41-42 with Exhibit 101, pp. 015-022 pp. 42]. However, even where a Wyoming sales tax license was issued to a purchaser, no sales tax was remitted the State of Wyoming by two of these purchasers for at least a portion of the time they purchased goods from Petitioner. [Transcript pp. 97-99].
13. Of sixteen restaurant businesses for which Petitioner requested the percentage of the businesses’ sales that were subject to sales tax from the Department, thirteen had taxable sales of 99 percent or more of total sales, two had taxable sales of more than 94 percent of total sales and one had taxable sales of only 5.6percent. [Parties’ Stipulation ¶ 4]. These computations are contained in Exhibit 106 and Petitioner’s recalculations are contained in Exhibit 107 which extended the decimal place and removed the one company that had taxable sales of only 5.6 percent. [Transcript pp. 51-53].
14. No additional evidence concerning Petitioner’s sales to purchasers with no exemption certificate was introduced at the hearing. No testimony or other evidence was presented concerning what items were sold by Petitioner to the twenty three purchasers for which no exemption certificate was provided. Nor was any evidence presented on how the purchaser used the items. None of the invoices identified in the audit were presented at the hearing and none of the purchasers testified concerning how their purchases from Petitioner were used, if at all, in their business. Petitioner’s sole witness did not look at the invoices included in the audit where there was no exemption certificate to determine if the invoices may have contained all exempt items. [Transcript p. 58]. Therefore, we are unable to make any findings concerning what items were sold by Petitioner or how the items were used by the purchasers. More to the point, from the evidence presented we cannot determine whether or not the purchases of items from Petitioner would be considered taxable or tax exempt under Wyoming law.
CONCLUSIONS OF LAW
15. Petitioner’s notice of appeal was timely filed and the Board has jurisdiction to determine this matter. See: Jurisdiction, supra.
16. 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.
17. Therefore, Petitioner, has the burden of going forward and the ultimate burden of persuasion in this case.
18. Wyoming imposes an excise, or sales, tax on the sales price of every retail sale of tangible personal property within the state. Wyo. Stat. Ann. §39-15-103(a)(i)(A). It also imposes sales tax on the sales price paid for meals at any place where meals are regularly served to the public. Wyo. Stat. Ann. §39-15-103(a)(i)(F).
19. A retail sale is defined as the sale of tangible personal property to a person for use and not for subsequent sale. Wyo. Stat. Ann. §39-15-101(a)((vi). Conversely, a wholesale sale is defined as a sale of tangible personal property to a vendor for subsequent sale. Wyo. Stat. Ann. §39-15-101(a)(xvi).
20. Under Wyoming law both the vendor and the purchaser are liable for the payment of the sales tax. Wyo. Stat. Ann. §39-15-103(c)(i) & (ii).
21. A vendor is defined as any person engaged in the business of selling tangible personal property at retail or wholesale. Wyo. Stat. Ann. §39-15-101(a)(xv). A vendor is obligated to collect the applicable sales tax at the time of sale. Wyo. Stat. Ann. §39-15-103(c)(i). In addition, the purchaser is liable for payment of sales tax unless the taxes have been paid to a vendor. Wyo. Stat. Ann. §39-15-103(c)(ii).
22. Wyoming exempts certain sales of tangible personal property from sales tax including:
(A) Sales of tangible personal property to a person engaged in the business of manufacturing, processing or compounding when the tangible personal property purchased becomes an ingredient or component of the tangible personal property manufactured, processed or compounded for sale or use . . .
* * *
(F) Wholesale sales . . .
Wyo. Stat. Ann. §39-15-105(a)(iii)(A) & (F).
23. As a vendor, Petitioner is liable for the collection and payment of sales taxes unless the items were purchased for resale by the purchaser or used by the purchaser as an ingredient or component by the purchaser. In this case, Petitioner claims that its sales transactions are exempt from taxation under one of these two exemption provisions.
24. In reviewing a sales tax exemption claim we apply the following standards:
An exemption from sales tax is never presumed but must be expressly and clearly conferred in plain terms. It cannot be read into the statute by the courts or by the agency administering the tax. The one who claims exemption from the sales tax must bring himself clearly within the exemption provision and the letter of the statute. Moreover, because an exemption must come from the legislature rather than the courts, it is frequently declared that there is no exemption from the sales tax statute except as specifically enumerated therein. Statutes that provide exemptions from taxation are a matter of legislative grace and must be strictly construed against the taxpayer. 68 Am.Jur.2d Sales and Use Tax § 117 and those cases cited therein and State v. Capital Coal Co., 88 P.2d 481, 482-483 (Wyo.1939).
In the Matter of the Appeal of Caza Drilling, Inc., State Board of Equalization, Docket Nos. 98-157, 99-149 (Dec. 23, 1999) 1999 WL 1268427.
25. The Department is vested with the statutory authority to administer Wyoming’s sales tax statutes, Wyo. Stat. Ann. §39-15-102(b), and is specifically authorized to adopt rules and regulations to effect the purposes of those statutes. Wyo. Stat. Ann. §39-11-102(c)(xix). To effectuate the purposes of the sales tax exemption statutes, the Department has adopted a rule which provides in pertinent part:
(b)Certificates of Exemption/Resale Certificates. Vendors shall obtain completed exemption certificates for all sales transactions . . . where sales tax is not collected from the purchaser at the time of sale. Purchasers shall file a single exemption certificate once every three (3) years, or one (1) for the duration of each sales contract, with each selling vendor for exempt purchases made during that period. Such certificates shall be in a format as prescribed by the Department and shall be retained in the selling vendor’s records.
Rules, Wyoming Department of Revenue, Chapter 2, §8 (10/18/2000). [Exhibit 504].
26. We conclude these rules were properly promulgated pursuant to the Department’s statutory authority and “have the force and effect of law.” Department of Revenue v. Union Pacific Railroad Co., 2003 WY 54 ¶18, 67 P.3d 1176, 1184 (Wyo. 2003); Department of Revenue v. Buggy Bath Unlimited, Inc., 2001 WY 27 ¶19, 18 P.3d 1182, 1188 (Wyo. 2001).
27. Therefore, the Department of Audit’s decision to include in its findings the sales where no purchaser exemption certificate was provided by Petitioner and the Department’s assessment based on those audit findings were proper.
28. Nonetheless, Petitioner argues that the sales identified through the audit where Petitioner did not have a sales tax exemption certificate should be considered exempt sales because the majority of purchasers had Wyoming sales tax licenses and paid sales tax to the state. In support of its position, Petitioner relies on In the Matter of Lewan & Associates, State Board of Equalization, Docket, 97-46, (Oct. 2, 1998) 1998 WL 697446.
29. In Lewan, id, the seller sought a sales tax refund. The seller clearly identified the item sold but was unable to establish that the purchaser held a Wyoming sales tax license or had purchased the item for resale. Therefore, the Board concluded that the seller had failed to meet its ultimate burden of persuasion.
30. In this case, Petitioner asks us to assume the goods it sold were either resold by its purchasers or used to produce products which were sold by its purchasers. While Petitioner provided general information concerning its operations and the businesses it sells to, no evidence was provided concerning any of the specific sales identified in the audit. No invoices were produced showing the items sold. No witness testified concerning how the items sold were used by the purchasers. Without that information, the evidence of payment of sales tax by Petitioner’s purchasers on their sales in no way establishes that the purchasers paid sales tax on the items purchased from Petitioner.
31. Petitioner has failed to present sufficient evidence to bring itself clearly within the exemption provisions and the letter of the applicable statutes. Therefore, we conclude Petitioner has not met its burden of going forward and the ultimate burden of persuasion in this case.
IT IS THEREFORE HEREBY ORDERED: The Department of Revenue’s Shamrock Food tax deficiency assessment for the period of January 1, 1999, through December 31, 2001 is affirmed.
Pursuant to Wyoming Statute Section 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 the appropriate district court by filing a petition for review within 30 days of the date of this decision.
Dated this 4th day of June, 2004.
STATE BOARD OF EQUALIZATION
Roberta A. Coates, Chairman
Alan B. Minier, Vice Chairman
Wendy J. Soto, Executive Secretary