BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
EXXONMOBIL CORPORATION FROM ) Docket No. 2005-110
A DENIAL OF PENALTY WAIVER BY THE )
EXCISE DIVISION OF THE DEPARTMENT )
OF REVENUE )
FINDINGS OF FACT, CONCLUSIONS OF LAW, DECISION AND ORDER
APPEARANCES
Lawrence J. Wolfe and Walter F. Eggers III, Holland & Hart, LLP, for ExxonMobil Corporation, Petitioner (ExxonMobil).
Martin L. Hardsocg, Senior Assistant Attorney General, and Kyle R. Smith, Assistant Attorney General, for the Wyoming Department of Revenue, Respondent (Department).
STATEMENT OF THE CASE
The Department, following a sales and use tax audit of ExxonMobil’s Wyoming License No. 25-0-00689 for the period January 1, 2000, through April 30, 2003, issued a deficiency assessment with interest, and assessed ExxonMobil a penalty for failure to pay all sales and use tax due during the audit period. ExxonMobil, on June 10, 2005, paid the entire deficiency plus interest in the amount of $766,800.85, and requested waiver of the $53,608.28 penalty. The Department denied the waiver request by letter dated October 1, 2005. ExxonMobil appealed the waiver denial to the State Board of Equalization (Board). The Board, Alan B. Minier, Chairman, Thomas R. Satterfield, Vice Chairman, and Thomas D. Roberts, Board Member, held a hearing May 18, 2006.
We affirm denial of the penalty waiver.
The Board shall review final decisions of the Department on application of any interested person adversely affected. Wyo. Stat. Ann. § 39-11-102.1(c). The taxpayer’s appeal must be filed with the Board within thirty days of the Department’s final decision. Rules, Wyoming State Board of Equalization, Chapter 2, § 5(a). ExxonMobil timely appealed the final decision of the Department by Notice of Appeal effective October 31, 2005, and the Board has jurisdiction to decide this matter.
CONTENTIONS AND ISSUES
ExxonMobil, in its Updated Summary of Contentions filed with the Board, asserts:
1. Following a sales and use tax audit of ExxonMobil’s Wyoming License No. 25-0-00689 for audit period January 1, 2000, through April 30, 2003, the Department assessed ExxonMobil a penalty for its failure to pay all sales and use tax due for the audit period.
2. The Department’s additional tax assessment resulted from clerical errors and oversights by ExxonMobil employees responsible for processing invoices for payment even though ExxonMobil has controls in place to prevent such errors.
3. ExxonMobil, on June 10, 2005, paid all tax deficiency plus interest in the sum of $766,800.85, and requested a waiver of the $53,608.28 penalty.
4. The Department’s denial of the request for waiver of penalty treats ExxonMobil as if it negligently or intentionally disregarded the Department’s Rules and Regulations under Wyo. Stat. Ann. § 39-15-108(c)(i), contentions which ExxonMobil denies.
5. The penalty is not warranted under the circumstances of the audit. It was assessed, and the requested waiver denied, without explanation.
6. ExxonMobil is entitled to understand the grounds for the Department’s final decision to deny the request for waiver of the penalty.
ExxonMobil, in its post-hearing brief, sets forth three distinct arguments in support of it contentions:
A. The Department’s application of a per se negligence rule ignores legislative intent and Supreme Court precedent and contradicts the Board’s adoption of a reasonableness standard in Big Horn Coal.
B. The Penalty Provision authorizes the Department to impose a penalty on only a portion of the tax deficiency.
C. The Department should exercise its waiver authority and waive the penalty except for $13,000.
[Closing Brief of Petitioner, pp. 7, 18, 22].
FINDINGS OF FACT
1. The Department, as the result of a sales and use tax audit of ExxonMobil’s Wyoming License No. 25-0-00689 for the period January 1, 2000, through April 30, 2003, issued a deficiency assessment with interest, and assessed ExxonMobil a penalty for failure to pay all sales and use tax due during the audit period. [Exhibit 508].
2. ExxonMobil, on June 10, 2005, paid the entire tax deficiency plus interest in the amount of $766,800.85, and requested waiver of the $53,608.28 penalty. [Exhibit 507]. The Department denied the waiver request by letter dated October 1, 2005. [Exhibit 508].
3. Janet L. Zahn testified on behalf of ExxonMobil. Ms. Zahn is the excise tax advisory and audit manager for ExxonMobil. Her responsibilities include ensuring compliance with all sales and use tax, motor fuel tax, excise tax, environmental tax as well as underground storage and inspection fees. She is responsible for ensuring compliance with all transactional taxes for ExxonMobil. She is personally familiar with the Wyoming sales and use and excise tax system, and has been personally involved in prior sales and use tax audits by the State of Wyoming. [Transcript, pp. 14-15, 18-19, 21-22].
4. ExxonMobil deals with sales and use tax in all states of the United States as well as Puerto Rico. ExxonMobil, including all its different corporations and affiliates, files about 10,000 transactional tax returns a year. [Transcript, pp. 16-18 ].
5. Ms. Zahn, by example, described the process utilized by ExxonMobil for payment of invoices and determination of sales and use tax liability. A vendor submits an invoice for pipe. The receiving ExxonMobil facility confirms receipt and approves payment. The invoice is sent to a centralized payables system which handles a little over 3 million invoices annually. Prior to July, 2001, the sales/use taxability determination was made by a payables clerk who manually entered the determination into the payables system. Beginning July, 2001, the taxability determination was made by a computer program (module) within the SAP accounting system utilized by ExxonMobil. The computer module reviews key elements of each transaction and makes a taxability determination based on those elements and tax tables specific to each state. All transactions which go through this system are considered taxable unless the state tables indicate an exemption. If, however, the state table in the system indicates an exemption, but the vendor has billed sales tax, ExxonMobil pays the tax based on the premise the vendor has better knowledge of taxability. Conversely, if a vendor does not bill tax, and the state table in the system indicates tax is payable, ExxonMobil pays the tax. [Transcript, pp. 23-25, 30, 49, 62, 64, 89-92, 107-108].
6. ExxonMobil, during the audit period in question, was not a “direct payor” of sales and use tax to the State of Wyoming. [Transcript, p. 28].
7. Ms. Zahn asserted the transition from the manual system prior to July, 2001, to the automated system beginning in July, 2001, has improved ExxonMobil’s tax compliance. Both underpayments and overpayments have been reduced. [Transcript, pp. 29-30, 69].
8. Ms. Zahn stated there may still be taxability errors even with the automated computer module system. Certain data is still entered manually, thus there may be unintentional data entry errors which affect the automated tax system review. Entry of an incorrect cost center, term group, or service type could result in an incorrect tax code, or even an incorrect exemption, which would thus result in an underpayment of tax. The clerk entering these types of code is not making a taxability decision. The taxability determination is made by the SAP accounting system and the tax module. [Transcript, pp. 31-32, 55, 65-67, 93-94].
9. The clerical errors referenced by ExxonMobil in its August 16, 2001, letter requesting waiver of penalty were not errors with regard to taxability decisions. [Transcript, pp. 94-95; Exhibit 102]
10. Ms. Zahn stated ExxonMobil is challenging the penalty assessment based on its belief it has put forth a reasonable effort to manage its tax compliance activity with the State of Wyoming as well as other jurisdictions. The Wyoming auditors have not indicated the ExxonMobil accounting system is in any way defective or needs some specific improvement. [Transcript, pp. 32-33].
11. Ms. Zahn, on behalf of ExxonMobil, does agree ExxonMobil made a mistake during the audit period with regard to accruing tax on purchases for the helium expansion project at the Shute Creek facilities. ExxonMobil failed to properly accrue the tax due even though the issue had been brought to its attention in a prior audit. The tax assessment attributable to this error is $137,000, thus ExxonMobil agrees a 10% penalty of $13,700, is appropriate. [Transcript, pp. 33-36, 98-99; Exhibit 505, p. 26].
12. Other than the helium project transactions, neither the Department of Audit nor the Department of Revenue have advised ExxonMobil of any other transactions or issues which arose in a prior audit and remained an issue in the current audit. [Transcript, pp. 36-37].
13. ExxonMobil introduced Exhibits 100 and 101, which depict calculation of “error rates or ratios” for the current and prior audits. ExxonMobil asserts the ratios in Exhibit 101 are a more accurate reflection of its compliance than the rates derived using the Department’s methodology which is depicted in Exhibit 100. ExxonMobil asserts Exhibit 101 indicates it is complying as best it can with the Wyoming sales and use tax requirements, particularly in light of the significant increase in total purchases managed by the ExxonMobil accounting system since the prior audit. ExxonMobil believes its accounting and taxability determination systems are working correctly. [Transcript, pp. 37-43; Exhibits 100 and 101].
14. ExxonMobil also introduced Exhibit 102 which summarized tax assessments over the course of the last several audits. None of those audits included a penalty assessment. ExxonMobil asserts the audit history indicates a continuous improvement in sales and use tax compliance. Ms. Zahn was not concerned the current assessment exceeds the last prior assessment based on the fact the amount of purchases under this audit were double the prior audit. [Transcript, pp. 44-46, 85; Exhibits 102].
15. ExxonMobil does not assert the fact the Department has waived penalty assessments in prior ExxonMobil sales and use tax audits should have any impact on the current request for waiver. [Transcript, p. 46].
16. Ms. Zahn expressed her opinion ExxonMobil is exercising the current standard of care in the industry for reporting and payment of Wyoming sales and use tax. She asserted ExxonMobil did not fail to exercise the required standard of care during the audit period at issue. [Transcript, pp. 48, 52-53].
17. Daniel W. Noble, administrator of the Department’s Excise Tax Division, testified on behalf of the Department. He has dealt with sale and use tax penalties every day for the last six years, since becoming administrator. In that capacity, he determines whether the penalties provided by statute will be waived. [Transcript, pp. 114-115, 117].
18. ExxonMobil requested a waiver of penalty before Noble signed the final action letter on the sales tax audit for the period January 1, 2001 to April 30, 2003. [Transcript, p. 128; Exhibit 508]. The Wyoming Department of Audit notified ExxonMobil of its proposed findings by letter of April 13, 2005, stating its determination that ExxonMobil owed “$536,082.75 in tax, plus interest and penalty.” [Exhibit 504]. ExxonMobil transmitted payment of the proposed tax amount, with interest of $230,718.10, by letter dated June 10, 2005. [Exhibit 504]. The Department of Revenue adopted the findings of the Department of Audit as its final administrative action by letter of October 1, 2005. [Exhibit 508].
19. In its June 10, 2005, letter transmitting payment of taxes and interest, ExxonMobil requested waiver of the proposed penalty:
Payment of the penalty assessed in the amount of $53,608.28 has not been included. Exxon Mobil Corporation respectfully requests waiver of the penalty assessed. It is our position that the additional tax assessment did not result from negligence or the intentional disregard of the rules and regulations of the state. The additional tax resulted from clerical errors and oversights by personnel responsible for processing invoices for payment. This breakdown in controls does not signify that Exxon Mobil Corporation was negligent in its effects [sic] to accrue tax. The mere existence of internal controls demonstrates attempts to comply with the State laws, rules and regulations. Exxon Mobil Corporation has acted in good faith in it’s [sic] efforts to remit all appropriate taxes and file all returns in a timely manner. Exxon Mobil Corporation respectfully requests your favorable consideration of this matter.
[Exhibit 507]. We note that ExxonMobil simultaneously conceded a “breakdown in controls” and denied the negligence necessary for imposition of a penalty.
20. The Department’s policy was to treat any error in payment of sales and use taxes, such as late filing or underpayment, as negligence. [Transcript, pp. 125-126, 141-142,164, 168-171, 177-178]. Noble considers the penalty itself to be “fairly automatic.” [Transcript, p. 142].
21. On receiving ExxonMobil’s request for waiver, Noble consulted with the Department of Audit. [Transcript, pp. 128, 148]. He was principally interested in whether the issues in the audit were similar to issues in past audits, and whether there had been any demonstrated improvement from previous audits. [Transcript, pp. 128-129]. ExxonMobil had previously highlighted improvements in its performance when it sought a waiver of penalties related to its Wyoming sales tax audit for the period January 1, 1997 to December 31, 1999. [Exhibit 102].
22. From his meeting with the Department of Audit, Noble learned that the reason for the deficiency was clerical errors [Transcript, p. 130], just as represented in ExxonMobil’s request for waiver [Exhibit 507], and “almost every bit of [the deficiency] was associated with purchases.” [Transcript, p. 149]. Noble considers the collection of taxes on purchases made by oil and gas field companies to be a subject of great concern to the Department. [Transcript, pp. 131-132].
23. Noble decided not to waive the penalty based on similar past issues with the same taxpayer; on the absence of significant improvement in compliance; the recurrence of issues related to purchases; and the powers at his disposal to encourage compliance. [Transcript, pp. 135-136]. In support of this rationale, Noble explained that ExxonMobil’s error rate for the audit of 1997 through 1999 was 12.55%, while its error rate for this audit was 10.62%. [Transcript, p. 134]. Noble further noted that, unlike other taxpayers, ExxonMobil’s errors have always resulted in a net underpayment of taxes. [Transcript, pp. 167-168]. In contrast, other taxpayers “get it right.” [Transcript, p. 165]. In Noble’s view, ExxonMobil does not have the technology and training in place to pay its sales and use taxes consistent with Wyoming law. [Transcript, pp. 140-150].
24. At hearing, Noble confirmed that he did not wish to exercise his discretion to waive any portion of the penalty. [Transcript, p. 181].
25. Any portion of the Statement of the Case or Contentions and Issues set forth above, or any portion of the Conclusions of Law - Principles of Law or the Conclusions of Law - Application of Principles of Law set forth below which includes a finding of fact, may also be considered a Finding of Fact and, therefore, is incorporated herein by reference.
CONCLUSIONS OF LAW: PRINCIPLES OF LAW
26. The role of this Board is strictly adjudicatory:
It is only by either approving the determination of the Department, or by disapproving the determination and remanding the matter to the Department, that the issues brought before the Board for review can be resolved successfully without invading the statutory prerogatives of the Department.
Amoco Production Company v. Wyoming State Board of Equalization, 12 P.3d 668, 674 (Wyo. 2000). The Board’s duty is to adjudicate the dispute between taxpayers and the Department.
27. 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)(iv).
28. The Board’s Rules provide:
[T]he 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....
Rules, Wyoming State Board of Equalization, Chapter 2 § 20.
29. The Board, in interpreting a statute, follows the same guidelines as a court:
We read the text of the statute and pay attention to its internal structure and the functional relationship between the parts and the whole. We make the determination as to meaning, that is, whether the statute’s meaning is subject to varying interpretations. If we determine that the meaning is not subject to varying interpretations, that may end the exercise, although we may resort to extrinsic aids to interpretation, such as legislative history if available and rules of construction, to confirm the determination. On the other hand, if we determine the meaning is subject to varying interpretations, we must resort to available extrinsic aids.
General Chemical v. Unemployment Ins. Comm’n, 902 P.2d 716, 718 (Wyo. 1995).
‘Determining the lawmakers’ intent is our primary focus when we interpret statutes. Initially, we make an inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection. We construe together all parts of the statute in pari materia, giving effect to each word, clause, and sentence so that no part will be inoperative or superfluous. We will not construe statutes in a manner which renders any portion meaningless or produces absurd results.’ In re WJH, 2001 WY 54, ¶ 7, 24 P.3d 1147, ¶ 7 (Wyo. 2001).
TPJ v. State, 2003 WY 49, ¶ 11, 66 P.3d 710, 713 (Wyo. 2003).
30. The Board considers the omission of certain words intentional on the part of the Legislature, and we may not add omitted words. “[O]mission of words from a statute is considered to be an intentional act by the legislature, and this court will not read words into a statute when the legislature has chosen not to include them.” BP America Production Co. v. Department of Revenue, 2005 WY 60 ¶ 22, 112 P.3d 596, 607 (Wyo. 2005), quoting Merrill v. Jansma, 2004 WY 26, ¶ 29, 86 P.3d 270, 285 (Wyo. 2004). See also Parker v. Artery, 889 P.2d 520 (Wyo. 1995); Fullmer v. Wyoming Employment Security Comm’n., 858 P.2d 1122 (Wyo. 1993). The language which appears in one section of a statute but not another, will not be read into the section where it is absent. Matter of Adoption of Voss, 550 P.2d 481, 485 (Wyo. 1976).
31. It is an elementary rule of statutory interpretation that all portions of an act must be read in pari materia, and every word, clause and sentence of it must be considered so that no part will be inoperative or superfluous. Also applicable is the oft-repeated rule it must be presumed the Legislature did not intend futile things. Hamlin v. Transcon Lines, 701 P.2d 1139, 1142 (Wyo. 1985).
32. Wyoming Statute Annotated Section 39-15-107(a)(i) dealing with sales tax provides:
(a) Returns, reports and preservation of records. The following shall apply:
(i) Each vendor shall on or before the last day of each month file a true return showing the preceding month's gross sales and remit all taxes to the department. The returns shall contain such information and be made in the manner as the department by regulation prescribes. The department may allow extensions for filing returns and paying the taxes by regulation, but no extension may be for more than ninety (90) days.
33. Wyoming Statute Annotated Section 39-16-107(a)(i) dealing with use tax provides:
(a) Returns, reports and preservation of records. The following shall apply:
(i) Every vendor shall collect the tax imposed by this article and is liable for the entire amount of taxes imposed. The taxes are due and payable on the last day of the month following the month in which they were collected or as required by the department and each vendor shall on or before the last day of each month file a return showing the total sales of tangible personal property subject to the tax imposed by this article sold during the preceding month and remit all taxes due to the department.…
34. Wyoming Statute Annotated Section 39-15-108(c)(i) and (c)(xv) dealing with sales tax penalties provide:
(c) Penalties. The following shall apply:
(i) If any part of the deficiency is due to negligence or intentional disregard of rules and regulations but without intent to defraud there shall be added a penalty of ten percent (10%) of the amount of the deficiency plus interest as provided by paragraph (b)(i) of this section. The taxes, penalty and interest shall be paid by the vendor or any person liable for the payment of the sales tax under this article within ten (10) days after notice and demand is made by the department;
* * *
(xv) The department may credit or waive penalties imposed by this subsection as part of a settlement or for any other good cause.
35. Wyoming Statute Annotated Section 39-16-108(c)(i) and (c)(xvii) dealing with use tax penalties provide:
(c) Penalties. The following shall apply:
(i) If any part of the deficiency is due to negligence or intentional disregard of this article or rules and regulations, a penalty of ten percent (10%) of the deficiency shall be added in addition to interest. If any part of the deficiency is due to fraud or an intent to evade this article or authorized rules and regulations, a penalty of twenty-five percent (25%) of the deficiency shall be added in addition to interest;
* * *
(xvii) The department may credit or waive penalties imposed by this subsection as part of a settlement or for any other good cause.
36. The Department Rule concerning a sales/use tax penalty states:
Section 11. Collection and Enforcement.
* * *
(b) Waiver of Penalty. Penalties may be waived by the Department Director and Excise Division Administrator if the taxpayer can demonstrate that the
Department’s billing is in error or that other extenuating circumstances existed to cause delinquency. Late mailing shall not be considered just cause for waiver. Requests for waiver shall be in writing and shall evidence the reason for waiver.
Rules, Wyoming Department of Revenue, Chapter 2, § 11(b).
37. The Board has previously adopted a definition of negligence for the purposes of Wyo. Stat. Ann. § 39-15-108(c)(i):
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).
Big Horn Coal Co., Docket 2003-116, September 14, 2004, 2004 WL 2132769 ¶ 16. (Wyo. St. Bd. Eq.), See also Hill v. Park County Board of County Commissioners, 856 P.2d 456, 459 (Wyo. 1993); Keehn v. Town of Torrington, 834 P.2d 112, 114 (Wyo. 1992); and Coleman v. Strohman, 821 P.2d 88, 89 (Wyo. 1991).
38. Negligence per se is simply negligence with the standard of care being set by a statute or ordinance. Wallman v. Kelly, 976 P.2d 330, 333 (Colo. 1998).
CONCLUSIONS OF LAW - APPLICATION OF PRINCIPLES OF LAW
39. The Board has jurisdiction to hear and decide this matter.
Application of penalty provision
40. A determinative element in considering this appeal is the fact ExxonMobil admits a portion of the assessed deficiency was the result of mistakes - negligence - of its employees. ExxonMobil has agreed to a penalty of $13,700 on the portion of the deficiency related to tax on purchases for the helium expansion project at its Shute Creek facilities. Findings, ¶ 11. A penalty must be supported by negligence, Conclusions, ¶¶ 34, 35, from which it follows that ExxonMobil concedes its negligence with respect to the portion of the deficiency related to the helium expansion project. Based on our interpretation of the penalty statute, infra, ¶¶ 42-46, no further consideration of the negligence standard is necessary.
If any part of the deficiency is due to negligence or intentional disregard of rules and regulations but without intent to defraud there shall be added a penalty of ten percent (10%) of the amount of the deficiency plus interest as provided by paragraph (b)(i) of this section.
Wyo. Stat. Ann. § 39-15-108(c)(i)
If any part of the deficiency is due to negligence or intentional disregard of this article or rules and regulations, a penalty of ten percent (10%) of the deficiency shall be added in addition to interest.
Wyo. Stat. Ann. § 39-16-108(c)(i)
42. This Wyoming statutory language tracks very closely a portion of the language of a federal statute relating to the penalty for underpayment of income tax prior to the section’s amendment in 1986:
If any part of any underpayment...is due to negligence or intentional disregard of rules or regulations (but without intent to defraud, there shall be added to the tax an amount equal to 5% of the underpayment.
26 U.S.C. § 6653(a)(i). See also, Commissioner of Internal Revenue v. Asphalt Products, Co., Inc., 482 U.S. 117, 119 (1987).
43. During the time the noted language of 26 U.S.C. § 6653(a)(i) was effective, the term “negligence” in the federal statute was interpreted consistent with the traditional reasonable and prudent man standard:
During the time period relevant to this appeal, § 6653(a)(1) of the Code imposed an addition equal to five percent of an underpayment of income tax where any part of the underpayment was due to negligence or intentional disregard of rules or regulations. "For purposes of section 6653, 'negligence' is lack of due care or failure to do what a reasonable and prudent person would do under similar circumstances." Id. (citation omitted)
Keeler v. Commissioner of Internal Revenue, 243 F.3d 1212, 1221 (10th Cir. 2001). See also, G. Van Scoten v. Commissioner of Internal Revenue, T.C. Memo 2004-275, 2004 WL 2785918 (U.S. Tax Ct. 2004).
44. This is the same negligence standard recognized by this Board and in Wyoming case law. Conclusions, ¶ 37.
45. The United States Supreme Court has, in addition, concluded that under the language of § 6653(a)(i), any assessed penalty is to be calculated on the entire tax deficiency. The penalty calculation is not limited to the amount of the deficiency attributable to the negligence:
Section 6653(a)(1) could not be clearer. If “any part of any underpayment” is due to negligence, the Commissioner shall add to the tax a penalty of “5 percent of the underpayment.” It is impossible further to explain the statute without merely repeating its language--the penalty is imposed on “the underpayment,” not on the “part of [the] underpayment” attributable to negligence. ... As the Court of Appeals for the Second Circuit held in Abrams v. United States: “It is evident that it was intended that the five percent was to be assessed not just against that segment of the deficiency due to negligence but against the entire amount. The language is clear and leads to no other interpretation.” 449 F.2d, at 664.
Commissioner of Internal Revenue v. Asphalt Products Co., Inc., 482 U.S. at 120.
46. We can perceive no reason why a similar interpretation should not apply to the almost identical language of the two Wyoming penalty statutes. The penalty assessment must, by statute, be calculated on the entire amount of the audit deficiency, not simply on the amount of the deficiency attributed to negligence. While this may seem a harsh result when a large deficiency contains only a small portion resulting from negligence, the Legislature has provided the Department a mechanism to ameliorate such egregious situations, i.e. the ability to credit or waive penalty for good cause. Conclusions, ¶¶ 34, 35.
47. ExxonMobil notes in its brief that the Selective Sales and Use Tax Act as originally enacted in 1933 stated:
“If any part of the deficiency is due to negligence or intentional disregard of authorized rules and regulations with knowledge thereof, but without intent to defraud, there shall be added ten (10) percent of the total amount of deficiency….” Wyo. Stat. Ann. § 32-2508 (Michie 1945) (emphasis added).
[Closing Brief of Petitioner, p. 19].
48. ExxonMobil then points out the recodifcation of the penalty provision by the Wyoming Legislature in 1977 eliminated the term “total.” The penalty provision as stated in the 1977 Wyoming Sessions Laws, Chapter 51, p. 123, thus reads the same as the current statutory provision:
If any part of the deficiency is due to negligence or intentional disregard of rules and regulations but without intent to defraud there shall be added a penalty of ten percent (10%) of the amount of the deficiency plus interest as provided by paragraph (b)(i) of this section.
Wyo. Stat. Ann. § 39-15-108(c)(i).
49. ExxonMobil asserts this deletion of the term “total” indicates an intent by the Legislature that the penalty should be calculated against the amount of the deficiency attributed to negligence rather than the entire deficiency amount.
50. We decline to accept such an interpretation. The only change in the entire penalty provision resulting from the 1977 statutory recodifcation is to delete the term “total” as a modifier of the phrase “amount of deficiency.” The simple deletion of this one word does not translate into nor support the interpretation urged by ExxonMobil, to wit, that the language “due to negligence,” which is not included in the statutory language, should now somehow be read into the statutes as modifying the “amount of the deficiency.” We decline to add words to a statute which the legislature did not include. Conclusions, ¶ 30.
51. The deletion of the term “total” is simply reflective of one of the purposes of the 1977 statutory recodifcation, i.e. elimination of “archaic language, sentence structure and form of existing statutes.” Preamble, Original House Bill 207, Wyoming Sessions Laws, 1977, Chapter 51, p. 102. The penalty provision, with or without the term “total,” applies to the entire amount of the sales/use tax deficiency - not just any portion alleged to be the result of negligence. Conclusions, ¶ 45.
52. ExxonMobil has conceded a portion of the audit assessment deficiency was the result of mistakes - negligence - of ExxonMobil employees failing to heed guidelines established after a prior audit. Facts, ¶ 11. A penalty assessment is thus appropriate based on the entire amount of the audit assessed tax deficiency. Conclusions, ¶ 45.
53. ExxonMobil also argues the penalty provision is ambiguous, asserting, based on a single question by the Board and limited testimony by Dan Noble, that the language of the statute does not provide clear, definitive meaning of the legislative intent. [Closing Brief of Petitioner, pp. 20-22].
54. The language of the statute, as noted by the United States Supreme Court when considering almost identical language “could not be clearer.” Conclusions, ¶ 45. The fact a Board member may ask a rhetorical question, and the Department may have misinterpreted the statutes does not translate to ambiguity. The statute is clear and plain. There is no ambiguity.
Waiver
55. The penalty statutes for both sales and use tax authorize the Department to waive penalties imposed “by this section as part of a settlement or for any other good cause.” Conclusions, ¶¶ 34, 35. The statutes thus empower the Department to waive a penalty even when a deficiency, or only part thereof generating the penalty, is in fact the result of negligence. The Department thus has a mechanism to ameliorate egregious penalty situations. Conclusions, ¶ 46.
56. The phrase “for good cause” clearly defines a standard applicable to Department decisions which is separate and distinct from that of negligence. The use of the verb “may” in a statute generally indicates that the authority found in the statute is to be exercised at the discretion of the person or agency in which the authority is vested. See In re Estate of George, 2003 WY 129, ¶ 10, 77 P.3d 1219, 1222, (Wyo 2003). This Board is not authorized to exercise its discretion or usurp the Department’s authority to waive the penalty at issue. The Board is confined to approving or disapproving the determination by the Department of whether there is “good cause” to waive the penalty at issue. Conclusions, ¶ 26. The Department’s exercise of discretion must be considered in light of the taxpayer’s evidentiary burdens. Conclusions, ¶ 28.
57. ExxonMobil presented the Department with a written request for waiver, as required by the Department’s Rules. Conclusions, ¶ 36. Noble reacted to the waiver request by consulting with the Department of Audit concerning the results of the audit. Findings, ¶ 21. He considered the current audit results in the context of taxpayer’s past performance; the apparent causes of error; the consistent pattern of underpayments; and the Department’s policy concern for taxpayer errors with regard to reporting sales and use tax due on purchases. Findings, ¶ 23. Based on these considerations, he apparently concluded the reasons provided by ExxonMobil for the tax underpayments in question were not sufficient “good cause,” thus he declined to grant a waiver. [Exhibits 102 and 507].
58. We specifically conclude that Noble’s failure to find “good cause,” and thus his rejection of the penalty waiver request despite (1) ExxonMobil’s system of internal accounting controls, and (2) ExxonMobil’s representation that it had attempted in good faith to comply with the statute and pertinent Rules was not arbitrary. [Exhibit 507]. As administrator of the Excise Tax Division, Noble was vested with the authority to determine whether these points were sufficient good cause to waive a penalty based on negligence in light of the other facts known to him. We conclude Noble could have reasonably weighed the facts as he did, and declined to grant a waiver.
ORDER
IT IS THEREFORE ORDERED the denial by the Department of the waiver of penalty 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 day of September, 2006.
STATE BOARD OF EQUALIZATION
_____________________________________
Alan B. Minier, Chairman
_____________________________________
Thomas R. Satterfield, Vice-Chairman
_____________________________________
Thomas D. Roberts, Board Member
ATTEST:
________________________________
Wendy J. Soto, Executive Secretary
Thomas D. Roberts, Board Member, concurring.
I concur in affirmance of denial of the requested penalty waiver. However, the testimony of Dan Noble at the Board hearing with regard to the Department’s interpretation of the sales and use tax statutes raises an issue which, while not determinative of this appeal, merits discussion.
59. The Department relies on Wyo. Stat. Ann. § 39-15-108(c)(i) to assess sales tax penalty. Noble believes the statute requires a penalty whenever taxes are not paid when due, thus the Department computer system generates a penalty of 10% of the tax due. The penalty is fairly automatic. The Department then has the discretion to waive the penalty pursuant to Wyo. Stat. Ann. §39-15-108(c)(xv). Noble is the person who makes the waiver decision for the Department. [Transcript, pp. 115-117, 119, 142, 169].
60. Noble adopted a written policy for waiver of penalty on June 16, 2003. All final penalty waiver decisions are still made by Noble. [Transcript, pp. 119-120; Exhibit 500].
61. Noble believes the negligence standard required by the penalty statutes requires that whenever any taxpayer files a return late, and any time there is an audit deficiency, the Department must assess a 10% penalty unless the taxpayer can demonstrate a reason why the penalty should be waived. Noble asserts if an audit shows tax due, that is per se evidence of negligence. The Department is basically making the presumption that if you underpay the tax due you are negligent unless you can prove otherwise to the satisfaction of, in this matter, Noble as the administrator of the Excise Tax Division. The automatic penalty applies without any negligence determination unless you request a waiver. [Transcript, pp. 125-126, 141-142, 168-171, 177-178].
62. The default position of the Department is everybody who files late or owes payment after an audit is negligent, and they must prove otherwise to the satisfaction of Noble in order to have the penalty waived. The Department has not promulgated any Rules setting forth what standard the excise tax administrator will use in determining a penalty waiver. [Transcript, pp. 170-172]
63. Noble agrees the definition of negligence as stated in Big Horn Coal, Docket No. 2003-116, September 14, 2004, 2004 WL 2132769 (Wyo. St. Bd. Eq.) --“Negligence is the failure to exercise the standard of care that a reasonably prudent person would have exercised in a similar situation” -- is the standard the Department must apply under the penalty statute. [Transcript, p. 143].
64. Noble further testified, however, he believes if a taxpayer has failed to comply with the law, that “in and of itself constitutes a negligent behavior.” Making an error on a tax return constitutes negligence. No tax being assessed after an audit is the required “standard of care.” [Transcript, pp. 144, 147, 152-153, 156, 162-164].
65. Noble argues the Department must utilize a penalty to encourage appropriate behavior. At its basic level a penalty is assessed if you file late. He asserts such an assessment is not unique to Wyoming. He does admit, however, the Wyoming statute refers to negligence. [Transcript, pp. 166-167].
66. The assessment of penalty in a sales and use tax audit, as described by Noble, appears to be handled somewhat differently than the Department’s otherwise stated position of automatic penalty assessments. Noble testified that in making a penalty determination in an audit, he receives preliminary audit findings; considers the history associated with the account including whether the same issues have arisen in prior audits; and whether this is a first-time audit. He will also consider whether the taxpayer has improved compliance, that is, has an improved “error”rate. Noble stated he will not grant penalty waiver in any audit in which the vendor collected the tax and failed to remit it to the Department. [Transcript, pp. 121-124].
67. Noble believes a penalty can be based on only a portion of an audit assessment if only that portion is the result of negligence. He also believes the Department has the authority to partially waive a penalty. [Transcript, pp. 148, 157-159, 180-181].
68. Noble agrees ExxonMobil, in reporting and payment of its taxes, was acting as a reasonably prudent corporation. He still believes ExxonMobil is somehow deficient because there is still tax due under the audit assessment. [Transcript, pp. 149-150]
69. Noble testified specifically with regard to the waiver request by ExxonMobil that he reviewed the audit history; the audit assessment itself; considered whether the current audit issues were similar to issues from prior audits; and considered if there was a demonstrated improvement from prior audits. He concluded it was prudent to assess a penalty, and denied the request for waiver. [Transcript, pp. 128-130; Exhibit 508].
70. Noble asserts the assessment of penalty against ExxonMobil was properly based on the lack of a significant increase in compliance. [Transcript, pp. 135-136].
71. The Department’s default position on assessment of penalty apparently presumes any failure to timely file a sales/use tax return or pay all tax due within the statutorily-mandated period is negligence. The Department thus automatically assesses a penalty on at least all late-filed sales/use tax returns, as well as certain sales/use tax audit deficiency assessments, a position of which the Department of Audit is apparently aware based on the fact its preliminary summary letter to ExxonMobil states a penalty is owed even though Audit does not assess the penalty: “As the result of our audit, we determined your company owes $536,082.75 in tax, plus interest and penalty. (emphasis added). Supra, ¶¶ 59, 61, 62, 64; [Exhibit 504]. The Department thus appears to have adopted a position that any failure to timely file a sales/use tax return and remit the tax due, or arguably any audit which results in a deficiency assessment for any reason, constitutes negligence, and by statute a penalty is due. The consequence of such position by the Department is an interpretation that the statutes setting the deadlines for the timely payment of sales and use tax, Conclusions, ¶¶ 32, 33, establish a statutory reasonable person standard, with failure to comply being negligence. Conclusions, ¶ 37. Such an interpretation, in effect, makes any failure to timely file and pay in full all tax when due negligence per se. Conclusions, ¶ 38. Noble admits as much when he agrees that if an audit indicates tax is due, then that is per se evidence of negligence.
Supra, ¶ 61; [Transcript, pp. 141-142].
72. The theory of negligence per se rests on the assumption that failure to adhere to an established standard of care, as defined by statute, notwithstanding the reason for such failure, is negligence. Conclusions, ¶38. The Wyoming Supreme Court, when presented with an assertion of negligence per se based on failure to adhere to a statutory standard of care, concluded the issue should be resolved under the Restatement, Torts, 2d.:
We accordingly conclude that, as to questions of negligence, the effect of a violation of statute, ordinance, or regulation which defines a standard of conduct will be resolved under the Restatement, Torts 2d.
Distad v. Cubin, 633 P.2d 167, 175 (Wyo. 1981). See also Short v. Spring Creek Ranch, 731 P.2d 1195, 1197-1198 (Wyo. 1987); Burnett v. Imerys Marble, Inc., 2005 Wyo 82, ¶ 11, 116 P.3d 460, 462 (Wyo. 2005).
73. Section 288 of the Restatement, Torts 2d. indicates courts will not adopt, as the reasonable person standard, legislative requirements which are designed only to protect the interests of the state:
Section 288:
The court will not adopt as the standard of conduct of a reasonable man the requirements of a legislative enactment or an administrative regulation whose purpose is found to be exclusively
“(a) to protect the interests of the state or any subdivision of it as such, or…”
Distad v. Cubin, 633 P.2d at 175.
74. The statutes defining the deadline for filing sales/use tax returns and paying the tax due have no purpose other than to protect the interests of the State of Wyoming by ensuring collection and remittance of sales and use tax. Conclusions,¶¶ 32, 33. The statute thus arguably can not, pursuant to § 288 of the Restatement of Torts, 2d, and Distad v. Cubin, supra, be interpreted to set the reasonable man negligence standard for purposes of imposing a sales/use tax payment penalty. Conclusions, ¶ 37. The unexcused violation of the deadline statutes may, however, be relevant evidence bearing on the issue of negligent conduct. Restatement of Torts, 2d.,§ 288B.
75. Other states have avoided the negligence per se issue by enacting a penalty provision for late-filed returns and late payments without reference to negligence, and a separate provision for assessment of an additional penalty upon a finding of negligence. Alabama, for example, has a 10 % penalty for failure to timely file a sales/use tax return with an additional penalty of up to 25% of the amount of tax due for failure to timely pay tax:
Civil penalties levied in addition to other penalties provided by law.
(a) Failure to timely file return. If a taxpayer fails to file any return required to be filed with the department on or before the date prescribed therefor, determined with regard to any extension of time for filing, there shall be assessed as a penalty the greater of 10 percent of any additional tax required to be paid with the return or fifty dollars ($50).
(b) Failure to timely pay tax. If a taxpayer fails to pay to the department the amount of tax shown as due on a return required to be filed on or before the date prescribed for payment of the tax, determined with regard to any extension of time for payment, there shall be added as a penalty one percent of the amount of the tax due if the failure to pay is for not more than one month, with an additional one percent for each additional month or fraction thereof during which failure to pay continues, not exceeding 25 percent in the aggregate. In lieu of the penalty provided in the immediately preceding sentence, for any tax for which a monthly or quarterly return is required, or for which no return is required, the department shall add a failure to timely pay penalty of 10 percent of the unpaid amount shown as tax due on the return or the amount stated in the notice and demand.
Alabama Code, § 40-2A-11(a) & (b) (1998).
76. Minnesota has a similar penalty provision which does not reference negligence:
Civil penalties
(e) If a withholding or sales or use tax is not paid within the time specified for payment, a penalty must be added to the amount required to be shown as tax. The penalty is five percent of the tax not paid on or before the date specified for payment of the tax if the failure is for not more than 30 days, with an additional penalty of five percent of the amount of tax remaining unpaid during each additional 30 days or fraction of 30 days during which the failure continues, not exceeding 15 percent in the aggregate.
Minn. Stat. Ann. § 289A.60. Subdivision 1(e) (2005).
77. Alabama has a separate penalty provision if any underpayment is due to negligence as defined by the penalty statute:
(c) Underpayment due to negligence. If any part of any underpayment of tax is due to negligence or disregard of rules or regulations, there shall be added to the tax an amount equal to five percent of that part of the tax attributable to negligence or disregard of rules or regulations.
For purposes of this subsection, the term "negligence" includes any failure to make a reasonable attempt to comply with Title 40, and the term "disregard" includes any careless, reckless or intentional disregard.
Alabama Code, § 40-2A-11(c) (1998).
78. Still other states assess a penalty without direct reference to negligence with an increased penalty if any underpayment, as disclosed by an audit, is the result of failure to make a reasonable attempt to comply with the sales tax act:
(d) For all taxable years ending after December 31, 2001, if any taxpayer fails to file a return or pay the tax if one is due, at the time required by or under the provisions of this act, there shall be added to the tax an additional amount equal to 1% of the unpaid balance of the tax due for each month or fraction thereof during which such failure continues, not exceeding 24% in the aggregate, plus interest at the rate prescribed by subsection (a) of K.S.A. 79-2968, and amendments thereto, from the date the tax was due until paid. Notwithstanding the foregoing, in the event an assessment is issued following a field audit for any period for which a return was filed by the taxpayer and all of the tax was paid pursuant to such return, a penalty shall be imposed for the period included in the assessment in an amount of 1% per month not exceeding 10% of the unpaid balance of tax due shown in the notice of assessment. If after review of a return for any period included in the assessment, the secretary or secretary's designee determines that the underpayment of tax was due to the failure of the taxpayer to make a reasonable attempt to comply with the provisions of this act, such penalty shall be imposed for the period included in the assessment in the amount of 25% of the unpaid balance of tax due.
Kan. Stat. Ann. § 79-3615(d) (2000).
79. Once again Minnesota has a similar statute:
Subd. 5. Penalty for intentional disregard of law or rules. If part of an additional assessment is due to negligence or intentional disregard of the provisions of the applicable tax laws or rules of the commissioner, but without intent to defraud, there must be added to the tax an amount equal to ten percent of the additional assessment.
Subd. 5a. Penalty for repeated failures to file returns or pay taxes. If there is a pattern by a person of repeated failures to timely file withholding or sales or use tax returns or timely pay withholding or sales or use taxes, and written notice is given that a penalty will be imposed if such failures continue, a penalty of 25 percent of the amount of tax not timely paid as a result of each such subsequent failure is added to the tax. The penalty can be abated under the abatement authority in section 270C.34.
Minn. Stat. Ann. § 289A.60. Subdivisions 5 and 5a. (2005).
80. A penalty which is not dependent on a negligence showing still serves the valid purpose of encouraging the timely filing of sales/use tax returns and payment of tax due. Such a penalty avoids the negligence per se issue as well as the need for the Department to investigate each late filing or late payment to determine whether the negligence standard has been violated.
81. It appears, based on Noble’s testimony, the Department, in effect, only considers the issue of negligence if a request is made to waive a penalty. The Department does not, other than perhaps in the context of an audit, make a pre-assessment determination, as the penalty statutes arguably anticipate, as to negligence. A penalty assessment is automatic for any late filing or late payment, and only for those who request a waiver does the Department actually make any negligence determination. Supra, ¶¶ 61,66.
82. Noble has adopted a “penalty policy” which is in reality a policy on penalty waiver, not on penalty assessment. Supra, ¶ 60; [Transcript, pp.119-120; Exhibit 500]. The policy is written as if the penalty is automatic, whereas the statute arguably anticipates a prior review for negligence or intentional disregard before a penalty is assessed. The policy thus does not address the question of what the negligence standard of care is under the sales and use tax penalty statutes.
83. Without an initial negligence investigation procedure to determine if late filing or late payments are the result of negligence, the Department is left with a negligence per se penalty assessment policy which may possibly be legally invalid.
84. The Department’s negligence per se policy may also incorrect as a matter of statutory interpretation. The Department, by assessing a penalty in every late-filed return, late payment, and perhaps every audit assessment, in effect ignores the language of the statute which predicates a penalty on negligence or intentional disregard. The Department’s interpretation of the penalty statute inappropriately ignores the negligence and intentional disregard language, and thus renders it superfluous. The inclusion of such language in the statute clearly indicates the Department must make a negligence determination prior to assessing a penalty. If such was not the Legislature’s intention, insertion of the negligence and intentional disregard language would have no purpose; and a legislature does not engage in futile acts. Conclusions, ¶ 31.
DATED this day of September, 2006.
STATE BOARD OF EQUALIZATION
_____________________________________
Thomas D. Roberts, Board Member
ATTEST:
________________________________
Wendy J. Soto, Executive Secretary