BEFORE THE STATE BOARD OF EQUALIZATION
FOR THE STATE OF WYOMING
IN THE MATTER OF THE APPEAL OF )
QWEST CORPORATION FROM A SALES ) Docket No. 2007-44
& USE TAX AUDIT ASSESSMENT BY THE )
EXCISE DIVISION OF THE DEPARTMENT )
OF REVENUE (Audit period 1/1/02-12/21/04) )
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER
Michael Rosenthal, John E. Masters, Brent R. Kunz, Hathaway & Kunz, P.C.; Richard G. Smith, Hawley Troxell Ennis & Hawley; and Larry McMillin, Corporate Counsel, Qwest Corporation, for Qwest Corporation (Qwest).
Martin L. Hardscog, Cathleen D. Parker of the Wyoming Attorney General’s Office, for the Wyoming Department of Revenue (Department).
The Wyoming State Board of Equalization (Board) shall review final decisions of the Department on application of any interested person adversely affected, including boards of county commissioners. Wyo. Stat. Ann. §§ 39-11-102.1(c). Any appeal must be filed with the Board within thirty days of a Department final decision. Rules, Wyoming State Board of Equalization, Chapter 2, § 5(a). By Notice of Appeal effective April 6, 2007, Qwest timely appealed a final decision of the Department. The Board accordingly has jurisdiction to hear this matter.
A hearing was held November 13, 14, 15, 16, and 19, 2007, before the Board, consisting of Alan B. Minier, Chairman, Thomas R. Satterfield, Vice Chairman, and Thomas D. Roberts, Board Member. Additional hearings were held by the Board on February 19, 2008, to consider the Department’s Motion to Supplement the Record or in the Alternative Re-Open the Hearing, and on March 31, 2008, to consider a proposed plan by Qwest to refund sales tax to its Wyoming customers should it prevail in this appeal.
STATEMENT OF THE CASE
This appeal challenges the results of a sales and use tax audit of Qwest by the Department of Audit (Audit) for the period January, 2002, through December, 2004. Audit reviewed a sample of all Qwest taxable and exempt customers as well as purchases by Qwest. The audit time frame covered the period February, 2003, through December, 2004, during which Qwest collected sales tax on federal access line charges (referred to variously as FACC, CALC, or EUCL) . Qwest challenges the amount of credit and refund the Department allowed as a result of the audit.
Qwest had been audited previously for sales and use tax compliance for the period July, 1997, through December, 2001. The Department, as result of that audit, assessed sales tax against Qwest for the federal access lines charges billed to its customers. Qwest appealed to this Board which upheld the Department’s assessment. Qwest Corporation, Docket No. 2003-92, September 8, 2004, 2004 WL 2132768 (Wyo. St. Bd. Eq.). The Wyoming Supreme Court, on March 22, 2006, issued a decision concluding the assessment of sales tax on federal access line charges was improper. Qwest Corp. v. State ex rel. Dept. of Revenue, 2006 WY 35, 130 P.3d 507 (Wyo. 2006). Qwest had begun billing sales tax to customers on the federal access line charges in February, 2003. Qwest discontinued billing sales tax on those charges shortly after the Wyoming Supreme Court decision.
We reverse, for the reasons noted herein, the denial by the Department of the amount of refunds and credits requested by Qwest.
CONTENTIONS AND ISSUES
Qwest, in its prehearing pleadings, identified three contested issues of fact and four contested issues of law. Qwest stated the issues of fact as:
1.Whether the Department of Audit could have determined the credit amount due Qwest in the audit upon which the current assessment was based for sales tax billed on EULC charges (also identified as customer access line charges (“CALC”) or Federal Access Charges) for the period of February 2003 through December 2004 based on audit procedures as originally specified by the Department of Audit.
2.Whether the Department of Audit could have verified or otherwise determined the amount of the credit or refund due Qwest for sales tax billed on CALC charges for the period of February 2003 through December 2004 with information either provided by Qwest or made available by Qwest or otherwise available from Qwest upon request.
3.Whether Qwest could reasonably provide the total of customer access line charges (“CALC”) billed to customers during the audit period, by month and by county, without requiring the use of sampling techniques to determine the amount of such charges.
[Qwest’s Issues of Fact and Law and Exhibit Index, pp. 1-2].
Qwest stated its issues of law as:
1.Whether the Department of Audit and/or Department of Revenue has a responsibility to determine the amount of a tax credit or refund (by standard tax audit procedures which could include the use of sampling or other techniques), where the taxpayer’s returns are under audit and the legal obligation to pay a refund on specific charges has been clearly determined (as it was in this case, by the Wyoming Supreme Court). A corollary issue is whether the Department of Revenue and Department of Audit are estopped to deny a credit to a taxpayer based on audit sampling procedures established by the Department of Audit.
2.Whether a refund or credit may be based on sampling and related techniques under circumstances where the Departments of Audit and Revenue would rely on projection and/or sampling techniques in assessing additional tax liability. In other words, if sampling is acceptable for determining a taxpayer’s liability, should it not also be acceptable for determining a refund?
3.Is the Department of Audit estopped from objecting to the use of sampling and projection techniques in determining the amount of a sales tax credit or refund where it has otherwise used sampling and projection techniques in determining both the sales and use tax liability and credits due a taxpayer on other transactions in the course of the same audit.
4.Regardless of whether Qwest could have provided actual data of CALC charges billed to customers during the audit period detailed by month and by county, was the Department of Audit obligated to otherwise use standard audit procedures to determine the amount of the refund or credit due Qwest for sales tax billed on CALC charges in order to certify an audit to the Department of Revenue following the decision of the Wyoming Supreme Court in Qwest Corporation v. State of Wyoming, 2006 WY 35.
[Qwest’s Issues of Fact and Law and Exhibit Index, pp. 2-3].
The Department, in its prehearing pleadings, identified three contested issues of fact and three contested issues of law. The Department stated the issues of fact as:
1.Whether the Department of Audit could verify Qwest’s refund request with information provided by Qwest and, in particular, amended returns without any supporting documentation or detail to substantiate the refund request.
2.Whether Qwest failed to provide information as required by the Department of Audit during the audit.
3.Whether a sample was an appropriate technique for verifying a taxpayer’s refund request. (Mixed question of fact and law).
[Department of Revenue’s Issues of Fact and Law and Exhibit Index, p. 1].
The Department stated its issues of law as:
4.Whether the Department correctly denied Qwest’s refund request?
5.Whether a taxpayer can refuse to provide the Department of Audit information and then claim that the Department of Audit and Department of Revenue erred in refusing to process a refund request related to the requested information?
6.Assuming it is determined that Qwest failed to respond to the Department of Audit as required by law and that the Department lacked the information necessary to process the requested refund, may the Board of Equalization require re-audit during litigation and pre-litigation discovery?
[Department of Revenue’s Issues of Fact and Law and Exhibit Index, pp. 1-2].
FINDINGS OF FACT
1. Qwest provides telecommunication services to its customers within the state of Wyoming. [Notice of Appeal].
2. Mark Brinton testified on behalf of Qwest. He is a public policy staff advocate for Qwest in charge of tariffs and tariff filings with the Federal Communications Commission (FCC). [Transcript Vol. II, pp. 251-252].
3. A number of the charges which Qwest bills its customers are governed by tariffs which require approval by the FCC. Any changes in approved charges are reflected in tariffs filed with, and approved by, the FCC. [Transcript Vol. II, pp. 196-197, 252-253].
4. Qwest bills CALC charges consistent with the tariffs approved by the FCC. Exhibits 118 through 121 identify tariff changes for CALC charges during the audit period. Exhibit 118 describes the general requirements for Qwest to bill the CALC charge. [Transcript Vol. II, pp. 253-260].
5. The monthly CALC charge for residential service at a primary residence was $5.00 from July 3, 2001, to July 2, 2002; $6.00 from July 2, 2002, to July 1, 2003; and $6.50 from July 1, 2003, through 2005. [Exhibit 119; Transcript Vol. II, pp. 260-264].
6. Qwest, in August, 2005, consistent with the tariff filing, would have billed a monthly CALC charge of $6.50 for a primary residence. [Transcript Vol. II, p. 264].
7. The monthly CALC charge for a nonprimary residence was $7.00 from July 11, 2001, through 2005. [Exhibit 120; Transcript Vol. II, pp. 264-265].
8. The monthly CALC charge for a single line business customer was $5.00 from July 3, 2001, to July 2, 2002; $6.00 from July 2, 2002, to July 1, 2003; and $6.50 from July 1, 2003, through 2005. [Exhibit 121; Transcript Vol. II, pp. 265-266].
9. The monthly CALC charge for a digital subscriber line was $7.00 from July 11, 2001, through 2005. [Exhibit 122; Transcript Vol. II, p. 266].
10. The monthly CALC charge for a multi-line business was $9.20 from July 11, 2001, through 2005. [Exhibit 123; Transcript Vol. II, pp. 266-267].
11. Qwest cannot charge any more or less than the approved tariff. It is required to charge only the tariff amount. [Transcript Vol. II, pp. 267-268, 270, 283, 285, 287].
12. The monthly CALC charge can be pro-rated based on a service outage or a partial month billing. Brinton suggested one or both could be the reason some of the monthly CALC entries on Exhibit 140 do not match the tariff charge for the month indicated. A check of the customer bill would identify the reason. It was also possible the customer’s bill straddled a period when there was a tariff change. [Transcript Vol. II, pp. 268-269, 278-281, 287-288].
13. Dhemar M. Gude, staff director of the finance organization of Qwest, testified on behalf of Qwest. Ms. Gude is responsible for a group of accountants and financial analysts who prepare and work with the accounting classifications for Qwest. She is responsible for methods development and testifying with regard to Qwest’s cost accounting studies for regulatory or internal cost development purposes in all 14 states in which Qwest operates. [Transcript Vol. II, pp. 195-196].
14. The general accounting structure of Qwest, i.e. revenues, expenses, and assets, is mandated by the FCC. The FCC has identified a unique account, 5081, to be used for CALC revenues. CALC charges are revenues to Qwest which must be recorded in the revenue account, 5081. The FCC does not require an accounting below the company level other than keeping state-imposed CALC charges separate from federal charges. Wyoming does not impose a state CALC charge. [Transcript Vol. II, pp. 197-198, 223].
15. Charges for 911 service are not revenue to Qwest, and thus are not recorded as such. Qwest collects 911 charges and remits them to the respective taxing authorities which actually impose the charge. Sales tax is also not revenue to Qwest. Sales tax and 911 charges are simply passed through Qwest using, typically, an accounts payable account. [Transcript Vol. II, pp. 197-198].
16. Ms. Gude stated 911 charges would be booked as accounts payable in the 1000 series of accounts. The 1000 series of accounts is mandated by the FCC although she was not sure the FCC has a unique accounts payable for 911 charges. The tax repository system would have detail on 911 charges to whatever level was required for reporting to the taxing jurisdictions. [Transcript Vol. II, pp. 237-238].
17. Qwest maintains 911 charges by county in the tax data repository since 911 charges are a specific tax. [Transcript Vol. II, p. 218].
18. Qwest subdivides its CALC 5081 account for internal tracking purposes into residence, business, public, and resale. Qwest also tracks CALC charges on a state level as required for state reporting purposes and as mandated by the FCC. [Transcript Vol. II, pp. 198-199].
19. The native billing system used by Qwest employs a universal system of accounts which identifies each item being billed to a customer and at what rate, unless the service is billed based on usage. [Transcript Vol. II, pp. 199-200].
20. Qwest maintains all revenues, expenses, assets, and liabilities on a state by state basis in order to report to state public utility commissions. CALC charges are not reported below the state level. Ms. Gude stated there is simply too much data to maintain if reported below state level. She observed that when you establish an accounting system, you look at the level of information you need to report, and how much computer storage that level will require. A company is thus limited in the amount of information it can disaggregate, and still reasonably store on a computer. Ms. Gude asserted Qwest could never justify the cost of storing information at a level of greater detail than the state level. [Transcript Vol. II, pp. 200, 212-213, 217, 220; Vol. III, p. 431].
21. Exhibit 154 contains selected pages from the Qwest accounting classifications manual, RA1, pertaining to the various subaccounts for CALC revenues, the 5081 series of accounts. The subaccounts, e.g. 5081.1, are for particular charges or service. The Qwest chart of accounts is considered confidential, and provided to regulatory authorities under a confidentiality agreement. The chart of accounts on the Qwest website is also considered proprietary to be accessed only by authorized Qwest personnel. [Transcript Vol. II, pp. 200-204, 222-224, 250].
22. Qwest must use the FCC prescribed Part 32 chart of accounts as its main account structure. Every regulated telephone company must use the FCC chart of accounts. Much of the verbiage of Exhibit 154 comes directly from Part 32. [Transcript Vol. II, pp. 213-214, 247-249].
23. The Qwest general ledger system could not produce a report indicating how much of the Wyoming CALC charges would be subject to sales tax as taxability is not a criteria in that system. Some of the Wyoming CALC charges may, in fact, be exempt from sales tax. [Transcript Vol. II, p. 211].
24. Exhibit 155 contains two separate reports, one for year 2003, and one for year 2004, indicating CALC revenues for Wyoming by month, by subaccount, and by product code. These reports are not normally generated unless someone requests them. [Transcript Vol. II, pp. 204-211, 225-226; Vol. III, pp. 430, 545].
25. Qwest is required to file sales/use tax returns by state, and in some instances by county or city. The Qwest tax data repository system, however, does not maintain data by type of service taxed, and only maintains live data for a rolling three-months. It maintains only the total taxes due at a county or subdivision level. It does not maintain data by customer or by particular charge such as CALC. There is no process or report available from the Qwest general ledger system to identify CALC charges by county. [Transcript Vol. II, pp. 211-212, 215-216, 246-247].
26. CALC charges are revenue exclusively to Qwest, and are a line item on a customer bill. The current Qwest general ledger system does not account for CALC charges below the state level, and to modify the system to add such capability would take years to implement and be prohibitively expensive. The system would have to be modified for all 14 states in which Qwest operates. [Transcript Vol. II, pp. 212-213, 217, 220; Vol. III, p. 431].
27. Qwest, in many situations, wants more specific information than the FCC might require. It thus has established subaccounts to get more detail on revenue and expense type which it uses for budget purposes and cost studies. [Transcript Vol. II, pp. 214-215; Vol. III, p. 431].
28. The tax data repository system determines whether a customer is taxable or exempt, and then calculates the tax due by county. It does not track the amount of sales tax due on CALC charges since Qwest does not have to report sales tax by each taxable element. It only has to report and remit a total by county. [Transcript Vol. II, pp. 219-221].
29. A request for Account Number 5081.1 will produce a dollar value, not a listing of the product codes which generated the revenue, unless product code detail is requested. Exhibit 155 indicates CALC charges for Wyoming by month and by product code for business, residential, public and resale accounts for the years 2003 and 2004. CALC charges are only booked under 5081.1, 5081.2, 5081.3, and 5081.4. The negative entries indicate a credit to those customers who qualify for the telephone assistance program which is designed to provide low income citizens with a reduced telephone bill. Those customers are charged the full rate and then receive a credit for the CALC charge. [Exhibit 155; Transcript Vol. II, pp. 229-232, 243-244; Vol. III, pp. 434-435].
30. There is no copy of the data request for Exhibit 155 as the request was internal within Qwest. [Transcript Vol. II, p. 234].
31. The auditors did not request the CALC charges as set forth in Exhibit 155. [Transcript Vol. III, p. 546].
32. Ms. Gude testified you can request detail from the Qwest general ledger by state, by jurisdiction, for example, Wyoming, but not for Cheyenne since it is not a jurisdictional entity. [Transcript Vol. II, pp. 238-240].
33. Catriona Dowling is employed by Qwest IT, an affiliate company of Qwest, as a software development manager in the software group dealing with computer billing systems. Qwest IT provides information services to the Qwest companies, including services related to processing the billing information. Ms. Dowling manages the software engineers who develop and maintain billing applications for Qwest IT. [Transcript Vol. II, pp. 289-291].
34. Qwest’s Billing and Ordering Support System (BOSS) functions as an online billing information system for service representatives who field customer billing inquiries. A customer service representative can bring up a customer’s billing information on the system by entering the customer’s telephone number, also called the billing telephone number (BTN). [Transcript Vol. II, pp. 291-292].
35. The BOSS system shows CALC charges as well as sales tax. The computer screen shows what appears on a customer bill including the details of the taxes. Some information with regard to third parties may be summarized or not available. [Transcript Vol. II, pp. 292-293].
36. Exhibit 153 is an excerpt from the Qwest system requirements which describes the BOSS system. The exhibit, although an excerpt from a larger manual, gives all information on the BOSS system. Section 184.108.40.206 (page 0781) indicates the BOSS data retention is two months for the majority of bills with some exceptions up to one year. The maximum retention for any account is one year. [Transcript Vol. II, pp. 293-296, 303].
37. Ms. Dowling stated that an auditor performing an audit in 2005 which samples customer bills for 2002 would not be able to access 2002 information on the BOSS system. An auditor accessing the system in 2005 would be able to retrieve information back a maximum of one year, and then only for very specific accounts. [Transcript Vol. II, p. 296].
38. Qwest has a system called Optical System for Archival Retrieval (OSCAR). OSCAR is an archival system which maintains seven years of billing information. The system allows access to the complete customer bill with all charges including 911 and CALC. A print of what appears on the screen will look like a paper bill. The system also includes sensitive third party billing information which is not present on the BOSS system. Customer bills as seen on the OSCAR screen can be printed by the system, thus bills for 2002 through 2004 could be printed from OSCAR during an audit in 2005. OSCAR replaced an old microfiche system, and is strictly optical. It can not produce charges electronically. [Transcript Vol. II, pp. 296-298, 303-304, 306, 319-320, 326-328].
39. The OSCAR and BOSS systems are independent, non-integrated systems with no interface between them. [Transcript Vol. II, pp. 300, 328].
40. There is no system within Qwest’s normal and customary record keeping and storage protocols which would permit identification or retrieval of CALC information by county for 2002 through 2004. Ms. Dowling was not aware of the level of detail the data warehouse maintained. If, however, CALC charges by county were stored in the warehouse, it would require complicated and expensive software development to extract and compile the information. [Transcript Vol. II, pp. 298-300].
41. Data warehouses include information stored on electronic tape. [Transcript Vol. II, p. 330].
42. The Qwest CRIS system is the umbrella computer system. BOSS and OSCAR are subsets of the CRIS system thus without CRIS, BOSS and OSCAR would not exist. The CRIS system supplies information to the Qwest general ledger. [Transcript Vol. II, pp. 324-325].
43. The CRIS system does not have a computer screen function. It is the billing system which produces the telephone bills and provides information to the OSCAR and BOSS systems. CRIS also supplies information to all business areas of Qwest on a daily basis. [Transcript Vol. II, pp. 301-302, 312-313].
44. Neither BOSS nor OSCAR can compile, extract or summarize data, thus neither can provide information on a state or county level. Ms. Dowling was not aware of any Qwest system which aggregates customer billing information on a state or county level. Any extraction of such data would require approval and funding of an IT project. [Transcript Vol. II, pp. 306-314].
45. BOSS and OSCAR can both be accessed from any internal Qwest computer. Access, however, requires different specific security clearances, thus one can not simply switch from one to the other. [Transcript Vol. II, pp. 317-319].
46. The information in Exhibit 155 did not come from the BOSS system. [Transcript Vol. II, pp. 320-321].
47. The BOSS system is real time information. Adjustments and payments show up on BOSS as they happen. The same adjustments and payments will not appear in OSCAR until they appear on the next bill. The information on the BOSS system is current information which only goes back a couple of months. [Transcript Vol. II, pp. 329, 378].
48. The sales and use tax rate applicable to Qwest services in Wyoming may vary by county. A Wyoming county is authorized by statute to levy and require collection of sales and use tax in addition to the state sales and use tax imposed. Wyo. Stat. Ann. §§ 39-15- 204 & 39-16-204. [Exhibit 159].
49. William McInerney, a supervisor in the Excise Tax Division of Audit, testified on behalf of the Department. McInerney was the lead auditor for the sales and use tax audit which is the subject of this appeal. [Transcript Vol. I, pp. 45-46; Vol. IV, pp. 793-795].
50. McInerney stated the function of Audit in a sales/use tax audit is to determine, to the closest degree, the amount of tax due the State. [Transcript Vol. IV, pp. 796-797].
51. McInerney’s job, as an auditor, was to verify information to determine if there is tax due, or a credit or refund. He asserted that is what he did in the audit at issue when calculating the sales tax credit for the purchase transactions. [Transcript Vol. I, pp. 124-125, 147].
52. Audit always tries to communicate with the taxpayer and keep an open dialogue. If the taxpayer fails to provide necessary information, Audit communicates what information it needs. The process can continue as long as information is being provided. [Transcript Vol. IV, pp. 800-801].
53. Audit follows the Department Rules and Wyoming statutes when performing an audit. [Transcript Vol. IV, p. 801].
54. Galina Moyzes testified on behalf of Qwest. She is a staff tax analyst employed by Qwest Services Corporation, the entity which provides accounting and tax services to Qwest Corporation. She is the audit coordinator for Qwest. Her responsibilities include working with state and local tax jurisdictions during transactional audits. She gathers information needed by an auditor from various places including Qwest affiliates. She tries to collaborate with the auditors to help them achieve the audit goals, navigate through the Qwest systems, and provide documentation to meet those goals. She estimated she might be working on between 15 and 20 audits at any one time. [Transcript Vol. II, pp. 332-333, 400-401].
55. Ms. Moyzes was the Qwest contact person assigned to work with the Wyoming auditors for both the audit at issue as well as a previous audit for the period 1997-2001. As the audit contact, she meets with the assigned auditor to help them navigate the complex systems at Qwest. She is also the contact person for any document requests. She works with auditors to define and narrow audit information requests which seek large amounts of information. She thus works with the auditors to develop mutually acceptable information requests. [Transcript Vol. II, pp. 335-336].
56. Ms. Moyzes stated she is sufficiently familiar with the Qwest accounting and record system to navigate through the system, and go to the appropriate person to get information she may not be able to get herself. [Transcript Vol. II, p. 336].
57. McInerney and Ms. Moyzes were both involved in the prior Qwest sales and use tax audit which was originally to cover only1997-2000, but was extended into 2001 by mutual agreement between Qwest and the Department. The audit resulted in an assessment against Qwest based on a decision by the Department that both 911 charges and CALC charges were subject to sales tax. This Board, on appeal, reversed the assessment of sales tax on 911 charges while affirming the assessment of sales tax on CALC charges. Qwest Corporation, Docket No. 2003-92, September 8, 2004, 2004 WL 2132768 (Wyo. St. Bd. Eq.). [Transcript Vol. I, p. 46; Vol. II, pp. 335-336; Vol. IV, pp. 801-803].
58. McInerney’s review of the customer information in the prior audit indicated CALC and 911 charges were not being taxed. When the failure to tax these charges was brought to the attention of Qwest, it questioned whether the charges were taxable. Audit consulted with Dan Noble, administrator of the Excise Tax Division of the Department, who determined both charges should be subject to tax. [Transcript Vol. IV, pp. 805-809, 810-811].
59. The Department, after determining in the prior audit both CALC and 911 charges were taxable, requested a listing of cumulative CALC charges by county for that audit period. Qwest responded that cumulative CALC charges were not available on either the county or state level. The Department, accepting that cumulative CALC charges were not available by county, thus needed a method to break down a consistent charge by county. [Transcript Vol. I, pp. 46-48; Vol. IV, pp. 808-809, 833-834].
60. All fieldwork in the prior audit was completed prior to the decision by Noble that 911 and CALC charges needed to be taxed. McInerney remembered that in the prior audit the computer screen he reviewed in the Qwest offices sometime in 2002 had current information, live data. It indicated for all customers in the single month he reviewed, the 911 charge was $.50, and the CALC charge was $5.00, indicating a relationship of 911 charges to CALC charges of 10 to 1. Audit and the Department, in the prior audit, thus relied on a the 10 to 1 ratio based on a single month’s information. The auditors in the prior audit did not review paper customer bills. [Transcript Vol. I, pp. 49-51; Vol. V, pp. 937-938].
61. McInerney testified Qwest represented in the prior audit that current information was all it could provide, which was acceptable to Audit for purposes of that audit. The Department, in the prior audit, assessed Qwest sales tax on CALC charges of approximately $3 million. [Transcript Vol. I, p. 52].
62. Because Qwest was going to appeal the decision in the prior audit that CALC charges were taxable, and because Audit needed to move the audit to conclusion, Audit agreed an estimate would be a viable way to get to a finalized audit, as well as a determination of the taxability of CALC and 911 charges by taxing jurisdiction. [Transcript Vol. IV, pp. 811-813].
63. Audit used an estimate based on the relationship between CALC and 911 charges in the prior audit due to time constraints because the prior audit had taken so long, and because taxability of CALC charges was the only remaining issue. McInerney knew the issue of taxability of CALC charges was going to be appealed to the Board. [Transcript Vol. I, pp. 126-128].
64. McInerney used an estimate in the first audit because it needed to be completed. He alleged an estimate was not appropriate in the audit at issue because of a 100% error rate. [Transcript Vol. I, pp. 135-136].
65. The 10 to 1 ratio in the prior audit was not a projection of an error rate, but rather a correlation between 911 and CALC charges. It was the best information available to determine the amount of tax to be assessed. [Transcript Vol. I, pp. 137-138].
66. The Department’s assessment in the prior audit based on a ratio of 911 to CALC charges of 10 to 1 was not statistically valid. It was simply based on the best information available. [Transcript Vol. I, p. 157].
67. The only reason 911 charges were used in the prior audit was the fact that information was available county by county. [Transcript Vol. I, p. 162].
68. A ratio of 911 to CALC charges was used because the 911 charges were verifiable, and the ratio of 10 to 1 appeared correct. [Transcript Vol. II, pp. 172-173].
69. According to Ms. Moyzes, in the prior audit, the auditors requested CALC and 911 charges at the county level. Qwest had 911 charges at the county level as it is required to remit those charges to counties or other local jurisdictions. The CALC charges were not available by county. Although the CALC charges at issue in the prior audit would possibly have been available by retrieving and adding together the charge from several million bills, there seemed to be a relationship in that audit between the 911 charges and CALC charges of 10 to 1. The auditors thus agreed to use the 10 to 1 relationship to determine tax on CALC charges. Ms. Moyzes stated McInerney used this relationship in the prior audit to assess approximately $3 million in sales tax on CALC charges. [Transcript Vol. II, pp. 341-342].
70. Ms. Moyzes, in the prior audit, suggested the ratio methodology, which the Department accepted, to calculate tax on the CALC charges. The 911 charges information was provided in the prior audit as the Department believed both the CALC and 911 charges were subject to sales tax. [Transcript Vol. II, pp. 401-403].
71. The audit at issue, for the period 2002-2004, was commenced by an initial audit engagement letter to Qwest, dated January 28, 2005. [Exhibit 102]. The letter contained an all-inclusive list of documents to be supplied by Qwest prior to the completion of the audit fieldwork. [Transcript Vol. I, pp. 54-55; Vol. IV, pp. 813-816].
72. Ms. Moyzes, after receiving the initial audit engagement letter [Exhibit 102], which she characterized as a form letter used by Wyoming as well as other jurisdictions, contacted McInerney by telephone. They discussed a start date for the audit of June 13, 2005. McInerney confirmed their conversation and the start date by Exhibit 103, a letter dated February 7, 2005. [Transcript Vol. II, pp. 343-345].
73. The audit start date of June 13, 2005, was chosen in a conference call with Ms. Moyzes, McInerney and his supervisor. They also discussed, during the call, the scope of the audit. The auditors stated they wanted to do a very broad review of the records. They wanted to do statistical sampling by reviewing all the records and then draw a sample. Ms. Moyzes, to avoid any misunderstanding, asked for a letter from the auditors, which they eventually provided, detailing exactly what they wanted. [Transcript Vol. III, pp. 488-489].
74. Ms. Moyzes, McInerney, and McInerney’s supervisor, during the conference call, discussed Audit’s desire to do statistical sampling. Ms. Moyzes questioned the use of sampling for sales transactions as she believed sampling was normally not done for such transactions. She requested Audit’s authority for sampling; what they needed for sampling; and what they planned to look at. [Transcript Vol. II, pp. 346-347; Vol. III, pp. 444-445].
75. A February 7, 2005, letter from Audit [Exhibit 103], requested a chart of accounts. Ms. Moyzes stated no one from Audit ever requested a chart of accounts after sending Exhibit 103. If a request had been made, the chart of accounts would have been supplied with the explanation it is the Part 32 mandated chart of accounts. She stated she also encourages auditors to look at customer bills which show everything billed. [Transcript Vol. II, pp. 346-348].
76. Audit requested a listing of all purchases during the entire audit period. The auditors stated they would review all purchases over $25,000, and test purchases below $25,000. [Transcript Vol. III, p. 491].
77. Audit, by letter dated February 18, 2005, narrowed the scope of its initial document request, and responded to the inquiry by Qwest as to Audit’s statutory authority to conduct an electronic sampling audit. [Exhibit 104]. The letter also requested an electronic list of all taxable and exempt Qwest Wyoming customers as well as electronic information concerning Qwest purchases. [Transcript Vol. I, pp. 54-56; Vol. IV, pp. 816-818].
78. McInerney testified that since the Board and Department had determined CALC charges were taxable, Audit requested the electronic customer list to determine the taxability of each customer’s account for CALC as well as other charges. A sample was to be drawn for this purpose from the customer list for 2002-2004. A sample was also to be taken of exempt customers to determine if exemption was appropriate. [Transcript Vol. I, pp. 58-59].
79. Qwest, by letter dated March 8, 2005, requested an explanation of the sampling procedures and techniques Audit intended to use for purposes of the audit. [Exhibit 105].
80. McInerney responded by letter dated March 28, 2005, providing a generic response on how a sample may proceed. The letter sets out the categories to be sampled and noted the procedure was created specifically for Qwest. [Exhibit 106; Transcript Vol. I, p. 61; Vol. II, pp. 181-182, 348-350;Vol. IV, pp. 818-824].
81. Audit’s sampling guidelines involve randomly drawing transactions for review, and if there is an error rate, determining whether the error rate should be projected. There are differentiations which may occur based on extraordinary items such as a 100% error rate. [Transcript Vol. I, pp. 62-63].
82. McInerney stated sampling in an audit saves both the State and the taxpayer time and money. The intent of a sample is to determine if the information being reviewed is a reflection of the correct amount of tax being charged. The sampling process can result in a credit which McInerney differentiates from a refund. [Transcript Vol. IV, pp. 798-799].
83. In response to the February 18, 2005, letter [Exhibit 104], Qwest provided Audit an electronic listing of all taxable and exempt Wyoming customers by billing telephone number (BTN), not by name, for the audit period, 2002, 2003, 2004. Ms. Moyzes estimated the listing contained approximately 2 million customers per year. [Transcript Vol. I, pp. 56-57; Vol. II, p. 351].
84. Ms. Moyzes understood McInerney would draw a sample of 250 customers per year from the customer listing requested in Exhibit 104, and review the bills for those customers for the entire audit period. She stated in her experience sampling to determine an error rate to project across an entire population was a common technique used by auditors. It would be “just too much” to review 100 % of a population of over 6 million. [Transcript Vol. II, pp. 353-354].
85. McInerney intended to pull a sample of customers, and then review each customer in the sample. He asserted, however, he was never given access to the hard copy bills. He did, in fact, follow this procedure for fixed assets, purchases and exempt sales, those being three of the four areas of the audit. A sample was drawn representative of the population and errors projected against like transactions. [Transcript Vol. I, pp. 60-61, 63-65].
86. The audit start date was moved, at McInerney’s request, to June 16, 2005, to allow his attendance at a training course. Ms. Moyzes testified there were no customer bills available during this first visit as she did not get the sample list of taxable and exempt customers from McInerney until July 26, 2005. [Exhibits 107, 108, 109 (billing numbers redacted); Transcript Vol. II, pp. 354-356].
87. McInerney, by a July 26, 2005, e-mail, sent Qwest the “pull list” of 250 taxable accounts and 50 exempt accounts for each year of the audit as generated by a software package, Rat-Stats, a random number generator. [Exhibit 109]. McInerney wanted to review the actual account information for these accounts to determine errors, if any. He asserted there could be no accurate error rate for the 2002, and January, 2003, because Qwest was not charging sales tax on CALC, thus it would be a 100% error. He asserted the same was true for the remainder of 2003, and all of 2004 since Qwest did charge sales tax during that time period. In effect, for both time periods, 2002 and January, 2003, and the remainder of 2003 and all of 2004, 100% of the population was in error because the policy was either to charge or not charge sales tax. [Transcript Vol. I, pp. 60, 65-67, 153-156; Vol. II, pp. 184-185].
88. Ms. Moyzes received the e-mail from McInerney on July 26th providing the list of customers for which he wanted bills. Once she received the sample list of taxable customers, the customer bills for the listed phone numbers for 2002, 2003, and 2004 were printed from the OSCAR system with one person working full time, and eventually other people helping. The bills were available for McInerney’s August visit. With regard to exempt customers, McInerney reviewed the customer names and requested exemption certificates for only certain customers. [Transcript Vol. II, pp. 356-358; Vol. III, pp. 448-449].
89. After the opening conference with Ms. Moyzes, McInerney and a second auditor, Stacey Hammock, worked for three days on the purchases portion of the audit. Audit had drawn a sample of purchases. McInerney and Hammock reviewed paper purchase invoices as well as invoices electronically after being logged on to the Qwest FileNet computer system. [Transcript Vol. I, p. 60; Vol. IV, pp. 824-828].
90. For the purchases portion of the audit, McInerney was able to verify the amount of sales tax, whether payment was required, and develop an error rate to be applied to the entire population. The error rate was very small, thus, in his judgement, he could rely on the sampling he had done. Based on the reliable, verified sample, he could conclude the same errors were being made in the entire population. [Transcript Vol. I, pp. 158-161].
91. Although Exhibit 116, pp. 0074-0075 indicated McInerney and Ms. Moyzes had determined it would be best to sample both taxable and exempt populations and project errors, he could not do so with regard to taxable customers since the only error for taxable customers was a 100% error rate for CALC charges. He did use sampling methodology for exempt customers. [Transcript Vol. I, pp. 120-121, 123-124].
92. McInerney testified Qwest represented to him again in this audit it could not provide CALC information by state or county, only by company. The information by county was important in order to determine a deficiency or credit by county. He asserted he conveyed the importance of the CALC information to Ms. Moyzes verbally in meetings and by letters. [Transcript Vol. I, pp. 89-90, 126; Vol. IV, pp. 833-834].
93. McInerney asserted Ms. Moyzes told him, before March, 2006, it would be too costly to prepare state level CALC charges. [Transcript Vol. V, pp. 914-915].
94. McInerney testified he was told by Qwest the only method to get a county breakdown for the CALC charge was to use 911 and CALC together. He stated his opinion that based on his experience with other large taxpayers, if the CALC charge is a line item on the computer system, Qwest could pull that item out. He did not believe what Qwest related about the inability to extract a CALC charge without using the 911 charges was true. McInerney did agree 911 charges were available by county because those charges have to be paid to the county jurisdictions. He did not know if CALC charges by county had to be reported to anyone. [Transcript Vol. I, pp. 77-78].
95. McInerney stated he had no evidence Qwest could provide CALC charges by county. He had seen evidence the CALC charges were available by state, and he could break the charges down by county. He stated a breakdown by county from Qwest would be the best information. [Transcript Vol. II, pp. 174-175].
96. Qwest provided McInerney the 911 charges information he requested for all of 2002 and January, 2003. Ms. Moyzes testified the information for the remainder of 2003, and all of 2004 had been prepared and was available. McInerney, however, did not ask for that information, nor did he ask for assistance in determining possible credits. [Transcript Vol. II, pp. 416-417; Vol. III, p. 456].
97. Ms. Moyzes testified information on CALC charges is not normally accumulated below the state level as such is the lowest level necessary for the compliance group to file a tax return. Sales tax returns only require the total sales tax collected by county, not by product level, thus sales tax billed for CALC by county is not available. She stated Qwest does not have the ability to retrieve historical information on CALC charges at the county level. [Transcript Vol. II, pp. 339-340; Vol. III, p. 445].
98. Ms. Moyzes testified she probably knew there were records maintained of CALC charges at the state level. She stated, however, the auditors did not ask for CALC information at the state level. [Transcript Vol. II, p. 340].
99. Ms. Moyzes was familiar with the CALC charges in this appeal as well as in the prior Wyoming audit. In audits of CALC charges by other entities, the auditors agreed in the planning stage to review a future period for which information could be gathered at the level of detail they wished to review as it came through the billing system. It is difficult, if not impossible, to aggregate information on CALC charges at levels of detail lower than a state if not dealing with current information. [Transcript Vol. II, pp. 338-339].
100. McInerney went to Qwest offices in Denver in August, 2005, expecting all he would be able to review was information on a computer screen. Although he still needed to do his own verification, if the information on the computer screen was representative, that would be acceptable. [Transcript Vol. I, pp. 69-70].
101. McInerney testified he reviewed the customer accounts on a computer screen, not by looking at an actual bill. He asserted he had been told in the prior audit he could not have historical data as it was extremely voluminous to pull, but could look on a computer screen at Qwest’s offices. He was told what appeared on the computer screen would not be an actual bill. [Transcript Vol. I, pp. 68-69, Vol. IV, pp. 831-832, 835-836].
102. McInerney, in August, 2005, accepted Qwest’s representation that sales tax had been collected on CALC charges beginning in February, 2003, through the end of the period for this audit, December, 2004. He was also aware Qwest had not collected sales tax on CALC charges prior to February, 2003. The computer screen information McInerney reviewed in August, 2005, indicated sales tax was being charged on CALC. [Transcript Vol. I, pp. 70-71; Vol. II, p. 407; Vol. III, p. 461; Vol. IV pp. 841-842, 862-863].
103. Exhibit 140 is a spreadsheet created by McInerney as a part of the audit at issue. Columns A, B, C, and D were part of the sample pulled by McInerney. Column A is the billing telephone number (BTN) which is redacted on the exhibit but was listed on the spreadsheet McInerney used in the audit. Column B indicates the customer code. Column C is the month and year of the bill represented in the sample. Column D is the account discontinued date. The BTN, the month and year, and the account discontinued data was provided by Qwest from its CRIS system. Columns E, F, G, H, and I were designed by McInerney, and populated by McInerney or another auditor looking at a computer screen in the Qwest offices. The FACC column on the spreadsheet is the CALC charge. FACC and CALC indicate the same charge. [Transcript Vol. I, pp. 72-76, 80, 132; Vol. II, pp. 179-180, 186; Vol. V, pp. 894-896, 902].
104. McInerney recalled that during the audit Qwest would log him on to the only system which they allowed auditors to access. He had his sample list which included items A through D on Exhibit 140. He then entered a customer phone number from the sample list which would pull up the information for that customer onto the computer screen. McInerney stated the computer screen appeared to be DOS-based because it was green with acronyms for each service for which a customer was billed, including 911 and CALC. He was not told the meaning of each acronym as some were for proprietary charges billed by Qwest for other companies. None of the information on the computer screen was written out. A dollar amount appeared next to the acronym. He or another auditor entered the 911 and CALC charges shown on the screen into an Excel spreadsheet. McInerney did not believe what he saw on the computer screen was a screen print of an actual customer bill. He did not recall if there was a date on the computer screen. [Transcript Vol. I, pp. 80, 106-107, 109, 128-130, 132].
105. McInerney estimated it took himself and another auditor at least two weeks in Qwest’s offices to generate Exhibit 140. Each phone number had to be typed into the computer system. They then had to wait for the information to come up on the screen. If for some reason he was logged off the computer, someone from Qwest had to log him back on. [Transcript Vol. I, p. 164].
106. McInerney learned during the discovery process for this appeal the system from which he took the 911 and CALC information was the BOSS system. [Transcript Vol. I, p. 131].
107. Ms. Moyzes explained each auditor must be logged on to the BOSS system by her at the computer they are using. If the computer being used to access the system is inactive for more than 30 or 40 minutes, the computer will log off. The BOSS system does not time out. If the computer logs off, the auditor must be logged back on by Ms. Moyzes. [Transcript Vol. III, pp. 446-447].
108. The information on Exhibit 140 concerning the dates of the customer bills, column C, for example, January, 2002, was provided by Qwest. McInerney did not believe he had reviewed an actual bill for January, 2002. He stated the information he inserted into Exhibit 140 came from the computer screen which Qwest represented was live data meaning current data on the computer. McInerney understood the information he had access to on the computer screen and which he entered on Exhibit 140 during his field work in June and November, 2005, was live data which would be at least a year beyond the end of the audit time frame. McInerney was not sure what year information was on the computer screen he used to populate Exhibit 140. [Transcript Vol. I, pp. 104-106; Vol. II, pp. 187-188, 190; Vol. V, p. 922].
109. Either McInerney or another auditor entered the 911 and CALC charges for 2002 on Exhibit 140. He agreed he could have done the same thing for the schedule he prepared for 2003 and 2004. [Transcript Vol. V, p. 896].
110. The phone number entries on Exhibit 140 for which there are no values indicate there were no 911 or CALC charges for that number. The entries were included in the sampling because they were otherwise taxable customers. [Transcript Vol. II, pp. 185-186].
111. Line 8 of Exhibit 140 lists information for BTN Customer CD 248 (column B). Column C indicates the information is for August, 2002. Column D indicates a disconnect date of August 8, 2002. Columns H and I, however, have dollar amount entries which represented live data in either June or November, 2005. McInerney testified he did not ask anyone at Qwest why dollar amounts would show up on the computer as current in 2005 for insertion into columns H and I if the account had been disconnected in 2002. He stated no one told him what “current” meant, and he did not ask. [Transcript Vol. II, pp. 188-190].
112. McInerney testified the number 12.61 at line 254 on page 0467 of Exhibit 140 is a mathematical calculation he entered on the spreadsheet. It is the ratio of CALC charges to 911 charges calculated by dividing the total CALC charges of $1897.90 by the total 911 charges of $150.50. [Transcript Vol. I, pp. 80-81, 84].
113. McInerney calculated the 12.61 ratio on Exhibit 140 since it is typical for him to run different methods of calculation. His intent was to get information to determine the correct amount of tax for the CALC charges. [Transcript Vol. I, p. 142].
114. McInerney also testified, however, he did not know exactly why he did the calculation or inserted it on the spreadsheet. He believed he did it early in the audit fieldwork during a trip to the Qwest offices. He was not sure how many times he visited the Qwest offices for this audit. He believed the fieldwork may have been completed by November, 2005, but could not be sure without checking his travel vouchers. [Transcript Vol. I, pp. 81-84].
115. McInerney knew when he was auditing Qwest in 2005 the 911 charges were not taxable. He did not use the 911 information on Exhibit 140 for any purpose other than to calculate the 12.61 ratio. [Transcript Vol. II, pp. 191-192, 369-370, Vol. III, pp. 539-540].
116. The ratio of CALC to 911 charges on Exhibit 140 varied by line, For example, line 12 is 18.4; line 25 is 14; line 28 is 12; line 55 is 12.54; line 61 is 13; and line 63 is 13.54. [Transcript Vol. III, pp. 428-430].
117. Ms. Moyzes suggested the 12.61 ratio derived using a large sample would be more representative than simply looking by line at individual calculations. [Transcript Vol. III, pp. 546-547].
118. Exhibit 141 is a computer disk containing the 2002, 2003, and 2004 pull lists of account information requested by Audit without identifying BTN. McInerney agreed the information listed on the disk for 2002 was the same as listed on Exhibit 140. He further agreed the same information, columns A-D on Exhibit 140, was available to him for 2003 and 2004. McInerney agreed he did not list any 911 and CALC charges for 2003 and 2004. [Transcript Vol. I, pp. 85-87, 132].
119. McInerney did not list the 911 and CALC charges for 2003 and 2004, the time frame during which Qwest charged sales tax on CALC charges, because, in his opinion, if a sales tax refund was due, Qwest would know the amount of the refund since they had charged the customers. [Transcript Vol. I, p. 88].
120. Ms. Moyzes recalled McInerney agreed early in the audit at issue to use the same methodology as used in the prior audit. He believed, however, the ratio should be 12 to 1 rather than 10 to 1. She recalled two conversation with McInerney, one in June, 2005, and the second in August, 2005, during which he stated he had no objection to using the same methodology in the audit at issue as used to estimate CALC charges in the prior audit. She testified he stated during the August visit he thought a factor of 12 rather than 10 as applied in the prior audit to 911 charges would be more appropriate for the audit at issue. He did not state any reason for the change. Ms. Moyzes did not confirm in writing with McInerney that the same methodology would be used as they seemed to be in agreement on that issue. [Transcript Vol. II, pp. 389-389, 393, 403-404].
121. McInerney did not recall any conversation with Ms. Moyzes about using a ratio of 12 to 1 in the audit calculation in the same fashion as had been done in the prior audit. [Transcript Vol. I, p. 84].
122. McInerney held the opinion that use of a ratio, as had occurred in the prior audit, was not the best way to proceed. A ratio was used in the prior audit because he had no other means to calculate the CALC charges under the time constraints in that audit since Qwest was raising a statute of limitations assertion. He needed to come to a conclusion in that audit, and using the ratio was fulfilling his responsibilities as an auditor. [Transcript Vol. I, pp. 90, 92-93].
123. McInerney acknowledged he calculated and used a ratio of 10 to 1 in the prior audit, and had calculated a ratio of 12.61 to 1 for the year 2002. [Transcript Vol. I, p. 92].
124. Although McInerney had compared the CALC to 911 the same as in the prior audit, he asserted he had not done it “formally.” [Transcript Vol. I, pp. 102-103].
125. McInerney found the 10 to 1 ratio of 911 charges to CALC charges in the prior audit to be very consistent. The ratio in the audit at issue range from 10 to 1 to 18 to 1. This variance caused him some concern although he did not ask Qwest about possible reasons for the variance. In the prior audit he reviewed only residential customers while in the audit at issue he reviewed both residential and commercial customers. The variance in ratios may be attributable to the fact commercial customers may have more than one phone line. [Transcript Vol. I, pp. 143-144].
126. McInerney asserted use of a ratio in the audit at issue was not the best information available. He intended to exhaust all other ends to allow Qwest to provide better information. [Transcript Vol. I, p. 91].
127. McInerney reviewed the screen prints of 2002 customer bills provided by Qwest in discovery. He tested a few of the bills. In some cases the information matched Exhibit 140, and in some cases it did not. [Transcript Vol. I, pp. 107-108].
128. McInerney did not recall signing a confidentiality agreement even though he was told by Qwest the information he was viewing was proprietary. [Transcript Vol. I, pp. 141-142].
129. Qwest charged a specific amount for CALC, and McInerney asserted he had seen computer systems in which specific charges could be pulled out to reach a finite number. [Transcript Vol. I, pp. 157-158].
130. If Qwest could supply an aggregate CALC number for the state by month and the number of customers in each county, McInerney stated he could come pretty close to calculating, using the appropriate county sales tax rates, a number he might be comfortable with as a basis for a refund. A print out of every CALC charge would not be necessary. [Transcript Vol. I, pp. 161-163].
131. McInerney asserted Exhibits 124 and 140 were not the only material in the audit file from which he could estimate the tax on CALC charges. He had, however, no work papers for any other method. [Transcript Vol. V, pp. 905-906].
132. Ms. Moyzes provided McInerney with substantial information, including a download of approximately 2 million customers per year as well as a list of exempt customers. She produced information on all purchases during the audit period, including invoices. She provided any exemption certificates which McInerney requested. She felt she had open communication with McInerney which included clarification of his requests. [Transcript Vol. III, pp. 453-456].
133. Ms. Moyzes did not recall that McInerney ever expressed a desire to take any information back to Cheyenne. If he had made such a request, she would have been provided copies for him. [Transcript Vol. III, pp. 458-459].
134. The rule of law when the audit field work was completed required sales tax be assessed on CALC charges. Ms. Moyzes stated both Qwest and the Department knew Qwest had appealed the taxability of CALC charges, and a decision might be in favor of Qwest or in favor of the Department. She asserted there was an agreement to use the same methodology to do an assessment in the audit at issue as in the prior audit, and presumed the same methodology would be used for the refund. She stated she had no reason to believe otherwise. [Transcript Vol. III, pp. 486-488].
135. Ms. Moyzes agreed the focus of the audit plan when the audit commenced was an assumption the CALC charges were taxable and tax was actually owed. The auditors request for 911 information would have been consistent with the audit proceeding under the assumption that some tax would be owed. The ratio approach using 911 charges having been used in the prior audit, both Qwest and the auditors were headed in the direction of using the same approach again. [Transcript Vol. III, pp. 494-495, 544-546].
136. Qwest and Audit significantly disagree on certain aspects of the audit fieldwork.
137. Ms. Moyzes testified the customer bills were provided to McInerney as printed from the OSCAR system which contains third-party proprietary information which Qwest is legally prohibited from disclosing. This is the reason Qwest can not give auditors access to the OSCAR system. Qwest can thus only provide copies of the Qwest bills from that system. Qwest does not allow access to the Qwest information other than on its premises since that information as well is proprietary. [Transcript Vol. II, pp. 368-369, 372-373, 374-375, 377].
138. Ms. Moyzes testified Qwest printed, page by page, the 750 customer bills for the months selected by McInerney during the period 2002-2004, and marked each bill copy with a number for tracking purposes. Third-party information was specifically excluded from the bills. The copies were place in manila folders, and then in two boxes marked something like “copies of invoices for Wyoming audit.” The boxes were placed in the center audit room in which McInerney worked during his second visit in late August on either the day before or the day of his arrival. Ms. Moyzes stated she personally took McInerney to the audit room when he arrived, and gave him a box, stating “here are the bills that you requested.” She stated after his visit McInerney had questions about some missing pages on the bills. She thus put in her notes to check on about 20 bills for missing pages. McInerney did not ask to take any of the customer bills with him when he left. [Transcript Vol. II, pp. 393-394;Vol. III, pp. 436-442, 521-523, 526-529].
139. Ms. Moyzes testified she looked through the printed bill copies before she provided them to McInerney, and again during the audit as McInerney claimed some of the pages were missing. [Transcript Vol. II, pp. 378-379].
140. Ms. Moyzes stated providing the printed bills as requested by McInerney was time consuming and involved a lot of work. She stated there was thus no reason to print the bills other than to make them available to McInerney. Ms. Moyzes did not ask McInerney for a receipt acknowledging having received the bills as that is not the normal procedure for providing information to auditors. [Transcript Vol. II, pp. 367-368, 377-378].
141. Ms. Moyzes recalls the printed bills were provided during McInerney’s August, 2005 visit, partly because she made notes to herself to review certain bills which McInerney had brought to her attention were missing pages. She also recalls the printed bills being available during a November, 2005, visit by McInerney. Ms. Moyzes recalled there may have been other times McInerney worked in the Qwest office when he was in the Denver area for other audits. [Transcript Vol. II, pp. 367-368, 376].
142. Ms. Moyzes testified McInerney told her after reviewing the bills he found no errors other than the CALC charges. [Transcript Vol. III, p. 443].
143. Ms. Moyzes testified McInerney requested access to the BOSS system. When she asked him why he wanted access to that system in light of the fact it has only current bills, and he had asked for bills from 2002, 2003, and 2004, he responded he wanted to do some verification. [Transcript Vol. II, pp. 329, 378; Vol. III, pp. 446-447].
144. The BOSS system also shows third-party information but only by total and company code. Ms. Moyzes stated she would not be allowed to discuss with an auditor the pages on BOSS which address third-party information. McInerney asked for and received information for decoding Qwest charges during the prior audit. [Transcript Vol. III, pp. 449-452].
145. Exhibit 192 is a list prepared by Qwest to keep track of the customer bills printed for 2002. Exhibits 194 and 196 are similar lists prepared for 2003 and 2004 respectively. The list of customers on Exhibits 192, 194, and 196 are the same customers listed on Exhibits 140 and 109. Exhibit 193 (account number redacted), as an example, is a customer bill for number four on Exhibit 192 (hand written 2002-04) on McInerney’s taxable list for 2002. The customer code on both is 791R. Exhibit 195 (account number redacted) is a customer bill for number five (hand written 5) on McInerney’s 2003 taxable list. Exhibit 197 (account number redacted) is a customer bill for number three (hand written 03) on McInerney’s 2004 taxable list. [Transcript Vol. II, pp. 358-367].
146. Ms. Moyzes compared, at the request of Qwest counsel, the information on Exhibit 140 with several of the 2002 printed customer bills provided to McInerney. The charges for 911 and CALC on the 2002 printed bills matched the amounts shown on Exhibit 140 for the same customer numbers for 2002. For example, Exhibit 193 is for BTN customer code number of 791R, and shows $.50 as a 911 charge, and $5.00 as a CALC charge. Exhibit 140 shows the same amounts for 911 and CALC charges on line 5 for BTN customer number 791R. Ms. Moyzes argued there was no way McInerney could have recorded the same information on Exhibit 140 as on the customer bills without having seen the 2002 bills. Auditors are never given access to the OSCAR system from which the bills were printed. [Transcript Vol. II, pp. 370-372, 376-377].
147. McInerney stated he asked Ms. Moyzes, in both this and the prior audit, to look at actual bills, but was told both times they were voluminous and stored off site. Qwest would have to have someone go to the site, pull the actual bill, make a copy, and then provide a copy to McInerney. He did not ask if the bills were accessible electronically. He assumed if they were voluminous and off site there would not be an electronic copy. He denied ever being directed to any boxes containing paper bills, or even having any discussion about bills in boxes. He also denied ever discussing missing pages from bills. He stated the first bills he saw were during the discovery process for this appeal. None of the exhibits in this appeal resemble what he saw on the computer screen at Qwest. [Transcript Vol. I, pp 130-134; Vol. IV, pp. 836-839].
148. McInerney stated for three of the four aspects of the audit at issue he could review actual source documents. The purchases portion of the audit relied on copies of purchase invoices, and the exemption portion relied on paper exemption certificates. [Transcript Vol. I, pp. 144-145].
149. McInerney stated that if Qwest had given him access to all two million transactions, he would not have looked at each transaction, but rather would have pulled a representative sample of bills. [Transcript Vol. II, p. 181].
150. Stacey Hammock, an auditor with Audit, assisted with the Qwest audit at issue, twice visiting the Qwest offices in Denver. She stated the computer screen she reviewed had telephone numbers, certain initials, and dollars amounts. She did not remember it having any dates on the screen. She did not remember if it even had a customer’s name. It did have a lot of acronyms. She gave her information electronically to McInerney. [Transcript Vol. IV, pp. 691-693, 685-686].
151. Ms. Hammock’s second visit was in the August/September, 2005, time frame. She does not recall any discussions regarding paper copies of customer bills, nor seeing any boxes containing customer bills. She stated she did not look through hard copies of customer bills, and did not see anything similar to Exhibits 193, 195, 197, which are copies of customer bills. [Transcript Vol. IV, pp. 670, 675-679].
152. Ms. Hammock had stated in her deposition she did not remember seeing any hard copies of billing information. Her deposition testimony differed from her testimony at the Board hearing. She stated her memory had improved as she had time to think about what she saw when she was at the Qwest office. She also stated she had talked to McInerney after her deposition and before the Board hearing. [Transcript Vol. IV, pp. 689-691].
153. Ms. Hammock was not present for every conversation between McInerney and Ms. Moyzes, and she had no personal knowledge of what McInerney may have had access to, or may have looked at, on his subsequent visits to Qwest. [Transcript Vol. IV, pp. 683-684].
154. The closing conference with Qwest was held March 8, 2006, at 10 a.m. at the offices of Qwest. McInerney identified Exhibit 512 as a closing conference checklist. [Transcript Vol. IV, pp. 830-831].
155. McInerney testified the closing conference is not necessarily the end of the field work in an audit. The auditors can still go back to a company’s offices for additional information. The end of the fieldwork is usually when the preliminary findings letter is sent to the auditee. [Transcript Vol. V, p. 898].
156. McInerney stated that by the closing conference he had created Exhibit 140, and was aware 911 charges were not taxable. He stated the only reason for having the 911 charges on Exhibit 140 was to create a relationship between the 911 and CALC charges. [Transcript Vol. V, pp. 900-901].
157. Ms. Moyzes stated Qwest had an expectation or understanding that if Audit had included 2003 and 2004 in its audit, it would have arrived at its own estimate of CALC charges using whatever method it decided to use, including a ratio method as had been used in the prior audit. [Transcript Vol. III, pp. 542-534].
158. Exhibit 124 is a spreadsheet entitled “CALC Charges Calculation 911 Paid” containing information supplied by Qwest to McInerney. It contains the same type of information which the Department used in the prior audit to estimate CALC charges. The first page identifies 911 charges by jurisdiction for all of 2002, and January, 2003. The second page identifies the amount of taxable and exempt sales for all of 2002, and January, 2003, as well as a percentage exempt. McInerney stated Qwest did the calculations for, and created Exhibit 124. Exhibit 125 is a computer disk of the information in Exhibit 124. [Transcript Vol. I, pp. 94-100, 140-141; Vol. II, pp. 388-389, 393].
159. McInerney stated it was his assumption he had requested the 911 charges by jurisdiction for 2002 and January, 2003, on Exhibit 124. He stated he could have requested the same information for 2003 and 2004. [Transcript Vol. V, pp. 896-897].
160. McInerney stated at the time of the audit closing conference, he had both Exhibit 124 and Exhibit 140 which could be used to develop the same ratio as was done in the prior audit. He asserted that as of the closing conference, he had completed his work at the Qwest offices, but did not have any idea how he might handle a potential finding that CALC charges were not taxable. He was focused exclusively on information available to calculate a deficiency. [Transcript Vol. V, pp. 902-904, 919-921, 939].
161. The properties of Exhibit 125 indicate it was created on March 7, 2006. McInerney stated he did not create the disk, however, he would have reviewed it sometime after March 7, 2006. McInerney could not recall whether he requested the 911 data, or it was simply given to him. [Transcript Vol. I, pp. 101-102].
162. Exhibit 126 is a listing, by quarter, of Wyoming counties in which Qwest collects and remits 911 charges for 2002, 2003, and 2004. The 911 charges are remitted to each jurisdiction, thus the information is available by jurisdiction. It is not available on the Qwest general ledger by county. Exhibit 126 also includes a chart showing the current and old 911 rates during 2002-2004 with the date the rate changed. The last page of the exhibit, which is the same as Exhibit 124, is a listing of 911 charges collected and remitted by Qwest by jurisdiction for all of 2002, and the first quarter of 2003, as requested by, and provided to, McInerney. Ms. Moyzes alleged McInerney did not request verification of the 911 charges by county. [Transcript Vol. II, pp. 383-387; Vol. III, pp. 523-526].
163. Ms. Moyzes asserted the 911 information for all of 2002, and January, 2003, which she provided to McInerney, the third page of Exhibit 126, was information he would have needed to estimate a CALC charge based on the ratio of 911 charges to CALC charges. The same information for the entire 36-month audit period was also available, which is the second page of Exhibit 126. This information as well as all the customer billing information was retained after completion of the audit fieldwork in the fall of 2005. Ms. Moyzes stated neither McInerney nor Audit have ever been denied access to Qwest’s offices to look again at the customer billing information and 911 charges. [Transcript Vol. III, pp. 540-542].
164. McInerney testified when the audit at issue commenced, the Board had ruled the CALC charges were subject to tax. The auditors were therefore committed to the proposition CALC was taxable. They thus needed to determine when and for what period Qwest had not charged sales tax on CALC so tax could be assessed. This was the focus of the field work with regard to CALC. [Transcript Vol. I, pp. 146-147].
165. The Wyoming Supreme Court had not reached a decision in the Qwest appeal of the prior audit when McInerney visited Qwest’s office in August, 2005. McInerney agreed that depending on the outcome of its appeal, Qwest would either owe tax for the time period it had not collected tax on the CALC charge, or its customers would be entitled to a refund for the 23 months of the audit time frame during which tax had been collected. [Transcript Vol. I, pp. 71-72].
166. The Wyoming Supreme Court, on March 22, 2006, concluded CALC charges were not subject to sales tax. Qwest Corporation v. State of Wyoming, 2006 WY 35, 130 P.3d 507 (Wyo. 2006). As a result, the 2002 through January, 2003, time frame ceased to be of importance in the audit since Qwest had not charged sales tax on CALC charges during that period. The audit focus thus shifts entirely to the remainder of 2003, and all of 2004 when Qwest had charged sales tax on CALC charges.
167. McInerney acknowledged he received the 911 information in Exhibit 124 about the same time as the Wyoming Supreme Court decision in Qwest Corporation v. State of Wyoming was issued, and thus had the 911 information by county, by quarter, the same as he had in the prior audit. [Transcript Vol. I, pp. 101-102].
168. McInerney testified if the Wyoming Supreme Court had ruled in favor of the Department, he would have pursued projecting CALC charge per customer by county to determine the amount of tax due. If he had the same information in the audit at issue that he had in the prior audit, he would have had to come up with some estimate to assess tax on the CALC charge. One method would be to use a ratio although he did not believe it was the best method. [Transcript Vol. II, pp. 171-172].
169. McInerney agreed he could have returned to the Qwest offices after the Wyoming Supreme Court decision in March, 2006, and prepared 2003 and 2004 schedules similar to Exhibit 140. [Transcript Vol. V, pp. 906-907].
170. Beginning on March 31, 2006, Larry A. Tezak, Tax Compliance Director for Qwest, sent a series of letters to the Department along with Amended Vendor Sales/Use Tax Returns covering the period February, 2003, through July, 2004. The letters indicated the amendment returns “seek refunds for sales tax previously remitted on End User Common Line Charges.” Each of the monthly returns sought a “refund to Qwest” of $60,000. Neither the transmittal letters nor the Amended Returns included any explanation on how the $60,000 amount had been calculated. [Exhibits 500, 501, 502, 503; Transcript Vol. IV, pp. 707-712, 715-716].
171. Dan Noble, administrator of the Excise Tax Division, testified on behalf of the Department. [Transcript Vol. IV, p. 695].
172. Refund requests for sales and use tax do not typically go to Audit. They are handled by the Department under the applicable statutes, Wyo. Stat. Ann. §§ 39-15-109 and 39-16-109, in particular paragraph “c”. Noble asserted Wyo. Stat. Ann. § 39-15-107(a)(ii) was also applicable. [Transcript Vol. IV, pp. 697-699].
173. Noble asserted under the Department Rules effective April 19, 2005, it was Qwest’s responsibility, as the party entitled to a refund of tax, to initiate the request for refund and provide supporting documentation. The Department allows a taxpayer up to 90 days from receipt of a refund request to provide supporting documentation, otherwise the request will be denied. [Exhibit 513; Transcript Vol. IV, pp. 699-703].
174. Noble believed Wyo. Stat. Ann. § 39-15-109(d)(iii) was applicable in this matter, however, that statute requires only a facial review of any sales/uses tax return to determine mathematical accuracy or any other irregularities associated with the return. [Transcript Vol. IV, pp. 703-705].
175. Noble takes the position that Wyoming statutes would require Qwest to refund overpaid tax to its customers, but doing so is not a prerequisite for getting a refund from the Department. [Transcript Vol. IV, pp. 705-706].
176. Exhibit 500 is the cover letter and amended returns received from Qwest for February, March, and April, 2003. No information other than the amended returns was received with the cover letter. [Transcript Vol. IV, pp. 707-709].
177. Exhibit 501 is the cover letter and amended returns received from Qwest for May, June, July, 2003. Noble indicated these amended returns would be considered timely filed. Wyo. Stat. Ann. § 39-15-109(c)(I). No information other than the amended returns was received with the cover letter. [Transcript Vol. IV, pp. 709-710].
178. Exhibit 502 is the cover letter and amended returns received from Qwest for August, September, October, 2003. Noble asserted the amended return for August, 2003, would not be considered timely filed. The other two amended returns would be considered timely. Wyo. Stat. Ann. § 39-15-109(c)(I). No information other than the amended returns was received with the cover letter. [Transcript Vol. IV, pp. 710-712].
179. Exhibit 503 is the cover letter and amended returns received from Qwest for the period November, 2003, through July, 2004. No information other than the amended returns was received with the cover letter. Noble asserted the amended returns for November, 2003, December, 2003, January, 2004, and February, 2004, would not be considered timely filed. The amended returns for March, April, May, June, and July, 2004, would be timely. Wyo. Stat. Ann. § 39-15-109(c)(I). [Transcript Vol. IV, p. 712, 715-716].
180. Noble did agree, however, the three-year statute of limitations would not be applicable to the refunds request in Exhibits 500, 501, 502, and 503, since the issue of refunds or credits was discovered as part of the audit. [Transcript Vol. IV, pp. 741-748].
181. When the Department receives amendments to sales/use tax returns which fall within the scope of an audit, the Department is required by Wyo. Stat. Ann. § 39-15-109(d)(iv) to provide the amended returns to Audit. The Department interprets the term “taxpayer” in 109(d)(iv) as “vendor.” [Transcript Vol. IV, pp. 765-768].
182. Noble sent all of the refund requests, Exhibits 500, 501, 502, and 503, to Audit for verification since he was aware Qwest was under audit, and each return fell within the audit period. He did not recall the date he sent the requests to Audit. [Transcript Vol. IV, pp. 716-717, 764].
183. Refund requests during an audit are unusual. [Transcript Vol. V, p. 894].
184. Exhibit 503, dated April 26, 2007, was sent to the Department after the final audit assessment dated March 9, 2007, Exhibit 100, was issued, and after the appeal had been filed by Qwest from the audit assessment. [Transcript Vol. IV, pp. 711-713].
185. Noble did not believe it appropriate for the Department to estimate a tax refund. Noble believes the Department had an obligation to refund only accurate and supported amounts since the refunded taxes come from not only the State general fund but also local government entities. [Transcript Vol. IV, pp. 719-720].
186. The Department does not use sampling to verify a refund request. If sampling was the only way to verify a request, Noble would ask Audit to perform at least a desk audit. He agreed a sample could be used to verify a refund as long as it met the criteria required by Audit. [Transcript Vol. IV, pp. 720-721, 726].
187. Noble did agree sampling would be appropriate to determine both refunds and credits. It would also be appropriate to determine debits. [Transcript Vol. IV, pp. 726-730].
188. Noble stated sampling does not have to verify an exact amount of either an assessment or a credit. A statistically valid sample will yield an accurate amount. [Transcript Vol. IV, p. 736].
189. McInerney agreed it was appropriate to allow a credit in an audit if based on verifiable sample information. [Transcript Vol. I, p. 119].
190. Noble acknowledged sampling had been used in the audit at issue to establish a credit. [Transcript Vol. IV, p. 730].
191. Noble agreed with McInerney that it is an auditor’s responsibility, consistent with the Wyoming statutes, to compute the proper amount of a tax assessment or credit. He also acknowledged it is actually Audit that determines whether tax has been erroneously paid, collected or computed under Wyo. Stat. Ann. § 39-15-109(d)(iii). [Transcript Vol. IV, pp. 732, 740].
192. Noble was involved in the1997-2001 audit, and was part of the team which decided CALC charges were taxable. He approved the manner of estimating the CALC charge in the prior audit. [Transcript Vol. IV, pp. 733-734].
193. Noble relied on the representations of the auditors that there was insufficient supporting documentation for the refunds at issue. He did not review any documentation, and had no opinion as to what documentation would be sufficient to support the refund claims. [Transcript Vol. IV, p. 737].
194. Noble agreed with Audit’s final assessment. He asserted no portion of the refunds requests were properly verified. [Transcript Vol. IV, p. 718].
195. McInerney stated he became aware of the refund requests in June or July, 2006, after receiving them from Revenue. He was not sure why he did not get the first request dated March 31, 2006, until June or July, 2006. Although he was suspicious of the $60,000 amount of each request, he did not contact Larry Tezak, the person signing the requests. It was after he received the refund requests that he sent a letter dated July 10, 2006, to Ms. Moyzes, Exhibit 505, requesting more information. Although he recalled he had also talked to Ms. Moyzes about the refunds before sending the letter, there is no notation of that conversation in his audit tracking log, Exhibit 504. The log did indicate he spoke by telephone on July 26, 2006, with Ms. Moyzes regarding the requests for refunds and the need for additional information. [Transcript Vol. I, pp. 145-146; Vol. IV, pp. 840-841, 846-853; Vol. V, pp. 923-925, 934-935].
196. The letter dated July 10, 2006, Exhibit 505, included copies of the audit work papers, and requested documentation regarding a refund request for February, March, April, 2002. The correct year for each month should have been 2003 as Qwest was not taxing CALC charges in 2002. After she received Exhibit 505, Ms. Moyzes had a telephone conversation with McInerney in which he asked for information to verify the refund request by Qwest of the CALC tax collected. She recalls he first stated he wanted proof Qwest had refunded the tax to its customers. He then said he wanted Qwest to first refund the tax and then file for a refund. Ms. Moyzes does not recall that McInerney asked for any other information. She suggested he contact Tezak, the director of tax compliance, regarding the refunds as she would not be able to supply him any more information than she had already provided. She believed she had provided to Audit everything which they had requested, including the sample of customer bills for 2003 and 2004 during which Qwest had collected tax subsequently determined not to be due. [Transcript Vol. II, pp. 395-396; Vol. III, pp. 456-457, 464-465, 471; Vol. V, p. 934].
197. Ms. Moyzes was not aware of the Qwest refund requests until she talked to McInerney about the incorrect dates in the July 10, 2006, letter from McInerney. [Exhibit 505]. Even at that point she did not know the amount was $60,000, and did not have any knowledge of how that amount was determined. She stated that when the refund requests were filed, her part of the audit was completed; she had finished everything she needed to do; and thus she had fewer conversations with McInerney. Once she became aware of the refund requests, she told Tezak they had inquires from the State of Wyoming, and he responded he would “look into that.” [Transcript Vol. III, pp. 444, 496-499, 516-517, 530-531, 533-537].
198. McInerney testified he had communicated numerous times with Ms. Moyzes before Exhibit 116, dated February 15, 2007, was sent to Qwest. McInerney testified he communicated by telephone with Ms. Moyzes in an attempt to verify the refund requests. He asserted she indicated she would contact the person responsible for the requests, Larry Tezak, and get the information requested. In response to Ms. Moyzes suggestion he contact Tezak, McInerney declined to do so, since the Qwest protocol for audits is that you deal with the audit coordinator, in this case Ms. Moyzes. [Transcript Vol. I, pp. 139-140; Vol. IV, pp. 843-844, 858-859, 886-887].
199. On September 5, 2006, McInerney sent Exhibit 506, the preliminary audit findings to Qwest. It requests documentation to substantiate the refund requests. “An additional request for credit was received by the Department of Revenue from Qwest Corporation. This credit is within the audit period, but no documentation has been submitted substantiating the credit.” [Exhibit 506, p. 0048]. McInerney asserted Qwest did not provide any further information in response to this letter, nor in response to requests by telephone. [Transcript Vol. II, pp. 173-174; Vol. IV, pp. 844-845, 853-855].
200. A letter sent by Audit to Qwest in November, 2006, was never delivered. Audit sent a replacement letter on January 10, 2007. [Exhibit 508]. This letter stated the credit request “will not be granted until the Department of Audit receives documentation detailing how Qwest Corporation figured the amounts.” [Exhibit 508, p. 0050]. Ms. Moyzes stated she did not personally provide any of the requested documentation. She felt she had supplied all the information needed. The refund (credit) requests were filed by Mr. Tezak, the Director of Compliance, a group different from Ms. Moyzes’ group. She had already suggested McInerney contact that group. Ms. Moyzes stated that in response to the letter she called McInerney, and explained her portion of the audit was completed. He did not ask for anything more from her at that time. [Transcript Vol. II, pp. 397-398, 417, 471-473; Vol. III, pp. 475-476, 478].
201. Audit sent its final determination letter, Exhibit 509, to Qwest on February 27, 2007, indicating an audit credit of $204,059.96. The letter also states no additional credit can be allowed based on a lack of additional information. Ms. Moyzes stated her belief Qwest had supplied to McInerney and Audit all of the information necessary to calculate the overpayment refund except the 911 charges for 2003, other than January, and all of 2004. She stated McInerney had not requested those charges, thus it was presumed the information was not needed. Audit did not receive any information from Qwest in response to this letter. [Transcript Vol. III, pp. 480-485; Vol. IV, p. 861].
202. McInerney asserted that before the hearing in this appeal he had not received enough information to determine how Qwest calculated the $60,000 refund request. [Transcript Vol. I, p. 150].
203. Each of the written requests by Audit to Qwest for additional documentation to support what Audit interchangeably characterized as both refunds and credits are very brief, and lack any significant detail.
We discussed Qwest’s refund request for February 2002, March 2002, and April 2002. We have not received documentation detailing your request. Please provide this documentation along with any exceptions to our review of your purchase transactions
Be advised you have 30 days to review the workpapers and respond with the additional information requested above. At the close of this period the Department of Audit will issue a preliminary audit findings letter.
[Exhibit 505, dated July 10, 2006].
An additional request for credit was received by the Department of Revenue from Qwest Corporation. This credit is within the audit period, but no documentation has been submitted substantiating the credit. In order to close the audit we need this additional documentation.
[Exhibit 506, dated September 5, 2006].
The credit requested through the Department of Revenue are [sic] not included in the $204,059.96 and will not be granted until the Department of Audit receives documentation how Qwest figured the amounts. If no documentation is received by the end of this Preliminary Findings period, I will instruct Bill McInerney to proceed to finals. When audit moves to final findings the only recourse for Qwest Corporation is to appeal the additional request for credits to the Board of Equalization.
[Exhibit 508, dated January 10, 2007].
No additional information was received during our revised preliminary findings period by the Department of Audit. Therefore, your requested refund cannot be verified and no additional credits can be processed.
[Exhibit 509, dated February 27, 2007].
204. Exhibit 116 is the Audit Findings as signed by McInerney. It is dated February 15, 2007, long after the audit fieldwork had been completed. Issue Number 6 on page 0076-2 indicates under “Summary: Projection of Taxable Transactions,” a credit (minus) of $200,217.63. This summary represents a projection based on a sample of taxable transactions with the calculated error rate projected against the entire population of taxable transactions. The sample transactions were verified by reviewing all of the invoices in the sample. McInerney did not look at every invoice in the entire population of taxable transactions. [Transcript Vol. I, pp. 115-119].
205. Exhibits 116, 506, and 508 each indicate a net credit as a result of the audit at issue of $204,059.96. Exhibit 116 listed a Summary: Projection of Taxable Transactions assessment amount of $34,156.58; a Summary: Purchases of Tangible Personal Property Subject to Sales/Use Tax assessment amount of $8,420.22; a Summary: Credit for sales/use tax accrued on non-taxable items or services amount of $46,419.13; and a Summary: Projection of Taxable Transactions credit amount of $200,217.63. Ms. Moyzes stated these amounts covered only sales tax assessment on customers exempted in error, and a finding under a use tax examination. They were the amounts she expected to see for those audit categories. [Transcript Vol. III, pp. 423-428].
206. Ms. Moyzes testified when she received Exhibit 506, the preliminary audit findings, she believed it to be a standard letter, and concerned only the approximate $200,000 refund set forth in the audit. She expressed her opinion the situation with the credit request was unusual since the audit had been completed, and then the Wyoming Supreme Court concluded CALC charges were not taxable. The Department thus knew, following the Court’s decision, there had been an overpayment, and had all the information it needed to calculate a refund. The Department had access to copies of 750 customer bills from which it could do an analysis to calculate a refund similar to what it had done in the prior audit to calculate tax liability. [Transcript Vol. III, pp. 467-470].
207. Exhibits 506 and 508 were both accompanied by copies of audit work papers, but no interest calculations as indicated in each letter. Ms. Moyzes testified it was not unusual to get two letters setting out preliminary audit findings. [Transcript Vol. III, pp. 472-475].
208. Ms. Moyzes asserted that based on the audit, and the auditors’ involvement, they could have calculated the amount of refund for tax collected on CALC charges which were not taxable. If there had not been an audit, then Qwest would have had the obligation to support the request. [Transcript Vol. III, pp. 501-503].
209. McInerney asserted that while he may have discussed with Ms. Moyzes how he might proceed to verify the amount of tax charged on CALC charges, there was never an agreement in writing in either his audit tracking log, Exhibit 504, or the audit file. [Transcript Vol. IV, pp. 870-871].
210. Ms. Moyzes agreed any sales tax refunded or credited by the Department would be refunded to Qwest Wyoming customers, most likely in a credit on the customer bill. [Transcript Vol. III, pp. 521-513].
211. Ms. Moyzes expressed her opinion that once the Department knew Qwest should get a refund, it should have presented a proposed calculation to Qwest along with a request for more information if needed. She stated she did not believe she was in a position to propose such a procedure to the Department. She instead referred McInerney to Tezak who she expected would respond. [Transcript Vol. III, pp. 517-520].
212. Ms. Moyzes indicated she provided McInerney and Audit customer billing information for the full three year period of the audit, 2002, 2003, and 2004. As a result, if the Supreme Court ruled CALC charges were taxable, the Department could calculate the amount of tax due for the first 13 months of the audit when tax was not collected. If the Supreme Court ruled CALC charges were not taxable, the Department could calculate the refund due using the customer billing information along with other information available in the fall of 2005. [Transcript Vol. III, pp. 538-539].
213. McInerney stated if Qwest had given him the information to support the amount of tax charged on CALC after February, 2003, he would have allowed a refund. [Transcript Vol. I, pp. 120-121].
214. McInerney testified that while he had allowed a credit based on sampling for purchase transactions, he asserted he could not do so for the CALC charges since the error rate was 100%. He agreed it would be easy to calculate a refund by multiplying the known total CALC charges by the tax rate. He asserted it was Qwest’s burden to provide the documentation necessary to support the refund. He felt Qwest could provide such information, thus sampling was not appropriate. [Transcript Vol. I, pp. 121-123].
215. McInerney acknowledged he calculated a credit for purchase transactions using a sample, however, Qwest had provided the required supporting documentation, the sample invoices. [Transcript Vol. I, pp. 121-122].
216. McInerney stated that as an auditor he would treat a refund request differently than he would treat a credit under an audit. A refund is the taxpayer requesting monies back from the State. A credit is an overpayment found during an audit which the taxpayer has not identified. In this audit, the refund request was brought to Audit after the samples of customer bills had been pulled. [Transcript Vol. II, p. 175].
217. McInerney testified if Qwest had not filed a refund request after the Supreme Court had ruled CALC was not taxable, he would have identified, during the audit, the sales tax on CALC charges which should not have been levied. He would have classified the sales tax as a refund, and asked for documentation to support giving either a credit or a refund. He asserted the information in his audit file would not have been sufficient to allow a credit in the audit. Without additional information he would not have allowed a credit. The fact Qwest had filed refund requests had no effect on the credit issue. [Transcript Vol. II, pp. 175-177; Vol. V, pp. 943-944].
218. Noble stated the Department Rules do not specify what kind of supporting documentation is required for a credit. [Transcript Vol. IV, pp. 733-734].
219. McInerney stated all Audit would have to see is how Qwest paid the tax to the State in order for the State to refund the tax to Qwest so they can refund to their Wyoming customers. [Transcript Vol. II, pp. 177-178].
220. McInerney stated Exhibits 124 and 140 would allow him to perform, in the audit at issue, same calculation for either tax due or a refund as he performed in the prior audit. [Transcript Vol. II, p. 179].
221. McInerney stated prior to March, 2006, the CALC charges were taxable, and he intended to find a way to tax the charges which had not been taxed. He offered his opinion, based on his limited computer knowledge, that if there was a line on a bill for CALC charges, Qwest could pull that line item out. [Transcript Vol. IV, pp. 842-843].
222. McInerney did not see Exhibits 118, 119, 120, 121,122, and 123 during the audit. The information in Exhibits 119-123 would have been helpful as a starting point to verify tax on CALC charges. [Transcript Vol. IV, pp. 863-865].
223. McInerney did not see Exhibit 153 during the audit, and thus did not rely on the information in performing his audit. [Transcript Vol. IV, pp. 866-867].
224. McInerney first saw Exhibit 154 in preparation for the hearing. He asserted the information it contained would be critical to support his assertion Qwest could break out by line the CALC charges from the customer bills. [Transcript Vol. IV, pp. 867-868].
225. McInerney did not see Exhibit 155 until the discovery process in this appeal. The information, CALC charges by state, was not provided in response to the information requests. It would have been useful in verifying refund requests. [Transcript Vol. IV, pp. 869-870].
226. McInerney asserted the information set out in Exhibit 155 would have been preferable to the estimate used in the prior audit. [Transcript Vol. IV, pp. 872-873].
227. McInerney testified if he had the state wide CALC charges, Exhibit 155, and the number of customers, he could prepare a credit calculation. He had not yet done such a calculation. [Transcript Vol. V, pp. 928-929].
228. McInerney stated the information in the first two columns of Exhibit 156 would also be found in his audit file. [Transcript Vol. IV, pp. 873-874].
229. McInerney testified the information in the last two columns on the right of Exhibit 157 was not available to him during the audit. He did not recall seeing anything similar to “discontinued” on the computer screen he reviewed. [Transcript Vol. IV, pp. 875-876].
230. McInerney asserted he did not know about the OSCAR system until the discovery process for this appeal. [Transcript Vol. IV, pp. 876-877].
231. McInerney stated the first four columns of Exhibit 158 were data supplied to him by Qwest. The remaining data was filled in by someone else. He asserted there was no indication on the computer screen he reviewed of a tax code. He also asserted the tax code was used to identify taxing jurisdictions. [Transcript Vol. IV, pp. 877-878].
232. McInerney stated the information he saw on the computer screen he reviewed did not appear in the format set out in Exhibit 193 taken from the OSCAR system. He asserted nothing was spelled out on the system he reviewed. [Transcript Vol. IV, p. 884].
233. McInerney agreed a negative number for the CALC charge on Exhibits 158 and 160 would have the effect of decreasing the 911/CALC ratio. A positive number for the CALC charge would increase the 911/CALC ratio. [Transcript Vol. V, pp. 907-909].
234. McInerney agreed he had stated having the state level CALC charges would be helpful in the audit. He had not, however, done any analysis on the state level CALC information since it became available through discovery in this appeal. [Transcript Vol. V, p. 912].
235. McInerney was working on ten other audits at the same time he was doing the Qwest audit. Some of the other audits were being done in Denver. [Transcript Vol. V, pp. 942-943].
236. McInerney stated it was the intent of Audit “all along that the refund is due to customers of Qwest.” Qwest simply needed to substantiate the refund request, or provide documentation to Audit to verify the refund amounts. [Transcript Vol. IV, p. 885].
237. Noble stated the customers of Qwest in Wyoming who paid tax on CALC charges are statutorily entitled to a refund. Those same customers, however, are not allowed to seek a tax refund directly from the Department. [Transcript Vol. IV, pp. 739, 791].
238. It is clear from the testimony that at the close of the audit at issue, neither Qwest nor the State had any plan for returning to the Qwest Wyoming customers the sales tax collected on the non-taxable CALC charges. Without a customer refund plan by either the State or Qwest, the State of Wyoming, by statute, would simply keep the excess tax for eventual distribution to the State general fund and the affected local governments. Wyo. Stat. Ann. § 39-15-107(b)(vii). [Transcript Vol. IV, pp. 779-782].
239. Terry Halley is a partner in the CPA firm of Halley & Murray in Cheyenne. He testified on behalf of Qwest. Halley maintains a general accounting practice, performing primarily tax and audit as well as some litigation work. [Transcript Vol. III, pp. 548-549].
240. Halley compared the 2002 data in columns H and I of Exhibit 140 against all 250 of the 2002 customer bills which Qwest asserts were provided to McInerney. The copies which Halley received contained the same handwritten numbers as described by Ms. Moyzes for tracking purposes. He compared the 911 charges and CALC charges on each bill with the amounts shown on Exhibit 140 for the same customer. The results of his comparison are indicated in Exhibit 160 which is the same as Exhibit 140 except for the columns added by Halley identified as “Sample #” and “Verified.” His comparison revealed the information in columns H and I of Exhibit 140, as entered by McInerney, was essentially the same as appeared on the customer bills for 2002. [Transcript Vol. III, pp. 549-550, 556-557, 562-563, 564-567, 656-657]. [NOTE: The sample numbers on Exhibit 160 are one line different from Exhibit 140, e.g. sample number one on line one of Exhibit 160 appears as sample number one on line two of Exhibit 140].
241. Halley found there was a high degree of correlation between the actual 2002 customer bills and McInerney’s schedule, Exhibit 140. He concluded, based on his analysis, the information inputted into McInerney’s schedule, Exhibit 140, was data from 2002. [Transcript Vol. III, p. 569].
242. There is one limited difference between Halley’s schedule, Exhibit 160, and McInerney’s schedule, Exhibit 140. If the customer bill indicated a credit, Exhibit 140 showed that as a positive number. Halley indicated the amount as a negative number, or a credit. Compare, for example, lines 170 and 187 on Exhibit 160 with lines 171 and 188 on Exhibit 140. [Transcript Vol. III, pp. 567-568].
243. The ratio of 12.68 shown on page 826 of Halley’s schedule, Exhibit 160, was developed using the same ratio calculation formula used in Exhibit 140. The ratio shown on Exhibit 140, page 467, is 12.61. [Transcript Vol. III, pp. 568-569].
244. Halley concluded the data on Exhibit 140 could not have come from 2005 information based on his comparison of 2005 Qwest customer bills for June through August for the same customers appearing in Exhibit 140. Exhibit 157 compared reprints of bills which would have appeared on the BOSS system in 2005, with its two-month historic capacity, to the sample list prepared by McInerney and Exhibit 140. Halley stated that if the information on Exhibit 140 was 2005 information, there would be a close correlation between the 2005 customer bills and the data on Exhibit 140. There was, in fact, very little if any correlation. The customer billing data from 2005 could not have been used to input the 911 and CALC charges on Exhibit 140. [Transcript Vol. III, pp. 569-579, 641-644, 648; Vol. IV, pp. 669-670].
245. Exhibits 131, 132, 133, 134, 136, 138, and 139 represent county resolutions setting 911 charges between 2002 and 2005. [Transcript Vol. IV, pp. 671-672].
246. Halley created a schedule, Exhibit 158, showing 911 and CALC charges for the 2003 and 2004 customers in the sample drawn by McInerney from the 2 million customer accounts supplied by Qwest, Exhibit 109. Halley matched the BTN number on each customer bill for 2003 and 2004 to the BTN numbers on the sample list drawn by McInerney to ensure he was reviewing the same accounts McInerney would have reviewed for 2003 and 2004. [Transcript Vol. III, pp. 579-591; 652-653].
247. Halley calculated 2003 and 2004 ratios of 911 charges to CALC charges using the exact same procedure used by McInerney in calculating the ratio in Exhibit 140. The ratio for 2003 is 12.81. [Exhibit 158, p. 809]. There was thus a CALC charge of $12.81 for each $1.00 of 911 charge. The ratio for 2004 is 10.81. [Exhibit 158, p. 816]. There was thus a CALC charge of $10.81 each $1.00 of 911 charge. [Transcript Vol. III, pp. 591-592].
248. Rates changes for 911 charges during 2003 and 2004 did not require an adjustment of Halley’s ratio analysis since the comparison between the two charges is gross total to gross total. If the 911 rate changed for one example in the sample, it changed for every other similar example in the whole group. [Transcript Vol. III, pp. 593-595].
249. Halley, based on the ratios from Exhibit 158, estimated the CALC charges and sales tax paid by county for 2003 and 2004. [Exhibit 159]. He used the same procedure as that used by Audit in the prior 1997-2001 audit, taking the total 911 charges for each county times the appropriate ratio to get an estimated CALC charge by county. He actually improved the procedure by taking into consideration the fact some CALC charges would have been exempt, and thus not subject to sales tax. [Transcript Vol. III, pp. 595-597].
250. The 911 charges for 2003 and 2004 used in Exhibit 159 were taken from Exhibit 126, p. 161. The charges for the first quarter of 2003 were reduced by one-third since Qwest had not charged sales tax on CALC charges in January, 2003. [Transcript Vol. III, pp. 597-600].
251. The estimated CALC charge was then reduced by the percentage of exempt customers to ensure Qwest received a refund for only those customers who paid sales tax. The exempt percentages shown in Exhibit 156 were derived from the work papers of Audit which showed total revenues as well as exempt revenues. The exempt percentage for 2003 is 9.43%; for 2004, 11.88%. The exempt percentage was applied to the estimated CALC charges for 2003 and 2004 to produce an estimated Taxable CALC (FACC) Charge for those two years, Exhibit 159. [Transcript Vol. III, pp. 600-604].
252. Halley multiplied the taxable CALC charges times the appropriate sales tax rate to produce an estimated sales tax refund due the Wyoming customers of Qwest. [Exhibit 159]. The estimated sales tax collected on CALC charges for eleven months of 2003 (February-December) was $759,034.66, for a monthly average of almost precisely $69,000. The estimated sales tax collected on CALC charges for 2004 was $789,516.31, for a monthly average of $65,793. [Transcript Vol. III, pp. 604-609, 658].
253. The sale tax rates used in Exhibit 159 were taken from 2003 and 2004 sales tax return forms. Halley used the same rate for the entire year. [Transcript Vol. III, pp. 655-656].
254. In Halley’s opinion, projecting the relationship between a 911 charge and a CALC charge over a sample, as he did in Exhibit 159, is a reasonable procedure to use in an audit, It is not uncommon to use a sample in auditing to determine a ratio to project a value. He pointed out the State used a similar procedure to assess tax, and it is appropriate to use sampling techniques to find both credits or refunds as well as tax liability. It was a reasonable procedure to project an estimate of the amount of tax paid by Qwest Wyoming customers. [Transcript Vol. III, pp. 613-614].
255. Halley pointed out the audit at issue projected a refund with regard to sales and use tax on purchases. An error rate, which is a ratio, was calculated and applied to a total to get a refund amount. He stated such a procedure is essentially as the same procedure used in his Exhibit 159. [Transcript Vol. III, pp. 614-615].
256. Halley disagreed there was an “error rate” of 100% for the 2003 and 2004 time period because tax was charged on CALC when the Wyoming Supreme Court ultimately determined CALC was not taxable. The technique used in his Exhibit 159 is not projecting an error rate. It is calculating a ratio between two known numbers which appear on the customer bills. He asserted that with 2 million customer bills per year, a sampling technique is the only realistic manner in which to determine the CALC charges. [Transcript Vol. III, pp. 615-616].
257. The work Halley did for Qwest was not an audit, financial accounting service, or compliance auditing. He projected some numbers and estimated tax based on data which he was provided. He estimated an amount of tax through a mathematical computation. [Transcript Vol. III, pp. 622-623].
258. Halley did not rely on General Accepted Accounting Principles (GAAP) nor Statement on Standards (SAS) since both apply only to presentation of financial statements, and thus were not relevant. He did not rely on American Institute of Certified Public Accountants (AICPA) standards as those standards as well were not relevant. Halley stated the analysis he performed is not within the purview of any the rules cited by Department counsel. He asserted that even the work of Audit was not up to those standards as Audit was not “auditing” Qwest. It was performing an audit for sales tax compliance. [Transcript Vol. III, pp. 634-636].
259. Halley was not asked to give an opinion on Department of Audit procedures. He was provided approximately 150 pages from the audit file, mostly in the form of spreadsheets, and reports. He was not provided any information from the prior 1997-2001 audit. He also did not look at the Qwest BOSS system. [Transcript Vol. III, pp. 623-629].
260. What Halley effectively did, in part, was to perform a verification of what McInerney saw in completing Exhibit 140 through a comparison between that spreadsheet and the actual customer bills. [Transcript Vol. III, p. 629].
261. The procedure Halley used for calculating the refund for tax collected by Qwest in 2003 and 2004 attempted to mirror what the Department would have done had it completed its testing to assess tax for the 13-month period Qwest did not charge tax. It is not unusual to use a sample or estimate to verify a refund; that is in fact what Audit used to find a refund of use tax. Audit created a percentage of all dollars which had not been subject to tax, or all tax paid which should not have been paid, and projected that percentage over a population to calculate a $200,000 refund. [Transcript Vol. III, pp. 636-638].
262. McInerney reviewed all of the material submitted by Halley. He found the information to be valid and the calculations correct. [Transcript Vol. IV, p. 870].
263. McInerney asserted Exhibit 159 produced by Halley was not accurate because the tax rates for Campbell County and Uinta County were incorrect. [Transcript Vol. IV, pp. 881-883, 885].
264. Halley, as rebuttal testimony, identified Exhibit 201, which corrected the county tax rate errors in his first calculation of 2003 and 2004 sales tax on CALC charges. The difference in 2003 using the correct tax rate was an increase in tax, and thus potential refund, of approximately $6000. The difference in 2004 using the correct tax rate was a decrease in tax, and thus a decrease in the potential refund of $9000. The net difference was therefore a decrease of approximately $3000, which Halley asserted in his professional opinion, was not material to a $1.5 million total. [Transcript Vol. V, pp. 971-972].
265. The Board, after close of the initial hearing on November 19, 2007, entered a Stay Order on November 21, 2007, allowing the parties until February 8, 2008, to attempt to reach agreement on an appropriate value for the credit due Qwest related to sales/use tax paid on CALC charges. The Order directed the parties to advise the Board in writing by a date certain as to whether an agreement had been reached. [Transcript Vol. V, pp. 1105-1107; Stay Order].
266. The Department, on December 14, 2007, in response to the Board’s November 21st order, filed a Notice of Department of Revenue’s Status Pending State Board of Equalization’s Stay basically declining to attempt to reach any agreement with Qwest. The Department did offer to reimburse Qwest if Qwest could provide verifiable proof through documentation it had issued refunds to customers for taxes imposed on CALC charges during the audit period. The Department stated the offer was not negotiable.
267. The Department then filed, on February 7, 2008, a Motion to Supplement the Record or In The Alternative Re-Open the Hearing. The basis for the motion was supplemental discovery provided by Qwest notifying the Department information had been discovered by Qwest which would allow calculation of the amount of sales tax on CALC charges by county from February, 2003, through March, 2006.
268. Qwest, on February 8, 2008, filed a Report Regarding Actions Pursuant to Board’s Stay Order, to which was attached Qwest Supplemental Response to Department of Revenue’s First Set of Discovery Requests referenced by the Department in its February 7, 2008, motion. The supplemental discovery contained an explanation of how the information which would allow calculation of sales tax on CALC charges by county had been discovered. It also contained charts setting forth a calculation by Qwest of the amount of sales tax billed on CALC charges by county by month between February, 2003, and March, 2006.
269. The sales tax amounts indicated by the Supplemental Discovery fairly closely approximate, when considered on a jurisdiction basis, the results produced by Halley’s calculations for February, 2003, through December, 2004. Halley’s calculations are, in fact, somewhat less than the amounts actually billed by Qwest, possibly because the sample drawn by McInerney from the 2 million accounts per year which Halley relied upon may not have included the full range of CALC charges upon which the Qwest disclosure is based as set out in the Supplemental Discovery. [Exhibit 201; Qwest Supplemental Response to Department of Revenue’s First Set of Discovery Requests, p. 2].
270. The Board, on February 19, 2008, held a hearing to consider the Department’s February 7, 2008, motion. Mr. Larry McMillin, counsel for Qwest, explained how the information disclosed in the supplemental discovery was discovered by Qwest as it was working to respond to the Board’s Stay Order. Mr. McMillin related, and the supplemental discovery response indicates, that historically Qwest had only retained CALC data by county for a few months. Sometime in 2005, however, Qwest information technology (IT) personnel in Seattle independently decided to retain such data for longer periods in response to repeated requests to the IT unit by the Qwest Tax Department. The IT personnel had thus adopted an informal policy of retaining CALC data by county for the prior five years (60 months). This informal policy was not, however, communicated to the Tax Department. We find a complete absence of any evidence of bad faith on the part of Qwest in its failure to produce the monthly tax calculations prior to or during the evidentiary hearing in this matter. [Transcript of Taped motion Hearing Proceedings, February 19, 2008, pp.32-35; Qwest Supplemental Response to Department of Revenue’s First Set of Discovery Requests, pp. 1-4].
271. The Board, based in part upon the lack of any objection by the Department, ordered the Qwest Supplemental Response to Department of Revenue’s First Set of Discovery Requests be admitted and included as part of the Board Record. The Board, in addition, agreed to reopen this matter for the singular purpose of hearing, in as much detail as could be provided, Qwest’s plan to refund the disputed funds to its Wyoming customers. [Transcript of Taped Motion Hearing Proceedings, February 19, 2008, p. 49].
272. The Board, pursuant to notice, held a hearing on March 31, 2008, to consider Qwest’s proposed refund plan. Michael A. Ceballos, Wyoming State President of Qwest, and Larry Tezak, Director of Finance at Qwest Corporation, testified to the details of the proposed refund plan as set out in Exhibits 206 and 207. [Transcript of Hearing Proceedings, March 31, 2008, pp. 1-36].
273. The refund plan proposed by Qwest has two components, and would set the total disputed sales tax credit at $2,947,788.60. Under the first component, the combined state and local sales tax billed to current Qwest customers would be reduced by 80% for approximately ten (10) months until total credits reach $2.5 million. The second component, under which Qwest would provide public notice of the refund plan, would allow customers (a) who no longer have service, or (b) have a change in service purchases, or (c) otherwise want an individual account review, to seek a refund of tax paid. The credit under this second component would not exceed $447,788.60. Any tax funds not claimed as credits under the second component would remain with the Department. Any claims over this amount would be paid by Qwest. [Exhibit 206; Transcript of Hearing Proceedings, March 31, 2008, pp. 10-13, 17-20, 32-33].
274. The refund plan proposed by Qwest, in light of the extreme impracticality of attempting to go through six million customer bills in order to identify the Qwest Wyoming customers who paid the original tax, is a clearly reasonable and common sense approach to return to the original source, the Wyoming customers of Qwest, the sales tax collected on exempt CALC charges. The plan also minimizes any current fiscal disruption to the State, and perhaps more importantly, to the local jurisdictions, which would obviously occur if a full credit of over $2.9 million was allowed in one lump sum. [Exhibit 206; Transcript of Hearing Proceedings, March 31, 2008, pp. 13-14, 18, 25-27].
275. The reasonable nature of the refund plan is underscored by the fact Qwest agrees to be responsible for any refund claims by customers under the second component if the maximum credit of $447,788.60 is exceeded; and the fact Qwest itself has not requested, and will not receive, any of the $2.9 million excess tax collected. Qwest has agreed to cover all administrative expense which the proposed plan may incur; for example, the notification and review expenses which would likely occur under the second component. [Transcript of Hearing Proceedings, March 31, 2008, pp. 12, 14, 17, 32-33].
276. The Department did not at any time during the course of this appeal present an alternate refund plan for Qwest Wyoming customers, nor did it offer a critique of the plan proposed by Qwest. It would thus presumably simply keep the tax collected and remitted to it on CALC charges ruled improper by the Wyoming Supreme Court. The Board’s choice is thus defined as either returning money in as practical a manner as possible to the Wyoming customers of Qwest who paid it, or allowing the State and local jurisdictions to keep such funds although improperly collected.
277. 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
278. Upon application of any person adversely affected, the Board must review final Department actions concerning state excise taxes and “[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)(viii). The Board must “[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).
279. 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. . . . In proceedings involving the question of whether or not there is a taxable event under Wyoming law, the Petitioner shall have the burden of going forward and the Department shall have the ultimate burden of persuasion.
Rules, Wyoming State Board of Equalization, Chapter 2, § 20.
280. “The phrase, ‘preponderance of the evidence,’ has been given various definitions by different courts but, according to McCormick et al. on Evidence 2nd Ed. H.B., § 339, p. 794, the most acceptable meaning seems to be proof which leads the trier of fact to find that the existence of the contested fact is more probable than its non-existence.” Scherling v. Kilgore, 599 P.2d 1352, 1359 (Wyo. 1979).
281. 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). See also, Amoco Production Company v. Department of Revenue, 2004 WY 89, ¶ 22, 94 P.3d 430, 440 (Wyo. 2004). The Board’s duty is to adjudicate the dispute between taxpayers and the Department.
282. 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). See also, TPJ v. State, 2003 WY 49, ¶ 11, 66 P.3d 710, 713 (Wyo. 2003).
283. “As we have often stated, our rules of statutory construction focus on discerning the legislature’s intent. In doing so, we begin by making an ‘inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection.’ Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo.1993) (quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 823 (1897)). We construe the statute as a whole, giving effect to every word, clause, and sentence, and we construe together all parts of the statute in pari materia. State Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo.1994).” Chevron U.S.A., Inc. v. Department of Revenue, 2007 WY 79, ¶ 15, 158 P.3d. 131, 136 (Wyo. 2007).
284. The Wyoming Supreme Court has previously summarized a number of useful precepts concerning statutory interpretation:
Statutes must be construed so that no portion is rendered meaningless. Interpretation should not produce an absurd result. We are guided by the full text of the statute, paying attention to its internal structure and the functional relation between the parts and the whole. Each word of a statute is to be afforded meaning, with none to be rendered superfluous. Further, the meaning afforded to a word should be that word’s standard popular meaning unless another meaning is clearly intended. If the meaning of a word is unclear, it should be afforded the meaning that best accomplishes the statute’s purpose. We presume that the legislature acts intentionally when it uses particular language in one statute, but not in another. If two sections of legislation appear to conflict, they should be given a reading that gives them both effect.
Rodriguez v. Casey, 2002 WY 111, ¶ 10, 50 P.3d 323, 326-327 (Wyo. 2002); quoted in Hede v. Gilstrap, 2005 WY 24, ¶ 6, 107 P.3d 158, 163 (Wyo. 2005)(citations omitted).
285. “The omission of words from a statute must be considered intentional on the part of the legislature. Words may not be supplied in a statute where the statute is intelligible without the addition of the alleged omission. Words may not be inserted in a statutory provision under the guise of interpretation. The Supreme Court will not read into laws what is not there.” Matter of Adoption of Voss, 550 P.2d 481, 485 (Wyo. 1976)(citations omitted).
286. Wyo. Stat. Ann. § 39-15-107 provides:
(a) Returns, reports and preservation of records. The following shall apply:
* * *
(ii) Every vendor and person liable for the payment of sales tax under this article shall preserve for three (3) years at his principal place of business, suitable records and books as may be necessary to determine the amount of tax for which he is liable under this article, together with all invoices and books showing all merchandise purchased for resale. All records, books and invoices shall be available for examination by the department during regular business hours except as arranged by mutual consent;
(iii) If any vendor or person liable for the payment of sales tax under this article fails to comply with paragraph (ii) of this subsection, he shall bear the burden of proof as to the correctness of any assessment of taxes imposed by the department for the period for which records were not preserved in any court action or proceeding;
(b) Payment. The following shall apply:
* * *
(vii) If any vendor collects a tax in excess of that imposed by this article it shall be remitted to the department;… .
287. Wyoming Statute Annotated §39-15-109 provides:
(c) Refunds. The following shall apply:
(I) 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. No credit or refund shall be allowed after three (3) years from the date of overpayment. The receipt of a claim for a refund by the department shall toll the statute of limitations. All refund requests received by the department shall be approved or denied within ninety (90) days of receipt. Any refund or credit erroneously made or allowed may be recovered in an action brought by the attorney general in any court of competent jurisdiction;
(ii) Any tax erroneously paid by a taxpayer shall be refunded by the vendor who originally collected the tax. No cause of action shall lie against the vendor by the taxpayer until not less than sixty (60) days elapse following a request by the taxpayer for a refund from the vendor.
(d) Credits. The following shall apply:
(I) 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. No credit or refund shall be allowed after three (3) years from the date of overpayment. The receipt of a claim for a refund by the department shall toll the statute of limitations. Any refund or credit erroneously made or allowed may be recovered in an action brought by the attorney general in any court of competent jurisdiction;
(ii) Repealed by Laws 2001, Ch. 147, §3.
(iii) As soon as practicable after the return is filed the department shall examine it and if it appears the tax to be remitted is incorrect it shall be recompute. If the amount paid exceeds that which is due the excess shall be refunded to the vendor or credited against any subsequent liability of the vendor;
(iv) The taxpayer is entitled to receive an offsetting credit for any overpaid excise tax identified by an audit that is within the scope of the audit period, without regard to the limitation period for requesting refunds.
288. Chapter 2, Section 10(b) and (c) [previously Section 9] of Rules, Wyoming Department of Revenue, provides:
(b) Credits. The Department shall credit accounts for any overpayment of fees, tax, penalty or interest. Credits shall automatically be applied against the next appropriate liability on request.
(c) Refunds. Refund claims shall be initiated by the vendor or taxpayer that made the overpayment to the department. The refund request shall be made in writing to the Department and shall explain the basis of the refund request. Supporting documentation evidencing the overpayment must be retained by the vendor. Postmarks shall serve as the date of refund request and shall begin tolling the statute of limitations. The Department shall refund or deny claims within ninety (90) days of the date adequate supporting documentation is received.
289. Administrative rules have the force and effect of law. Wyo. Dep’t of Revenue v. Union Pacific Railroad Co., 2003 WY 54, ¶ 18, 67 P.3d 1176, 1184 (Wyo. 2003); Painter v. Abels, 998 P.2d 931, 939 (Wyo. 2000).
CONCLUSIONS OF LAW: APPLICATION OF PRINCIPLES OF LAW
290. The Board has jurisdiction to consider and decide this matter. Wyo. Stat. Ann. § 39-11-102.1(c).
291. The Board, speaking broadly, is obliged to approve or disapprove a decision by the Department. Conclusions, ¶ 281. Based largely on Qwest’s evidence of its plan for returning the improperly collected sales tax on CALC charges to its Wyoming customers, Facts, ¶¶ 273-276, we will remand the matter to the Department. Our rationale differs, however, from that of either party.
292. We begin with the realities of data management. This audit embraced millions of individual billings to Qwest customers. Qwest did not charge any sales tax on CALC charges for all of 2002 and January, 2003. There was, as a result, no individual calculation of sales tax for individual bills which could be gathered by Qwest’s data processing facilities to reach a precise total of sales tax due the state and each appropriate county. Further, because the sales taxes rates for individual counties vary, the CALC charges from individual billings had to be associated with specific counties to reach a correct tax. Facts, ¶¶ 48, 83, 84, 102.
293. At the outset of the audit, both Qwest and Audit referred to the prior audit as a template for estimating Qwest’s vendor liability. Such estimation relied on calculating a ratio between 911 charges as known for each county and CALC charges. There appears to be no dispute an estimating procedure was proper. We must only ask whether such an estimation was consistent with the requirements of statute. Facts, ¶¶ 57, 60, 63, 65, 96, 112, 113, 120, 123.
294. Dan Noble, as Excise Tax administrator, noted Qwest was obliged by statute to “preserve…suitable records and books as may be necessary to determine the amount of tax for which he is liable under this article, together with all invoices and books showing all merchandise purchased for resale.” Wyo. Stat. Ann. § 39-15-107(a)(ii). Conclusions, ¶ 286. The common meaning of “preserve” is “keep from harm, damage, danger, evil, etc.; protect; save.” Webster’s New World Collegiate Dictionary (4th Edition)(2001), p. 1136. There can be no obligation to preserve something which was not created. It therefore follows Qwest had no statutory obligation to create records which would reflect sales tax which might have been, but was not collected on CALC charges in 2002 and January, 2003.
295. Qwest, in February, 2003, began billing sales tax on CALC charges. Prior to the supplemental hearing proceedings, the evidence indicated Qwest had maintained accurate records of the total tax collected, by jurisdiction, on a rolling ninety-day basis. This did not include a breakdown by type of charge being taxed. Qwest chose not to maintain the records for longer time periods based on the expense of such record maintenance. Facts, ¶¶ 20, 25, 26, 28, 102.
296. Based on the sampling done in the audit, neither the Department nor Audit ever contemplated Qwest would be subject to claims for sales tax after it began collections in February, 2003. We nonetheless conclude Qwest was obliged to preserve books and records it created regarding those collections, as described prior to the supplemental hearing proceedings, even though those records would not have provided the detail desired by the Department or Audit. While Qwest may not have eventually been liable for the tax, the statute imposes a record-keeping duty which facilitates a later determination the tax was properly collected.
297. The statute which created the record-keeping obligation, Wyo. Stat. Ann. § 39-15-107(a)(ii), does not, however, explain the consequences for failing to comply. Conclusions, ¶ 286.
298. Those consequences are found in Wyo. Stat. Ann. § 39-15-107(a)(iii). Qwest, because it did not maintain the records in question, thereafter had “the burden of proof as to the correctness of any assessment of taxes imposed by the department for the period for which records were not preserved in any court action or proceeding.” This burden is as of now, however, of no consequence, since the Department did not impose any tax on Qwest for the period at issue. If the Wyoming Supreme Court had not reversed this Board’s ruling that CALC charges were subject to sales tax, the practical result of the audit at issue would apparently have been an assessment based on the estimate McInerney was evidently preparing following the closing conference on March 8, 2006. It would have then been up to Qwest to contest such estimate once it was adopted by the Department.
299. The Wyoming Supreme Court’s decision on March 22, 2006, significantly changed the complexion of the audit. The period when Qwest had not collected sales taxes on CALC charges, 2002 through January, 2003, ceased to be of interest to the auditors, as did whatever work done to estimate tax liability for that period. There was, in fact, no tax liability.
300. Broadly speaking, Qwest officials, Ms. Moyzes in particular, assumed the same estimating procedures used to calculate liability for 2002 through January, 2003, could and should be used to calculate a refund or credit for the portion of the audit period when taxes were collected, February, 2003, through the end of 2004. This assumption, however, failed to account for the effect of Qwest’s refund requests, the first of which was sent to the Department on March 31, 2006.
301. The Department’s Rules treat refunds and credits differently. The plain meaning of “refund” is “to give back or pay back.” Webster’s New World Collegiate Dictionary (4th Edition)(2001), p. 1205. If a vendor wants sales tax paid back, it must satisfy a simple claim procedure. “The refund request shall be made in writing to the Department and shall explain the basis of the refund request. Supporting documentation evidencing the overpayment must be retained by the vendor.” Rules, Wyoming Department of Revenue, Chapter 2, § 10(c). As Noble explained, the practical ramification of a refund request may be that the state requests funds back from a county. Facts, ¶ 185. A credit, in contrast, shall “automatically be applied against the next appropriate liability on request.” Rules, Wyoming Department of Revenue, Chapter 2, §§ 10(b).
302. While Qwest contends the auditors had sufficient information to estimate the amounts of refund or credit due Qwest, there is no writing of any sort to show Qwest was prepared to document its refund requests. As long as the audit was ongoing, the Department was justified in expecting Qwest to identify and provide access to supporting documentation.
303. There is similarly no documentation to show the Department advised Qwest of the significance of requesting a refund rather than a credit. Because the audit was not complete, Noble left it to McInerney to communicate with Qwest. Facts, ¶ 182. McInerney chose to communicate exclusively with Ms. Moyzes. Facts, ¶¶ 195, 198. There is no evidence McInerney explained the consequences of seeking a refund, rather than a credit. The few documented exchanges between McInerney and Ms. Moyzes, such as McInerney’s letter of July 10, 2006, [Exhibit 505] reflect only a demand for documentation: “We have not received documentation detailing your request.” Facts, ¶ 203.
304. Qwest did not call as a witness Larry A. Tezak, author of the refund requests, to explain why Qwest chose to ask for a refund. Ms. Moyzes moreover does not appear to have understood the consequences of a refund request, and pointedly took no ownership of the decision to seek refunds. Facts, ¶¶ 196, 197, 198, 200, 211.
305. As this absence of effective communication escalated to misunderstanding and litigation, both parties lost sight of the interests of the Qwest Wyoming customers who had paid the improper sales tax. We cannot say either party was wholly unreasonable. The Department kept in mind the Legislature’s directive that excess taxes be “remitted to” the Department. Wyo. Stat. Ann. §39-15-107(b)(vii); Conclusions, ¶ 286. Qwest supposed that any refund would be distributed subject to the directive of the Public Service Commission, [Transcript of Taped Motion Hearing Proceedings, February 19, 2008, pp. 37-47], although neither Qwest nor the Department offered this Board any authority to demonstrate the Public Service Commission had jurisdiction over sales tax refunds.
306. The parties’ oversight was fortunately remedied by new information provided by Qwest in supplemental hearing proceedings - previously unknown Qwest data showing sales tax collections for the CALC charge, monthly and by county, for February, 2003, through December, 2004; and a Qwest plan for crediting Wyoming customer accounts based on credits against prospective sales tax collections. Facts, ¶¶ 267-276.
307. It is now clear to us, based on the information of record herein, the calculations by Qwest of the amount of sales tax collected on exempt CALC charges during the 23-month period covered by the scope of the audit are reasonably sound, and the plan proposed by Qwest for making whole, to the best extent possible, the actual taxpayers, the Wyoming customers of Qwest who paid the sales tax, is far superior to anything the Department offers. The Board thus concludes, consistent with our adjudicatory authority and obligation to determine the matter presented to us by deciding for one party or the other, Conclusions ¶ 281, the only reasonable course of action is to remand this matter to the Department, for approval of credits in the amounts reflected in the Qwest reports presented at the hearing of March 31, 2008, and disbursements by Qwest as it has proposed. We note that this new information, and our reliance on it, disposes of issues raised by the parties concerning the use of sampling to establish the amount of Qwest’s claimed refund or credit.
308. There remain, however, further issues in need of discussion.
309. The Department, from the very beginning, has insisted the crux of this litigation is its requested exclusion of evidence and information which Qwest has offered on appeal but refused, at least from the Department’s perspective, to submit to either Audit or the Department, to substantiate the correct amount of sales tax credit or refund based on exempt CALC charges Qwest asserts should be allowed. The Department suggests if this Board accepts the evidence and information now offered by Qwest, the Board will wrongly assume functions properly assigned to Audit and the Department. [Department Preliminary Statement, pp. 1-2].
310. The Department’s position is essentially an attempt to extend the holdings by the Wyoming Supreme Court in two appeals from decisions of this Board, RT Communications v. State Board of Equalization, 11 P.3d 915 (Wyo. 2000), and Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, 76 P.3d 342 (Wyo. 2003). See Department Conclusions, ¶¶ 201-204. While Qwest “acknowledges the case law holding that an appeal of the property tax values set by the Department of Revenue may be limited to a review of that evidence presented in value setting proceedings before the Department of Revenue,” it nonetheless offers counter argument, both on the general principle in this context, and on the consistency of this matter with Airtouch. [Qwest’s Brief on the Merits, pp. 5-9].
311. The Board decisions in both RT Communications and Airtouch treated the exclusion of evidence as primarily factual, evidentiary matters, not issues of law. Wyoming RSA# 1 (Park Limited Partnership) et al., Docket Nos. 99-81 et al., February 15, 2002, 2005 WL 233568 (Wyo. St. Bd. Eq.) ¶¶ 45-47, 54 (Airtouch); Union Telephone Company et al., Docket Nos. 95-69 et al., May 25, 1999, 1999 WL 370035 (Wyo. St. Bd. Eq.) ¶¶ 15, 23-24, 39, 45 (RT Communications). The Wyoming Supreme Court has consistently held administrative agencies have broad discretion with regard to evidentiary matters.
We start with the proposition that administrative agencies have broad discretion with regard to evidentiary matters in contested case proceedings. Clark v. State ex rel. Wyoming Workers' Safety and Compensation Division, 968 P.2d 436, 439 (Wyo.1998); State ex rel. Wyoming Workers' Compensation Division v. Rivera, 796 P.2d 447, 451 (Wyo.1990).
* * *
It is well established in Wyoming that with regard to an agency's decision on the admission or exclusion of evidence and testimony, such is left within the sound discretion of the agency. Judicial discretion is a composite of many things, among which are conclusions drawn from objective criteria; it means a sound judgment exercised with regard to what is right under the circumstances and without doing so arbitrarily or capriciously. An abuse of discretion has also been said to have occurred only when the decision shocks the conscience of the court and appears to be so unfair and inequitable that a reasonable person could not abide it.
Sinclair Oil Corporation v. Wyoming Public Service Commission, 2003 WY 22, ¶ 41, 63 P.3d 887, ¶ 41 (Wyo.2003) (citations omitted).
Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶ 55, 76 P.3d 342, 361 (Wyo. 2003).
312. The RT Communications and Airtouch appeals challenged the value of state assessed property as determined by Department appraisers. The valuation of state assessed property by the Department utilizes a complex set of statutory and regulatory procedures which rely in great part on information supplied by the taxpayer pursuant to statutes and Department Rules. “As provided by statute, all state assessed taxpayers are required to report the value of their property to DOR to facilitate the valuation and assessment process.” Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶ 3, 76 P.3d 342, 346 (Wyo. 2003); Wyo. Stat. Ann. § 39-13-107(a)(ii); Rules, Wyoming Department of Revenue, Chapter 7, §5 (reporting), §§ 6 - 16 (appraisal methods, procedures through final determination).
313. The state assessed value determined by the Department relies heavily on appraiser judgment.
DOR applies the unitary method to state assessed property using one or more of three different methods of data analysis: sales comparison (or market), cost, and income capitalization. Id. at § 6. The state appraiser may use one or more of these methods and then correlates the resulting value indicators to arrive at a final estimate of fair market value. Id. at § 8. The choice of the appraiser regarding which indicator of value is most appropriate and the final value itself are matters of appraisal judgment with which this Court will not interfere if they are supported by substantial evidence. Holly Sugar Corporation v. State Board of Equalization for State of Wyoming, 839 P.2d 959, 963 (Wyo.1992).
Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶ 15, 76 P.3d 342, 352 (Wyo. 2003).
314. The standard of review for valuation of state assessed property is not whether the chosen appraisal method most accurately reflects fair market value, but rather whether the record reflects substantial evidence to support use of the chosen appraisal method, and the manner in which it was used.
The taxpayers agree that DOR's choice of appraisal methods is subject to the substantial evidence standard.
In examining the propriety of the valuation method, our task is not to determine which of various appraisal methods is best or most accurately estimates [fair market value]; rather, it is to determine whether substantial evidence exists to support usage of the [chosen] method of appraisal.’” Amoco Prod. Co. v. State Bd. of Equalization, 899 P.2d 855, 858 (Wyo.1995) (quoting Holly Sugar Corp. v. State Bd. of Equalization, 839 P.2d 959, 963 (Wyo.1992)).
Basin Electric Power Cooperative, Inc. v. Department of Revenue, State of Wyoming, 970 P.2d 841, 851 (Wyo.1998).
Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶ 13, 76 P.3d 342, 348 (Wyo. 2003). See also, RT Communications v. State Board of Equalization, 11 P.3d 915, 921 (Wyo. 2000).
315. The burden of the ad valorem tax at issue in Airtouch and RT Communications fell directly on the petitioners therein, as opposed to the sales tax at issue in this matter as paid, not by Qwest as petitioner, but rather by its Wyoming customers. Wyo. Stat. Ann. §§ 39-13-102(m) & (o); Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶ 3, 76 P.3d 342, 346 (Wyo. 2003); RT Communications v. The State Board of Equalization, 11 P.3d 915, 918 (Wyo. 2000); Wyo. Stat. Ann. § 39-15-103(c)(iii).
316. There are at least five distinctions between Airtouch and RT Communications and this appeal:
(1) This appeal arises from an audit. The Department and Audit treated the refund claims by Qwest as audit issues.
(2) This appeal involves sales tax. There is thus a different statutory structure of authorities and responsibilities than the structure applicable to state assessed property. The statutory structure for sales tax is complemented by its own set of Rules.
(3) This appeal required no exercise of appraisal judgment by anyone within the Department in order to determine a value, or for the collection of the sales taxes at issue.
(4) The sales tax at issue was paid by the Wyoming customers of the petitioner, Qwest, not Qwest itself. The amount of sales tax for any individual residential and business customer of Qwest subject to refund during the audit period as a result of the Wyoming Supreme Court decision is small enough that it is doubtful any customer of Qwest, as the actual taxpayer, would take the trouble to pursue a refund claim from the Department, even if such a claim was possible. A residential or digital customer, for example, who paid the highest exempt CALC charge [$7.00] and the highest sales tax rate [6%] for the entire 23-month period during which Qwest collected tax during the audit period, would be entitled to a refund of approximately $9.66 [$7.00 x .06 x 23 = $9.66]. A business customer who paid the highest exempt CALC charge [$9.20] and the highest sales tax rate [6%] for the 23-month time frame would be entitled to a refund of approximately $12.70 [$9.20 x .06 x 23 = $12.70]. Facts, ¶¶ 7, 10, 102, 253, 306; [Exhibits 118-121, 159].
(5) There is, in addition, an administrative, logistical concern which arises as a result of the considerable “churn” in the Qwest customer base. See for example, the number of lines shown as disconnected between 2003 and 2005. [ Exhibits 140, 157; Transcript of Taped Motion Hearing Proceedings, February 19, 2008, pp. 43-46]. This turnover of the Qwest customer base makes it, as a practical matter, well near impossible to determine which customer paid what tax without Qwest incurring significant administrative expense for a problem which it did not create. In order to know precisely which customer paid what tax, Qwest would be required to review as many as 6 million individual customer bills. [Transcript of Hearing Proceedings, March 31, 2008, pp. 14, 18].
317. The Department implicitly argues that “auditor judgment” in this appeal is analogous to “appraisal judgment” as discussed in Airtouch and RT Communications, at least in the sense this Board should refuse to hear evidence not presented to an audit official exercising “auditor judgment.” The fact is, if we accept the testimony of the auditors who assert Qwest failed to provide support for its refund requests, the auditors in reality had nothing to “judge” and thus exercised no “auditor judgment” at all. This appeal is thus significantly different than the situations in Airtouch and RT Communications, wherein the Department had exercised its “appraisal judgement,” and reached final valuation conclusions based on the annual report information the taxpayers were required to provide. The taxpayers in Airtouch and RT Communications sought to challenge or modify on appeal the Department value conclusions through the attempted introduction of “new” information, which information was previously available and specifically required by Rule to be supplied to the Department, or had been requested in advance of its preparation of valuation appraisals.
In addition, a Department of Revenue witness testified that, during the valuation process, an information request sent to the Telephone Companies specifically asked for any claims for economic obsolescence and supporting documentation and none of the Telephone Companies responded to that request. However at the hearing, the Telephone Companies provided their own analysis and suggested that the Department of Revenue could have used income history from U.S. WEST.
Quite simply, the Department of Revenue lacked the requisite information to make the necessary, reliable calculations to establish an economic obsolescence adjustment. The Department of Revenue specifically requested information relevant to an economic obsolescence analysis, but the Telephone Companies failed to provide any information at all. Clearly, the Telephone Companies possessed such information because they were able to provide their own analysis at the hearing. The Telephone Companies are ill positioned now to complain that the Department of Revenue failed to perform an analysis when they failed to provide the necessary information.
RT Communications v. The State Board of Equalization, 11 P.3d 915, 927 (Wyo. 2000) (Emphasis added).
However, our consideration of this issue does not end with that statutory analysis. Even if the FCC licenses and the customer bases were intangible property validly exempt from taxation, the burden falls on the taxpayers to prove the value of that property was identifiable and separable from the enhanced value of the business determined through the unitary method. DOR contended the taxpayers failed to carry that burden in two ways. First, they failed to provide DOR with the necessary information to support their claim at the time they filed their annual reports which were the basis for DOR's valuation even though the forms requested such information. Most of the information that formed the basis of the taxpayers' claimed value for the intangibles was available to them at the time they filed the annual report and had been included in the contemporaneous reports they filed with the federal Securities and Exchange Commission. However, not until over a year after the value had been certified to the counties did the taxpayers provide the information to DOR in the form of an independent appraisal.
Airtouch Communications, Inc. v. Department of Revenue, State of Wyoming, 2003 WY 114, ¶ 38, 76 P.3d 342, 356 (Wyo. 2003) (emphasis added).
318. No state official in this appeal was put to the trouble of preparing any complex calculations to reach conclusions analogous to those required for valuation of state-assessed property. The focus of the audit fieldwork was to find out when and for what period Qwest had not charged sales tax on CALC charges so that tax could be assessed. Facts, ¶¶ 135, 164. Neither Audit nor the Department made any effort to calculate a refund for the 23 months of the audit period during which Qwest collected sales tax on exempt CALC charges. The complaint herein by the Department is simply that no effort to calculate a refund was possible based on its assertion Qwest did not provide the documentation requested and required to support a refund. Facts, ¶¶ 173, 193, 196, 199, 200, 203, 214, 217; [Exhibits 506, 508, 509]. This situation stands in stark contrast to situations in which an auditor was called upon to exercise judgment.
On July 25, 2002, Simmons wrote a memo to the file to reflect that the auditors had modified the allowable transportation deduction. The auditors added a deduction value for the transport of gas from the outlet of the initial dehydrator to the inlet of the MIGC pipeline. [Exhibit 518]. We note that the auditors could have disallowed any Western expense because Williams did not come forward with information. [Transcript Vol. V, p. 898]. Instead, the auditors determined that the total allowable transportation deduction would be $0.224, or $.084 more than the original allowance of $0.14. [Exhibit 518]. This number was reached by subtracting $0.21/MCF from the Western Gas Resource Fee of $0.294. [Exhibit 518]. The $0.21/MCF was inspired by the rebate Western gave to Barrett on gas shipped on the MIGC pipeline. [Exhibit 518]. The auditors intended to allow transportation costs after the initial dehydrator, and broadly reasoned that all of Western’s most expensive equipment was located before the outlet of the initial dehydrator. [Transcript Vol. IV, pp. 866-867]. They allocated approximately 70% of the fees charged by Western to service between the custody transfer meter and the outlet of the glycol dehydrator. The auditors made no effort to account for fuel costs because fuel would be associated with the same equipment. [Transcript Vol. IV, p. 863]. We find that this was a reasonable exercise of auditor judgment to reach a fair valuation for a taxpayer that refused to be cooperative.
Williams Production RMT Company, Docket 2002-103, November 14, 2003, 2003 WL 22754175, ¶ 43 (Wyo. St. Bd. Eq.) (Emphasis added).
319. Acceding to the Department’s evidentiary exclusion demand would have the effect of excluding all evidence and testimony presented by Qwest’s expert accountant, Terry Halley, as to the amount of tax collected on exempt CALC charges by Qwest for the 23-month period included in the audit time frame, Facts, ¶¶ 246-254, 260, 261, 264; [Exhibits 158, 159]; all evidence of the information presented by Qwest after the initial hearing which supported the calculations by Halley as Qwest’s expert accountant, Facts, ¶¶ 268-271; and all evidence presented by Qwest as to its proposal for returning the tax collected from its customers on exempt CALC charges. Facts, ¶¶ 272-276; [Exhibits 206, 207]. It would also have this Board ignore the auditor’s concession that much of Qwest’s analysis is consistent with the approach the auditors would have taken to calculate a refund. Facts, ¶ 262
320. If the evidence to which the Department objected was excluded, the Board would have little choice but to deny the refund or credit sought by Qwest based on a general failure to carry its burden of going forward and ultimate burden of persuasion. Conclusions, ¶ 279. The taxes, which the Wyoming Supreme Court has concluded should not have been collected, would thus remain in the hands of the State pursuant to Wyo. Stat. Ann. § 39-15-107(b)(vii), even though the State, in neither its pleadings nor through the testimony of Dan Noble, administrator of the Excise Tax Division of the Department, offered any plan to return the sales tax collected to Qwest’s Wyoming customers. Noble’s testimony dealt generally with his interpretation of the sales and use tax statutes, and his reliance on the opinions of the auditors that there was insufficient documentation to support a credit or refund, even though he admitted the Department Rules do not specify what kind of supporting documentation is necessary, nor does he, as Excise Tax Administrator, have an opinion as to what would be sufficient. Facts, ¶¶ 193, 218. The Department apparently made a conscious decision not to propose a refund plan even though it recognized the Wyoming customers of Qwest who paid sales tax on exempt CALC charges were statutorily entitled to a refund, but could not themselves seek such refund from the Department. Facts, ¶ 237.
321. While the scenario excluding evidence as argued for by the Department might rigidly follow the strict and precise letter of the law, it requires the Board to ignore common sense. Such a course of conduct also effectively subverts enforcement of the Wyoming Supreme Court ruling that CALC charges are exempt from sales tax.
322. Both the Department and Qwest, in their initial presentation of evidence in this matter, essentially sought an evaluation by the Board of the credibility of the opposing party’s witnesses. Qwest offered testimony suggesting the auditors were lying about having sufficient information to calculate a refund or credit, and the Department offered testimony to suggest the Qwest employee witnesses were lying about whether such information had been made available to the auditors. The Department has also steadfastly insisted Qwest could have provided more information than it did during the audit.
323. The Board concludes it is unnecessary to determine whether any witness was lying. All of the witnesses were duly sworn, thus we are reluctant to suggest that any witness has committed perjury. We also find it equally difficult, based on the evidence presented during the hearing, to determine whose memory may be faulty.
324. We have, however, no similar reluctance in determining both the Department and Qwest share some responsibility for the major failure of communication which occurred following the Wyoming Supreme Court’s decision on March 22, 2006, concluding CALC charges were exempt from sales tax. This communication failure, to some extent, was the natural result of introducing the issue of a refund into an ongoing audit, an occurrence which was unusual. Facts, ¶ 183. Refund requests, according to Noble, were typically handled by the Department, and thus not forwarded to Audit for review. Facts, ¶ 172.
325. The fieldwork for the audit had basically been completed before the Supreme Court decision in March, 2006. Facts, ¶¶ 114, 163. McInerney stated he became aware of the Qwest refund requests in June or July, 2006. Facts, ¶195; Exhibits 500, 501, 502, 503. A preliminary audit findings letter was, however, not sent to Qwest until September 5, 2006. Facts, ¶ 199; [Exhibit 506]. The preliminary audit findings were thus not sent to Qwest until some two to three months after McInerney and Audit became aware of the refund requests.
326. The introduction of the refund requests into the audit process occurred when the Department sent the requests to Audit for review, Facts, ¶¶ 181, 182, and created a conflict in the application of two principles: (1) the auditors’ responsibility for preparing an appropriate credit, and (2) Qwest’s responsibility for substantiating its refund request to the Department.
327. The lines of communication between all three entities involved in this matter, the Department, Audit, and Qwest, clearly became confused with regard to the noted competing principles, and who was making what decisions with regard to the refund/credit requests filed by Qwest. Qwest, on the one hand, appeared to continue with its posture that the refunds should be handled as credits in the on-going audit using what it considered to be sufficient audit material already reviewed by Audit to calculate an appropriate credit for the 23 months of the audit period during which Qwest collected sales tax on exempt CALC charges. Ms. Moyzes, the audit contact at Qwest assigned to the Wyoming auditors, stated she was not even aware of the refund requests until contacted by McInerney. Facts, ¶¶ 55, 197. She felt her part of the audit process was complete at the time the refund requests were presented to the Department. Facts, ¶ 197. She also stated Qwest’s position that Audit and the Department had, as a part of the audit process, all the information either one needed to calculate a credit or refund. Facts, ¶¶ 200, 201, 206. Ms. Moyzes thus did not supply any further documentation to either the Department or Audit in response to the written requests by Audit. Facts, ¶¶ 200, 201, 206, 207; [Exhibits 505, 506, 508, 509]. She did suggest to McInerney he contact Tezak, Director of Compliance, who had filed the refund requests. Facts, ¶¶ 197, 200, 211.
328. The auditors, on the other hand, based on a change in focus after the Wyoming Supreme Court decision on CALC charges and receipt of the refund requests from the Department, did not clearly communicate their expectation of what specific information they thought was not forthcoming from Qwest, and the consequences resulting from the lack of information.
329. The focus of the auditors when the audit commenced, based on the then current state of the law, was an assumption they needed to determine when and for what period of time Qwest had not charged sales tax on CALC charges so tax could be assessed. Qwest as well, was working under this same assumption which was the focus of the audit field work. Facts, ¶¶ 134, 135, 160, 164, 221.
330. The focus of the auditors did in fact change after the Wyoming Supreme Court decision exempting CALC charges. Qwest, after the Court decision, did not ask Audit for a credit in the audit, but rather filed refund requests with the Department, which the Department, somewhat atypically, asked Audit to verify. Facts, ¶¶ 172, 182, 183, 191. The focus of the auditors was thus now on verifying a refund request which they treated differently than a credit in an audit. Facts, ¶¶ 18, 91, 104. The Department also asserted it was the responsibility of Qwest to initiate the request for refund and provide supporting documentation, even thought the Department Rules do not specify what kind of supporting documentation is required, and Noble had no opinion as to what might be sufficient. Facts, ¶¶ 193, 218.
331. The crux of the communication problem between Qwest, Audit, and the Department lies primarily in the fact neither Audit nor the Department clearly expressed to Qwest the change in focus by the auditors from a determination of whether tax had been properly charged on CALC charges, to now verifying a request for credit or refund which the auditors treat differently. Facts, ¶¶ 135, 160, 164, 196, 216, 221. The communications by the auditors to Qwest were primarily laconic letters which simply requested documentation to support what at times the auditors referred to as a refund request, [Exhibits 505(wrong year referenced, see Facts, ¶ 196), 509], and at other times referred to as a credit within the audit period. [Exhibits 506, 508]. The apparent interchangeable use by the auditors of the terms “refund” and “credit” may well have added to the communication confusion in light of Qwest’s assertion a credit should be allowed in the audit, and the auditors’ view that requests for refunds and credits were treated differently. Facts, ¶¶ 82, 216. In any event, the change in work focus by the auditors was never clearly expressed to Qwest.
332. It remains for us to address a number of general points raised by the Department.
333. The Board does not agree, either in this case or in general, the admission of evidence after the close of a sales and use tax audit undermines the audit function. We have already commented on the mutual miscommunications which gave rise to this case. Further, even though the Board highly values the independent judgments of Audit, and the public usefulness of time for Audit to digest information provided by audited parties, the Board cannot ignore the obvious matter of fairness to the actual taxpayers, in this matter, the Wyoming customers of Qwest. Certainly in this case such concern for fairness transcends the antagonisms which plainly influenced the judgments of both parties.
334. More generally, the Board’s experience in appeals of sales tax audits prompts us to note that sales tax auditees commonly fail to appreciate the magnitude of their exposure until after the audit is complete. E.g., Ronald E. Waugh d/b/a Capt’n Ron’s Rodeo Bar, Docket 2003-24, May 11, 2004, 2004 WL 1174650. Information often comes to light during the Board proceedings which warrant a result less harsh than what may appear when the audit is closed. The Board believes this review function is central to its statutory mission. The Board also can find no authority for the proposition that a sophisticated, aggressive taxpayer – if such could in fact be reliably identified – should or must be treated differently than a possibly less sophisticated small business.
335. The Department further suggests a failure by this Board to exclude the evidence presented by Qwest to which the Department objected will encourage an intransigent approach to future audits. We are not persuaded. Any fair-minded person upon review of the record herein will conclude Qwest has devoted considerable legal and administrative expense to this appeal. Its proposed plan for the disbursement of any refund to its Wyoming customers of sales tax collected on exempt CALC charges entails the absorption of further administrative expense. We decline to assume the management of Qwest, or any of any other entity subject to a Wyoming tax or valuation audit, will look to this litigation as an argument for gratuitous confrontations with the Department of Audit.
336. This leaves only the suggestion Audit will in some manner be less diligent in the pursuit of its statutory responsibilities by virtue of any discouragement which might result from a failure to exclude the challenged evidence as presented by Qwest. The Board views such a suggestion as at best disingenuous, and continues to have every confidence in the quality of the commitment by Audit and its employees to their service to the State of Wyoming.
IT IS THEREFORE HEREBY ORDERED the denial by the Department of Revenue of an appropriate refund or credit for the sales tax collected by Qwest from its Wyoming customers on exempt CALC charges during the 23-month period covered by the scope of the audit herein is reversed, and this matter remanded to the Department for appropriate action in accord with this decision.
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 the appropriate district court by filing a petition for review within 30 days of the date of this decision.
DATED this day of January, 2009.
STATE BOARD OF EQUALIZATION
Thomas R. Satterfield, Chairman
Thomas D. Roberts, Vice-Chairman
Wendy J. Soto, Executive Secretary