BEFORE THE STATE BOARD OF EQUALIZATION

FOR THE STATE OF WYOMING

IN THE MATTER OF THE APPEAL OF )

FLEMING COMPANIES, INC. FROM THE ) Docket No. 99-115

DENIALS OF SALES TAX REFUNDS BY THE )

THE DEPARTMENT OF REVENUE )

___________________________________________________________________________________________________

FINDINGS OF FACT

CONCLUSIONS OF LAW

DECISION AND ORDER

___________________________________________________________________________________________________

APPEARANCES

Nancy D. Freudenthal, Davis & Cannon, Cheyenne, Wyoming, for Fleming Companies, Inc., Petitioner.

Cathleen D. Parker, Assistant Attorney General, for the Department of Revenue.

DIGEST

This matter was considered by the State Board of Equalization (SBOE) consisting of Edmund J. Schmidt, Chairman, Roberta A. Coates, Vice-Chairman, and Ron Arnold, Member, on written information pursuant to an Order Converting Appeal to Expedited Docket and Establishing Expedited Briefing Schedule dated February 10, 2000. This appeal arises from decisions of the Department of Revenue (DOR) denying Fleming Companies, Inc. (Petitioner) sales tax refunds related to Petitioner's purchases of two Wyoming supermarkets in 1999.

The issue presented in this appeal is whether or not the business transfer exclusion found in Wyo. Stat. 39-15-101(a)(vii)(M) applies to Petitioner's purchase of two supermarkets.

JURISDICTION

Upon application of any person adversely affected, the SBOE is mandated to review final decisions of the DOR on sales taxes and "[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act [Wyo. Stat. 16-3-101through 16-3-115] and its own rules and regulations of practice and procedure." Wyo. Stat. 39-11-102.1(c)(viii).

The SBOE is required to "[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes, in accordance with the rules, regulations, orders and instructions prescribed by the department." Wyo. Stat. 39-11-102.1(c)(iv). The rules of practice and procedure for appeals before the SBOE involving tax matters contemplate appeals from final administrative decisions of the DOR. Rules, Chapter 2, Section 3, Wyoming State Board of Equalization. The rules require appeals to be filed with the SBOE within thirty (30) days of any administrative decision. Rules, Chapter 2, Section 5, Wyoming State Board of Equalization.

DISCUSSION

In March of 1999, Petitioner entered into an agreement to purchase two Wyoming supermarkets from City Market, Inc., a subsidiary of The Kroger Company (Seller). On July 30, 1999, Petitioner submitted sales tax related to its purchases of the two supermarkets' tangible personal property to the DOR. Contemporaneously, Petitioner submitted refund requests to the DOR asserting its purchases of the two supermarkets' tangible personal property were not subject to sales tax pursuant to the business transfer exclusion found in Wyo. Stat. 39-15-101(a)(vii)(M). By letters dated August 5, 1999, the DOR denied Petitioner's refund requests finding Petitioner's purchases did not fall within its interpretation of Wyo. Stat. 39-15-101(a)(vii)(M). Petitioner appealed the DOR's denial of its sales tax refund requests to the SBOE by letter dated and filed September 3, 1999.

Petitioner argues that sales tax is not owing since: (1) the ordinary and obvious meaning of the term "business" used in the business transfer exclusion applies to each supermarket purchased rather than all or substantially all of the assets of the Seller throughout the State of Wyoming; and (2) standard rules of statutory construction do not require that Petitioner acquire at least 80% of the assets owned by Seller throughout the entire State of Wyoming to qualify for the business transfer exclusion.

DOR argues its refund denials are proper because: (1) the business transfer exclusion does not apply to the sale of each individual supermarket, but only to all or substantially all of the Seller's assets throughout Wyoming; (2) Petitioner's purchases of substantially all of the assets of the two supermarkets did not constitute a purchase of all or substantially all of the Seller's assets in Wyoming; and (3) Petitioner should have acquired at least 75% of Seller's assets to meet the purchase of "all or substantially all" requirement of the business transfer exclusion.

FINDINGS OF FACT

1. The parties entered into Stipulations of Fact in this matter and, therefore, no material issues of fact are in dispute. [Petitioner's Brief, Exhibit 1; DOR Brief, Exhibit A. Hereinafter referred to as Stipulations of Fact.]

2. Petitioner and Seller are foreign corporations authorized and in good standing to do business in Wyoming. [Stipulations of Fact, 2, 4.]

3. As part of Seller's pending merger with an unrelated company, the Federal Trade Commission (FTC) required Seller to divest itself of stores in certain areas, including two supermarkets owned by Seller in Wyoming. [Stipulations of Fact, 5.] See: Proposed Agreement Containing Consent Order, In the Matter of the Kroger Co., FTC File No. 991-0024 (May 27, 1999).

4. The two Wyoming supermarkets the FTC required Seller to divest itself of were located in Green River (supermarket) and in Rock Springs (supermarket and liquor store). [Stipulations of Fact, 1, 5.]

5. A third supermarket and some land in Wyoming owned by Seller were not offered for sale. [Stipulations of Fact, 6.]

6. Pursuant to an Asset Purchase Agreement dated March 31, 1999, Seller transferred all or substantially all of the tangible personal property used at the two supermarkets to Petitioner. [Stipulations of Fact, 8.]

7. The two supermarkets purchased by Petitioner constituted over 70% but less than 80% of the total assets owned by Seller in Wyoming. [Stipulations of Fact, 6.]

8. After the purchase, the tangible personal property was used by Petitioner in its ongoing business activities at the supermarkets. [Stipulations of Fact, 10.]

9. An authorized representative of Seller certified that the Seller paid all Wyoming sales or use tax due with respect to all tangible personal property used at the two supermarkets purchased by Petitioner. [Petitioner's Exhibit 3; Stipulations of Fact, 9.]

10. On July 30, 1999, Petitioner submitted Wyoming sales tax returns and paid sales tax related to the purchase of the tangible personal property transferred incidental to its purchase of the two supermarkets. The sales tax related to the purchase of the assets of the Green River supermarket was $10,539.40. The sales tax related to the purchase of the assets of the Rock Springs grocery and liquor store was $21,275.30. [Stipulations of Fact, 11.]

11. On the same date, Petitioner submitted Wyoming refund requests to the DOR, with attached documentation and an explanation that the acquisition of the supermarkets was not subject to sales tax under the exclusion in Wyo. Stat. 39-15-101(a)(vii)(M). [Stipulations of Fact, 11.]

12. On August 5, 1999, the DOR denied Petitioner's refund requests based on the DOR's interpretation of Wyo. Stat. 39-15-101(a)(vii)(M). [Stipulations of Fact, 14.]

13. The DOR's refund denial letters both state:

As stated to you in our letter dated June 3, 1999, the word "business" is not defined in W.S. 39-15-101, the Wyoming Business Corporation Act W [sic], or W.S. 17-16-140. The Department administered the word "business" in the context of W.S. 39-15-101(a)(v) [sic] (M) as requiring the sale [of] all or of substantially all of the seller's assets within Wyoming. We are administering the "or substantially all of the assets" language as 80% or more. Per policy, if the stores are held in more than one legal entity the 80% rule is measured against each entity's assets owned in Wyoming. Conversely; if the stores are held in a single legal entity the 80% or more rule is measured against that entity's assets owned in Wyoming.

[Record.]

14. Petitioner appealed the DOR's denial of its sales tax refund requests to the SBOE by letter dated and filed September 3, 1999. [Record.]

15. Any Discussion above or Conclusion of Law below which includes a finding of fact may also be considered a Finding of Fact and, therefore, is incorporated herein by this reference.

CONCLUSIONS OF LAW

16. Petitioner's appeals of the DOR sales tax refund denials were timely filed and the SBOE has jurisdiction to determine these matters.

17. This appeal involves the DOR's interpretation and application of Wyo. Stat. 39-15-101(a)(vii)(M) to Petitioner's purchase of two supermarkets from Seller. That Wyoming statute provides in relevant part that:

(a) As used in this article:

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(iii) "Sale" means any transfer of title or possession in this state for a consideration . . . but excluding an exchange or transfer of tangible personal property upon which the seller has directly or directly paid sales or use tax incidental to:

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(M) The sale of a business when sold to a purchaser of all or substantially all of the assets of the business when the purchaser continues to use the tangible personal property in the operation of an ongoing business.

18. We recently had occasion to discuss in detail the business sale exclusion now contained in Wyo. Stat. 39-15-101(a)(vii)(M) in In the Matter of the Appeal of Caza Drilling, Inc., SBOE Docket No. 99-149, (December 23, 1999) 1999 WL 1268427.

27. The SBOE recognizes there is a distinct difference between exemptions and exclusions. Exemptions from sales tax are those expressly and specifically provided for in the sales tax acts. They are distinct from exclusions or exceptions from taxing provisions which arise from the fact that certain transactions do not fall within the definition of matters covered by the statute. An exemption pertains to sales that would be taxable were they not specifically exempted from the coverage of the sales tax statute. An exclusion is a transaction that simply fails to fall within the definition of sale in the statute. Therefore, it is only when the taxpayer or his property is within the general language of the statute imposing the tax that provisions relied upon to establish an exemption are to be strictly construed. 68 Am.Jur.2d Sales and Use Tax 116 and those case[s] cited therein. This statement of the law has also been long recognized in Wyoming. See: State v. Capital Coal Co., 88 P.2d 481 (Wyo. 1939); Laramie County Bd. of Equalization v. Wyo. State Bd. of Equalization, 915 P.2d 1184 (Wyo. 1996).

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30. Therefore, the SBOE holds Wyo. Stat. 39-6-402(a)(iii)(M) [now Wyo. Stat. 39-15-101(a)(vii)(M)] must be construed to afford an exclusion as opposed to an exemption to taxation. In this instance, no other conclusion can be reached but that this statute and the words used within in it are plain and unambiguous. The statute clearly and expressly uses the word "excluding". Therefore, the plain meaning and interpretation of the statute must be applied. In the case at hand, we clearly have an exclusion, not an exemption.

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31. Because we are dealing with an exclusion, a different burden of proof at the administrative level is required. Under the facts of this case, the burden of proof falls upon the agency claiming the right to collect the tax to demonstrate that the transaction is taxable.

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38. In properly construing the business transfer exclusion, the SBOE recognizes the general rule that "[t]axes should not be assessed by any means other than a clear, definite and unambiguous statement of legislative authority:

'In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In cases of doubt they are to be construed most strongly against the government and in favor of the citizen.'"

Chevron U.S.A., Inc. v. State, 918 P.2d 980, 984 (Wyo. 1996) quoting Kelsey v. Taft, 263 P.2d at 138 (Wyo. 1953) and Gould v. Gould, 245 U.S. 151, 28 S.Ct. 53, 62 L.Ed. 211 (1917).

Therefore, we conclude that the DOR has the burden in this case to demonstrate Petitioner's purchase of the two supermarket' tangible personal property is taxable.

19. Initially, we must determine the meaning of "business" as that term was used by the Legislature in Wyo. Stat. 39-15-101(a)(vii)(M).

20. In performing our statutory duty to "[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes . . . ," Wyo. Stat. 39-11-102(c)(iv), we follow the same approach as the courts. We must first determine as a matter of law whether the statute is clear or ambiguous. A statute is unambiguous if reasonable persons are able to agree as to its meaning with consistency and predictability. Allied-Signal, Inc. v. Wyo. State Bd. of Equalization, 813 P.2d214, 220 (Wyo. 1993). If it is clear and unambiguous, we give effect to the plain language of the statute. If the statute is ambiguous, we resort to general principles of statutory construction to determine the intent of the legislature. Department of Revenue v. Bannon Energy Corp., 2000 WL 297822 (Wyo. S.Ct. Docket Nos, 98-314, 315, 316, 317, March 23, 2000).

21. Petitioner focuses on the phrase "sale of a business" arguing that the use of "a", an indefinite article, means any one of some class or group or an individual object and that the DOR's interpretation would render the phrase "a business when sold to a purchaser of" inoperative and superfluous. The DOR's argument focuses on the Wyoming State Legislature's use of "business entities" in the introductory language of the Session Laws, 1987 Wyo. Sess. Laws Ch. 166, arguing that "business" must be interpreted to include only "business entities".

22. Because the term "business" is not defined in Title 39, the DOR's Rules, or elsewhere in our statutes and because of the wide range of commercial activities falling within the general definition of "business" we find the term as used in Wyo. Stat. 39-15-101(a)(vii)(M) ambiguous.

23. Therefore, we are required to construe the statute by looking at the context in which "business" is used to ascertain the purpose of the legislature. See: Grand Forks Herald, Inc. v. Lyons, 101 N.W.2d 543 (ND 1960); City of Lewiston v. Mathewson, 303 P.2d 680, 78 Idaho 347 (1956).

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.

Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo. 1994).

24. In ascertaining the meaning of "business" as used in Wyo. Stat. 39-15-101(a)(vii)(M), we must look at the entire section. Read as a whole, that section requires the purchase and continued use of all or substantially all of the assets by the purchaser. The emphasis of the section is on the continued operation of a business by the purchaser rather than the organization of the seller. When viewed from the perspective of the purchaser, the person liable for sales tax (Wyo. Stat. 39-15-105(b)(i)), the purchase and continued use of all or substantially all of the assets of an establishment, office, operation, shop or store qualifies for the exclusion.

25. When defined in terms of its assets, a "business" is

3. A commercial enterprise or establishment: "bought his uncle's business."

The American Heritage Dictionary of the English Language (3rd ed. 1996).

26. In determining the meaning "business" we must also be mindful of the practical effect of interpretation of the term. Article 1, Section 34 of the Wyoming Constitution requires uniformity in the operation of all laws. Under the interpretation urged by the DOR the purchaser of the only store owned by a person would not be liable for sales tax. If a person owned two stores and sold one, the purchaser would be liable for sales tax. If that same person formed a corporation for each store and sold one, the purchaser would not be liable for sales tax. If a person owned five stores and sold one, two or three stores, the purchaser would be liable for sales tax. However the purchaser would not be liable for sales tax if he purchased four stores or the seller held the assets of the stores sold in one or more corporations. We do not believe such a result was intended by the legislature.

27. Further support for our conclusion is found in the F.T.C.'s expressed purpose for requiring the divestitures:

E. The purpose of the divestitures is to ensure the continuation of the Assets To Be Divested as ongoing viable enterprises engaged in the Supermarket business and to remedy the lessening of competition resulting from the Acquisition alleged in the Commission's complaint.

Proposed Agreement Containing Consent Order, In the Matter of the Kroger Co., FTC File No. 991-0024 (May 27, 1999).

28. We conclude that "business" as used in Wyo. Stat. 39-15-101(a)(vii)(M) means a commercial enterprise capable of continued operation.

29. We further conclude that each of the supermarkets purchased by Petitioner constituted a business for purposes of the business sale exclusion found at Wyo. Stat. 39-15-101(a)(vii)(M).

30. Because the parties stipulated that Petitioner purchased all or substantially all of the tangible personal property used at each of the supermarkets and continues to use the property in the operation of the supermarkets, we need not address the second issue raised by the parties concerning meaning of "substantially all of the assets of the business."

31. We hold DOR has failed to carry its ultimate burden of persuasion to show a taxable event occurred in this case.

THIS SPACE INTENTIONALLY LEFT BLANK

ORDER

IT IS THEREFORE HEREBY ORDERED:

A. The DOR's denial of Petitioner's sales tax refund request related to Petitioner's purchase of the supermarket located in Green River, Wyoming, in the amount of $10,539.40 is reversed.

B. The DOR denial of Petitioner's sales tax refund request related to Petitioner's purchase of the supermarket and liquor store in Rock Springs, Wyoming, in the amount of $21,275.30 is reversed.

C. The DOR is directed to refund the sales tax paid to the Petitioner.

Pursuant to Wyo. Stat. 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 of review within thirty (30) days of the date of this decision.

Dated this 28^th day of April, 2000.

STATE BOARD OF EQUALIZATION

Edmund J. Schmidt, Chairman

Roberta A. Coates, Vice-Chairman

Ron Arnold, Member

ATTEST:

Kathleen A. Lewis, Executive Secretary