Vladimer Salva, Manager of Taxation, for Petitioner, Cherokee Communications, Inc.


Monique B. DuPont Armijo, Assistant Attorney General for Respondent, Wyoming State Department of Revenue.




This matter was considered by the State Board of Equalization (SBOE) consisting of Edmund J. Schmidt, Roberta A. Coates and Ron Arnold on written information without hearing pursuant to a Briefing Order (Expedited Docket) dated December 2, 1999. It arises from a decision of the Department of Revenue (DOR) dated October 1, 1999, denying Cherokee Communications, Inc. the waiver of penalty and interest for the period of January 1997 through July 1999.




Upon application of any person adversely affected, the SBOE is mandated to review final decisions of DOR on excise taxes and "[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act (Wyo. Stat. 16-3-101 through 16-3-115) and its own rules and regulations of practice and procedures." 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 DOR. Rules, Wyoming State Board of Equalization, Chapter 2, Section 3. The rules require appeals to be filed with the SBOE within thirty (30) days of any administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, 5.




It is undisputed that Petitioner failed to timely file and remit sales and use taxes for the period of January 1997 through July 1999. Because of Petitioner's failure to timely comply with the tax laws, the DOR assessed interest in the amount of $5,498.83 and penalty in the amount of $4,719.52. Petitioner asserts that this failure is due to unusual turnover of employees and not to any negligence. Therefore, Petitioner asserts that both interest and penalty should be waived. The DOR counters with the SBOE's earlier rulings that turnover of employees is not sufficient excuse to waive interest and penalty.


After Petitioner fell behind in remitting the proper sales tax amounts, Petitioner eventually resumed a current payment schedule. However, the DOR applied any payments first to fees then to interest, tax and penalty in that order. Petitioner argues that current payments should go to the present tax liability and not to those liabilities as set forth by DOR. The DOR counters that the liability payment schedule is adopted by rule and regulation and has been upheld by the SBOE's earlier rulings.


Petitioner did not file a Brief but relies on its appeal letter wherein Petitioner asks for a waiver of interest and penalty because it has remained current in 1999 and that it has in fact paid all taxes due and owing and would have a credit balance of $180.82 but for the interest and penalty. Petitioner also states that it had four tax managers in less than two years and also had drastic changes in other personnel.


DOR in its Response Brief answers Petitioner's issues as follows:


1. Late paid excise taxes should be first applied to reduce interest and then applied to the outstanding taxes due and finally to the penalty.


2. The evidence that Petitioner suffered drastic turnover in personnel is not sufficient reason for waiver of interest and penalty.


3. Both penalty and interest are mandatorily required by statute which uses the word "shall" when the proper sales tax amount is not remitted and when the taxpayer is negligent.




1. Petitioner operates in the telecommunications industry by installing and operating in and on properties owned by others, public pay telephones on a revenue-sharing basis and reselling from such payphones operator-assisted and long-distance services. Petitioner derives substantially all of its revenue from coin and non-coin calls placed from its pay telephones. Petitioner provided these services in every county in the State of Wyoming.


2. Petitioner failed to timely remit true sales/use tax returns for the period of January, 1997 through July, 1999. [Respondent's Response Brief, Exh. A.]


3. Petitioner failed to timely remit sales/use tax payments for the period of January, 1997 through July, 1999. [Respondent's Response Brief, Exh. B.]


4. The DOR notified Petitioner of the delinquency status in filing sales/use tax returns and failure to remit timely sales/use tax payments. [Respondent's Response Brief, Exh. A & B.]


5. The DOR notified Petitioner that penalty and interest would be assessed. [Respondent's Response Brief, Exh. A & B.]


6. Petitioner was notified by the DOR that late tax payments would be applied to the oldest liability first starting with fees, interest, tax and penalty. [Respondent's Response Brief, Exh. B.]


7. Petitioner eventually filed true returns for the time period of January, 1997 through July, 1999. [Respondent's Response Brief, Exh. C.]


8. Petitioner requested a refund of penalty and interest by letter dated August 25, 1999. [Respondent's Response Brief, Exh. D.]


9. The DOR denied Petitioner's request for a refund by letter dated October 1, 1999. [Respondent's Response Brief, Exh. E.]


10. On October 8, 1999, Petitioner filed a notice of appeal with the SBOE from the DOR's denial letter of October 1, 1999. This appeal was assigned to the expedited docket on December 2, 1999, by order of the SBOE.


11. Petitioner submitted a letter dated December 8, 1999, in lieu of submitting an opening brief. [Respondent's Response Brief, Exh. F.]


12. 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.




13. Petitioner's letter of appeal was timely filed and the SBOE has jurisdiction to determine this matter.


14. The applicable statutes which are determinative in this matter, provide in relevant part as follows:


Wyo. Stat. 39-11-102.1. Administration; state board of equalization.


(c) The state board of equalization shall perform the duties specified in article 15, section 10 of the Wyoming constitution and shall review final decisions of the department upon application of any interested person adversely affected,under the contested case procedures of the Wyoming Administrative Procedure Act ...


* * * * *

Wyo. Stat. 39-15-103. Imposition.


(a) Taxable event. The following shall apply:

(i) Except as provided by Wyo. Stat. 39-15-105, there is levied an excise tax upon:

(C)The sales price paid for intrastate telephone and telegraph services including the consideration paid for the rental or leasing of any equipment or services incidental thereto;

Wyo. Stat. 39-15-108. Enforcement.


(b) Interest, The following shall apply:


(i) If the amount of tax paid is less than the amount due, the difference together with interest thereon at the rate of one percent (1%) per month from the time the return was due shall be paid by the vendor or any person liable for the payment of the sales tax under this article within ten (10) days after notice and demand is made by department....


(c) Penalties. The following shall apply:


(i) If any part of the deficiency is due to negligence or intentional disregard of rules and regulations but without intent to defraud there shall be added a penalty of ten percent (10%) of the amount of the deficiency plus interest as provided by paragraph (b)(i) of this section. The taxes, penalty and interest shall be paid by the vendor or any person liable for the payment of the sales tax under this article within ten (10) days after notice and demand is made by the department;


15. The applicable rules which are determinative of this matter provide in relevant part:

DOR Rule Chapter 2 4 Administrative Functions.


(b) Payments made for sales/use tax liabilities will be applied to the taxpayer's account in the following order: interest, tax, penalty.


SBOE Rule Chapter 2 19. Burden of Going Forward: Burden of Persuasion.


Except as specifically provided by law or in this section, the petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action 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.


I. Application of Late Payments


16. Petitioner ultimately filed true returns and remitted sales tax from March 29, 1999 through December 20, 1999, for which the DOR gave it credit.


17. Petitioner alleges all of the payments made after the true returns were filed should have been applied to reduce the tax (we may refer to this amount as the principal) and then to the interest and lastly to the penalty. If the payments were applied in this manner, Petitioner alleges there would be a credit of $180.82. The SBOE disagrees with the Petitioner's argument.


18. The general rule or the "United States Rule", as it comes from federal commercial common law, is that payments on an interest bearing debt are first applied to the interest and after that obligation is satisfied, any remaining payment may then be credited to principal, in this case the tax. Our courts have adopted this rule in Wyoming, Moncrief v. Harvey, 816 P.2d 97, at p.107 (Wyo. 1991). The "United States Rule" is the majority rule for most states, 47 CJS Interest & Usury 74. Pursuant to the Wyoming Administrative Procedure Act the DOR adopted the "United States Rule" Rules Chapter 2 4(b) Department of Revenue. The Wyoming Supreme Court held in Pinther v. Department of Administration and Information, 866 P.2d 1300, p.1301 that: " 'When rules are adopted pursuant to statutory authority and are properly promulgated, they have the force and effect of law. Thus, an administrative agency is bound to follow the applicable statutes and its own rules and regulations.' Fullmer v. Wyoming Employment Security Commission, 858 P.2d 1122, 1123-24 (Wyo. 1993) (citations omitted)." The "United States Rule" should be applied in this case.


19. The correct method for applying late paid amounts is to apply the payments first to all of the interest due and then to the tax due. The DOR properly followed its own rules and regulations and the "United States Rule."


20. The SBOE concludes Petitioner has failed to carry its burden of proof that the DOR was arbitrary in applying late payments first to interest.


II. Imposition of a Penalty


21. Petitioner failed to file sales tax reports, failed to pay sales taxes, eventually filed a Chapter 11 proceeding in bankruptcy and experienced abnormal employee turnover. It is laudable that once Petitioner reorganized it took appropriate action to cooperate and collect and pay taxes. The evidence before the SBOE indicates that Petitioner was negligent by not obtaining accurate information about its liability to collect excise taxes. A mere allegation that it encountered drastic employee turnover does not meet the burden of proof standard to demonstrate the lack of negligence.


22. The SBOE determines Petitioner failed to meet its burden of proof to demonstrate the penalty assessment made by DOR against it is inappropriate in this instance. Wyo. Stat. 39-15-108 and Wyo. Stat. 39-16-108 specifies when a taxpayer is negligent and fails to file an appropriate return or is negligent and fails to make payment of any applicable tax imposed, penalty assessment is appropriate at the ten percent (10%) level. This is also in accord with many previous decisions of the SBOE, such as In the Matter of Teton Timberline Homes, Inc. SBOE Docket 95-4 and In the Matter of Joseph A. Sorge, SBOE Docket 97-348. Hence, Petitioner's request that applicable penalties be waived is denied.






A. DOR's denial of Petitioner's request for refund of interest and penalty, is affirmed.

B. DOR's method of applying late payments to the earliest liabilities in the order of interest, tax and penalty, is affirmed.


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 5th day of May, 2000.




Edmund J. Schmidt, Chairman


Roberta A. Coates, Vice Chairman


Ron Arnold, Member



Kathleen A. Lewis, Executive Secretary