IN THE SUPREME COURT OF THE STATE OF MISSISSIPPI APPEAL FROM THE CHANCERY COURT OF HINDS COUNTY, MISSISSIPPI FIRST JUDICIAL DISTRICT

Transcription

1 E-Filed Document Sep :29: CA Pages: 37 IN THE SUPREME COURT OF THE STATE OF MISSISSIPPI MISSISSIPPI DEPARTMENT OF REVENUE APPELLANT V. NO CA HOTEL AND RESTAURANT SUPPLY APPELLEE APPEAL FROM THE CHANCERY COURT OF HINDS COUNTY, MISSISSIPPI FIRST JUDICIAL DISTRICT BRIEF OF APPELLEE ORAL ARGUMENT REQUESTED BRUNINI, GRANTHAM, GROWER & HEWES, PLLC LEONARD D. VAN SLYKE, JR., MS BAR NO The Pinnacle Building, Suite East Capitol Street Jackson, Mississippi Telephone: (601) Facsimile: (601) TAYLOR B. MCNEEL, MS BAR NO Post Office Box 127 Biloxi, Mississippi Telephone: (228) Facsimile: (228) ATTORNEYS FOR APPELLEE

2 IN THE SUPREME COURT OF THE STATE OF MISSISSIPPI MISSISSIPPI DEPARTMENT OF REVENUE APPELLANT V. NO CA HOTEL AND RESTAURANT SUPPLY APPELLEE CERTIFICATE OF INTERESTED PARTIES The undersigned counsel of record certifies that the following listed persons have an interest in the outcome of this case. These representations are made in order that the Justices of the Supreme Court and/or the Judges of the Court of Appeals may evaluate possible disqualification or recusal. 1. Honorable William H. Singletary, Hinds County Chancery Court Judge; 2. Mississippi Department of Revenue, Appellant; 3. David J. Caldwell, Esq., Laura H. Carter, Esq., and Bridgette T. Thomas, Esq., MISSISSIPPI DEPARTMENT OF REVENUE, Counsel for Appellant MISSISSIPPI DEPARTMENT OF REVENUE; 4. Hotel and Restaurant Supply, Appellee; and 5. Leonard D. Van Slyke, Jr., Esq., and Taylor B. McNeel, Esq., BRUNINI, GRANTHAM, GROWER & HEWES, PLLC, Counsel for Appellee Hotel and Restaurant Supply. Dated: September 15, /s/ Taylor B. McNeel Attorney for Appellee 1

3 TABLE OF CONTENTS CERTIFICATE OF INTERESTED PARTIES... 1 TABLE OF CONTENTS... 2 TABLE OF AUTHORITIES... 4 STATEMENT REGARDING ORAL ARGUMENT... 6 STATEMENT OF ISSUES... 7 STATEMENT OF THE CASE... 8 SUMMARY OF THE ARGUMENT... 9 ARGUMENT I. Standard of Review A. The Board of Tax Appeals is entitled to deference as a separate and independent agency from the Department of Revenue B. Alternatively, the Department of Revenue should not be provided deference, and the Department of Revenue has the burden of proof, at a minimum, of proving its case by a preponderance of the evidence II. Mississippi law demonstrates that it is the contractor, and not the supplier, who should decide which materials will eventually become component materials. The Chancery Court and Board of Tax Appeals should be affirmed A. The general taxing statutes do not support the Department of Revenue s position that Hotel & Restaurant Supply should have determined which materials would become component parts, and that Hotel & Restaurant Supply should have taxed each material differently based on the Hotel & Restaurant Supply s determination of each material B. Mississippi law supports the position that the supplier is not tasked with determining whether each part will ultimately become a component part of a structure that the supplier may never see. The supplier s reliance upon the material purchase certificate is sufficient for the supplier to apply the 3½% contractors tax

4 III. The Department of Revenue failed to prove by a preponderance of the evidence that the materials at issue are component materials. Summary judgment in the Department of Revenue s favor is improper CONCLUSION

5 TABLE OF AUTHORITIES Cases Allred v. Webb, 641 So. 2d 1218, 1222 (Miss. 1994) Blount v. ECO Resources, Inc., 986 So. 2d 1052, 1055 (Miss. Ct. App. 2008)... 11, 17, 24 Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988) Castigliola v. Miss. Dept. of Revenue, 162 So. 3d 795, 799 (Miss. 2015) Commonwealth v. Petrotek, LLC, No CA MR, 2015 WL , at *5 (Ky. Ct. App. June 19, 2015) Conley v. City of Jackson, 115 So. 3d 908, 911 (Miss. Ct. App. 2013) Dean v. Public Employees Retirement Sys., 797 So. 2d 830, 833 (Miss. 2000) Edwards v. Stevens, 963 So. 2d 1108, 1109 (Miss. 2007) Fishbelt Feeds, Inc. v. Miss. Dept. of Revenue, 158 So. 3d 984, 987, 988, 989 (Miss. 2014)... 12, 18 Frazier v. Stone, 156 So. 596, 598 (Miss. 1934) Gregory v. Ashcroft, 501 U.S. 452, 474, 485 n. 3, 111 S.Ct. 2395, 115 L.Ed.2d 410 (1991) Lambert v. Miss. Limestone Corp., 405 So. 2d 131, 132 (Miss. 1981)... 11, 17, 24 Miss. Gaming Com'n v. Six Electronic Video Gambling Devices, 792 So. 2d 321, (Miss. Ct. App. 2001)... 18, 21 Miss. State Dept. of Health v. Baptist Memorial Hosp.-Desoto, Inc., 984 So. 2d 967, 981 (Miss. 2008) Morrill v. Lovett, 95 Me. 165, 170 (Me. 1901) State Tax Comm'n v. Edmondson, 196 So. 2d 873, 875 (Miss. 1967) State Tax Comm'n v. Overstreet Inv. Co., 194 So. 2d 236, 238 (Miss. 1967)... 11, 24 USPCI of Miss., Inc. v. State ex rel. McGowan, 688 So. 2d 783, 787 (Miss. 1997)

6 Woodland Village Nursing Ctr., LLC v. Miss. Dept. of Employment Sec., 138 So. 3d 946, 951 (Miss. Ct. App. 2013) Statutes MISS. CODE ANN (1)... 9, 13, 14 MISS. CODE ANN (2)... 13, 27 MISS. CODE ANN (b), (c), (d), (e), (f) MISS. CODE ANN , 13, 14 MISS. CODE ANN MISS. CODE ANN (1) MISS. CODE ANN (3)... 7, 8, 9, 10, 23, 25, 26, 28, 33 MISS. CODE ANN (m)... 30, 31, 32 MISS. CODE ANN MISS. CODE ANN , 13 MISS. CODE ANN (5)... 10, 14, 19, 22, 32 Administrative Authorities IRS Chief Counsel Directives Manual (2) MISS. ADMIN. CODE 35 IV (402)

7 STATEMENT REGARDING ORAL ARGUMENT The Mississippi Department of Revenue ( Department of Revenue or Department ) has not requested oral argument. Out of an abundance of caution, the Hotel & Restaurant Supply respectfully requests oral argument. The Hotel & Restaurant Supply has assiduously put forth the reasons and applicable law that support the Chancery Court s and Board of Tax Appeal s opinions. The matters before the Court are of paramount importance to Mississippi s taxation structure as a whole, and to Mississippi s taxation of suppliers throughout the state. The Department of Revenue will have the opportunity to respond in the Reply Brief. Hotel & Restaurant Supply respectfully requests the opportunity to answer the Court s questions at oral argument. 6

8 STATEMENT OF ISSUES 1. The Board of Tax Appeals is statutorily required to be a separate and independent agency that must have specialized knowledge of taxation. Should this Court provide deference to the Board of Tax Appeals in the same manner as any other state agency? 2. Mississippi law recognizes that supplies sold to contractors should be taxed at 3½% - instead of 7% - if (1) a material purchase certificate is presented to the supplier and (2) the supplies ultimately become a component part of the structure. See MISS. CODE ANN (3). The Department of Revenue asserts that it is a supplier s responsibility to determine whether each part will eventually become a component part. The contractor, not the supplier, profits from the 3½% tax. And the contractor is the one who actually builds the structure and assimilates the component parts into a structure. The Department of Revenue does not have a regulation or official publication that addresses the issue of responsibility for determination of component parts. The Board of Tax Appeals and Chancery Court ruled against the Department of Revenue. Should a supplier ignore the contractor s material purchase certificate and be tasked with determining whether each part will eventually become a component part, or is this duty better placed upon the contractor? 7

9 STATEMENT OF THE CASE Hotel & Restaurant Supply sells commercial kitchen equipment to contractors who build hotels and restaurants. Mississippi law allows for sales to contractors to be taxed at a 3½% contractors tax as opposed to the 7% sales tax if the sale is made under a materials purchase certificate, and if the property becomes a component part of the structure to be erected or repaired. (R. 7, R.E. 4 at 20; R. 35 at 1); see also Miss. Code Ann (3). The Department of Revenue performed an audit of Hotel & Restaurant Supply from August 1, 2006, to August 31, 2009, and determined that Hotel & Restaurant Supply should have charged a 7% sales tax for specific sales identified by the Department as opposed to the 3 ½% contractors tax. (R. 5, R.E. 2 at 7, 9.) The Department ultimately concluded that $408,740 was owed by Hotel & Restaurant Supply. (R. 6, R.E. 3 at 14; R. 35.) Hotel & Restaurant Supply appealed the Department s ruling to the Board of Tax Appeals. (R , R.E ) Hotel & Restaurant Supply argued that the Department should have sought to collect any taxes from contractors and not the supplier since (1) it was a contractors tax, (2) the contractors were in the best position to determine whether property ultimately became a component part as it was the contractors who built the structures and made that determination, (3) the applicable statute placed duties upon the contractors and not the suppliers, and (4) the standard practice was for contractors to itemize to the Department the property that was not a component part. The Board of Tax Appeals agreed with Hotel & Restaurant Supply and found in its favor. (R. 36 at 3; R , R.E ) The $408,740 tax assessment was 8

10 abated. Id. The Department appealed to the Chancery Court of Hinds County. (R. 4-9, R.E. 1-6.) The Chancery Court of Hinds County affirmed. (R , R.E ) SUMMARY OF THE ARGUMENT The parties do not dispute that Mississippi law allows contractors to benefit from a 3½% contractors tax when purchasing supplies, as opposed to the 7% state sales tax, as long as the contractor presents a materials purchase certificate to the supplier and as long as the supplies purchased ultimately become a component part of the structure. See MISS. CODE ANN (3). The issue before the Court is whether the supplier should have the responsibility of determining which materials sold to a contractor will ultimately become a component part of the structure (and, in essence, ignore the contractor s material purchase certificate) or, alternatively, whether the contractor should be tasked with making the determination of which materials will become a component part. The Board of Tax Appeals and the Chancery Court both ruled in favor of Hotel & Restaurant Supply. The Department of Revenue claims that the Chancery Court should have given the Department deference. The Department is wrong. The Board of Tax Appeals rendered an opinion that ran contrary to the Department s interpretation. The Board of Tax Appeals was recently created as a separate and independent agency. MISS. CODE ANN (1); see also MISS. CODE ANN This new agency is required to possess a special knowledge of taxation and revenue in the State of Mississippi. Id. The Department concedes that deference is normally afforded to the decisions of administrative agencies like the BTA (Board 9

11 of Tax Appeals). See Appellant s brief at p. 5. The Department fails to present any authority that demonstrates that a Board of Tax Appeals opinion should not receive deference. Simply put, there is no purpose for the Board of Tax Appeals if the Department is provided deference after losing in front of such a specialized agency. The Board of Tax Appeals should receive deference. Alternatively, even if the Board of Tax Appeals is not provided deference, the Department certainly should not be given deference. The Department did not implement a regulation or official policy that addressed the issue in this case: whether the supplier or contractor should make the determination as to component parts. Instead, the Department is merely advancing a post hoc litigation position and asking this Court for retrospective partiality. This is the very type of post hoc pretense that the Mississippi Court of Appeals and United States Supreme Court have rebuffed. There is no statute that requires the Department to receive deference in this case. In fact, the very statute cited by the Department recognizes that the chancery court shall determine whether the party bringing the appeal has proven by a preponderance of the evidence or a higher standard if required by the issues raised, that he is entitled to any or all of the relief he has requested. MISS. CODE ANN (5) (Rev. 2010) (emphasis added). As the appealing party, the Department has the burden of proof. As for the component part issue, the Department fails to put forth proof to demonstrate that a supplier should have the obligation to ascertain whether a material will eventually become a component part of the structure. See MISS. CODE ANN (3). No statute says it is the supplier s responsibility. No 10

12 regulation says it is the supplier s responsibility. The Department s argument rests solely on a post hoc position that claims it is more reasonable for the supplier to make the determination than the contractor. To be clear, the statutes at issue actually provide further proof that it is the contractor s responsibility to determine component parts. Aside from the unsound and impractical leap made by the Department, the law simply does not support the Department s reasoning. The Chancery Court and the Board of Tax Appeals should be affirmed. ARGUMENT Taxpayers should only be taxed on what is undoubtedly owed. Blount v. ECO Resources, Inc., 986 So. 2d 1052, 1055 (Miss. Ct. App. 2008) (recognizing that doubts in tax statutes should be resolved in favor of the taxpayer and affirming Chancellor s decision that 3.5% contractor s tax was not owed on repairs); Lambert v. Miss. Limestone Corp., 405 So. 2d 131, 132 (Miss. 1981) ( It is the well settled rule that (t)ax laws are to be strictly construed against the taxing powers and all doubt resolved in favor of the taxpayer. ) (affirming Chancellor s decision that taxpayer not subject to tax). Moreover, [i]t is well established that revenue laws are to be strictly construed against the taxing power and that all ambiguities or doubts should be resolved in favor of the taxpayer. State Tax Comm'n v. Edmondson, 196 So. 2d 873, 875 (Miss. 1967) (affirming Chancellor s decision that tax not owed). Accordingly, [t]axation is never to be allowed under a statute of doubtful interpretation. State Tax Comm'n v. Overstreet Inv. Co., 194 So. 2d 236, 238 (Miss. 1967) (affirming Chancellor s decision that tax not owed). In short, a tax cannot be 11

13 imposed unless the statutory language is clear and unequivocal. Frazier v. Stone, 156 So. 596, 598 (Miss. 1934). I. Standard of Review Whether the chancery court applied the correct burden of proof in an appeal of a Department of Revenue judgment is a question of law, which this Court reviews de novo. Castigliola v. Miss. Dept. of Revenue, 162 So. 3d 795, 799 (Miss. 2015). A chancery court is explicitly allowed to grant summary judgment on a tax appeal when there are no genuine disputes of material fact. Fishbelt Feeds, Inc. v. Miss. Dept. of Revenue, 158 So. 3d 984, 988 (Miss. 2014). This Court reviews a lower court's grant or denial of summary judgment de novo. Id. at 987. A. The Board of Tax Appeals is entitled to deference as a separate and independent agency from the Department of Revenue. Historically, the Department of Revenue has been provided deference on appeals. Miss. Code Ann (2009). However, the creation of the Board of Tax Appeals changed this policy. The Board of Tax Appeals was first established effective July 1, 2010, and the Board of Tax Appeals provides the Department of Revenue (formerly known as the State Tax Commission) with a right to appeal decisions to Chancery Court from the Board of Tax Appeals. MISS. CODE ANN If a taxpayer is dissatisfied with the results of an audit, he first seeks redress in an administrative appeal with the Department of Revenue s Board of Review. Formerly, the taxpayer then sought relief from the State Tax Commission, with an in-house appeal to the Commissioner and two Associate Commissioners. 12

14 To give more independence to the process, the legislature abolished the Commission appeal and established the Board of Tax Appeals in 2010 as a separate and independent agency. MISS. CODE ANN (1); see also MISS. CODE ANN It is a three person Board, and appointments to it are made by the Governor. MISS. CODE ANN (2). Each board member is required to possess a special knowledge of taxation and revenue in the State of Mississippi. Id. Previously the Department of Revenue (known as the State Tax Commission) did not have the ability to appeal to Chancery Court from a three-member appeal panel. To this end, the Board of Tax Appeals is now an independent agency which shall not in any way be subject to the supervision or control of the Department of Revenue. MISS. CODE ANN (1). The Department concedes that the Board of Tax Appeals is an administrative agency. See Appellant s brief at p. 5. And the Department does not dispute that deference is normally afforded to the decisions of administrative agencies like the BTA (Board of Tax Appeals). Id. Instead, the Department argues that the Board of Tax Appeals should not receive deference because the text of a prior statute gives deference to the Department. Id. (citing Miss. Code Ann (Rev. 2010)). Also, the Department claims that the Department handles the administrative tasks, and thus the Department is more suitable to receive deference than the Board of Tax Appeals. See Appellant s brief at p The Department is mistaken. For purposes of the statute cited by the Department, the Legislature merely typographically changed the word Commission to Department of Revenue when the term Commission had been previously used. The Department now points to a 13

15 2009 version of a statute where the term Commission was changed to Department of Revenue, and the Department claims that this scrivener s revision equates to the overriding and significant requirement that the Chancery Court is obligated to provide deference to Department of Revenue decisions even after the Board of Tax Appeals rules against the Department of Revenue. MISS. CODE ANN (5). 1 On the other hand, the Legislature implemented a monumental conversion to create the separate and independent agency that is the Board of Tax Appeals. MISS. CODE ANN (1); see also MISS. CODE ANN Unlike the statute relied upon by the Department, the statutes that created the Board of Tax Appeals certainly did not result in a diminutive correction. The transformation resulted in a vast departure for how tax appeals will forever be handled in Mississippi. To illustrate, the Board of Tax Appeals is an agency that is required to be made up of experts with special knowledge of taxation and revenue in the State of Mississippi. Id. It is this specialized expertise not some misguided importance that the Department assigns to administrative tasks that is the overarching 1 Only one word was ever so slightly changed in 2009 from the following: At trial of any action brought under this section, the chancery court shall give deference to the decision and interpretation of law and regulations by the Commission Department of Revenue as it does with the decisions and interpretation of any administrative agency, but it shall try the case de novo and conduct a full evidentiary judicial hearing on the issues raised. Based on the evidence presented at trial, the chancery court shall determine whether the party bringing the appeal has proven by a preponderance of the evidence or a higher standard if required by the issues raised, that he is entitled to any or all of the relief he has requested. MISS. CODE ANN (5) (emphasis added). 14

16 reason for providing deference to agencies. Moreover, the Legislature entrusted to the Board of Tax Appeals the jurisdiction over all administrative appeals and the jurisdiction to hear any objection to an assessment by the Department of Revenue. MISS. CODE ANN (b), (c), (d), (e), (f). The delegation of this administrative responsibility is the vital objective that bears on the deference question. Expertise matters. For example, in recognizing the reasoning behind providing deference to agencies, the Mississippi Supreme Court has stated the following: [a]dministrative agencies are ambiguous creatures born of necessity, mired in the tension between public policy and personal claims of right. They pursue pragmatically the public interest balancing the utilitarian (and expertly divined) calculus of aggregate net benefit against the individual's claim to fair opportunity and process. They address pressing questions of political economy and science where there are seldom easy answers and almost never only two points of view. Our administrators also regulate and facilitate individual enterprise without which the public interest will surely suffer. Here, as well, the life of the law has not been logic; it has been experience. Miss. State Dept. of Health v. Baptist Memorial Hosp.-Desoto, Inc., 984 So. 2d 967, 981 (Miss. 2008) (emphasis added) ( This duty of deference derives from our realization that the everyday experience of the administrative agency gives it familiarity with the particularities and nuances of the problems committed to its care which no court can hope to replicate. ) In addition to Mississippi law that provides the purpose for why deference is provided to Mississippi agencies, this Court need look no further than the state of Kentucky for a decision that is focused on the issue at hand. See e.g., Commonwealth v. Petrotek, LLC, No CA MR, 2015 WL , at *5 15

17 (Ky. Ct. App. June 19, 2015 (unpublished) (holding that the Kentucky Board of Tax Appeals properly received deference over the Kentucky Department of Revenue under the Chevron deference analysis first pronounced by the United States Supreme Court). There is an apparent reason that the Legislature made it a necessity for the Board of Tax Appeals to have specialized expertise in taxation. And this agency exercised its particularized knowledge in rendering a ruling for this case. Just one example is that the agency specifically stated the ruling was based, in part, upon the Board of Tax Appeals opinion of certain wide-spread practice[s] in Mississippi. (R. 49, R.E. 9.) There is absolutely no purpose for the Board of Tax Appeals if the Department of Revenue is provided deference after losing in front of such a learned agency. Instead, under the Department s interpretation, the placement of a panel of neutral experts in the path of the taxpayer is merely a manufactured hurdle that impedes the due process of the taxpayer from obtaining full and final relief from an improper assessment. The Department has vast resources to persist in pursuing an improper assessment. If the Department is to receive deference at every crater in the taxpayer s path, and the Department now has the ability to appeal decisions to Chancery Court, then the addition of another roadblock is solely beneficial to the Department. This Court should reject the Department s interpretation of Mississippi Code Annotated Section (5). See Allred v. Webb, 641 So. 2d 1218, 1222 (Miss. 1994) ( When no valid reason exists for one of 16

18 two possible constructions of a statute, the interpretation with no valid reason ought not be adopted. ) In sum, the Department of Revenue reached a conclusion as to how the Department desired to interpret the applicable taxing statutes. Then, the Board of Tax Appeals a separate and independent agency that specializes in taxation rendered its ruling. The Department concedes that deference is normally afforded to the decisions of administrative agencies like the BTA (Board of Tax Appeals). See Appellant s brief at p. 5; see also Woodland Village Nursing Ctr., LLC v. Miss. Dept. of Employment Sec., 138 So. 3d 946, 951 (Miss. Ct. App. 2013) ( this Court gives great deference to an administrative agency s findings and decisions, and will not reweigh the facts or attempt to substitute our judgment for that of the agency. ) None of the Department s arguments are sufficient to decline to give the Board of Tax Appeals deference and to effectively set aside the opinion of the Board of Tax Appeals as inconsequential. Blount v. ECO Resources, Inc., 986 So. 2d 1052, 1055 (Miss. Ct. App. 2008) ( doubts in tax statutes should be resolved in favor of the taxpayer ); Lambert v. Miss. Limestone Corp., 405 So. 2d 131, 132 (Miss. 1981) ( It is the well settled rule that (t)ax laws are to be strictly construed against the taxing powers and all doubt resolved in favor of the taxpayer. ) Deference to the Board of Tax Appeals is required. As a result, the standard of review for the Board of Tax Appeals should be the same standard applicable to other agencies from which an appeal is taken: whether the decision was supported by substantial evidence, was arbitrary and capricious, was beyond the scope or power of the agency to make, or violated [the 17

19 Department s] constitutional or statutory rights. Conley v. City of Jackson, 115 So. 3d 908, 911 (Miss. Ct. App. 2013); see also Dean v. Public Employees Retirement Sys., 797 So. 2d 830, 833 (Miss. 2000). B. Alternatively, the Department of Revenue should not be provided deference, and the Department of Revenue has the burden of proof, at a minimum, of proving its case by a preponderance of the evidence. First, it is well established that if an agency's interpretation of a statute is contrary to the unambiguous language or best reading of a statute, [then], this Court will not afford it any deference. Fishbelt Feeds, Inc. v. Miss. Dept. of Revenue, 158 So. 3d 984, 989 (Miss. 2014). The Department is not advancing the best reading of the statutes at issue. See infra pages There is no need to simply take Hotel & Restaurant Supply s word for it. Both the Board of Tax Appeals and the Chancery Court have ruled against the Department. The Department is not entitled to deference. Second, the Department concedes that there is no regulation that addresses the issue advanced by the Department in this matter. (R. at 68) (Brief of Department of Revenue to Chancery Court) ( The regulations dealing with component materials in the context of contractors tax do not specifically state whether the determination of what qualifies as a component material should be made by the vendor or the contractor. ) As a result, the Department is simply advancing a post hoc agency litigation position. The United States Supreme Court has rejected the principle that deference should be shown to post hoc agency litigating positions that are unsupported by regulations or administrative practice. Miss. Gaming Com'n v. Six Electronic Video Gambling Devices, 792 So. 2d 321,

20 29 (Miss. Ct. App. 2001) (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988)). Deference is at its healthiest when it is firmly rooted in a formal issuance from the agency, such as a regulation, guideline, policy statement, or administrative adjudication, and not just in a litigating position in a lawsuit. Id. (quoting Gregory v. Ashcroft, 501 U.S. 452, 474, 485 n. 3, 111 S.Ct. 2395, 115 L.Ed.2d 410 (1991) (White, J., concurring and dissenting)). To that end, Mississippi Code Annotated (5) was amended in This is the very statute that the Department asserts is the authority for any deference provided to the Department. Yet, the new amendment makes clear that the Department does not receive deference unless the Department has duly enacted regulations and other officially adopted publications that address the disputed issue. Id. (Rev. 2014). Again, the Department concedes that no regulation addresses the issue raised by this case. (R. 68.) The Department claims that the new amendment to the statute did not become effective until January 1, 2015, and that the new amendment is not applicable to this appeal. See Appellant s brief at p. 9. Conspicuously, for the Department s position that the amendment is not applicable to this appeal, the Department relies on an alleged savings clause that cannot be found in the Mississippi Code. Instead, the alleged savings clause is relegated to the archives as Section 19 of House Bill 799 of the 2014 Regular Session. See Appellant s brief at p. 9. Regardless, even the Department must concede that the savings clause only prevents the amendment from applying to this appeal if the initial date of an 19

21 assessment is prior to the effective date of the amendment, i.e., prior to January 1, Id. However, there is no assessment date in effect. While the Department did render an assessment on December 9, 2010, the Board of Tax Appeals held that the prior assessment should be reversed, and the assessment [was] hereby abated in full. (R. 50, R.E. 10.) The Board of Tax Appeals opinion was rendered on March 20, The Chancery Court affirmed. (R , R.E. 7-10; R , R.E ) Once the Board of Tax Appeals abated the assessment in full because the tax was improper, then the tax was void. The Supreme Court of Maine long ago stated this principle with poetic clarity: Void tax is a tax imposed without basis in law, as where the statute under which it is levied is unconstitutional or so indefinite, uncertain, or inconsistent as to be entirely inoperative. A void tax is no tax. It is as if there never had been any attempt at assessment. Morrill v. Lovett, 95 Me. 165, 170 (Me. 1901). According to the IRS, an assessment is not considered to have been made until the appeal is complete. See IRS Chief Counsel Directives Manual (2) ( ). Thus, in the federal arena, the tax at issue in this appeal would not be assessed at all unless Hotel & Restaurant Supply lost and any appeals were exhausted. All of this demonstrates the house of cards that the Department has built the alleged deference argument upon. Even if the savings clause applies to the new amendment, this Court is not prohibited from recognizing the spirit of the amendment which is to bar the Department from receiving deference unless a regulation or official policy addresses the dispute at issue. USPCI of Miss., Inc. v. State ex rel. McGowan, 688 So. 2d 783, 787 (Miss. 1997) (recognizing that an amended statute does not control when there is a savings clause in the statute but 20

22 also recognizing that when cases are in the bosom of this Court and there is involved a statute that is modified prior to a final decision of this Court, we take that modification into consideration ). The Mississippi Court of Appeals previously endorsed this position now codified by the Legislature with regards to the Department of Revenue. Miss. Gaming Com'n v. Six Electronic Video Gambling Devices, 792 So. 2d 321, (Miss. Ct. App. 2001) (recognizing that deference is best when it is firmly rooted in a formal issuance from the agency, such as a regulation, guideline, policy statement, or administrative adjudication, and not just in a litigating position in a lawsuit. ). There is no dispute that the Department did not have a regulation that addressed which party (supplier or contractor) should make the component part determinations. (R , R.E ) (Board of Tax Appeals opinion: The Department has offered no evidence of a statutory or regulatory requirement imposing a duty on the vendor to verify representations overtly made or implied by the MPC holder. ) The Department simply cannot be provided deference when the Department s interpretation was rejected by another agency with statutorily required tax expertise, when the Department does not have a regulation or official policy that addressed the matter at hand, and when doubt should be resolved in favor of the taxpayer. As an alternative to the position that the Board of Tax Appeals opinion should receive deference, the Department has the burden of proof, as the party bringing the appeal, to prove its case by at least a preponderance of the evidence. The statute cited by the Department recognizes that the chancery court shall 21

23 determine whether the party bringing the appeal has proven by a preponderance of the evidence or a higher standard if required by the issues raised, that he is entitled to any or all of the relief he has requested. MISS. CODE ANN (5) (Rev. 2010) (emphasis added). The Department brought the appeal. The Department has the burden of proof. Even if this Court disagrees with the standard of review applied by the Chancery Court, the result should be affirmed under this Court s de novo review of the legal question presented. Hotel & Restaurant Supply presented the following straight forward question of law on summary judgment: can Hotel & Restaurant Supply rely on the material purchase certificate provided by a contractor and not have to determine which materials will finally become component materials? There were no facts disputed by the Department for this legal issue. This Court has de novo review of a question of law. Edwards v. Stevens, 963 So. 2d 1108, 1109 (Miss. 2007). II. Mississippi law demonstrates that it is the contractor, and not the supplier, who should decide which materials will eventually become component materials. The Chancery Court and Board of Tax Appeals should be affirmed. A. The general taxing statutes do not support the Department of Revenue s position that Hotel & Restaurant Supply should have determined which materials would become component parts, and that Hotel & Restaurant Supply should have taxed each material differently based on the Hotel & Restaurant Supply s determination of each material. Mississippi law allows for sales to contractors to be taxed at a 3½% contractors tax as opposed to the 7% sales tax if the sale is made under a materials purchase certificate, and if the property becomes a component part of the structure 22

24 to be erected or repaired. (R. 7, R.E. 4 at 20; R. 35.); see also MISS. CODE ANN (3). The Department concedes that the regulations dealing with component materials in the context of contractors tax do not specifically state whether the determination of what qualifies as a component material should be made by the vendor or the contractor. (R. 68.) Instead, the Department claims that the Court should look to the general taxing statute that allegedly requires suppliers to collect a 7% sales tax unless the sale is expressly exempt or another tax applies. The Department cites to Mississippi Code Annotated Section which provides as follows: [a]ny person liable for a privilege tax levied and assessed by this chapter, except the taxes levied by Sections , (3), and , Mississippi Code of 1972, shall add the amount of such tax due by him to sales price or gross income and, in addition thereto, shall collect... the amount of the tax due by him from the purchaser at the time the sales price... is collected. MISS. CODE ANN (emphasis added). Section plainly states that the tax imposed in this section is levied upon the prime contractor and shall be paid by him. MISS. CODE ANN The Department fails to point out that the contractors tax statute (Section ) is one of the statutes explicitly excluded from the ordinary sales tax statute (Section ) and from any general proposition that a supplier should collect a 7% tax on all transactions. The Legislature plainly excepted the contractors tax statute from any 7% tax collection attributed to suppliers for an apparent reason 23

25 because it is the contractor who should be tasked with determining the items that should be taxed at 7%. On the face of these statutes alone, Hotel & Restaurant Supply should prevail since the Mississippi Legislature expressly excluded the contractors tax from the ordinary collection requirements placed on suppliers. Moreover, the Department has conceded that no regulation specifically says that it is the supplier and not the contractor who should determine the items that should be taxed at 7%. In light of this concession and in light of the Board of Tax Appeals opinion in favor of the taxpayer, it is apparent that at the very least doubt exists. If there is doubt, then Hotel & Restaurant Supply should prevail. Blount v. ECO Resources, Inc., 986 So. 2d 1052, 1055 (Miss. Ct. App. 2008) ( doubts in tax statutes should be resolved in favor of the taxpayer ) (affirming Chancellor s decision that 3.5% contractor s tax was not owed on repairs); Lambert v. Miss. Limestone Corp., 405 So. 2d 131, 132 (Miss. 1981) ( It is the well settled rule that (t)ax laws are to be strictly construed against the taxing powers and all doubt resolved in favor of the taxpayer. ) (affirming Chancellor s decision that taxpayer not subject to tax). State Tax Comm'n v. Overstreet Inv. Co., 194 So. 2d 236, 238 (Miss. 1967) ( [t]axation is never to be allowed under a statute of doubtful interpretation ) (affirming Chancellor s decision that tax is not owed). B. Mississippi law supports the position that the supplier is not tasked with determining whether each part will ultimately become a component part of a structure that the supplier may never see. The supplier s reliance upon the material purchase certificate is sufficient for the supplier to apply the 3½% contractors tax. 24

26 The Department of Revenue cannot point to a single statute or regulation that unambiguously requires suppliers to be the ultimate arbiter of whether a material becomes a component material. To the contrary, the statutes and regulations at issue support the position that the contractor is responsible for any tax over and above the 3½%. It cannot be Hotel and Restaurant Supply s job to determine whether property purchased shall become a component part of the structure. See MISS. CODE ANN (3) (emphasis added). Instead, it is the contractor s job. Indeed, this statute imposes no duties or liabilities upon the supplier. Rather, the duties are imposed upon the contractor. In fact, a contractor (1) can apply for and obtain a material purchase certificate to reap the benefit of the 3½% tax, and (2) a contractor can furnish the Department of Revenue [with] a list of all work sublet to others, indicating the amount of work to be performed, and the names and addresses of each subcontractor. Id The statute evidences that the contractor is best suited to determine which property will result in a component part of the structure as it is the contractor who builds the structure and installs the component parts. Consider how extraordinary it would be for a supplier to sell supplies, and then for the supplier to have to continually go on-site to the construction project to audit and to determine if the contractor was in fact using the supplies as component parts. As intended by the Legislature, the plain reading of the statute is that a contractor is liable for a tax under the statute not a supplier. MISS. CODE ANN (1) ( tax imposed in this section is levied upon the prime contractor and shall be paid by him ) compare 25

27 MISS. CODE ANN (3) ( Any person liable for a tax under this section may apply for and obtain a material purchase certificate... ). Likewise, the Department s own regulations support the position that the supplier is not responsible for determining whether a material shall become a component part. One regulation states that the material purchase certificate number will allow the purchase of component materials and parts for use in the construction activities exempt from further sales tax. MISS. ADMIN. CODE 35 IV (402). ( at p. 92). Notice that the regulation does not state that the supplier must determine which materials will ultimately become component materials. Instead, the implication is that the presentation of a material purchase certificate is sufficient to warrant the purchase of materials that are exempt from further sales tax. The specialized agency dedicated to reaching difficult taxation decisions agreed with the Hotel & Restaurant Supply s arguments on these issues as the Board of Tax Appeals found as follows: The Board of Tax Appeals is persuaded by [Hotel and Restaurant Supply s] first argument, i.e., that the taxpayer as the supplier, was in good faith merely following the instructions of the contractor who by purchasing under the MPC [Materials Purchase Certificate] was representing that the items purchases were to be component parts of the building, that the supplier had no basis and is in no position to challenge the contractor s decision and that the Department of Revenue audited the wrong taxpayer. The Department s regulation provides that the contractor may make tax-free purchases of material that will become a component part of the structure covered by that MPC number. Thus the contractor, not [Hotel Restaurant and Supply], is the party which makes the determination as to whether a particular item purchased from [Hotel Restaurant and Supply] by the contractor will become a component part of the structure. Hotel Restaurant and Supply was merely the vendor of the equipment and had a right to rely on the Materials Purchase Certificate and the 26

28 implied representation made by the purchaser / MPC holder. The Department has offered no evidence of a statutory or regulatory requirement imposing a duty on the vendor to verify representations overly make or implied by the MPC holder. Furthermore, the Board believes that it is a wide-spread practice for MPC holders to purchase numerous items for projects under the applicable MPC and to selfreport those items which do not become component materials of the job. Accordingly, the assessments for all items sold under a valid MPC should be abated. R. 49; R.E. 11; see also MISS. CODE ANN (2) Prior to the taxation period, the Department could have easily implemented the following regulation that would have removed all doubt: Suppliers and vendors are responsible for determining whether a material ultimately becomes a component part. A contractor is not responsible for this determination. A supplier or vendor cannot rely upon a contractor s material purchase certificate in applying the 3½% contractors tax set forth in Mississippi Code Section But, the Department did not do so. And while such a regulation may not have been within the Department s statutory authority, the regulation at least would have notified suppliers of the Department s position. Yet, instead of ratifying an unambiguous and straight forward regulation, the Department now relies on post hoc stances to piece together a position. See Appellant s brief at p. 11. How was Hotel & Restaurant Supply supposed to know about the Department s position if there was no unambiguous regulation or official policy? Quite simply, the Department s arguments are misplaced. First, the Department attempts to find the most extreme examples of items that were sold in order to demonstrate that a supplier should be the party to make determinations as to component parts. For example, the Department focuses on some of the unique items sold such as cooking utensils, flatware, pots, and 27

29 pans. See Appellant s brief at p. 2. However, as the supplier is not the entity that is tasked with building the hotel or restaurant then the supplier does not know if these materials will become a component part of the structure. See MISS. CODE ANN (3) (emphasis added). As demonstrated by the below photographs, many hotels and restaurants use kitchen equipment as part of the permanent décor: 28

30 29

31 What is more, the Department made clear at the hearing on summary judgment, that the Department is now predetermining which materials are component materials regardless of whether the material actually becomes a component part of the structure. (Hearing Trans. 17, R.E. 33) ( On one side you have things which are always going to be considered component material by the Department... And then on the other side, you have personal goods that are absolutely never going to be component material... [and] should never fall under a component material category and the supplier should always charge the 7 percent on. ) (emphasis added). The Department has not implemented any type of official policy or regulation that informs suppliers of this position. Nor has the Department provided a list of the types of materials that the Department considers component materials or not component materials. Suppliers in Mississippi are still in the dark. Second, the Department claims that the interpretation it offers is reasonable because a contractor is allegedly entitled to take a tax credit at a later time for any purchases where the contractor is charged a 7% sales tax on component materials. See Appellant s brief at p. 11 (citing MISS. CODE ANN (m)). The statute cited by the Department is the definitions section, and more particularly, the definition of material purchase certificate. The definition cited never uses the terms supplier, retailer, vendor, or contractor. To be clear, the Department claims that the definition of a material purchase certificate provides the basis for the following previously unknown policy: a supplier should be audited and taxed instead of a contractor, a supplier should ignore the material purchase certificate presented by a contractor, and a supplier should determine the materials that will become 30

32 component materials. The definition of material purchase certificate says no such thing. To the contrary, this definition provides further proof that it is the contractor that should be audited and taxed to make up the difference. The very fact that the Department says the definition allows for a contractor to take a credit demonstrates that it is the contractor who should be audited. The statute explicitly states that a credit may also be allowed in any audit of the taxpayer. Id. Under the Department s own reasoning, the only taxpayer that the statute must be referring to is a contractor not a supplier. A supplier cannot take a credit. There is nothing for a supplier to credit against. The sale has been made. The entire purpose of the contractors tax statute is to boost commercial construction and development. Indeed, the flexibility of the contractors tax stimulates the economy by encouraging construction of hotels, restaurants, office buildings, manufacturing facilities, and numerous other projects. Importantly, a supplier does not profit from the contractors tax. Instead, it is the developer and contractor who stand to profit. It is called a contractors tax for a reason. If a determination was made that a contractor was abusing the contractors tax, then the Department would be able to collect the tax owed from the profits that the contractor should have paid to the State the entire time. On the other hand, the Department is seeking to seize hundreds of thousands of dollars from the Hotel & Restaurant Supply and effectively sequester the day to day operating expenses of Hotel & Restaurant Supply. 31

33 As a result, the contractor is allowed to take a tax credit at a later date during an audit, because it is the contractor who the Department should audit. MISS. CODE ANN (m) ( This credit may also be allowed in any audit of the taxpayer. Any penalties and interest owed by the taxpayer on the return or in the audit where this credit is taken may be determined based on the sales tax due after the taking of this credit. ) Quite simply, the Department of Revenue s interpretation - that suppliers should be tasked with determining what is a component part and what is not a component part - is not only unsupported by the law, but is punitive to suppliers. The Department should audit the namesake of the tax: the contractor. III. The Department of Revenue failed to prove by a preponderance of the evidence that the materials at issue are component materials. Summary judgment in the Department of Revenue s favor is improper. The Department of Revenue claims that, not only should the Chancery Court and the Board of Tax Appeals be reversed, but summary judgment should be granted in the Department s favor. This is inappropriate. The Department is the party bringing the appeal, and the Department of Revenue is required to prove by a preponderance of the evidence, at the very least, that each material at issue in this case is not a component material. MISS. CODE ANN (5) ( Based on the evidence presented at trial, the chancery court shall determine whether the party bringing the appeal has proven by a preponderance of the evidence or a higher standard if required by the issues raised, that he is entitled to any or all of the relief he has requested. ). Hotel & Restaurant Supply disputes that the materials at issue in this case were not component materials. (R. 106.) 32

34 Should this Honorable Court reverse the Chancery Court and Board of Tax Appeals as to the issue of whether a supplier may rely on a material purchase certificate, then remand is appropriate to determine, on an item by item basis, whether the materials purchased by contractors became a component part of a structure. These material questions of fact can only be resolved at trial. Indeed, the Department of Revenue will have to put on proof at trial through testimony of the contractors that the materials at issue did not become a component part of the structure. See MISS. CODE ANN (3). 2 On the other hand, the motion for summary judgment presented by Hotel & Restaurant Supply did not contain any disputed facts. Is a supplier required to reject a material purchase certificate and solely decide whether a part will become a component part? This is a question of law. Simply put, if the Court finds that the contractor is the party that is required to determine whether a material will become a component part of the structure, then Hotel & Restaurant Supply prevails as a matter of law. See MISS. CODE ANN (3). CONCLUSION If we allow the government to overtax, then what say we when the government succeeds? Perhaps the greatest potential for abuse is the government s power to tax. One branch of the government enacts complicated taxing statutes. A second branch 2 The Department has failed to put forth sufficient evidence to meet the preponderance of evidence burden. Likewise, even if this Court were to agree with the Department s deference argument, the Department has not demonstrated that the Department s decision is supported by substantial evidence, not arbitrary and capricious, within the Department s power to make, and not a violation of Hotel & Restaurant Supply s statutory or constitutional rights. See supra pages