STATE OF ARKANSAS DEPARTMENT OF FINANCE & ADMINISTRATION OFFICE OF HEARINGS & APPEALS ADMINISTRATIVE DECISION IN THE MATTER OF WASTE TIRE FEE ASSESSMENT (ACCT. NO.: ) DOCKET NO.: 17-254 WASTE TIRE FEE ( ) 1 TODD EVANS, ADMINISTRATIVE LAW JUDGE APPEARANCES This case is before the Office of Hearings and Appeals upon written protest received January 10, 2017, 2 signed by ( Taxpayer s Representative ) on behalf of, the Taxpayer. The Taxpayer protested an assessment issued by the Department of Finance and Administration ( Department ). The Audit Number is. The Audit Period is October 1, 2010, through March 30, 2016. The Department was represented by John Theis, Attorney at Law, Office of Revenue Legal Counsel. At the request of the Taxpayer, this matter was taken under consideration of written documents. A briefing schedule was established for the parties on February 7, 2017. The Department filed its Opening Brief on February 14, 2017. The Taxpayer s Representative did not file a Response Brief. This matter was submitted for a decision on April 25, 2017. 1 This balance represents (tax), (failure to file penalty), and (interest) as of November 7, 2016. 2 Though the receipt stamp on the protest states January 10, 2016, that form was dated and mailed to the Taxpayer on November 7, 2016; consequently, it is apparent that the correct receipt date is January 10, 2017. 1
ISSUE Whether the Department s Assessment in this matter is correct under Arkansas law. Yes. FINDINGS OF FACT/CONTENTIONS OF THE PARTIES In the Department s Opening Brief, the Department s Representative provided a brief discussion of the facts, stating as follows, in part: ("Taxpayer") operates a retail tire store located at, Arkansas. Taxpayer makes retail sales of both automobile tires and truck tires in the regular course of his business; Mr. Gary Webb is employed as a Field Auditor with the Arkansas Department of Finance and Administration ("DFA"); In April, 2016, Mr. Webb initiated a field audit to verify compliance with the requirements of the Arkansas Waste Tire Fee as well as with other requirements of state tax law; During the course of the audit, Mr. Webb discovered that Taxpayer was not properly registered with DFA to collect and remit the Waste Tire Fee as required by state law; The audit also revealed that Taxpayer did charge the waste tire fee of $2 per automobile tire and $5 per truck tire and collect that fee from many of its customers but had failed to file a waste tire report with DFA and failed to pay any waste tire fee collections to DFA for any month during the audit period referenced above; Mr. Webb determined that Taxpayer' s records were incomplete and unreliable. Consequently, Mr. Webb obtained purchase invoices reflecting all new tire purchases by Taxpayer for subsequent retail sale at the place of business; Because Taxpayer had failed to file a Waste Tire report with DFA for any period, the audit period was extended beyond the ordinary 3 year limitations period in accordance with the provisions of the Arkansas Tax Procedure Act. As a result, the audit period ran for 5 and 1/2 years; 2
The amount of additional Waste Tire Tax due under the audit was determined by listing all tire purchases made by Taxpayer from its vendors on which the vendor did not assess the Waste Tire Fee directly against Taxpayer at the time Taxpayer purchased the tires for placement in Taxpayer' s inventory; Any tires returned by Taxpayer to its vendors were removed from the audit and Waste Tire Fee of $2 per automobile tire and $5 per truck tire was assessed on the remaining tires; In addition to the delinquent Waste Tire Fee, interest and failure to file penalty was assessed in accordance with the provisions of the Arkansas Tax Procedure Act; A Notice of Proposed Assessment was issued to Taxpayer dated November 7, 2016; On January 10, 2017, a letter was received from Taxpayer's representative protesting the tax assessment and requesting an administrative hearing based on written documents submitted with the protest. That letter of protest was mailed via certified mail dated January 5, 2017; With his letter of protest, Taxpayer included five (5) separate receipts from. These receipts reflect that the had received payments totaling from. Although the receipts are difficult to read, they appear to each reflect that the receipt was given in return for the disposal of tires. The amount charged by was typically $1 per tire; In addition, Taxpayer provided a copy of a cancelled check reflecting a payment of by Taxpayer to the. No other supporting documentation was provided with that copy of the cancelled check.... In his Protest, the Taxpayer s Representative asserted as follows: Paid disposal fees to. Receipts are included and waste tire fee reduce along with penalty and interest. Also included is copy of check paid to. All disposal from Oct. 2010 through May 2014 was done at. 3 3 The attached documents are as follows: (1) five receipts from the to the Taxpayer totaling, (2) copies of checks from a bank statement, containing a check to for, and (3) a letter from the Taxpayer s Representative to the Assistant Commissioner of the Department asserting that the assessment should be reduced by the payments to the tire disposal sites and the remaining balance should be removed because the Taxpayer did not receive the ten cent (10 ) credit for disposal. 3
In his Opening Brief, the Department s Representative asserted that the Taxpayer failed to register for and pay the Waste Tire Fee to the Department though the Taxpayer collected the fee from its customers. Though the Taxpayer requested a reduction in the assessment based on amounts charged by tire disposal sites, he argued that no such credit or deduction is allowed under Arkansas law. After a general discussion of the burdens of proof in tax proceedings, the relevant legal issue shall be addressed. follows: CONCLUSIONS OF LAW Standard of Proof Ark. Code Ann. 26-18-313(c) (Supp. 2015) provides, in pertinent part, as The burden of proof applied to matters of fact and evidence, whether placed on the taxpayer or the state in controversies regarding the application of a state tax law shall be by preponderance of the evidence. A preponderance of the evidence means the greater weight of the evidence. Chandler v. Baker, 16 Ark. App. 253, 700 S.W.2d 378 (1985). In Edmisten v. Bull Shoals Landing, 2014 Ark. 89, at 12-13, 432 S.W.3d 25, 33, the Arkansas Supreme Court explained: A preponderance of the evidence is not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other. The Department bears the burden of proving that the tax law applies to an item or service sought to be taxed, and a taxpayer bears the burden of proving 4
entitlement to a tax exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(d) (Supp. 2015). Statutes imposing a tax or providing a tax exemption, deduction, or credit must be reasonably and strictly construed in limitation of their application, giving the words their plain and ordinary meaning. Ark. Code Ann. 26-18-313(a), (b), and (e) (Supp. 2015). If a well-founded doubt exists with respect to the application of a statute imposing a tax or providing a tax exemption, deduction, or credit, the doubt must be resolved against the application of the tax, exemption, deduction, or credit. Ark. Code Ann. 26-18- 313(f)(2) (Supp. 2015). Legal Analysis Tire retailers must charge customers a two-dollar ($2) waste tire fee on retail sales of new automobile tires and a five-dollar ($5) waste tire fee on retail sales of new truck tires. Ark. Code Ann. 8-9-404(a)(3)(A) and (B) (Repl. 2011). Those fees must be remitted to the Department by the twentieth day of each month for sales in the preceding calendar month. Ark. Code Ann. 8-9-404(a)(5) (Repl. 2011). Further, it is the duty of every taxpayer to make a return of any tax due under any state tax law and to preserve suitable records to determine the amount due. Ark. Code Ann. 26-18-506(a) (Repl. 2012). A taxpayer s records may be examined by the Department at any reasonable time, and, when a taxpayer fails to maintain adequate records, the Department may make an estimated assessment based on the information that is available. Ark. Code Ann. 26-18- 506(b) and (d) (Repl. 2012). The burden is on a taxpayer to refute an estimated assessment and self-serving testimony, standing alone, is insufficient to refute an 5
estimated assessment. Ark. Code Ann. 26-18-506(d); cf. Leathers v. A. & B. Dirt Mover, Inc., 311 Ark. 320, 844 S.W.2d 314 (1992). Here, based on the uncontroverted evidence, it has been shown that the Taxpayer is a tire retailer that made sales of new automobile and truck tires during the audit period. The Taxpayer collected the waste tire fee from his customers but did not register with the Department and did not remit those proceeds to the Department. It has also been demonstrated that the Taxpayer s records were deemed insufficient, warranting the performance of an estimated assessment utilizing his supplier s records. Though the Taxpayer has requested a ten-cent (10 ) disposal credit and credit for payments made to tire disposal sites, the Taxpayer has provided no legal authority to show that it is entitled to these adjustments to his assessed liability. The Taxpayer has not refuted the assessment issued by the Department; consequently, the waste tire fee assessment is sustained. With respect to the failure to file penalty, Ark. Code Ann. 26-18-208(1) (Repl. 2012) provides as follows: In the case of a taxpayer's failure to file any return required by any state tax law on or before the date prescribed determined with regard to any extension of time for filing the return, unless it is shown that the failure is due to reasonable cause and not to willful neglect, there shall be added to the amount required to be shown as tax on the return five percent (5%) of the amount of the tax if the failure is not more than one (1) month, with an additional five percent (5%) for each additional month or fraction of a month during which the failure continues, not to exceed thirty-five percent (35%) in the aggregate.... Additionally, lack of knowledge of publicly available statutes and rules cannot be recognized as a defense to the enforcement of these penalties. 29 Am. Jur. 2d 6
Evidence 290; see also Edward v. US, 334 F.2d 360 (1964) and Jellico Coal Min. Co. v. Commonwealth, 96 Ky. 373, 29 S.W. 26 ( Ky. App. 1895). The U.S. Supreme Court has explained the reason for this legal principle as follows: The whole course of the jurisprudence, criminal as well as civil, of the common law, points to a different conclusion. It is a common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally; and it results from the extreme difficulty of ascertaining what is, bonâ fide, the interpretation of the party; and the extreme danger of allowing such excuses to be set up for illegal acts, to the detriment of the public. Barlow v. US, 32 U.S. 404, 411 (1833). The Arkansas Supreme Court has also provided that the maxim that lack of knowledge of the law is no defense applies in equal force to acts committed or omitted in violation of the criminal or civil laws of the land. State v. Simmons, 1 Ark. 265, 266 (1839). Consequently, the lack of knowledge of the legal requirements cannot be considered in the analysis regarding alleged violations. Here, the uncontroverted evidence establishes that the Taxpayer failed to file his monthly waste tire fee returns during the audit period though he collected those fees from customers. The facts presented meet the requirements for assessment of the failure to file penalty in this matter. Additionally, the Taxpayer has presented no evidence that the failure to file was due to reasonable cause. Consequently, the assessment of the failure to file penalty is sustained. Interest was properly assessed for use of the state s tax dollars. Ark. Code Ann. 26-18-508 (Repl. 2012). DECISION AND ORDER The assessment is sustained. The file is to be returned to the appropriate section of the Department for further proceedings in accordance with this 7
Administrative Decision and applicable law. Pursuant to Ark. Code Ann. 26-18- 405 (Supp. 2015), unless the Taxpayer requests in writing within twenty (20) days of the mailing of this decision that the Commissioner of Revenues revise the decision of the Administrative Law Judge, this decision shall be effective and become the action of the agency. The revision request may be mailed to the Assistant Commissioner of Revenues, P.O. Box 1272, Rm. 2440, Little Rock, Arkansas 72203. The Commissioner of Revenues, within twenty (20) days of the mailing of this Administrative Decision, may revise the decision regardless of whether the Taxpayer has requested a revision. The Taxpayer may seek relief from the final decision of the Administrative Law Judge or the Commissioner of Revenues on a final assessment by following the procedure set forth in Ark. Code Ann. 26-18-406 (Supp. 2015). DATED: April 26, 2017 8