STATE OF ARKANSAS DEPARTMENT OF FINANCE & ADMINISTRATION OFFICE OF HEARINGS & APPEALS ADMINISTRATIVE DECISION IN THE MATTER OF (LICENSE NO.: ) DOCKET NO.: 17-449 GROSS RECEIPTS TAX REFUND CLAIM DENIAL LETTER ID: ASSESSED AMOUNT: TODD EVANS, ADMINISTRATIVE LAW JUDGE APPEARANCES This case is before the Office of Hearings and Appeals upon a written protest dated February 2, 2017, signed by on behalf of, the Taxpayers. The Taxpayers protested a refund claim denial issued by the Department of Finance and Administration ( Department ). A hearing was held in this matter on May 25, 2017, at 2:12 p.m. in Fort Smith, Arkansas. The Department was represented by Nina Carter, Attorney at Law, Office of Revenue Legal Counsel ( Department s Representative ). Also present for the Department was Ben Johns, Tax Auditor. The Taxpayers appeared at the hearing. ISSUE Whether the Taxpayers demonstrated that they qualified for the motor vehicle tax credit 1 by a preponderance of the evidence. No. FINDINGS OF FACT/CONTENTIONS OF THE PARTIES The Department s Representative provided some relevant facts in her Answers to Information Request, stating as follows, in part: On December 11, 2016, privately sold a [ Vehicle A ] to, a Missouri resident, for. A copy of the Bill of Sale is 1 The sales tax credit authorized under Ark. Code Ann. 26-52-510(b)(1)(C)(i) (Repl. 2014) shall be referred to as the motor vehicle tax credit in this decision. 1
attached as Exhibit 1. When the was sold, (the Company") was the sole registered owner of the vehicle. Copies of the Application for Title and the Title Assignment to the are attached as Exhibits 2 and 3 respectively. A corporation search for indicates that is the registered agent and President of the Company. A copy of the corporate registration from the Arkansas Secretary of State is attached as Exhibit 4. On January 6, 2017 2, (the "Taxpayers") purchased a (the ) [ Vehicle B ] from for. Copies of the Bill of Sale and the Certificate of Origin for the are attached as Exhibits 5 and 6 respectively. The registration for the reflects that at the time of sale it was purchased by the Taxpayers in their individual capacity, not by the Company. A copy of the Application for Title is attached as Exhibit 7. At the time of registration of the, sales tax in the amount of was assessed and paid in full. Id. On January 31, 2017, the Taxpayer submitted to the Department of Finance and Administration ("DFA") a claim for a refund credit for the sale of the. A copy of the claim is attached as Exhibit 8. The claim was disallowed because the Company, which sold the, is a separate legal entity from the Taxpayer. A copy of the Notice of Claim Disallowance is attached as Exhibit 9. This notice, along with a copy of the Taxpayer Bill of Rights and a Tax Protest form were mailed to the Taxpayer on February 3, 2017. Id. The Taxpayer filed a timely protest. As noted above, the records indicate that the Taxpayers were not the registered owner, individually, of the at the time of sale. The Company was the sole registered owner. The Taxpayers' Application for Title for the indicates the registered owners are the Taxpayers in their individual capacity. 3 In their protest, the Taxpayers asserted the following in their defense: Was not aware that the vehicle sold & the vehicle purchased had to be the same name. Was first time to sell car on our own. Did not know the rules. The motor vehicle registrater told me about how to get sales tax refund but did not instruct me that the names had to be the same. 2 The date on the Bill of Sale (attached as Exhibit 5 to the Department s Answers to Information Request) provides a purchase date of December 20,2016. It is uncertain why the Department decided that the actual sale occurred on January 6, 2017. 3 Other than the exception noted in the prior footnote, the remaining exhibits supports the statements for which they were cited. 2
This defense was reasserted by the Taxpayers in theirs Answers to Information Request and during the administrative hearing. In her Answers to Information Request and during the Administrative Hearing, the Department s Representative argued that the Taxpayers were not entitled to the motor vehicle tax credit since they did not own Vehicle A when it was sold, citing Arkansas Gross Receipts Tax Rules GR-12.1 and Ark. Code Ann. 26-52-510 (Repl. 2014). After explaining each of the exhibits attached to the Answers to Information Request submitted by the Department s Representative, the Tax Auditor testified during the Administrative Hearing in this matter that the motor vehicle tax credit was denied in the refund claim because the Taxpayers were not the owners of the vehicle that was sold, Vehicle A. He does not know whether the Taxpayers corporation files its income tax returns as a Subchapter S Corporation and he is uncertain how much of the stock in the corporation is owned by the Taxpayers. If the Taxpayers had registered Vehicle A in their names and sold it or purchased the new vehicle in the corporation s name, the motor vehicle tax credit would likely have been granted. He is uncertain whether the corporation benefitted in its income tax filings by registering Vehicle A in its name. During the Administrative Hearing, testified that he thought that his accountant advised him whether to register the new vehicle in the names of the corporation or the Taxpayers; however, the Accountant told the Taxpayer that he did not recall or have any record of that conversation. 4 When he sold Vehicle A, it was the first time that he had privately sold a motor vehicle. Before, he simply traded-in prior motor 4 The Taxpayer submitted a letter from his accountant during the administrative hearing (Taxpayer s Exhibit A) to this effect. 3
vehicles at the car dealership. He was unaware of the importance of the names on the motor vehicle titles when claiming the motor vehicle tax credit. By the letter of the law, he stated that he likely messed up but he felt that it was unfair to charge him for a minor oversight in the paperwork. During the Administrative Hearing, testified that she registered Vehicle B. She asserted that an employee of the Revenue Office informed her that a Taxpayer can receive a tax refund if they recently sold a motor vehicle and registered and paid sales tax on a new vehicle purchase. The Revenue Office employee did not tell her that it was important to have the vehicle titles contain the same registered owner. She also did not ask whether it mattered that Vehicle A and Vehicle B had different registered owners. did not have the Bill of Sale for the sale of Vehicle A at the time of registration of the new vehicle and had to request that document from the buyer before filing her refund claim. If she had known of the issue with the names on the titles, she would have modified the paperwork with the Hyundai dealership to list the corporate name prior to registering the new vehicle. After a general discussion of the burdens of proof in tax proceedings, a legal analysis shall follow. CONCLUSIONS OF LAW Standard of Proof follows: 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. 4
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 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 wellfounded 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). Ark. Code Ann. 26-18-507 (Repl. 2012) provides for a refund of any state tax erroneously paid in excess of the taxes lawfully due. The Taxpayer bears the burden of proving by a preponderance of the evidence that the claimed refund was erroneously paid and in excess of the taxes lawfully due. Legal Analysis Arkansas sales tax generally applies to entire gross receipts of all sales of tangible personal property and certain specifically enumerated services within the State of 5
Arkansas. Ark. Code Ann. 26-52-301 (Repl. 2014). For purchases of motor vehicles, the consumer is required to directly pay the accompanying sales tax liability to the Department. Ark. Code Ann. 26-52-510(a)(1) (Repl. 2014). Ark. Code Ann. 26-52- 510(b)(1)(C)(i) (Repl. 2014) authorizes a sales tax credit for the private sale of a used motor vehicle and states: When a used motor vehicle, trailer, or semitrailer is sold by a consumer, rather than traded-in as a credit or part payment on the sale of a new or used motor vehicle, trailer, or semitrailer, and the consumer subsequently purchases a new or used vehicle, trailer, or semitrailer of greater value within forty-five (45) days of the sale, the tax levied by this chapter and all other gross receipts taxes levied by the state shall be paid on the net difference between the total consideration for the new or used vehicle, trailer, or semitrailer purchased subsequently and the amount received from the sale of the used vehicle, trailer, or semitrailer sold in lieu of a trade-in. [Emphasis supplied.] See also Arkansas Gross Receipts Tax Rule GR-12.1. Ark. Code Ann. 26-52-103(3)(A) (Repl. 2014) defines consumer as the person to whom the taxable sale is made or to whom taxable services are furnished. Person means any individual, partnership, limited liability company, limited liability partnership, corporation, estate, trust, fiduciary, or any other legal entity. [Emphasis supplied]. Ark. Code Ann. 26-52-103(16) (Repl. 2014). Under the provisions cited above, Ark. Code Ann. 26-52-510(b)(1)(C)(i) (Repl. 2014) creates an entity-specific sales tax credit for the sale of a used motor vehicle in lieu of a trade-in. Stated differently, in order to qualify for the relevant sales tax credit, the same person or entity must be the consumer who pays the sales tax on the purchase of a motor vehicle and the consumer who subsequently sells (or previously sold) a used motor vehicle in lieu of a trade-in. The statutory law specifically distinguishes between corporations and individuals as separate consumers. 6
Here, it is shown that the Taxpayers corporation sold Vehicle A; however, Vehicle B was purchased by the Taxpayers, individually. While the President might be a shareholder and officer of the Taxpayer, this fact does not allow the Taxpayer s separate existence to be disregarded. It is not proven that the Taxpayers were the actual owners of Vehicle A when it was sold by a preponderance of the evidence. Consequently, the Taxpayers have not proven entitlement to the motor vehicle tax credit based on the above analysis, and the Taxpayer were not entitled to the motor vehicle tax credit based on the statutory requirements. Though the Taxpayers asserted that titling the vehicles in different names was a minor error, the Arkansas Supreme Court has explained that the Arkansas General Assembly is sole arbitrator of policy decisions within Arkansas and it would be inappropriate for an administrative agency or court to refuse to enforce a state law as it reads based on a policy disagreement. Snowden v. JRE Investments, Inc., 2010 Ark. 276, 370 S.W.3d 215. Consequently, this Office cannot ignore the statutory requirements for the motor vehicle tax credit and allow the tax credit even if the titling was the result of a minor mistake by the Taxpayers. The Taxpayers further asserted that the Revenue Office employee should have told them that they would not be entitled to the credit if the two vehicles were owned by different entities, allowing them an opportunity to amend the paperwork. While the Taxpayer did not expressly assert the defense of estoppel, this argument does implicate that legal doctrine. In Duchac v. City of Hot Springs, 67 Ark.App. 98, 992 S.W.2d 174, the Arkansas Court of Appeals discussed the requirements for an estoppel claim against a governmental entity, stating as follows in pertinent part: 7
In City of Russellville v. Hodges, 330 Ark. 716, 957 S.W.2d 690 (1997), our supreme court set out the elements of estoppel: Four elements are necessary to establish estoppel. They are: (1) the party to be estopped must know the facts; (2) the party to be estopped must intend that the conduct be acted on or must act so that the party asserting the estoppel had a right to believe it was so intended; (3) the party asserting the estoppel must be ignorant of the facts; and (4) the party asserting the estoppel must rely on the other's conduct and be injured by that reliance. [Citations omitted.] Additionally, we have specifically held that a sovereign is not bound by the unauthorized acts of its employees. [Citations omitted.].... 330 Ark. at 719, 957 S.W.2d at 691 92. The trial court also cited Hope Educ. Ass'n v. Hope School Dist., 310 Ark. 768, 839 S.W.2d 526 (1992), which applied the same elements of estoppel, with a few wording changes, to a sovereign. In applying these elements of estoppel to the facts of this case, the chancellor found they were not all satisfied.... According to appellant, the second element of estoppel, that the party to be estopped must intend that the conduct be relied on, is satisfied by the City billing and collecting occupational taxes, thereby acquiescing in appellant's use of the house as an apartment building. The Arkansas Supreme Court has held that estoppel may only be applied against the State when there has been an affirmative misrepresentation by an agent or agency of the State. Arkansas Dep't of Human Servs. v. Estate of Lewis, 325 Ark. 20, 922 S.W.2d 712 (1996). See also Foote's Dixie Dandy, Inc. v. McHenry,supra. Estoppel should not be applied where there was no clear proof of an affirmative misrepresentation. Everett, Director v. Jones, 277 Ark. 162, 639 S.W.2d 739 (1982). These requirements are equally applicable to municipal corporations. Miller v. City of Lake City, 302 Ark. 267, 789 S.W.2d 440 (1990). In the instant case there is no allegation of any affirmative misrepresentation by any agent of the City. The chancellor was correct in not applying estoppel to the City because of the City's acquiescence in appellant's use of the house as an apartment for many years. As to the third element of estoppel, the party asserting the estoppel must be ignorant of the facts, appellant argues that he was justifiably ignorant of the zoning violation because the house was divided into apartments that were fully occupied when he purchased it, and, in the thirty years he has owned the house, the City never informed him that he was violating a zoning ordinance. Again, appellant is not claiming an affirmative misrepresentation by an agent of the City, only acquiescence. The chancellor found that since the zoning ordinance was law, and one is presumed to know the law, appellant could not rely on his 8
ignorance. It has long been held that every person is presumed to know the law and that ignorance of its mandates is no excuse. Henderson v. Gladish, 198 Ark. 217, 128 S.W.2d 257 (1939). See also Hogg v. Jerry, 299 Ark. 283, 773 S.W.2d 84 (1989); Dunkin v. Citizens Bank of Jonesboro, 291 Ark. 588, 727 S.W.2d 138 (1987). Duchac, 67 Ark. App. at 105 107, 992 S.W.2d at 179 180. As shown above, under court precedent, an estoppel claim against the Department requires proof that the Department s employee was aware of the necessary facts and made an affirmative misrepresentation; the Taxpayers lacked knowledge of the relevant facts; and the Taxpayers relied to their detriment on the Department s assertion. The Arkansas Court of Appeals specifically noted that mere lack of knowledge of a publicly available law is insufficient to support an estoppel claim. Here, the Taxpayers did not assert that the Department s employee was made aware of the different owners of the two vehicles before advising them of their ability to file a refund claim, preventing the satisfaction of the first element. Additionally, the Taxpayers lack of knowledge of the requirements for the motor vehicle tax credit cannot be utilized to satisfy the third element of an estoppel claim. It is also uncertain whether the other elements of the estoppel claim are fully met. The conclusions regarding the first and third element, however, are sufficient to prevent application of this doctrine so the satisfaction of the remaining elements shall not be analyzed within this decision. Consequently, the Taxpayers estoppel claim cannot be upheld in this matter under court precedent. Based on the above analysis, the Taxpayers have not proven entitlement to the motor vehicle tax credit, and the Taxpayers were not entitled to the motor vehicle tax credit. The Department correctly denied the Taxpayers refund claim. 9
DECISION AND ORDER The refund denial is sustained. The file is to be returned to the appropriate section of the Department for further proceedings in accordance with this Administrative Decision and applicable law. Pursuant to Ark. Code Ann. 26-18-405 (Supp. 2015), unless the Taxpayers request 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 Administrative 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. A revision request may also be faxed to the Assistant Commissioner of Revenues at (501) 683-1161 or emailed to revision@dfa.arkansas.gov. The Commissioner of Revenues, within twenty (20) days of the mailing of this Administrative Decision, may revise the decision regardless of whether the Taxpayers have requested a revision. The Taxpayers may seek relief from the final decision of the Administrative Law Judge or the Commissioner of Revenues on a refund claim denial by following the procedure set forth in Ark. Code Ann. 26-18-406 (Supp. 2015). DATED: June 1, 2017 10