Equifax, Inc. v. Miss. Dep't of Revenue

• Decision Date: 21 November 2013
• Docket Number: No. 2010–CT–01857–SCT.,2010–CT–01857–SCT.
• Citation: 125 So.3d 36
• Court: Mississippi Supreme Court
• Parties: EQUIFAX, INC. and Equifax Credit Information Services, Inc. v. MISSISSIPPI DEPARTMENT OF REVENUE f/k/a Mississippi State Tax Commission.

125 So.3d 36

EQUIFAX, INC. and Equifax Credit Information Services, Inc.

v.MISSISSIPPI DEPARTMENT OF REVENUE f/k/a Mississippi State Tax Commission.

No. 2010–CT–01857–SCT.

Supreme Court of Mississippi.

June 20, 2013.

Rehearing Denied Nov. 21, 2013.

Louis G. Fuller, Katie Lofton Wallace, Jackson, Timothy J. Peaden, Mary T. Benton, attorneys for appellants.

Gary Wood Stringer, James L. Powell, Jackson, attorneys for appellee.

EN BANC.

ON WRIT OF CERTIORARI

RANDOLPH, Presiding Justice, for the Court:

¶ 1. Before the Court on certiorari review is an income-tax assessment by the Mississippi State Tax Commission ¹ (“the Commission”) against Equifax, Inc., and Equifax Credit Information Services, Inc. (collectively “Equifax”). Using the standard apportionment method prescribed by Commission regulation, Equifax computed its Mississippi taxable income as zero. The Commission then audited Equifax and determined that the standard apportionment method did not fairly reflect Equifax's business in Mississippi. The Commission employed an alternative apportionment method, under which Equifax's income from services provided to customers located in Mississippi was apportioned to Mississippi, and it issued assessments against Equifax.

¶ 2. After Equifax exhausted its administrative remedies, it petitioned the Hinds County Chancery Court for relief, and it affirmed the Commission's decision. The Court of Appeals reversed the judgment of the chancery court on standard-of-review and burden-of-proof grounds and found all remaining issues moot. Equifax, Inc. v. Miss. Dep't of Revenue, ––– So.3d –––– (Miss.Ct.App.2012). On writ of certiorari, we hold that the Hinds County Chancery Court did not commit reversible error; that the use of an alternative apportionment method for Equifax was not a promulgation of a rule in violation of the Mississippi Administrative Procedures Act; and that the Commission did not abuse its discretion by imposing penalties against Equifax, as provided for in Mississippi Code Section 27–13–25(3). Accordingly, we reverse the judgment of the Court of Appeals and reinstate and affirm the judgment of the Hinds County Chancery Court.

FACTS AND PROCEDURAL HISTORY

¶ 3. The Court of Appeals set forth the following facts and procedural history:

¶ 2. The taxpayers are Equifax, Inc. and Equifax Credit Information Services, Inc. (“ECIS”) (collectively referred to as “Equifax”). Equifax, Inc. is a Georgia corporation in the business of consumer credit reporting. It sells credit information and other services to consumers and businesses across the country. Equifax, Inc. was registered to do business and was in fact doing business in Mississippi. Equifax, Inc. is the parent company of ECIS. The services provided by Equifax, Inc[.] and ECIS include: credit reporting, information services, direct mail marketing, risk management, and mortgage loan processing and approval. The primary services provided are credit reports, credit scores, and fraud alerts.

¶ 3. The [Commission] audited Equifax for payment of state income taxes for the period of January 1, 2000, through December 31, 2003 (the “audit period”). During the audit period, Equifax had approximately 800 customers located in Mississippi. The revenue generated from these Mississippi customers was $5,275,406 in 2000, $6,579,281 in 2001, $5,646,283 in 2002, and $5,178,370 in 2003. Based on these figures, the total gross receipts for the sale of Equifax's services provided to Mississippi customers during the audit period totaled $22,679,340.

¶ 4. Equifax did not have a corporate office in Mississippi but employed three Mississippi residents. Equifax's Mississippi customers requested and received services from Equifax at their Mississippi locations. These transactions primarily occurred electronically and took approximately three seconds from the time the customer requested the credit report or score to the time they received the information.

¶ 5. Equifax timely filed Mississippi state income tax returns for each year in the audit period. However, Equifax reported no taxable income in the State for each of these years and paid no income tax for each year. In computing taxable income, Equifax relied on the [Commission's] regulations and the standard-apportionment method for service companies. As a result, Equifax determined that it had no income subject to tax in Mississippi.

¶ 6. At the conclusion of the audit, on February 28, 2008, the [Commission] issued assessments against Equifax. The [Commission] determined that the apportionment method used by Equifax did not fairly reflect the extent of Equifax's business in Mississippi. The [Commission] determined Equifax should have used an alternative-apportionment method, a market-based sourcing method, during the audit period.

¶ 7. Equifax disagreed with the assessments and appealed the assessments to the Mississippi Tax Commission Board of Review (the “Board”). The Board upheld the assessments in a reduced amount. Equifax then appealed to the three-member Tax Commission, which upheld the Board's reduced assessments.

¶ 8. On May 29, 2009, Equifax paid the assessments, under protest, including interest and penalties. Equifax, Inc.'s assessments totaled $467,836; and ECIS's assessments totaled $271,201.

¶ 9. On June 1, 2009, pursuant to Mississippi Code Annotated section 27–77–7 (Rev. 2008), Equifax appealed the assessment to the Hinds County Chancery Court. [The chancellor] held an evidentiary hearing on all issues presented. The chancellor then entered an order and final judgment, dated October 26, 2010, affirming the [Commission's] assessments.

Equifax, ––– So.3d at –––– – ––––. In its Complaint and Petition, Equifax sought judicial review of the decision of the Tax Commission. Equifax averred that the Commission's use of the alternative apportionment method was not authorized by Mississippi law and violated Equifax's rights under the United States Constitution. Equifax and the Commission filed a stipulation of agreed-upon facts.² At trial, Equifax was burdened to prove its entitlement to relief—that the Commission's decision was reversible—by a preponderance of the evidence. The chancellor concluded that Equifax had failed to meet its burden to prove that the Commission's use of an alternative apportionment method violated the Mississippi Administrative Procedures Act, that its imposition of penalties against Equifax was arbitrary and capricious, or that Equifax's rights under the United States Constitution had been violated. The court further found that it could not substitute its “judgment for the agency's unless the latter's interpretation is arbitrary or unreasonable.” It further found, in the limited record presented, including the agreed-upon facts, that the Commission orders were premised on substantial evidence.

¶ 4. Equifax appealed the decision of the Hinds County Chancery Court to the Court of Appeals. The Court of Appeals found that: (1) a de novo standard applies to judicial review of Commission decisions; and, (2) as the party invoking alternate apportionment, the Commission has the burden to prove that the standard apportionment method is not a fair representation of the taxpayer's activity in the state and that its chosen alternative method is reasonable. Equifax, ––– So.3d at –––– – ––––. The Court of Appeals recognized that the arbitrary-and-capricious standard normally applies to agency decisions, but opined that “[t]his is not the normal case. The Legislature has established a different standard that ... applies here.” Id. at ––––. The Court of Appeals examined Mississippi Code Section 27–77–7(4) and found that “[t]his case seems to create a conflict as to exactly what a trial de novo means in an appeal from a [Commission] decision.” Id. at ––––. Quoting the general understanding that “[a] de novo review ‘means that the case shall be tried the same as if it had not been tried before, and the court conducting such a trial may substitute its own findings and judgment for those of the inferior tribunal from which the appeal is taken[,]’ ” the Court of Appeals concluded that “the chancery court's review of the [Commission's] decision should have been conducted just as if the chancery court were sitting as the [Commission].” Id. (citing California Co. v. State Oil & Gas Bd., 200 Miss. 824, 838–39, 27 So.2d 542, 544 (1946) (citation omitted)). Concluding that the chancellor had erred both by applying an incorrect standard of review and by imposing the burden of proof on the wrong party, the Court of Appeals reversed the chancellor's decision and remanded the case to the Hinds County Chancery Court. Id. at ––––. As it reversed and remanded on these two issues, the Court of Appeals found all other issues raised on appeal moot. Id.

ISSUES

¶ 5. This Court granted certiorari to address the following issues:

1. Whether the chancellor committed reversible error by applying an arbitrary-and-capricious standard when reviewing a decision of the Mississippi State Tax Commission under Section 27–77–7(4).

2. Whether the chancellor committed reversible error by requiring Equifax to carry its burden of proof of establishing that the Commission's decision was reversible.

¶ 6. Declining to reverse the chancellor's judgment on the grounds of standard of review or burden of proof, we also address the following additional issues raised by Equifax:

3. Whether the chancellor manifestly erred by concluding that the Commission's use of an alternative apportionment method for Equifax's income was not a promulgation of a new rule in violation of the Mississippi Administrative Procedures Act.

4. Whether the chancellor manifestly erred by declining to abate penalties imposed by the Commission under Section 27–13–25(3).

DISCUSSION

¶ 7. The proper standard of review and burden of proof for an appeal to chancery court of a judgment of the Commission are questions of law dictated by Mississippi statute. Miss.Code Ann. § 27–77–7(4)...