Arapahoe Roofing and Sheet Metal, Inc. v. City and County of Denver

• Decision Date: 18 May 1992
• Docket Number: No. 91SA275,91SA275
• Citation: 831 P.2d 451
• Parties: ARAPAHOE ROOFING AND SHEET METAL, INC., Petitioner-Appellant, v. CITY AND COUNTY OF DENVER, Respondent-Appellee.
• Court: Colorado Supreme Court

Page 451

831 P.2d 451

ARAPAHOE ROOFING AND SHEET METAL, INC., Petitioner-Appellant, v. CITY AND COUNTY OF DENVER, Respondent-Appellee.

No. 91SA275.

Supreme Court of Colorado En Banc.

May 18, 1992.

As Modified on Denial of Motion for

Clarification June 1, 1992.

As Modified on Denial of Rehearing

June 8, 1992.

Hurth, Yeager & Sisk, John M. Yeager, Charles L. Sisk, Barbara J. Gifford, Boulder, for petitioner-appellant.

Daniel E. Muse, City Atty., Maria Kayser, Asst. City Atty., Denver, for respondent-appellee.

Justice VOLLACK delivered the Opinion of the Court.

Petitioner, Arapahoe Roofing and Sheet Metal, Inc. (Arapahoe Roofing), appeals from a district court judgment affirming a use tax deficiency issued by the City and County of Denver (the City), in the amount of $76,113.43. We affirm.

I.

Arapahoe Roofing installs roofing and sheet metal products. While its office is located in Broomfield, Colorado, Arapahoe Roofing purchases and installs such products within the City.

In the fall of 1989, the City requested that Arapahoe Roofing make its records available in order for the City to conduct an audit regarding use tax payments pursuant to section 53-101 of the Revised Municipal Code of the City and County of Denver (DRMC). ¹ Arapahoe Roofing refused. ² On October 13, 1989, the City wrote Arapahoe Roofing a letter, again requesting access to records in order to conduct an audit. On October 24, Arapahoe Roofing responded and asked the City to provide examples of specific incidents wherein Arapahoe Roofing was not properly taxed.

On October 30, the City wrote Arapahoe Roofing a letter requesting cooperation in an audit. The October 30 letter stated that, without Arapahoe Roofing's cooperation, the City would have no choice but to issue an assessment based on an estimate pursuant to section 53-117(1) of the DRMC. Arapahoe Roofing did not produce any records for the City's review.

The October 30 letter also included a Notice of Proposed Deficiency for use taxes owed from January 1, 1982, to September 30, 1989. Failing to receive any response, on December 6, 1989, the City sent Arapahoe Roofing a Final Determination, Assessment and Demand for Payment. The assessment was based on an estimate derived from a list of Arapahoe Roofing projects in the City, organized by year and building permit number. The list included a valuation for materials that Arapahoe Roofing purchased for the projects. ³

On December 21, Arapahoe Roofing requested an administrative hearing before the Manager of Revenue (the Manager) in order to contest the use tax assessment pursuant to section 53-117(d) of the

DRMC. ⁴

On March 9, 1990, an administrative hearing was held, wherein Arapahoe Roofing contended that it had paid taxes on the items covered by the assessment. ⁵ Arapahoe Roofing also contended, among other things, that placing the burden of proving the incorrectness of the City's assessment on Arapahoe Roofing violated its due process rights. The Manager found that Arapahoe Roofing failed to meet its burden of proving the unconstitutionality of the challenged ordinance. The Manager affirmed the City's assessment of use taxes.

Arapahoe Roofing filed a complaint for judicial review on August 7, 1990, pursuant to DRMC section 53-124. ⁶ In its complaint for relief, Arapahoe Roofing argued that the hearing officer acted in an arbitrary and capricious manner, made a determination that was not supported by the evidence, and consequently abused her discretion. Arapahoe Roofing did not challenge the constitutionality of any City ordinances, nor did it seek de novo review of the Manager's decision pursuant to section 29-2-106.1, 12A C.R.S. (1987), and section 39-21-105, 16B C.R.S. (1982). ⁷

The district court found competent evidence in the record to support the Manager's findings. Arapahoe Roofing appealed to this court, contending that the DRMC violates its due process rights. Arapahoe Roofing alternatively contends that the Manager abused her discretion in affirming the City's assessment, and that it is entitled to de novo review under this court's decision in Walgreen v. Charnes, 819 P.2d 1039 (Colo.1991). We separately address each contention.

II.

Arapahoe Roofing contends that it properly preserved various constitutional challenges to the DRMC for appellate review by this court. ⁸ We disagree.

Arapahoe Roofing contends that it properly preserved the constitutional issues for appeal to this court since it raised the issues in its administrative hearing before the Manager. Arapahoe Roofing reasons that the administrative hearing was the tribunal of original jurisdiction in this case, and issues first raised in courts of original jurisdiction are properly preserved for appellate review. ⁹

Arapahoe Roofing additionally contends that it sought review of the Manager's decision in the district court pursuant to C.R.C.P. 106(a)(4), which limits review to whether the Manager exceeded her jurisdiction or abused her discretion. Arapahoe Roofing notes that review under C.R.C.P. 106(a)(4) does not encompass constitutional challenges. Accordingly, Arapahoe Roofing contends that this court is the proper forum for its constitutional challenges.

This court and the court of appeals have consistently held that administrative agencies do not have authority to pass on the constitutionality of statutes or ordinances. Clasby v. Klapper, 636 P.2d 682, 684 n. 6 (Colo.1981); Kinterknecht v. Industrial Comm'n, 175 Colo. 60, 67, 485 P.2d 721, 724 (1971); see also Denver Center for the Performing Arts v. Briggs, 696 P.2d 299, 305-06 n. 5 (Colo.1985); Industrial Comm'n v. Board of County Comm'rs, 690 P.2d 839, 844 n. 6 (Colo.1984); Lucchesi v. State, 807 P.2d 1185, 1191 (Colo.App.1990); Matthews v. Industrial Comm'n, 627 P.2d 1123 (Colo.App.1980); cf. Johnson v. Robison, 415 U.S. 361, 368, 94 S.Ct. 1160, 1166, 39 L.Ed.2d 389 (1974) (following the principle that administrative agencies generally do not have jurisdiction to adjudicate the constitutionality of congressional enactments); 4 K.C. Davis, Administrative Law Treatise § 26:6 (1983) (stating that administrative agencies generally lack power to pass on the constitutionality of statutes and that no federal court has adopted the California view that an agency may make such determinations).

When a party wishes to challenge the constitutionality of a statute or ordinance under which an administrative agency acts, the proper forum is the district court where the party can seek a declaratory judgment. Clasby, 636 P.2d at 684 n. 6; Kinterknecht, 175 Colo. at 67, 485 P.2d at 724; see also Stevenson v. Industrial Comm'n, 190 Colo. 234, 545 P.2d 712 (1976); Lucchesi, 807 P.2d at 1191.

In Kinterknecht, a plaintiff appealed an award of damages from the Industrial Commission to the court of appeals. Kinterknecht, 175 Colo. at 62, 485 P.2d at 724. This court granted certiorari prior to judgment of the court of appeals because Kinterknecht challenged the constitutionality of the Occupational Disease Act, the act under which the Industrial Commission awarded Kinterknecht damages. This court concluded that in the posture of "a reviewing court, we hold that the constitutional challenge ... is not properly before us." Id. at 67, 485 P.2d at 724. This court stated further:

Where the constitutionality of a statute, under which an administrative agency acts, is challenged, the administrative agency cannot pass upon its constitutionality. That function may be exercised only by the judicial branch of government.... The proper forum for this is the district court, where a declaratory judgment action can be initiated by [the party].

Id. (emphasis added).

Colorado courts have consistently followed this court's decision in Kinterknecht. See Lucchesi, 807 P.2d at 1191 (holding that administrative agencies have no jurisdiction to pass on constitutional challenges to statutes which it administers and that such issues must be raised before a district court in a declaratory judgment action); Denver Center for the Performing Arts, 696 P.2d at 305-06, n. 5 (holding that parties are not required to raise constitutional issues in an administrative forum because a hearing officer's decision on such issues will not be considered authoritative); see also Clasby, 636 P.2d at 684 n. 6 (holding that a party was not required to present a constitutional challenge to an administrative agency before raising the issue on appeal to the district court). ¹⁰

Arapahoe Roofing presented its constitutional challenges to the Manager of Revenue, but did not raise them before the district court. ¹¹ Arapahoe Roofing should have sought declaratory relief in the district court. We conclude that Arapahoe Roofing did not properly preserve its constitutional challenges for appeal to this court.

III.

Arapahoe Roofing also contends that the Manager's decision cannot be upheld because it is arbitrary, capricious, and a clear abuse of discretion. We disagree.

The DRMC permits the Manager to make an assessment where the taxpayer has failed to make accounts or records available upon demand of the Manager. ¹² See, for example, section 53-117(a) of the DRMC, which provides:

If any person neglects or refuses to make a return in payment of the taxes as required by this article, the manager shall make an estimate, based upon such information as may be available to him, with or without employing investigative powers vested in the manager by this article, of the amount of the taxes due[.]

Estimates made pursuant to DRMC 53-117 become final assessments twenty days from either the date of personal service of the demand or the date of mailing the demand. DRMC 53-117(c). ¹³ We will not disturb such assessments upon appeal unless the assessment is unsupported by competent evidence when the record is considered. See Ross v. Fire and Police Pension Ass'n, 713 P.2d 1304 (Colo.1986).

Arapahoe Roofing advances several arguments in support of its contention that the...