Bartlett & Co. Grain v. Director of Revenue, 64059

• Decision Date: 26 April 1983
• Docket Number: No. 64059,No. 2,64059,2
• Citation: 649 S.W.2d 220
• Court: Missouri Supreme Court
• Parties: BARTLETT & COMPANY GRAIN, Petitioner, v. DIRECTOR OF REVENUE, State of Missouri, Respondent

Page 220

649 S.W.2d 220

BARTLETT & COMPANY GRAIN, Petitioner, v. DIRECTOR OF REVENUE, State of Missouri, Respondent.

No. 64059.

Supreme Court of Missouri Division No. 2.

April 26, 1983.

Richard Monaghan, Stinson, Mag & Fizzell, Kansas City, for petitioner.

John Ashcroft, Atty. Gen., Richard L. Wieler, Asst. Atty. Gen., Jefferson City, for respondent.

ROBERT E. SEILER, Senior Judge.

This cause is here on petition for review of a decision of the Administrative Hearing Commission affirming assessments of income tax deficiencies against petitioner Bartlett & Company Grain for fiscal years ended April 30, 1973, May 4, 1974, and May 2, 1975. The issue presented involves construction of a revenue statute and jurisdiction is vested in this court pursuant to Mo. Const. art. V, § 3 and § 161.337, RSMo 1978.

Bartlett is a duly existing Missouri corporation engaged in the operation of grain elevators in Missouri, Colorado, Iowa, Kansas, Nebraska, and Oklahoma. It maintains its principal office in Missouri.

In filing its Missouri income tax forms for the years in question, Bartlett elected to apportion its income using the single factor sales formula set out in § 143.451, RSMo 1978, ¹ and apportioned its sales as follows:

1. 100% to Missouri where the merchandise was shipped from points within Missouri to points within Missouri.

2. 50% to Missouri where the merchandise was shipped from points without Missouri to points within Missouri.

3. 50% to Missouri where the merchandise was shipped from points within Missouri to points without Missouri.

4. 0% to Missouri where the merchandise was shipped from points without Missouri to points without Missouri.

The department of revenue recomputed Bartlett's tax liability including 50% of sales shipped from points outside Missouri to destinations outside Missouri where the sales were handled through Bartlett's Missouri sales office. No part of these sales had been included in Bartlett's computation of its tax liability. The recomputation yielded assessments for income tax deficiencies for fiscal years ended April 30, 1972, April 30, 1973, May 3, 1974, and May 2, 1975. ²

Bartlett duly filed protests of the proposed assessments and at a hearing before the department argued that the returns should be accepted as filed. Prior to a determination by the director of revenue, the court decided International Travel Advisors, Inc. v. State Tax Commission, 567 S.W.2d 650, 654 (Mo. banc 1978), and held that "where transactions occur partially in Missouri and partially elsewhere, the portion allocable to Missouri is to be included in the tax computation." In light of that decision, Bartlett ceased to contend that its return should be accepted as filed and substituted a request that it be allowed to file amended returns using the three factor formula of apportionment as provided for in the Multistate Tax Compact, Section 32.200, art. IV, RSMo 1978. The director refused Bartlett's request to file amended returns.

Bartlett appealed the decision to the Administrative Hearing Commission. The parties waived an evidentiary hearing and submitted the case on stipulated facts. The commission denied Bartlett's request to file amended returns, finding its election irrevocable and upheld the action by the director assessing income tax deficiencies.

This case presents two issues: (1) whether the Administrative Hearing Commission erred in holding that Bartlett's election to use the single factor sales formula was irrevocable; and (2) whether the Administrative Hearing Commission erred in holding that the department of revenue was not estopped from denying Bartlett's request to amend its returns. Bartlett claims the department should be estopped because its choice of the single factor sales formula was based on reliance on a regulation promulgated by the department under § 143.040, RSMo 1969 (now § 143.451, RSMo 1978) pertaining to the apportionment of income. The regulation in question, M.R. 210, provided in pertinent part:

Where the elective allocation formula is used by a corporation taxable under Section 143.040 [now Section 143.451] the following basis applies to the numerator of the allocation fraction:

1. All sales shipped from points in Missouri to points in Missouri. 100%.

2. All sales shipped from points in Missouri to points outside of Missouri. 50%.

3. All sales shipped from points outside of Missouri to points in Missouri. 50%.

Although Bartlett's computation of income using the single factor sales formula was in accordance with M.R. 210, the department of revenue in a letter informed Bartlett that M.R. 210 had been repealed along with the Missouri income tax law, effective January 1, 1973. The letter noted that no new regulation had been issued for § 143.451 and conceded that the Missouri Tax Reporter published by Commerce Clearing House still contained the old regulation with the new law.

The first point raised on appeal questions the commission's determination that Bartlett's election to apportion income using the single factor sales formula was irrevocable. Bartlett posits that the election may be revoked because § 143.461, RSMo 1978, is silent with respect to whether the election is irrevocable. However, the paramount rule of statutory construction is to ascertain legislative intent. Staley v. Missouri Director of Revenue, 623 S.W.2d 246 (Mo. banc 1981). Sections 143.091 and 143.961 indicate the legislative intent to adopt, where possible, federal precedents and regulations in the construction of the Missouri income tax statutes (§§ 143.011 to 143.996).

Federal courts have generally been reluctant to permit taxpayers to revoke an election. In Pacific National Co. v. Welch, 304 U.S. 191, 58 S.Ct. 857, 82 L.Ed. 1282 (1938), the United States Supreme Court emphasized the binding nature of an election to report sales on the cash basis rather than the installment basis:

Change from one method to the other, as petitioner seeks, would require recomputation and readjustment of tax liability for subsequent years and impose burdensome uncertainties upon the administration of the revenue laws .... There is nothing to suggest that Congress intended to permit a taxpayer, after expiration of the time within which return is to be made, to have his tax liability computed and settled according to the other method.

Id. at 194, 58 S.Ct. at 858.

A taxpayer who in his tax return made an election cannot revise his election on the basis of facts developing after the accounting period, including judicial decisions and other events subsequent to the accounting period. Bird v. United States, 141 F.Supp. 569, 573 (D.Mass.1956). Further, good faith reliance on a mistaken legal judgment about the tax consequence of an improvident election does not entitle the taxpayer to revoke his election. Bankers & Farmers Life Insurance Company v. United States, 643 F.2d 234, 238 (5th Cir.1981); Shull v. Commissioner of Internal Revenue, 271 F.2d 447, 449 (4th Cir.1959). In J.E. Riley Investment Co. v. Commissioner of Internal Revenue, 311 U.S. 55, 61 S.Ct. 95, 85 L.Ed. 36 (1940), the court refused to permit the petitioner to change the basis upon which its taxable income was computed. Petitioner was engaged in the business of mining gold at Flat, Alaska. Due to the uncertain nature of mail service to such a remote location and to avoid delinquency in income tax returns, petitioner's officers were accustomed to using the tax forms for an earlier year. The collector, in sending the 1933 forms, had not advised petitioner that the Revenue Act of 1934 allowed percentage depletion. When the petitioner learned of the availability of percentage depletion, it filed an amended return. The commissioner denied the election of percentage depletion. Recognizing the equitable considerations present, the court nonetheless refused to permit revocation of the election. The court found the likelihood of hardship was no ground for relief by the courts from the rigors of the statutory choice which Congress had provided. Id. at 59, 61 S.Ct. at 97.

Bartlett's reliance on M.R. 210 was analogous to good faith reliance on an erroneous legal opinion or accountant's advice. The Missouri tax law was revamped and a new law enacted effective January 1, 1973. The department of revenue, for the years in question, had not promulgated a regulation for apportionment of income. Bartlett was relying on a regulation that did...