Bates v. Director of Revenue

• Decision Date: 29 May 1985
• Docket Number: No. 65925,65925
• Citation: 691 S.W.2d 273
• Parties: James R. BATES d/b/a the Manor Inn, Successor, Appellant, v. DIRECTOR OF REVENUE, State of Missouri, Respondent.
• Court: Missouri Supreme Court

Page 273

691 S.W.2d 273

James R. BATES d/b/a the Manor Inn, Successor, Appellant, v. DIRECTOR OF REVENUE, State of Missouri, Respondent.

No. 65925.

Supreme Court of Missouri En Banc.

May 29, 1985.

James L. Sivils, Jr., Springfield, for appellant.

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

RENDLEN, Chief Justice.

James Bates appeals from the Administrative Hearing Commission's dismissal of his challenge to a sales tax assessment by the Director of Revenue under Missouri's successor liability statute, § 144.150, RSMo 1978. ¹ The statute provides in pertinent part that successors to a business must withhold from the purchase price an amount sufficient to satisfy any sales taxes not paid by a previous owner and if the successor fails so to do he risks liability for his predecessor's delinquency.

Bates purchased the Manor Inn, a motel, restaurant and lounge complex, without satisfying a delinquent sales tax assessment arising from the operation of the business by a former owner. He contests derivative liability, arguing he is not a "successor" within the meaning of the statute and hence not subject to liability for the taxes due. This cause, turning on construction of Missouri's revenue laws, falls within the original appellate jurisdiction of the Court. Mo. Const. Art. V, § 3.

In 1970 Jack and Virginia Rogers purchased the property in question from the Carney family. The Rogers executed a $660,062.69 promissory note to the Carneys and a first deed of trust encumbering the motel property to secure payment of the note. The property passed through several hands and in 1973 was conveyed to Manor Inn, Inc., a corporation owned and controlled by J. Douglas Cassity. When Cassity purchased the property he assumed the obligation of the outstanding promissory note held by the Carney family. ² It was during Cassity's operation of the Manor Inn the challenged sales tax delinquency occurred. In February 1979 Cassity executed and delivered to Great Southern Savings and Loan Association his promissory note in the amount of $790,000 secured by a deed of trust on the motel property junior to that of the Carneys.

Cassity defaulted on the Carney note and a successor-trustee under the first deed of trust sold the property at foreclosure sale to Great Southern for $902,000. Great Southern paid the full amount of the purchase price and received title by trustee's deed. The Trustee paid approximately $301,000 of the purchase price to Great Southern on its junior note and held the remaining $601,000 for satisfaction of the Carney note and for payment of an accompanying claim for attorney's fees. Cassity, contesting the legality of the foreclosure sale, presented written objections to Carney's Trustee. Great Southern in turn challenged the amount of attorney's fees allocated in the sale price. In response to these challenges, the Trustee filed his petition for declaratory judgment and deposited the contested funds in the registry of the Phelps County Circuit Court. The petition, naming the Carneys, Manor Inn Inc. (Cassity) and Great Southern as defendants, requested that the court declare the foreclosure sale valid and approve the proposed disbursement of funds in the Trustee's hands.

While the action for declaratory judgment was pending, appellant sought to purchase the motel complex and in contemplation thereof the suit was settled. As a result of this settlement Bates transferred $3,000 in gems to Cassity and received from Cassity a quit claim deed conveying his interest in the realty and a bill of sale for the personal property constituting the physical assets of the Manor Inn business. Bates also executed a promissory note in the amount of $975,000, secured by his deed of trust on the property, to Great Southern and received from Great Southern a quit-claim deed conveying its interests in the realty and a bill of sale for the personal property of the Manor Inn. These transactions occurred pursuant to a "loan agreement" entered into by Bates and Great Southern which named Cassity as the seller of the Manor Inn property. Later the Director of Revenue assessed against Bates $17,289.03 in delinquent sales tax (including interest and penalties) which had accrued during Cassity's operation of the Manor Inn. ³

Bates sought review before the Administrative Hearing Commission and from an adverse ruling there, appeals to this Court. The Commission made no determination as to whether Bates purchased the Manor Inn property from Cassity or Great Southern but found him liable as a successor regardless of which might be his predecessor in title. Bates insists he purchased the property from Great Southern, not Cassity, and accordingly was not a "successor" within the meaning of the statute, this because Great Southern purchased from the foreclosing Carney Trustee and that foreclosure severed the line of succession, protecting Great Southern and Bates from derivative liability as a matter of law.

In this review, the decision of the Commission must be upheld if authorized by law and supported by competent and substantial evidence. § 621.193 RSMo Supp.1984 (formerly codified as § 161.338 RSMo 1978). We affirm.

Section 144.150 provides:

Withholding of tax money in case of sale of business. If any person required to remit a tax levied hereunder or his successors shall sell his or its business or stock of goods or shall quit the business, he shall make a final return under oath within fifteen days after the date of selling or quitting business. All successors, if any, shall be required to withhold sufficient of the purchase money to cover the amount of such taxes and interest or penalties due and unpaid until such time as the former owner or predecessor, whether immediate or not, shall produce a receipt from the director of revenue showing that they have been paid, or a certificate stating that no taxes are due. If the purchaser of a business or stock of goods shall fail to withhold the purchase money as above provided, he shall be personally liable for the payment of the taxes, interest and penalties accrued and unpaid on account of the operation of the business by the former owner and person.

There are no Missouri cases construing this section, however decisions interpreting similar statutes from other jurisdictions are instructive. See generally Annot., 65 A.L.R.3d 1181 (1975). The courts of sister states consistently emphasize that the purpose of successor liability statutes is to secure collection of taxes by imposing derivative liability on purchasers of a business who are generally in a better financial position to collect or pay the tax from the sale price than the seller quitting the business. E.g., Bank of Commerce v. Woods, 585 S.W.2d 577 (Tenn.1979). Such statutes are given broad construction so not to jeopardize the state interest in securing collection of taxes. Bank of Commerce, 585 S.W.2d at 581; see Sterling Title Company of Taos v. Commissioner of Revenue, 85 N.M. 279, 511 P.2d 765 (App.1973); Tri-Financial Corporation v. Department of Revenue, 6 Wash.App. 637, 641, 495 P.2d 690, 692 (1972).

When determining the meaning of the statutory term "successor," consideration of the entire section is necessarily the starting point. Though it contains no separate definition of its terms, the statute obligates "all successors" to "withhold sufficient of the purchase money" to provide for outstanding taxes and imposes personal liability on a "purchaser" who fails so to do. One who acquires property without purchasing cannot withhold purchase money and necessarily cannot be held liable as a "successor" within the meaning of the statute. To be a successor one must be a purchaser of the business property in question. Knudsen Dairy Products Company v. State Board of Equalization, 12 Cal.App.3d 47, 53, 90 Cal.Rptr. 533, 538 (1970); see State v. Standard Oil Company, 39 Ohio St.2d 41, 313 N.E.2d 838 (Ohio 1974); Bank of Commerce, supra.

Turning to the question of whether appellant purchased from Cassity or Great Southern we note that appellant was fully apprised of Cassity's relationship to the property in question. Not only was the record title to the land available showing Cassity's interest but Cassity remained in physical control until the very last when appellant finally took possession. Further, in the settlement arrangement of the Trustee's declaratory judgment action, Cassity's interest was contemplated by all the parties. Appellant paid Cassity $3,000 in gems for a quit claim of Cassity's interest in the realty and his bill of sale for the personalty. In addition the loan agreement between Bates and Great Southern states that the appellant "contracted with" Cassity for the sale of the Manor Inn business property. Thus it can be said the record permits our conclusion that appellant purchased from and is a successor to Cassity, and provides sufficient competent evidence to support the Commission's determination that appellant was a successor with in the meaning of the statute.

We next consider appellant's contention that he was a successor only to Great Southern and because the Association acquired its interest from the foreclosure sale, no liability for the delinquent sales tax attaches to Great Southern or appellant.

Appellant in support of his argument that the foreclosure sale insulates him from derivative liability cites State v. Standard Oil, supra. There Standard Oil foreclosed on secured operating assets when its franchisee defaulted on lease payments and Standard Oil assumed ownership of the assets under its security agreement. The State taxing authority attempted to impose liability on Standard for its franchisee's delinquent taxes but the Ohio court held there was no purchase of the property by the foreclosing party and successor liability could not attach. In the instant case neither the Carney Trustee nor any beneficiary of the Carney deed of trust "assumed ownership" at...