Bridgestone/Firestone, Inc. v. Chumley, No. M2007-00813-COA-R9-CV (Tenn. App. 6/11/2008)
| Decision Date | 11 June 2008 |
| Docket Number | No. M2007-00813-COA-R9-CV.,M2007-00813-COA-R9-CV. |
| Parties | BRIDGESTONE/FIRESTONE, INC. v. LOREN L. CHUMLEY, COMMISSIONER OF REVENUE FOR THE STATE OF TENNESSEE |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Davidson County; No. 04-1201-III; Ellen Hobbs Lyle, Chancellor.
Judgment of the Chancery Court Vacated; and Remanded.
Michael G. Stewart and Brett R. Carter, Nashville, Tennessee for the appellant, Bridgestone/Firestone, Inc.
Robert E. Cooper, Jr., Attorney General and Reporter and Mary Ellen Knack, Senior Counsel, for the appellee, Loren L. Chumley, Commissioner of Revenue for the State of Tennessee.
David R. Farmer, J., delivered the opinion of the court, in which Holly M. Kirby, J. and Frank G. Clement, Jr., J., joined.
The trial court denied Plaintiff/Taxpayer's motion to compel discovery of documents that Defendant Department of Revenue asserted were not subject to disclosure under the Taxpayer Confidentiality Act. We granted permission for interlocutory appeal under Rule 9 of the Rules of Appellate Procedure. We vacate the trial court's order and remand for further proceedings.
This interlocutory appeal requires us to construe the extent to which Tennessee Code Annotated § 67-1-1701, et seq., ("the Confidentiality Act") requires the Department of Revenue/the Commissioner of Revenue ("the Department") to disclose documents in its possession in response to a Plaintiff/Taxpayer's discovery request in an action for refund of taxes by the Plaintiff/Taxpayer. Plaintiff/Taxpayer Bridgestone/Firestone, Inc. ("Bridgestone") manufactures tires, tire components, and shock absorbers. Following an audit in 2002 ("the 2002 audit") for the tax period December 1 1995,1 through July 31, 1999, the Department assessed sales and use tax, franchise and excise taxes, plus interest, against Bridgestone in an amount exceeding $2,000,000.2 An informal taxpayer conference was held sometime prior to August 2002. The parties apparently dispute the outcome of that conference. Bridgestone asserts the Department upheld the assessment in its August 2002 decision letter. The Department, however, asserts that as a result of the conference, portions of the audit were adjusted in favor of Bridgestone, and that additional credits were given. In January 2003, Bridgestone paid taxes in the amount of $2,131,373. In October 2003, Bridgestone filed a claim for refund with the Department, seeking a refund in the amount of $3,103,462.
In its refund claim, Bridgestone asserted that a part of the assessment was barred by the statute of limitations; that a portion of the assessment included services that are exempt from taxation; that one sales account included in the assessment had been subject to a prior audit and, therefore, should not have been subject to an additional assessment; and that a portion of the assessment included sales tax on sales destined for out of state and not subject to Tennessee sales tax. The Department denied Bridgestone's refund claim by letter dated October 20, 2003. In its October letter, the Department stated,
In April 2004, Bridgestone filed an action for refund against the Commissioner of Revenue in the Chancery Court of Davidson County pursuant to Tennessee Code Annotated § 67-1-1802(c)(1). Bridgestone filed an amended complaint in February 2006, seeking a refund in the amount of $2,105,172, costs, and attorney's fees. In its amended complaint, Bridgestone asserted that its October 2003 claim for refund in the amount of $3,103,462 included the audit assessment "and additional amounts paid to the Department." In Count One of its amended complaint, Bridgestone asserted it was entitled to a refund of sales and use taxes in the amount of $1,162,234 for "sales in interstate commerce," including a credit for taxes collected and remitted to states other than Tennessee. In Count Two of its amended complaint, Bridgestone further asserted it was entitled to a refund in the amount of $2,035 for taxes allegedly assessed on tax-exempt repair services. Finally, in Count Three of its amended complaint, Bridgestone asserted it was entitled to a refund of franchise and excise taxes, plus interest, in the amount of $940,903 assessed against sales and use tax account number 1002545502, which Bridgestone asserted had been subject to a prior audit in October 1997.3 In Count Three, Bridgestone asserted "[s]ales included in the current audit for the period of December 1, 1995, through October 31, 1997, should have been excluded from the current assessment because these sales are covered by the previous audit." Bridgestone did not indicate whether the alleged previous audit of the account included an assessment of taxes specific to that account or to what extent, if any, it had paid taxes assessed on that account. Additionally, Bridgestone cited no law to substantiate its implicit assertion that the Department was, as a matter of law, prohibited from re-auditing the tax account.
The Department answered in March 2006. In its answer, the Department admitted that Bridgestone had filed a claim for refund in the amount of $3,103,462, and asserted that Bridgestone had paid taxes in the amount of $2,131,373. The Department asserted it was "without sufficient knowledge to admit or deny what `additional amounts' plaintiff seeks to have refunded." The Department denied Bridgestone's claim that it was entitled to a refund under any of the counts asserted in Bridgestone's amended complaint. With respect to Count Three of Bridgestone's amended complaint, the Department specifically denied Bridgestone's allegations that account number 1002545502 was included in the Department's October 1997 audit and should have been excluded from the 2002 audit.
In May 2006, the Department responded to Bridgestone's first set of interrogatories, requests for production of documents, and requests for admissions. In its response, the Department asserted that some of the documents requested by Bridgestone were not subject to discovery/disclosure pursuant to the Confidentiality Act. The Department asserted the Confidentiality Act in response to the following requests/interrogatories:
Interrogatory No. 4: Identify internal correspondence of the Department regarding the October 1997 audit of Bridgestone/Firestone, Inc. that is not included in the audit work papers for that audit.
Request for Production No. 3: Please produce copies of all auditor's work papers, not otherwise produced in response to another Request for Production, and all documents in the file of the Department relating to the Plaintiff's liability for any time period.
Request for Production No. 4: Please produce copies of all auditor's work papers and all documents in the file of the Department of Revenue relating to the taxes at issue in this litigation.
Request for Production No. 10: Provide all documents, including notes, relating to any conversation participated in by employees, representatives, or agents of the Department relative to Plaintiff's sales and use tax liability from December 1, 1991 to the present.
Additionally, the Department asserted that some documents that potentially would be included in Bridgestone's broad requests, exemplified by interrogatory number five, which sought "every document relevant to this litigation of which you are aware," sought documents protected by the Confidentiality Act. In its response, the Department asserted that "the audit papers from December 1, 1993, through October 31, 1997, audit and the audit at issue in this litigation will show that account #1002544502 was not audited in the December 1, 1993, through October 31, 1997, audit." In September 2006, the Department produced a "Privilege Log" identifying the nature of 86 documents withheld from its response to Bridgestone's discovery requests. The documents identified by the Department included memos and emails between Department employees discussing Bridgestone's tax returns and invoices; memos and emails discussing meetings between Bridgestone and the Department and preparation for those meetings; field audit information; drafts of correspondence; internal emails discussing the 1997 and 2002 audits and reviews of those audits; and various letter rulings and technical bulletins.
In January 2007, Bridgestone filed a motion to compel discovery of the documents withheld by the Department. In its motion, Bridgestone asserted it sought to compel discovery of documents "directly related to the audit, informal taxpayer conference or claim for refund of Plaintiff." It further asserted the Department had wrongly identified the documents as "tax administration information" protected from disclosure under Tennessee Code Annotated § 67-1-1701 et seq, and that "[a]t most, the information requested is `tax information' that is subject to disclosure to the Plaintiff/taxpayer in a lawsuit brought by the taxpayer." In its memorandum in support of its motion, Bridgestone asserted:
Plaintiff merely seeks to discover information that would allow Plaintiff to respond to Defendant's contention that Plaintiff was not impermissibly subjected to multiple audits of the same tax period. . . . documentation withheld by Defendant pursuant to the tax administration information privilege may be relevant to the claim that
there were multiple audits of the same tax period. . . it is contrary to the clear import of the taxpayer information privileges for the Defendant to withhold documentation related to a taxpayer under Tennessee Code Annotated § 67-1-1701, et seq., as part of a lawsuit in which that very taxpayer is challenging the amount of tax that it owes.
Bridgestone asserted that the withheld...
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