Castigliola v. Miss. Dep't of Revenue

• Decision Date: 30 April 2015
• Docket Number: No. 2013–SA–01574–SCT.,2013–SA–01574–SCT.
• Citation: 162 So.3d 795
• Parties: Vincent J. CASTIGLIOLA, Jr. v. MISSISSIPPI DEPARTMENT OF REVENUE.
• Court: Mississippi Supreme Court

162 So.3d 795

Vincent J. CASTIGLIOLA, Jr.

v.MISSISSIPPI DEPARTMENT OF REVENUE.

No. 2013–SA–01574–SCT.

Supreme Court of Mississippi.

April 30, 2015.

Jessica B. McNeel, Matthew E. Perkins, Michael R. Moore, Pascagoula, attorneys for appellant.

Jon F. Carmer, Jr., James L. Powell, Jackson, attorneys for appellee.

Before WALLER, C.J., CHANDLER and KING, JJ.

Opinion

WALLER, Chief Justice, for the Court:

¶ 1. The current case presents two issues: (1) who has the burden to prove use tax is applicable to a transaction, and (2) does the use of a broker make a casual sale taxable?

¶ 2. To answer to the first question, the Mississippi Department of Revenue (MDOR) has the burden to prove a tax applies, and the taxpayer has the burden then to prove an exemption applies. It has long been recognized in Mississippi that MDOR carries the burden to show, as a threshold matter, that a particular taxing power applies to a particular transaction. Once that is established, the burden shifts to the taxpayer to prove some statute or regulation exempts the transaction from taxation.

¶ 3. The answer to the second question is no. Casual sales, with the exception of motor vehicles, are excluded from sales and use tax in Mississippi. Something more than the mere involvement of a broker must be shown before what would otherwise be a nontaxable casual sale becomes a taxable retail transaction.

¶ 4. In the current case, because MDOR's argument for taxation is not supported by its own regulations and relies on an improper and erroneous application of Florida law, we find MDOR's position is arbitrary and capricious. Furthermore, MDOR admits the sale was from one individual to another, not in the ordinary course of business. Accordingly, we reverse summary judgment and render judgment in favor of the taxpayer.

FACTS AND PROCEDURAL HISTORY

¶ 5. Vincent Castigliola, a Mississippi resident, bought a yacht in Florida from Mark Fallon, an Ohio resident. Fallon, who is not in the business of buying or selling boats, sold the boat to Castigliola, who also is not in the boat trade. This transaction involved marketing services from Galati Yacht Sales, a yacht broker, which Fallon hired.

¶ 6. Castigliola did not pay sales tax on the boat in Florida or use tax in Mississippi.¹ Aggrieved, MDOR audited Castigliola and subsequently assessed use tax and penalties regarding the boat purchase, totaling $7,588. Castigliola challenged the tax and exhausted his administrative remedies without relief, and ultimately appealed to the Chancery Court of Jackson County. Before the chancery court, Castigliola filed a motion for summary judgment, arguing that the sale was a casual sale and therefore not subject to Mississippi use tax.

¶ 7. In support, Castigliola offered the bill of sale, which shows Fallon as the seller and Castigliola as the purchaser. Castigliola also offered the affidavit of Mike Fischer, a Galati representative. Fischer testified that Galati provided only marketing services to Fallon and was paid by commission. Fischer also stated that Galati never had title, possession, or control of the vessel, had no authority to negotiate on Fallon's behalf or to accept or reject any offers on Fallon's behalf, that Galati was not involved in negotiating the terms of the sale, which Castigliola and Fallon conducted directly, and that Fallon retained all risks of loss during the relevant time period.

¶ 8. Castigliola further offered sworn admissions from MDOR acknowledging that Fallon, not Galati, was the seller and Castigliola was the purchaser. Castigliola also attached a printout of MDOR's online Frequently Asked Questions (FAQs) regarding use tax, in which one example reads:

What are my use tax responsibilities if I purchase a boat or airplane in another state?

Persons who purchase boats or airplanes from dealers in other states for use in Mississippi are required to pay Mississippi Use Tax on the purchase. (The rate is 7% for boats and 3% for airplanes.).... Individuals purchasing boats or planes from a non-dealer in another state are not subject to Mississippi sale or use tax....

(Emphasis added.)

¶ 9. In response, MDOR argued that, under Florida law (Fla.Stat.Ann. § 212.05 ), Castigliola's purchase was a retail purchase, or at least Castigliola claimed it to be, therefore it was subject to Mississippi use tax.² MDOR also argued that all brokered sales are taxable under Mississippi law. In support, MDOR cited Mississippi Code Section 27–65–3(f), which defines sales broadly, and argued that the admitted use of Galati proves Castigliola failed to show the boat sale was a casual sale. MDOR further noted that Galati was paid for its services via commission, that Galati prepared a Purchaser's and Seller's Closing Statement,³ and that Castigliola signed a document titled “Suggested Format for Affidavit for Exemption of Boat Sold for Removal from the State of Florida by a Nonresident Purchaser” (hereinafter, “the Florida affidavit”) that listed Galati as the “selling dealer.” MDOR also argued that the taxpayer has the burden to show he is entitled to an exemption. Therefore, MDOR contended, Castigliola failed to meet his burden of showing the sale was a casual sale and not a sale made by a dealer during the ordinary course of the dealer's business.

¶ 10. After hearing oral arguments on the matter, the trial judge granted summary judgment in favor of MDOR. In his order, the trial judge noted that, under Florida law, the transaction was a retail sale and pointed to the Florida affidavit listing Galati as the “selling dealer.” He further noted that Castigliola had the burden to show the transaction was a casual sale and that he had failed to meet that burden because the record clearly showed the transaction involved Galati, a business that regularly deals in boat sales.

¶ 11. Castigliola timely appealed, and we now address the following issues, which for convenience, we rephrase as follows:⁴

1. Whether the chancellor erred in finding Castigliola had the burden to prove he was entitled to the casual-sale exemption.

2. Whether the boat purchase was subject to Mississippi use tax.

DISCUSSION

1. Whether the chancellor erred in finding Castigliola had the burden to prove he was entitled to the casual-sale exemption.

¶ 12. Whether the chancery court applied the correct burden of proof in an appeal of a Department of Revenue judgment is a question of law, which this Court reviews de novo. Equifax, Inc. v. Miss. Dep't of Rev., 125 So.3d 36, 41 (Miss.2013), reh'g denied (Nov. 21, 2013), cert. denied sub nom. Equifax, Inc. v. Miss. Dep't of Rev., ––– U.S. ––––, 134 S.Ct. 2872, 189 L.Ed.2d 833 (2014) (citing Miss.Code Ann. § 27–77–7(4) (Rev.2009)); Hankins v. Md. Cas. Co./Zurich Am. Ins. Co., 101 So.3d 645, 652 (Miss.2012).

¶ 13. Castigliola argues that MDOR had the burden to prove the transaction was taxable, claiming that casual sales are beyond the State's taxing authority. MDOR argues that Castigliola, as the taxpayer, has the burden to prove he is entitled to the casual-sales exemption, and that any distinction between “exemptions” or “exclusions” is merely semantic.

¶ 14. While this Court has never explicitly found a distinction between an exemption and an exclusion, our caselaw makes it abundantly clear that Mississippi has long recognized such a distinction.⁵ First, under Mississippi law, it is clear that MDOR carries the burden to establish that a particular transaction falls within its statutory power to tax. Stone v. Rogers, 186 Miss. 53, 189 So. 810, 812 (1939) ; see Fishbelt Feeds, Inc. v. Miss. Dep't of Rev., 158 So.3d 984, 988–90 (Miss.2014). If MDOR fails to establish that a transaction is within its taxing power, that transaction necessarily will be excluded from taxation. See Rogers, 189 So. at 812. Furthermore, taxes such as use taxes “are to be strictly construed against the taxing power.” Id. “The power cannot be implied” and “[a]ll doubts must be resolved in favor of the taxpayer.” Id.

¶ 15. Second, once MDOR establishes that a transaction is subject to taxation, it is the taxpayer's burden to prove some statute or regulation would exempt the taxpayer from the tax. See Miss. State Tax Comm'n v. Med. Devices, Inc., 624 So.2d 987, 990–91 (Miss.1993) ; Fishbelt Feeds, Inc., 158 So.3d at 991. Tax exemptions “must be construed most favorably to the taxing power, and the claimant has the burden of showing clearly his right to an exemption.” Miss. State Tax Comm'n v. Med. Devices, Inc., 624 So.2d 987, 990–91 (Miss.1993). Moreover,

since exemptions from taxation are not favored, [the] general rule is that a grant of exemption from taxation is never presumed; on the contrary, in all cases having doubt as to legislative intention, or as to inclusion of particular property within [the] terms of [the exemption] statute, [the] presumption is in favor of [the] taxing power, and [the] burden is on [the] claimant to prove or establish clearly his right to exemption....

Id.; Fishbelt Feeds, Inc., 158 So.3d at 991.

¶ 16. This Court, in a unanimous opinion, recently analyzed a tax case using this exact framework. In Fishbelt Feeds, this Court was presented with the question of whether a tax statute applied, and if so, whether the transaction at issue fell within an exemption. Fishbelt Feeds, Inc., 158 So.3d at 988–92. This Court first found that MDOR successfully had shown that the franchise tax statute applied, noting that MDOR's interpretation of the statute was reasonable because it was supported by independent reference materials and, importantly, the taxpayer's own expert witness acknowledged that MDOR's interpretation was consistent with the definitions of the terms at issue. Id. at 989–90. Once the power to tax was established, the Court then found the taxpayer had the burden to prove the transaction fell within an exemption, clearly applying this Court's longheld view that there is a distinction between exemptions and transactions not subject to taxation. Id. at 990–92.

¶ 17. Under this...