Chandler's-Boise LLC v. Idaho State Tax Comm'n

• Citation: 162 Idaho 447,398 P.3d 180
• Decision Date: 11 July 2017
• Docket Number: Docket No. 44211
• Court: United States State Supreme Court of Idaho
• Parties: CHANDLER'S-BOISE LLC, Plaintiff-Appellant, v. IDAHO STATE TAX COMMISSION, Defendant-Respondent.

162 Idaho 447
398 P.3d 180

CHANDLER'S-BOISE LLC, Plaintiff-Appellant,
v.
IDAHO STATE TAX COMMISSION, Defendant-Respondent.

Docket No. 44211

Supreme Court of Idaho, Boise, June 2017 Term.

Filed: July 11, 2017

Givens Pursley, LLP, Boise, attorneys for appellant. Peter Barton argued.

Hon. Lawrence G. Wasden, Idaho Attorney General, Boise, attorneys for respondent. Erick Shaner argued.

JONES, Justice.

162 Idaho 449

I. NATURE OF THE CASE

Chandler's-Boise, LLC ("Chandlers"), challenges a district court's grant of summary judgment upholding the Idaho State Tax Commission's (the "Commission") deficiency determination. The Commission determined that Chandlers did not pay sales tax on gratuities that were automatically added to customer checks between 2007 and 2010. Chandlers appeals.

II. FACTUAL AND PROCEDURAL BACKGROUND

This is a sales tax appeal, and the facts are uncontested. The crux of the appeal concerns an administrative rule and its interaction with certain sections of the Idaho Sales Tax Act (the "Tax Act"), Idaho Code title 63, chapter 36. The Legislature amended the Tax Act in the midst of the underlying litigation (the "2011 Amendment"). The following is a review of relevant portions of the Tax Act, the administrative rule, and the 2011 Amendment.

Idaho Code section 63-3619 imposes a tax upon "each sale at retail at the rate of six percent (6%) of the sales price." I.C. § 63-3619. A "sale" is defined by Idaho Code section 63-3612(1) as follows:

The term "sale" means any transfer of title, exchange or barter, conditional or otherwise, of tangible personal property for a consideration and shall include any similar transfer of possession found by the state tax commission to be in lieu of, or equivalent to, a transfer of title, exchange or barter.

I.C. § 63-3612(1). Idaho Code section 63-3612(2)(b) provides that a "sale" also includes "[f]urnishing, preparing, or serving food, meals, or drinks and nondepreciable goods and services directly consumed by customers included in the charge thereof." I.C. § 63-3612(2)(b).

Idaho Code section 63-3613(a) defines "sales price" as the "total amount for which tangible personal property, including services agreed to be rendered as a part of the sale, is sold." I.C. § 63-3613(a). However, Idaho Code section 63-3613(b) excludes certain charges from the "sales price" thereby rendering said charges tax-exempt. There are two exclusions that Chandlers contends are relevant to this appeal.

First, subsection (b)(4), as it existed in 2010, exempts the following charges from the "sales price":

The amount charged for labor or services rendered in installing or applying the property sold, provided that said amount is stated separately and such separate statement is not used as a means of avoiding imposition of this tax upon the actual sales price of the tangible personal property; except that charges by a manufactured homes dealer for set up of a manufactured home shall be included in the "sales price" of such manufactured home.

I.C. § 63-3613(b)(4) (2010). Second, subsection (b)(6) excludes: "The amount charged for finance charges, carrying charges, service charges, time-price differential, or interest on deferred payment sales, provided such charges are not used as a means of avoiding imposition of this tax upon the actual sales price of the tangible personal property." I.C. § 63-3613(b)(6).

There is also a tax commission rule that is at issue in this case. The 2010 version of

398 P.3d 183

162 Idaho 450

IDAPA Rule 35.01.02.043.04.c (the "Pre-2011 Rule") provided as follows:

When an amount is added to a customer's bill by the retailer, and the customer is not advised in writing on the face of the bill that he may decline to pay all or part of the amount, it is not a gratuity and the fee so added is subject to the sales tax.

IDAPA 35.01.02.043.04.c (2010). As previously mentioned, the Tax Act was amended by the Legislature in 2011. The 2011 Amendment added the following exemption to Idaho Code section 63-3613 : "Sales price shall not include a gratuity or tip received when paid to the service provider of a meal. The gratuity or tip can be either voluntary or mandatory, but must be given for the service provided and as a supplement to the service provider's income." I.C. § 63-3613(f). By adding this exemption, the Legislature did away with the voluntariness distinction in the Pre-2011 Rule. Accordingly, the Tax Commission revised the Pre-2011 Rule to provide: "When a gratuity is paid in addition to the price of a meal, no sales tax applies to the gratuity. A gratuity can be paid voluntarily by the customer or be required by the seller." IDAPA 35.01.02.043.04.

Chandlers owns and operates a steak and seafood restaurant in downtown Boise, Idaho. The Commission, through its Sales, Use, and Miscellaneous Tax Audit Bureau (the "Bureau"), conducted a comprehensive sales audit of Chandlers for the period of May 1, 2007, through May 31, 2010 (the "Audit Period"), to determine sales tax law compliance. After its audit, the Bureau asserted errors in sales, fixed asset additions, ordinary purchases, and meals given to employees and guests. The only error relevant to this appeal is Chandlers' failure to pay sales tax on automatically added gratuities¹ that were added to banquet meals, room service meals, and restaurant dining services for groups having six or more persons (the "Charges"). The bills that Chandlers gave its customers during the Audit Period did not contain a written statement indicating that the Charges could be declined as required by the Pre-2011 Rule. Chandlers did not retain the Charges in question; rather, the employees involved in preparing or providing the meals, including the server, busser, and bartender, kept the Charges.

On June 18, 2010, the Bureau issued a Notice of Deficiency Determination to Chandlers wherein it determined that Chandlers owed $91,243 for sales and use tax plus penalty and interest. On August 20, 2010, Chandlers timely protested the deficiency and filed a Petition for Redetermination of Notice of Deficiency Determination to the Commission. At that time, Chandlers provided additional documentation for the Bureau's review. After reviewing the documentation, the Bureau modified the audit findings and reduced Chandlers' liability.

On July 14, 2015, the Commission upheld the Bureau's determination that the Charges were subject to sales tax and concluded that Chandlers owed $52,167, less $9,748 that had already been paid. On October 13, 2015, Chandlers filed a Complaint for Judicial Review and Redetermination of Tax with the district court challenging the Commission's updated Notice of Deficiency Determination. On March 1, 2016, both parties filed motions for summary judgment.

On April 7, 2016, the district court granted summary judgment in favor of the Commission thereby affirming the deficiency determination. In its summary judgment order, the district court explained that the Pre-2011 Rule was in effect during the entire Audit Period. The district court noted that the parties agreed that Chandlers added the Charges to customers' bills without writing on the face of the bills that the Charges may be declined. The district court held that, according to relevant law in effect at the time of the Audit Period, sales tax must be paid on the Charges. The district court acknowledged that Idaho Code section 63-3613 was amended in 2011 to exempt gratuities, whether voluntary or mandatory, from being taxed as part of the "sales price." However, the district court held that the 2011 Amendment did not affect the Commission's deficiency

398 P.3d 184

162 Idaho 451

determination because it was not retroactive to the Audit Period. The district court did not address attorney's fees or costs. A corresponding judgment was entered on April 8, 2016.

Chandlers appeals.

III. ISSUES ON APPEAL

1. Whether the district court erred by determining that Idaho Code sections 63-3613(b)(4) and (b)(6) did not apply to this case.

2. Whether the district court erred by determining that the 2011 Amendment did not clarify or reflect the state of the statute as it existed all along.

3. Whether the Commission is entitled to costs and attorney's fees below and/or on appeal.

IV. STANDARD OF REVIEW

A taxpayer may appeal a decision by the Tax Commission to the district court by filing a complaint against the Tax Commission in the district court pursuant to Idaho Code section 63–3049. The case proceeds as a de novo bench trial in the district court. This Court reviews the district court's decision directly, and utilizes the Tax Commission's administrative determination as merely an articulation of the position of the Tax Commission as a party to the action.

This Court reviews the district court's grant of summary judgment under the same standard employed by the district court. The fact that the parties have filed cross-motions for summary judgment does not change the applicable standard of review, and this

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