Chesapeake & Potomac Co. of West Virginia v. State Tax Dept.

Decision Date20 December 1977
Docket NumberNo. 13740,13740
Citation239 S.E.2d 918,161 W.Va. 77
CourtWest Virginia Supreme Court
PartiesThe CHESAPEAKE AND POTOMAC CO. OF WEST VIRGINIA v. STATE TAX DEPARTMENT and Richard L. Dailey, Commissioner.

Syllabus by the Court

1. Notwithstanding that an appeal from a delinquency tax assessment has been filed in a circuit court pursuant to W.Va.Code, 11-12A-13 (1967), a taxpayer may institute original declaratory judgment proceedings to obtain a declaration of the tax assessment's invalidity whenever the issues presented for judicial determination are limited to the construction or validity of the statute or statutes under which the challenged assessment was made, or other questions of an exclusively judicial nature.

2. The repeal of W.Va.Code, 11-12A-4 and 5 (1959) does not invalidate tax assessments made pursuant to these statutes, because simultaneously with their repeal Code, 11-12A-4 and 5 (1959) were substantially reenacted by Chapter 187, Acts of the Legislature, 1967 Regular Session.

Chauncey H. Browning, Jr., Atty. Gen., William F. Carroll, Deputy Atty. Gen., Charleston, for appellants.

Jackson, Kelly, Holt & O'Farrell, Thomas N. Chambers, John J. Cowan, Charleston, Robert A. Levetown, John M. Kelleher, John W. Plaatje, Washington, D. C., for appellee.

NEELY, Justice:

This is an appeal from a judgment of the Circuit Court of Kanawha County which set aside a tax assessment against the plaintiff, Chesapeake and Potomac Co. of West Virginia (Taxpayer). Upon Taxpayer's motion for summary judgment the circuit court found the assessment null and void, and permanently restrained the State Tax Commissioner 1 from collecting the tax assessed. We reverse.

In 1969 the Commissioner made a delinquency tax assessment, composed of $1,068,179.20 in tax and $299,785.71 in penalty, against Taxpayer for 1961-1965 privilege taxes, levied under W.Va.Code, 11-12A-4 and 5 (1959). 2 The delinquency assessment was made under that Chapter of the W.Va.Code which was captioned "Privilege Tax on Certain Carrier Corporations" until it was revised by Chapter 187, Acts of the Legislature, 1967 Regular Session, effective July 1, 1967, and re-captioned "Annual Tax on Incomes of Certain Carriers."

Taxpayer filed a timely petition for reassessment, and a hearing on the petition was held September 23, 1969. The Commissioner's administrative decision on the petition, rendered September 16, 1971, affirmed the assessment of the tax, but waived the penalty. Taxpayer appealed this administrative decision to the Circuit Court of Kanawha County and that appeal is still pending in the circuit court. Later, on January 29, 1974, Taxpayer filed a separate action in the Circuit Court of Kanawha County seeking a declaratory judgment that the whole assessment was void. Unlike the tax appeal, the declaratory judgment action was prosecuted to a conclusion, and the circuit court held that the Commissioner had no authority to levy the tax. It is from that declaratory judgment that this appeal was prosecuted.

I

The Commissioner argues that the circuit court committed error by entertaining an attack upon the tax assessment in an original declaratory judgment action completely separate from the appeal from the Commissioner's administrative decision. Taxpayer instituted the original civil proceeding in the circuit court pursuant to W.Va.Code, 55-13-2 (1941), which provides:

Any person interested under a deed, will, written contract, or other writings constituting a contract, or whose rights, status or other legal relations are affected by a statute, municipal ordinance, contract or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract or franchise and obtain a declaration of rights, status or other legal relations thereunder.

This statute standing alone indicates that Taxpayer's declaratory judgment action is proper in the circumstances here presented. We must, however, read the declaratory judgment statute in tandem with the statutes providing for judicial review of the Commissioner's administrative decisions, W.Va.Code, 11-12A-8d (1963) and W.Va.Code, 11-12A-13 (1967). These tax statutes do not proscribe declaratory judgment actions in the tax matters comprehended here or suggest that a tax appeal is the exclusive procedure by which the Commissioner's administrative decisions can be challenged. Accordingly, we conclude the Circuit Court of Kanawha County properly exercised its jurisdiction in taking cognizance of Taxpayer's declaratory judgment action.

Our conclusion is supported by Walter Butler Building Co. v. Soto, 142 W.Va. 616, 97 S.E.2d 275 (1957), the most recent and persuasive case cited by the parties on this procedural point. In Butler the taxpayer challenged a business and occupation tax assessment by petitioning for reassessment in essentially the same way as Taxpayer here did. Following denial of its petition, the taxpayer in Butler took an appeal from the Commissioner's decision to the Circuit Court of Kanawha County. The business and occupation tax appeal procedure in Butler was substantially the same as the procedure involved here. While the tax appeal was pending, the Butler taxpayer instituted a separate suit in equity, attacking the validity of the statute upon which the assessment was based. It was the separate equity action which ultimately reached this Court for decision. The procedural similarities between Butler and the present case greatly outweigh the minor differences; therefore, Butler is persuasive by way of analogy on the procedural point here presented. Butler clearly approves a method by which a taxpayer may collaterally attack a tax assessment even while a tax appeal relating to the same assessment is pending, and we adopt that approach, holding that Taxpayer's declaratory judgment action was properly lodged in the Circuit Court of Kanawha County.

In addition to what may be gleaned from Butler by way of analogy, Butler makes the following cogent remarks about declaratory judgment actions in the tax context, 142 W.Va. at 634-635, 97 S.E.2d at 286 (T)here is no substantial difference between a declaratory judgment proceeding instituted by a taxpayer against the State Tax Commissioner involving the assessment of a tax against the taxpayer under the declaratory judgment statute . . . and an appeal taken by a taxpayer against the State Tax Commissioner from an assessment of a tax against the taxpayer under Section 8, Article 13, . . . In a declaratory judgment proceeding the taxpayer institutes a suit against the State Tax Commissioner to determine the validity of an assessment against the taxpayer and his liability to pay the tax. In taking the appeal provided by Section 8 of the statute the taxpayer proceeds against the State Tax Commissioner in the manner prescribed by Sections 7b and 8. The object and the purpose of each proceeding are to enable the taxpayer to controvert and present his defense against a tax previously assessed against him by the State Tax Commissioner which if valid and not challenged in either proceeding will become final and render him liable for its payment. The identical issue to be determined in each proceeding is the validity of the assessment of the tax and the liability of the taxpayer to pay the tax. In each proceeding the taxpayer does not seek a recovery of money or other property of the State, to control the discretion of an official, to compel the State or its officials to make or perform a contract in behalf of the State, or to supplant, restrict, or adversely affect any established proprietary right or interest of the State. The utmost relief which the taxpayer can obtain in either proceeding is a judicial determination that the tax assessed is invalid and that he is not required to pay it; and the burden rests upon the taxpayer to establish that result by proper proof.

We are in accord with these comments, and in particular with the idea that declaratory judgment proceedings are distinguished as much by what they cannot do as what they can do. The most Taxpayer can hope to obtain here, aside from ancillary injunctive relief, is a declaration of the invalidity of the Commissioner's tax assessment based on the alleged invalidity of the underlying tax statute. The resolution of questions concerning the validity of statute is a judicial function appropriately exercised in original declaratory judgment proceedings. It does not involve courts in a complicated review of administrative agency action, where the proceedings before the administrator and his findings of fact and conclusions of law would be crucial to the outcome, 3 nor does it require the taking of evidence which might better be adduced at the administrative level. So long as the issues in declaratory judgment actions are narrowly limited to legal questions ripe for summary judicial determination, we approve the use of declaratory judgment actions to challenge the validity of tax assessments.

Our holding in this regard is consistent with, and to an extent a logical extension of, Virginia Electric and Power Company v. Haden, W.Va., 200 S.E.2d 848 (1973). There we held that in statutory appeals from the Commissioner's business and occupation tax assessments, the circuit court can:

. . . make a judicial determination of the correctness of the administrative decision, but . . . not . . . receive new evidence in making a determination of the issue. To allow the circuit court to determine an issue on evidence not considered at the administrative hearing would cast the court in the role of performing an executive function. Under the acknowledged principle of separation of powers this cannot be permitted. Thus the circuit court must decide the case on the evidence in the record as it was received or it must return the case to the Tax Commissioner for the further presentation of evidence. (200 S.E.2d at 853)

Likewise, we say now...

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