Colgate-Palmolive Co. v. Dorgan

• Decision Date: 20 December 1974
• Docket Number: COLGATE-PALMOLIVE,No. 9019,9019
• Citation: 225 N.W.2d 278
• Parties: COMPANY, Appellee, v. Byron DORGAN as North Dakota State Tax Commissioner, Appellant. Civ.
• Court: North Dakota Supreme Court

Page 278

225 N.W.2d 278

COLGATE-PALMOLIVE COMPANY, Appellee, v. Byron DORGAN as North Dakota State Tax Commissioner Appellant.

Civ. No. 9019.

Supreme Court of North Dakota.

Dec. 20, 1974.

Rehearing Denied Jan. 30, 1975.

Syllabus by the Court

1. The hearing examiner ordered that the taxpayer should not be allowed to cross-examine or present rebuttal evidence to the Tax Commissioner's assessment of additional tax unless an audit was authorized as required by the Tax Commissioner under the Multistate Tax Compact, and directed approval of the assessments unless such audit be granted within thirty days. Such order affected substantial rights of the parties and was an appealable order or decision under the Administrative Agencies Practice Act.

2. Under the Administrative Agencies Practice Act and Sections 57--01--11 and 57--38--39, N.D.C.C., a taxpayer at a hearing before the State Tax Commissioner relating to additional income tax assessments is entitled to cross-examine witnesses and present rebuttal evidence.

3. The adverse inference rule is a rule of evidence which does not justify a denial of the right to cross-examine witnesses and present rebuttal evidence in an administrative hearing.

4. Where issues relating to constitutionality of the Multistate Tax Compact are pending in federal litigation, were not litigated below, and are not essential to disposition of this appeal, such issues will not be decided.

B. Timothy Durick, Sp. Asst. Atty. Gen. for the North Dakota State Tax Commissioner, Bismarck, for appellant.

Pearce, Anderson, Pearce, Thames & Pearce, Bismarck, for appellee.

JOHNSON, Judge.

This case has its origin in a controversy concerning the Multistate Tax Compact. The Compact is an agreement among certain member states, approved by their respective legislatures, which provides a staff and administrative machinery to deal with common problems of taxation. A major area of concern is apportionment of income and other taxable transactions with respect to corporations doing business in a number of states. The most controversial aspect of the Compact is Article VIII which establishes arrangements for interstate audits by members of the staff of the Multistate Tax Commission, audits which may be made on behalf of several of the member states. The purpose is to avoid the necessity for individual audits by each of the states in which a corporation may be doing business. At the same time, a common source of information will be available to respective states from which to apportion income, sales and property of the corporation. Bills have been introduced to provide congressional approval of the Compact but none have been passed to date. ¹

It is the joint audit program which has aroused the ire of many corporations doing business on an interstate and international basis. As a result, a suit was commenced in the United States District Court for the Southern District of New York in August of 1972 to declare the Compact unconstitutional and invalid. Colgate-Palmolive Company is not a named plaintiff in that action but does claim to be part of the class on behalf of which the action has been brought. The New York case has apparently not yet been brought to trial. A preliminary motion for dismissal on behalf of the Multistate Tax Commission was denied by the federal district court. United States Steel Corp. v. Multistate Tax Commission, 367 F.Supp. 107 (S.D.N.Y.1973).

Colgate filed corporate income tax returns with the North Dakota State Tax Commissioner for the years 1967 through 1970. By letter dated August 14, 1972, the Commissioner appointed the executive director and designated auditors of the Multistate Tax Commission to audit the records of Colgate for North Dakota income tax purposes. Colgate refused access to the Multistate Tax Commission auditors, contending that the Compact was constitutionally invalid. On September 18, 1972, the Commissioner issued notices of additional assessments of income tax for the years 1969 and 1970. These assessments were protested by Colgate on October 12, 1972, and a conference requested. On October 16, 1972, the Commissioner issued new additional assessments for each of the years 1967 through 1970. The new assessments were protested by Colgate and a hearing under the Administrative Agencies Practice Act was held in Bismarck on March 6, 1973.

At the time of the Commissioner's hearing the new assessments were introduced but Colgate was refused opportunity to cross-examine or present evidence on its behalf. The hearing examiner ruled that Colgate would not be allowed to present its case until it complied with the Commissioner's audit request. Colgate was given thirty days in which to comply or an order would be entered approving the assessments. Colgate appealed to the district court and obtained a Writ of Prohibition to prevent the Commissioner from proceeding further. The district court later ruled upon the appeal from the hearing examiner's decision that the Commissioner had denied Colgate its statutory and constitutional rights to a hearing, and should not proceed further until such a hearing had been granted.

I.

Previous to reaching the merits of other issues presented, we must examine the Commissioner's contention that the decision or order in this matter is not an appealable order and not subject to review by either the district court or this court. There are many decisions and actions taken in the course of an administrative proceeding which are not subject to review by the courts. A proceeding might be delayed interminably if every ruling on evidence or procedure was the subject of an appeal to the district court. The hearing must proceed to some conclusion in order that the whole of the actions taken on the record accumulated may be reviewed in the course of an appeal. Matters must be ripe for review to avoid squandering judicial time and machinery on abstract or remote problems rather than those that are substantial and present. See 3 Davis, Administrative Law Treatise, Ch. 21.

The applicable statute for appeal from decisions of administrative agencies is Section 28--32--15, N.D.C.C., which provides, in part:

'Only final orders or decisions and orders or decisions substantially affecting the rights of parties are appealable. A procedural order made by an administrative agency during the pending of a hearing before it shall not be deemed a final order nor an order affecting a substantial right.'

A ruling on admission of evidence during the course of a hearing would ordinarily be considered a procedural matter and not appealable. However, in this case the ruling of the hearing examiner foreclosed introduction of all evidence. The subsequent decision was a foregone conclusion unless Colgate complied. We do not construe the law to require the performance of idle gestures. While some restraint must be exercised to prevent expansion of the categories of actions which may be appealed, the order here substantially affected the rights of one of the parties and was final within the contemplation of the statute. See also, Langer v. Gray, 73 N.D. 437, 15 N.W.2d 732 (1944).

II.

Counsel have submitted extensive briefs on a number of different issues related to this case. It does not appear that all of these issues are necessary to resolution of this appeal. One essential question relates to the manner of handling the hearing before the Commissioner. While we may be sympathetic to the problems of auditing a large international corporation with limited audit resources, we cannot approve this method of enforcing audit requests.

It is unnecessary to reach the constitutional objections to the hearing examiner's order as there is adequate basis to reverse it on statutory grounds. In reviewing the sometimes erratic standards applied to administrative hearings, a leading authority had this observation:

'The true principle is that a party who has a sufficient interest or right at stake in a determination of governmental action should be entitled to an opportunity to know and to meet, with the weapons of rebuttal evidence, cross-examination, and argument, unfavorable evidence of adjudicative facts, except in the rare circumstances when some other interest, such as national security, justifies an overriding of the interest in fair hearing.' 1 Davis. Administrative Law Treatise, § 7.02, at 412.

There is ample statutory authority that the taxpayer should be allowed to cross-examine and submit rebuttal evidence in a hearing of this type. Under Section 57--38--39, N.D.C.C., at such a hearing, 'evidence may be offered to support such additional tax or prove that it is not due.' Section 57--01--11, N.D.C.C., provides for a right of hearing and a right of appeal. Under the Administrative Agencies Practice Act, at...