Colony-Lobster Pot Corp. v. Director of Revenue

• Decision Date: 04 April 1989
• Docket Number: COLONY-LOBSTER
• Citation: 770 S.W.2d 705
• Parties: POT CORPORATION, Appellant, v. DIRECTOR OF REVENUE, Respondent. WD 41501.
• Court: Missouri Court of Appeals

Page 705

770 S.W.2d 705

COLONY-LOBSTER POT CORPORATION, Appellant, v. DIRECTOR OF REVENUE, Respondent.

WD 41501.

Missouri Court of Appeals Western District.

April 4, 1989.

Motion for Rehearing and/or

Transfer to Supreme Court Denied

May 30, 1989.

Donald R. Schoonover, Excelsior Springs, Robert D. Gaines, Kansas City, for appellant.

William L. Webster, Atty. Gen., Richard L. Wieler, Asst. Atty. Gen., Jefferson City, for respondent.

Before KENNEDY, C.J., and LOWENSTEIN and GAITAN, JJ.

GAITAN, Judge.

Appellant, Colony-Lobster Pot Corporation appealed to the Administrative Hearing Commission sales tax paid to the Director of Revenue under protest. Thereafter, appellant sought, but was denied, the award of litigation expenses pursuant to section 136.315, RSMo 1986. We affirm.

Prior to February 4, 1984, the Colony Restaurant in the Union Station in Kansas City, Missouri, was operated by Track II, Inc. Track II owed sales tax to the State of Missouri because of its restaurant operation. On or about February 4, 1984, Robert Gaines and his sister repossessed the assets of the restaurant under a security agreement held against Track II. After repossession, these assets were turned over to the appellant for use in running a restaurant at the same location. Appellant started operating the Colony Restaurant in February 1984. At no time did the appellant or the Gaines ask for or get a non-tax due letter from the Director of Revenue.

In order to get a sales tax license, the appellant paid $26,974.94, the sales tax owed by Track II, to the State of Missouri under protest on March 14, 1984. Two protest affidavits asking for refund of the tax were filed with the Director of Revenue, one on March 14, 1984, and one on March 22, 1984. Both affidavits claimed that appellant had no successorship liability under section 144.150, RSMo 1986. This statute requires that the successor of a business withhold sufficient money from the purchase price to cover unpaid sales tax. Failure to do so results in personal liability to the successor. Appellant's claim for refund was denied by the Director of Revenue on April 5, 1984. Appellant then filed a complaint with the Administrative Hearing Commission on April 16, 1984 seeking a refund of the sales tax paid. The Director of Revenue conceded the issue by filing a motion to dismiss with the Commission on September 12, 1984. The Commission issued an order of dismissal on September 17, 1984, ordering the Director of Revenue to refund the sales tax paid under protest plus statutory interest.

On September 28, 1984, appellant filed a petition for litigation expenses with the Administrative Hearing Commission pursuant to section 136.315, RSMo 1986. As a basis for the award of such expenses, appellant argued that the position of the Director of Revenue was not substantially justified. At the hearing on the question of expenses, counsel for appellant testified that the general counsel for the Department of Revenue had told him that appellant might be correct in its position and that the general counsel might be able to help if appellant could provide the necessary information. In addition, counsel for appellant stated that a member of the general counsel's staff had sent him a letter on May 15, 1984, indicating his belief that no liability existed if the appellant could provide information that no consideration had passed to the prior owner.

Based on the evidence heard, Commissioner, J. William Campbell, concluded that the Director of Revenue's position was substantially justified and that no expenses were owing under the circumstances.

I.

The standard of review of a Commission decision is whether that decision is authorized by law and supported by competent and substantial evidence upon the whole record. § 621.193, RSMo 1986. To the extent that the decision involves a question of law, it is a matter for the independent judgment of the reviewing court and that court may make correction where errors exist. Daily Record Company v. James, 629 S.W.2d 348, 351 (Mo. banc 1982).

The Commission may award reasonable litigation expenses to a party prevailing in a tax proceeding if it finds that the position of the State was vexatious or was not substantially justified. Section 136.315.2, RSMo 1986, provides as follows:

Litigation expenses may be allowed in certain tax cases, when, definitions, procedure--award may be denied or reduced.

* * * * * *

2. When a party prevails in a proceeding filed after January 1, 1984, the court or administrative hearing commission may award the party reasonable litigation expenses if it finds that the position of the state was vexatious or was not substantially justified. Fees and expenses shall not be awarded if the final disposition is substantially the same as a settlement previously offered by the department to the taxpayer. (Emphasis added).

The legislative intent under this statute is to permit the Commission to allow reasonable litigation expenses under certain conditions if, and only if, it found that the position of the State was vexatious or was not substantially justified. In State ex rel. Hanlon v. City of Maplewood, 231 Mo.App. 739, 99 S.W.2d 138 (1936), this Court stated that the primary objective of statutory construction was to determine legislative intent and that permissive words would not be construed as mandatory where such construction would create a new public obligation. Id. at 142. Additionally, in State v. Patterson, 729 S.W.2d 226 (Mo.App.1987), the Southern District stated that the use of the word "may" in a statute implies alternative possibilities and that the conferee of that power has discretion in the exercise of power. Id. at 228.

The exercise of discretion by the Commission under section 136.315, RSMo 1986, should not be disturbed in the absence of any evidence that the Commission's decision was clearly erroneous or constituted an abuse of discretion. See Daily Record Company, 629 S.W.2d at 350. The evidence before the Commission indicated that the Director of Revenue imputed sales tax liability against appellant as a successor in business to a delinquent taxpayer under section 144.150, RSMo 1986. The prior operator of the restaurant owed sales tax to the Department of Revenue. Appellant started operating the restaurant in the same location in February 1984, using the assets of the former owner. Appellant admitted that the State was not vexatious in its position, but argued that it was not substantially justified in imposing successorship liability because no purchase money had been transferred to the prior owner by appellant to acquire the restaurant business. Rather, appellant argues that the restaurant assets of the prior owner had been obtained through repossession under a security agreement held by one Robert Gaines and his sister, Karen Gaines, and then transferred to appellant.

In 1984, it had not been judicially determined whether successorship liability under section 144.150, RSMo 1986, could be applied to a person acquiring a business or stock of goods as a result of an enforcement action by a creditor pursuant to a security agreement. The Director of Revenue had taken the position that successorship liability could be applied where a business was acquired through foreclosure and this position had been affirmed by the Commission in Bates v. Director of Revenue, Case No. RS-83-0298 and RS-81-0300 (March 13, 1984). This case was appealed to the Missouri Supreme Court and was subsequently affirmed in Bates v. Director of Revenue, 691 S.W.2d 273 (Mo. banc 1985). Cases from other jurisdictions indicated that creditors could be subjected to successorship tax liability. See, e.g. Bank of Commerce v. Woods, 585 S.W.2d...