Gp Burlington South v. Dep't Of Taxes

• Decision Date: 11 March 2010
• Docket Number: No. 08-387.,08-387.
• Citation: 2010 VT 23,996 A.2d 180
• Court: Vermont Supreme Court
• Parties: GP BURLINGTON SOUTH, LLCv.DEPARTMENT OF TAXES.

996 A.2d 180

2010 VT 23

GP BURLINGTON SOUTH, LLCv.DEPARTMENT OF TAXES.

No. 08-387.

Supreme Court of Vermont.

March 11, 2010.

Debra L. Bouffard and Michael G. Furlong of Sheehey Furlong & Behm P.C., Burlington, for Plaintiff-Appellant.

William H. Sorrell, Attorney General, and Timothy Collins, Assistant Attorney General, Montpelier, for Defendant-Appellee.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. BURGESS, J.

Taxpayer GP Burlington South, LLC,¹ a private investment entity, appeals the superior court's decision granting, in part, its claim for a refund of a portion of the land gains tax it paid in connection with the sale of its property. Because we conclude that the proceedings before the superior court were premature under the circumstances of this case, we reverse the court's decision and remand the matter for a hearing before, and a determination by, the Commissioner.

¶ 2. In December 2000, taxpayer paid $8.3 million for a 20.58-acre industrial site located on the north and south sides of Lakeside Avenue in Burlington. The 11.78-acre north parcel, the subject of this appeal, included multiple manufacturing buildings. See 32 V.S.A. § 10002(a) (defining “land” as “all land, whether or not improved”). To calculate the land gains tax for that transaction, approximately $6.6 million of the purchase price was allocated to the buildings on the north parcel, and $900,000 was allocated to the value of the land on both parcels. See id. § 10005(b) (“In the event that a sale includes land and buildings or other structures, the amount realized shall be allocated between the land and the buildings or other structures on the basis of fair market value.”). Taxpayer improved both the land and the buildings on the north parcel before selling the parcel on September 30, 2004 to a consortium of redevelopment investors for $30.225 million.

¶ 3. Before the sale, taxpayer and the Department engaged in negotiations over the value of the land component of the north parcel. Taxpayer submitted a commercial real estate appraisal (the “Keller appraisal”) that assigned a value to the land independent of the buildings by comparing the parcel to undeveloped parcels. The Department rejected taxpayer's approach and issued a September 10, 2004 certification of land gains tax in the amount of $434,046. At the time of the September 30 sale, taxpayer filed a land gains tax return along with the $434,046 payment to avoid remitting ten percent of the sale price to the Commissioner. See id. § 10007(a). The following day, however, taxpayer filed a letter disputing the Department's calculation and asking for a hearing on the matter. In support of its request for a hearing, taxpayer cited 32 V.S.A. § 10009(b) (stating that administrative provisions of chapter dealing with income tax apply to land gains tax) and 32 V.S.A. § 5936 (stating procedure for holding hearing on claim for setoff). The Department indicated in an October 6, 2004 memorandum that the matter was on administrative appeal. Over the following two years, the Department and taxpayer engaged in sporadic negotiations concerning the tax.

¶ 4. On August 11, 2006, taxpayer, with new legal representation, filed a formal petition for a refund of a claimed overpayment of the land gains tax associated with the September 30, 2004 sale. Along with the petition, taxpayer submitted a “corrected” land gains tax return claiming that the tax due should have been $107,447 rather than $434,046, thus demanding a refund of $326,599 plus interest. This amended tax return contained material changes from the September 2004 return, resulting in the claim for a significantly higher refund. Later that month, the Department acknowledged the amended return, indicated that it would consider the claim within the existing administrative appeal, and requested additional documents concerning the claim. The following month, taxpayer provided the specific documents requested, and the Department indicated that it would inform taxpayer if it needed anything else.

¶ 5. On February 9, 2007, the Department sent taxpayer a letter stating that the refund request was denied because: (1) certain claimed expenses connected with the subject sale lacked documentation; (2) the claimed cost of the land involved in the transaction was unreasonably high; (3) the Department could not accept either the fair market value attributed to the land component of the parcel or the percentage of gain from the sale attributed to the land; and (4) the Keller appraisal was not relevant insofar as it compared sales of unimproved parcels in assessing the fair market value of the land component of the subject property. The Department further stated that taxpayer's refund request lacked credibility in that it effectively claimed that the 2004 transaction resulted in a 186% gain with respect to the value of the structures on the land, but a loss with respect to the value of the land. Nevertheless, the Department made a settlement offer and suggested that discussions continue in an informal conference.

¶ 6. Taxpayer did not respond directly to the letter, but rather filed a notice of appeal with the Department on March 7, 2007, seeking appeal to the superior court. See id. § 5885(b) (providing that aggrieved taxpayer may, within thirty days after Commissioner's determination concerning claim for refund, appeal that determination to superior court). The Department declined to transmit the appeal to the superior court, but rather notified taxpayer of a May 22, 2007 scheduled hearing date. In response to taxpayer's motions, the superior court stayed the administrative hearing and ordered the Department to transmit the appeal to the superior court. The court later denied the Department's motion to remand the matter for a contested case hearing before the Commissioner.

¶ 7. In denying the Department's motion for a remand, the superior court noted the tension between the Legislature's “deemed denial” provision, see id. § 5884(a) (providing that failure of Commissioner to refund amount claimed within six months of date of refund petition “shall be considered to be a notification to the taxpayer of the commissioner's determination concerning the claim”), which is aimed at assuring prompt resolution of refund claims, and the fundamental principle that appeals from administrative tribunals are on the record unless the Legislature explicitly directs otherwise. See Conservation Law Found. v. Burke, 162 Vt. 115, 126, 645 A.2d 495, 501-02 (1993) (“The nature of review is determined by the Legislature, but we presume that review will be on the record and not de novo.”); Dep't of Taxes v. Tri-State Indus. Laundries, Inc., 138 Vt. 292, 294-95, 415 A.2d 216, 218-19 (1980) (stating that judicial review of agency decisions is presumed to be on the record absent specific statutory authorization to the contrary). To resolve this tension and avoid de novo review, the court ordered the Department to submit the complete agency record and to file any motion to present the testimony of any relevant agency decision-makers. The Department complied by submitting documents to the court. No evidentiary hearing was held before the superior court.

¶ 8. In July 2008, the superior court issued a final order granting taxpayer's refund claim, in part. The court determined that taxpayer was entitled to a refund of $108,512 because the Department had not applied the correct tax rate. Neither party appeals that decision. With respect to taxpayer's other challenges to the Department's land gains sale tax, the court determined that taxpayer had failed to meet its burden of demonstrating by clear and convincing evidence that there was no reasonable basis for the tax imposed by the Department or that it was entitled to the refund it claimed. Taxpayer filed a motion to amend the decision, requesting a partial remand to the Commissioner so that it could present evidence on the additional expenses it incurred as set forth in its 2006 land gains tax return. The court denied the motion.

¶ 9. On appeal, taxpayer argues that the superior court erred by: (1) applying the wrong standard of review in requiring taxpayer to establish by clear and convincing evidence that the deemed denial of its refund claim was without a reasonable basis; (2) disregarding taxpayer's legal claims; (3) deferring to the Department's post-hoc rationalizations and rules to justify its denial of the refund claim; and (4) weighing the facts of the claim and making factual findings. Taxpayer also claims that the superior court violated its right to due process by not holding an evidentiary hearing or remanding the matter for an evidentiary hearing before the Commissioner.

¶ 10. The proceedings in this case have taken unusual and unnecessary turns because of the ambiguity in the applicable statute and the tactical decisions of the parties. Based on a review of the relevant statutes and what occurred in this case, we conclude that taxpayer's appeal to the superior court was premature. Accordingly, we remand the matter for the Commissioner to hold a hearing and make a decision, at which point appeal to the superior court will be an available option.

¶ 11. Sections 5883 and 5884(a) of Title 32 are internally inconsistent and confusing. In relevant part, § 5883 provides that upon notice of “denial or reduction of a refund claim, ... the taxpayer may, within 60 days ..., petition the commissioner in writing for a determination of that ... refund,” and that “[t]he commissioner shall thereafter grant a hearing upon the matter and notify the taxpayer in writing of his or her determination ....” In relevant part, § 5884(a) provides that “within three years after the date a return is required to be filed[,] ... taxpayer may petition the commissioner for the refund of all or any part of the amount of tax paid with respect to the return,” and further that “the commissioner shall thereafter ... hold a hearing on...