Hazardous Waste Controls of Bloomington, Inc. v. Commissioner of Revenue
| Decision Date | 17 March 1997 |
| Docket Number | 6589 |
| Parties | HAZARDOUS WASTE CONTROLS OF BLOOMINGTON, INC., Appellant, v. COMMISSIONER of Revenue, Appellee. |
| Court | Tax Court of Minnesota |
The Honorable Diane L. Kroupa, Judge of the Minnesota Tax Court heard this matter at the Minnesota Judicial Center, 25 Constitution Avenue, St. Paul, Minnesota on July 18 and September 11, 1996.
Attorneys and Law Firms
Garfield E. Smith, Attorney at Law, represented Appellant.
Barry R. Greller, Assistant Attorney General, represented Appellee.
The issue is whether Appellant's failure to comply with a notice to withhold delinquent taxes of an employee is a “willful” failure to withhold and remit under Minn.Stat. § 290.92, subd. 23 so that Appellant is liable for the total amount of the employee's tax liability set forth in the notice.
Both parties filed post-trial briefs and the matter was submitted to the Court for decision on January 10, 1997.
The Court, having heard and considered the evidence adduced at the hearing, and upon all of the files, records and proceedings herein, now makes the following:
FINDINGS OF FACT
1. Jay R. Hanson III (“Employee”) owed unpaid Minnesota sales and income tax. Employee was an independent contractor who provided janitorial cleaning services to Apple Valley Oldsmobile (“Valley Olds”).
2. On May 12, 1994, the Commissioner of Revenue (the “Commissioner”) directed a third-party levy to Valley Olds requiring Valley Olds to pay to the State of Minnesota any funds owed to Employee under the contract.
3. On May 19, 1994, James Wilson (“Wilson”) gave a power-of-attorney form to the Commissioner indicating that Wilson was Employee's representative and requesting that the Commissioner grant Employee a payment plan for the unpaid taxes.
4. Wilson is a former Internal Revenue Service (“IRS”) collection agent who issued thousands of wage levies. Since leaving the IRS, Wilson has been a tax consultant providing tax advice.
5. On June 1, 1994, the Commissioner's collection agent asked Valley Olds why it did not comply with the third-party levy and send payment. Valley Olds responded that Employee had already been paid when the third-party levy was received. The Commissioner then issued another third-party levy to Valley Olds.
6. On the same day, Wilson delivered Employee's completed financial forms to the Commissioner and requested a $200 per month payment plan for Employee.
7. On June 2, 1994, the Commissioner's collection agents told Wilson and Employee that the Commissioner would not release the third-party levy or accept the payment plan. The Commissioner also reminded Wilson and Employee that Employee was committing a felony by providing taxable janitorial services to Valley Olds because Employee's sales tax permit had been revoked two years earlier.
8. A third-party levy on an independent contractor's earnings requires the payor to pay 100% of the earnings to the State rather than the contractor. A wage levy on an employee's earnings requires the employer to pay the State no more than 25% of the employee's wages.
9. Wilson arranged for his company, Hazardous Waste Controls of Bloomington, Inc. (“Appellant”) to become the new cleaning service contractor for Valley Olds. He hired Employee to perform the same services for Valley Olds but at the rate of $6 per hour rather than the $18 an hour Valley Olds had paid.
10. On June 6, 1994, Wilson informed the Commissioner that Appellant was the new contractor providing cleaning services to Valley Olds and that Appellant hired Employee to provide these services to Valley Olds.
11. The Commissioner then issued a wage levy against Appellant dated September 12, 1994 directing Appellant to complete the wage disclosure form to determine the additional amount to withhold from Employee's wages (the “Wage Levy”).
12. Appellant failed to respond to the Wage Levy either by completing the disclosure form or by remitting payment.
13. The Wage Levy and the accompanying disclosure form were sent to the same address as other correspondence which Wilson admits he received. Wilson testified, however, that he did not receive either document.
14. The Commissioner issued a “Wage Levy-No Response Received” letter to Appellant, dated October 4, 1994, advising Appellant that the disclosure form had not been received and that, if Appellant failed to comply with the Wage Levy, Appellant would be liable “for the total amount due in the notice” plus interest (the “Reminder Notice”). The Reminder Notice asked Appellant to complete and return the disclosure form.
15. On October 13, 1994, one day before the 10-day Reminder Notice deadline, Wilson delivered a check for $315.08 to the Commissioner. No disclosure form was provided.
16. Nothing in the Commissioner's collection history file indicates that Wilson, an experienced IRS collection agent, ever claimed that Appellant failed to receive the original Wage Levy or the required disclosure form.
17. On October 19, 1994, Wilson met with the Commissioner's collection agent to again request a payment plan for Employee. When the agent rejected Wilson's request for a payment plan, Wilson informed the agent that Employee's employment with Appellant would terminate no later than the end of 1994. The agent reminded Wilson that Employee could not perform taxable services because Employee's sales tax permit had been revoked.
18. Despite Appellant's bi-weekly payroll schedule, Appellant did not file a disclosure form or remit any further payments to the Commissioner.
19. On November 2, 1994, the Commissioner issued Appellant an Order Assessing Liability for Failure to Honor Notice to Employer (the “Order”). The Order assessed Appellant liable for $45, 352.55, the full amount of Employee's unpaid tax liability plus interest.
20. Employee's employment with Appellant ended on November 30, 1994.
21. Appellant appealed the Order on January 31, 1995.
22. The Minnesota Legislature replaced Minn.Stat. § 290.92, subd. 23(3) () with Minn.Stat. § 270.7002, subd. 1 (1995 Minn. Laws, ch. 264, art. 13 §§ 4, 13 and 24) effective June 2, 1995. 1995 Minn. Laws, ch. 264, art. 13 § 24.
23. Appellant through Wilson colluded with Employee to circumvent the Commissioner's collection efforts.
1. Appellant's failure to withhold additional amounts from Employee's wages was willful under Minn.Stat. § 290.92, subd. 23.
2. We affirm the Order of the Commissioner of Revenue dated November 3, 1994 imposing tax liability against Appellant for willfully failing to withhold under Minn.Stat. § 290.92, subd. 23.
LET JUDGMENT BE ENTERED ACCORDINGLY. THIS IS A FINAL ORDER. A STAY OF 15 DAYS IS HEREBY ORDERED.
MEMORANDUMThis case involves whether Hazardous Waste Controls of Bloomington, Inc. (“Appellant”) as an employer can be held liable for the total amount of an employee's tax liability. Appellant's employee was Jay R. Hanson III (“Employee”) who Appellant hired at $6 an hour to perform cleaning services for Apple Valley Oldsmobile (“Valley Olds”). Employee had performed the same services for Valley Olds as an independent contractor for $18 an hour. Appellant hired Employee after the Commissioner issued a third-party levy to Valley Olds requiring Valley Olds to withhold the entire amount it was required to pay Employee.
When the Commissioner received notice that Appellant hired Employee, the Commissioner sent notice to Appellant ordering Appellant to complete a disclosure form and withhold and remit additional taxes from Employee's wages under Minn.Stat. § 290.92, subd. 23.[1]
Minn.Stat. § 290.92, subd. 23(1) provides that the employer must, upon receipt of proper notice from the Commissioner, “withhold from compensation due or to become due to the employee, the total amount shown in this notice....” Minn.Stat. § 290.92, subd. 23(3) provides that the employer must remit amounts withheld to the Commissioner. If the employer fails to withhold or remit the withheld money, the employer shall be liable for the total amount of the employee's tax liability. The pertinent portions read as follows:
(3) The employer shall ... remit to the commissioner ... the amount withheld.... Should any employer, after notice, willfully fail to withhold in accordance with the notice and this subdivision, or willfully fail to remit any amount withheld as required by this subdivision, the employer shall be liable for the total amount set forth in the notice together with accrued interest....
Minn.Stat. § 290.92, subd. 23(3) (the “Additional Tax Provision”) (emphasis added).
The parties agree that “willful” under the Additional Tax Provision means the “voluntary, intentional violation of a known legal duty.” Appellant argues, however, that it did not “willfully” fail to withhold.[2] Appellant asserts that, although it did not submit a disclosure form, it actually withheld a greater amount from Employee's wages than was required. We disagree. We conclude that Appellant's failure to comply was willful.
We received some 1977 legislative...
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