Kraftco Corp. v. Charnes

• Decision Date: 23 July 1981
• Docket Number: No. 79CA0867,79CA0867
• Citation: 636 P.2d 1300
• Parties: KRAFTCO CORPORATION, a Delaware Corporation, Plaintiff-Appellant, v. Alan N. CHARNES, as the Executive Director of the Department of Revenue, Defendant-Appellee. . I
• Court: Colorado Court of Appeals

Page 1300

636 P.2d 1300

KRAFTCO CORPORATION, a Delaware Corporation, Plaintiff-Appellant, v. Alan N. CHARNES, as the Executive Director of the Department of Revenue, Defendant-Appellee.

No. 79CA0867.

Colorado Court of Appeals, Div. I.

July 23, 1981.

Rehearing Denied Aug. 20, 1981.

Certiorari Denied Nov. 23, 1981.

C. E. Eckerman, and Gorsuch, Kirgis, Campbell, Walker & Grover, James H. Turner, Denver, for plaintiff-appellant.

J. D. MacFarlane, Atty. Gen., Mary J. Mullarkey, Sol. Gen., Chris J. Eliopulos, Asst. Atty. Gen., Denver, for defendant-appellee.

COYTE, Judge.

Plaintiff (Kraftco) appeals the judgment of the trial court upholding the validity of a jeopardy assessment issued by the Department of Revenue (Department). We affirm in part and reverse in part.

Kraftco is a Delaware corporation engaged in the manufacture and sale of dairy and other food products. These dairy and food products are sold throughout the United States, including Colorado.

Kraftco is the owner of stock in a number of foreign subsidiary corporations who manufacture, and obtain or sell dairy and other food products in foreign countries. Different dairy and food products are sold in different market areas, depending on local preference. There are limited exports or imports between Kraftco and its subsidiaries.

Kraftco receives interest principally from investments of accumulated earnings in commercial paper, certificates of deposits, and loans. Kraftco receives royalties principally from its foreign subsidiaries for the use of its trademarks, trade name, and patents. Kraftco receives rental income principally from the leasing of idle and surplus property and from leasing ice cream cabinets. Kraftco receives capital gains from the sale of idle and surplus property. Kraftco receives dividends resulting principally from its ownership of shares in foreign subsidiaries.

In its Colorado income tax returns for the tax years at issue, 1969, 1970, and 1971, Kraftco stated its federal taxable income, but subtracted rent receipts, royalties, capital gains, interest, and dividends to arrive at what it considered to be its total apportionable income for Colorado tax purposes, pursuant to the Multistate Tax Compact (Compact) § 24-60-1301, Art. IV, C.R.S.1973.

On November 4, 1975, the department appointed the Multistate Tax Commission (MTC) its agent to audit plaintiff for all years open to audit and assessment. Plaintiff requested that the examination begin after April 30, 1976, and the MTC agreed. However, plaintiff was requested to execute waivers of the statute of limitations against assessment of the additional taxes for the years 1969 and 1970. When plaintiff did not execute the waivers, the department threatened suit. No waivers were executed and on February 10, 1976, the department issued its order asserting a total amount of tax and interest due of $44,160.97 for the years 1969, 1970, and 1971.

The tax assessment served on the plaintiff by the defendant was determined by adding back to Kraftco's computation of Colorado apportionable income, a percentage of rent receipts, royalties, capital gains, interest, and dividends.

I

Plaintiff contends that the trial court erred in concluding that Kraftco did not cooperate with the department. We disagree.

The trial court concluded that:

"It would be difficult to imagine any more flagrant example of 'conduct calculated to inhibit the collection of taxes by the Department' than that of the plaintiff in this case. Requests for appointments with the plaintiff by MTC for the purpose of selecting a time to conduct the audit in question were not answered squarely. The tenor of the correspondence between MTC and the plaintiff between October 7, 1975 and December 10, 1975 was one of delay on the part of the plaintiff. And there is no other way to interpret the acts of the plaintiff ignoring three separate pleas from MTC to execute waivers for the years 1969 and 1970 than intentional delay on the part of the plaintiff to a time when the statute of limitations had run on these two years."

There is evidence in the record to support the findings and conclusions of the trial court relative to the lack of cooperation of plaintiff, and they are binding on appeal. Linley v. Hanson, 173 Colo. 239, 447 P.2d 453 (1970).

II

Plaintiff contends that the trial court erred in basing its decision on § 39-21-111(1), C.R.S.1973, which relates to the closing of the "taxable" period rather than on § 39-21-111(2), C.R.S.1973, which relates to the period in which the assessment may be made.

These statutory subsections provide:

"(1) If the executive director of the department of revenue finds that collection of the tax will be jeopardized by delay, in his discretion, he may declare the taxable period immediately terminated, determine the tax, and issue notice and demand for payment thereof; and, having done so, the tax shall be due and payable forthwith, and the executive director may proceed immediately to collect such tax as provided in section 39-21-114.

"(2) In any other case wherein it appears that the revenue is in jeopardy, the executive director of the department of revenue may immediately issue demand for payment; and, regardless of the provisions of sections 39-21-103 and 39-21-105, the tax shall be due and payable forthwith and, in his discretion, the executive director may proceed immediately to collect said tax as provided in section 39-21-114."

Assuming without deciding that plaintiff is correct in its reading of this statute, we find no reversible error here since we conclude the trial court reached the correct result, even if for the wrong reason. Metropolitan Industrial Bank v. Great Western Products Corp., 158 Colo. 198, 405 P.2d 944 (1965), Klipfel v. Neill, 30 Colo.App. 428, 494 P.2d 115 (1972). Since the trial court, on supporting evidence, properly termed the plaintiff to be a "non-cooperative corporation," whose conduct had placed the collection of taxes in jeopardy, under either section (1) or (2) of this statute, it was proper for the Department to issue a jeopardy assessment against plaintiff. Furthermore, under these facts, there is no merit to plaintiff's contention that the word "jeopardy" is unconstitutionally vague.

III

Plaintiff contends that the trial court erred in finding that the statute of limitations for assessing additional Colorado tax for 1969 and 1970 would have expired on February 25, 1976. We agree as to the 1969 taxes.

1969

There had been a federal audit of 1970 and 1971 tax years and a tax liability had been determined for 1970 and 1971. For 1971, the IRS had determined that plaintiff had an excess of foreign tax credit which could not be used in 1971. This credit was carried back to 1969. This 1969 credit was then offset by an adjustment relating to a 1969 depreciation error.

Section 39-21-107(2), C.R.S.1973, provides that the assessment of tax shall be made within one year after the time for assessing a deficiency in federal income tax. Even if we assume, without deciding, that this 1969 adjustment was in effect an assessment of a deficiency, the assessment date in the IRS revenue agent's report (RAR) was January 21, 1975. There is no evidence of any waiver or extension agreement beyond this date. Since the Colorado notice of jeopardy assessment was issued February 10, 1976, this assessment was not made within one year of the time for assessing a federal deficiency, and thus was barred by the statute.

In determining that the statute of limitations would end on February 25, 1976, one year from the date Kraftco sent the department the RAR for 1969, 1970, and 1971, the trial court was in effect basing its determination on § 39-22-601(6) (c), C.R.S.1973, which provides:

"If, from such report or return or from investigation, it appears that the tax with respect to income imposed by this article has not been fully assessed, the executive director shall, within one year after the receipt of such report or within one year of discovery of such final determination, if unreported, assess the deficiency with interest at the rate prescribed in section 39-22-621."

However, this section is not an exception to the general statute of limitations, § 39-21-107(2). This section merely allows the director to assess a deficiency only to the extent of the information contained in the RAR. There is uncontradicted evidence in the record that Kraftco had been assessed and had paid the deficiency in its Colorado taxes resulting from the updated revenue agent's report and that the additional Colorado taxes arising from the jeopardy assessment were not based on the federal adjustment.

Thus, the trial court erroneously upheld the department's jeopardy assessment for 1969. Accordingly, this part of the order of the court must be reversed and the matter remanded for a new order deleting the 1969 tax year from the jeopardy assessment against plaintiff.

1970

It is undisputed that Kraftco's federal waiver gave the department until December 31, 1976, to make adjustments for Colorado purposes. Section 39-22-601(6)(e), C.R.S.1973. Thus, the trial court erred in finding that the statute of limitations for the taxable year 1970 would run on February 25, 1976. However, since the issuance of the jeopardy assessment on February 10, 1976, for 1970 was not barred by the statute of limitations, the trial court did not err in considering 1970 as an open year.

IV

Plaintiff contends that throughout the trial, the court made numerous errors in its rulings regarding the admissibility of evidence which require that a new trial be granted. We disagree.

Even if there was error in the rulings of the trial court in the admission of certain evidence, there is nothing in its findings or conclusions which suggest that the trial court relied on the erroneously admitted evidence. There being other competent evidence to sustain the trial court's findings, the admission of this evidence is not grounds for reversal. S...