Nebeker v. UTAH STATE TAX COM'N, No. 990835

• Citation: 34 P.3d 180,2001 UT 74
• Decision Date: 21 August 2001
• Docket Number: No. 990835, No. 20000834.
• Parties: Jim NEBEKER d/b/a Jim Nebeker Trucking, Plaintiff and Appellant, v. UTAH STATE TAX COMMISSION, Defendant and Appellee. Jim Nebeker d/b/a Jim Nebeker Trucking, Petitioner, v. Utah State Tax Commission, Respondent.
• Court: Supreme Court of Utah

34 P.3d 180

2001 UT 74

Jim NEBEKER d/b/a Jim Nebeker Trucking, Plaintiff and Appellant, v. UTAH STATE TAX COMMISSION, Defendant and Appellee.

Jim Nebeker d/b/a Jim Nebeker Trucking, Petitioner, v. Utah State Tax Commission, Respondent.

Nos. 990835, 20000834.

Supreme Court of Utah.

August 21, 2001.

Rehearing Denied October 31, 2001.

Daniel S. Sam, Vernal, Utah, James A. Beckwith, Arvada, Colorado, for plaintiff.

Mark L. Shurtleff, Att'y Gen., Clark L. Snelson, Asst. Att'y Gen., Salt Lake City, for defendant.

DURRANT, Justice:

¶ 1 The Utah State Tax Commission determined that Jim Nebeker d/b/a Jim Nebeker Trucking was deficient in payment of the Utah Special Fuel Tax and imposed a twelve percent interest rate on the amount Nebeker owed. Nebeker filed suit against the Tax Commission in district court alleging the twelve percent interest rate imposed in the initial Tax Commission proceeding violated the Utah Constitution. The trial court dismissed the complaint for lack of jurisdiction. Nebeker again challenged the constitutionality of the twelve percent interest rate in a second proceeding before the Tax Commission. The Tax Commission dismissed the action, holding it was barred by res judicata because Nebeker did not contest the interest rate's constitutionality in the initial Tax Commission proceeding. Nebeker appeals both the district court's ruling and the Tax Commission's ruling in the second proceeding before it. We affirm the dismissal of both actions.

BACKGROUND

¶ 2 In reviewing a ruling on a motion to dismiss, we "`accept the factual allegations in the complaint as true and draw all reasonable inferences from those facts in a light most favorable to [the] plaintiff[].'" Pendleton v. Utah State Bar, 2000 UT 96, ¶ 5, 16 P.3d 1230 (second alteration in original) (quoting Cruz v. Middlekauff Lincoln-Mercury, Inc., 909 P.2d 1252, 1253 (Utah 1996)).

I. INITIAL TAX COMMISSION PROCEEDING

¶ 3 Nebeker is an intrastate carrier of water and other fluids used as oilfield commodities. The Tax Commission conducted an audit of Nebeker's "Special Fuel" accounts to determine the amount of diesel fuel Nebeker consumed. In November 1995, following this audit, the Tax Commission served a "Statutory Notice and Tax Assessment" on Nebeker stemming from unpaid taxes under the Motor and Special Fuel Tax Act, Title 59, Chapter 13 of the Utah Code.

¶ 4 The assessment specified the amount of diesel fuel Nebeker consumed and taxed it accordingly. However, section 59-13-301(2)(b) provides, "No special fuel tax is imposed on undyed diesel fuel which ... is used in a vehicle off-highway [or] is used to operate a power take-off unit of a vehicle." Utah Code Ann. § 59-13-301(2)(b)(iii), (iv) (2000). Accordingly, the assessment exempted from taxation diesel fuel used to drive vacuum motors on Nebeker's water trucks and fuel used by Nebeker to operate vehicles "off-highway," i.e., off of "public highways."

¶ 5 Nebeker disagreed with the Tax Commission's assessment of the tax and filed a petition for redetermination. In this petition, Nebeker claimed additional exemptions for fuel used to operate vehicles off public highways. On May 12, 1998, the Tax Commission issued an order defining "public highways" as that term applied to the imposition of the special fuel tax. The Tax Commission then asked Nebeker to submit revised estimates of the diesel fuel that was exempted from taxation due to use off public highways. On September 30, 1998, the Tax Commission issued an amended audit and tax assessment.

¶ 6 Nebeker objected to this second audit and assessment, as well, claiming it contained mathematical errors. On March 30, 1999, the Tax Commission issued another amended audit and tax assessment. In this third audit and assessment, the Tax Commission imposed a twelve percent interest rate on Nebeker's deficiencies pursuant to the International Fuel Tax Agreement (IFTA), an agreement into which the Tax Commission entered under section 59-13-501 of the Utah Code. While Nebeker inquired into the Tax Commission's calculation of the interest rate, no petition for redetermination was made, and the Tax Commission's ruling became final. Nebeker paid the amount owed under protest.

II. DISTRICT COURT PROCEEDING

¶ 7 Following the Tax Commission's third and final assessment, Nebeker filed a petition for relief in the Eighth District Court in June 1999. The petition alleged the Tax Commission's statutory authority for applying a twelve percent interest rate to Nebeker's deficiencies, sections 59-13-501(2)(h) & (6) of the Utah Code, unconstitutionally delegated legislative authority to the Tax Commission. The petition also alleged the Tax Commission's adoption of the twelve percent interest rate failed to comply with the Utah Administrative Procedures Act. Further, the petition claimed Nebeker did not need to exhaust his administrative remedies prior to seeking relief in district court because both asserted claims involved the constitutionality of the Tax Commission's authority to impose the twelve percent interest rate, and the Tax Commission lacked jurisdiction to address these constitutional claims. ¶ 8 The Tax Commission responded by moving to dismiss the petition for lack of jurisdiction. The district court granted this motion in September 1999. The district court's ruling stated as follows:

Based on the careful reading of the memoranda the Court is of the opinion that it does not have jurisdiction to grant the remedies sought in the petition for failure of the petitioner to exhaust administrative remedies and for the reason set forth in the memoranda and reply memoranda in support of respondent's motion to dismiss.

III. SECOND TAX COMMISSION PROCEEDING

¶ 9 Following the district court's dismissal of the action, Nebeker appealed that decision to this court. Additionally, Nebeker applied to the Tax Commission for a "refund of overcharge," based solely on the contention that subsections 59-13-501(2)(h) & (6) were unconstitutional. The Auditing Division of the Tax Commission denied this claim. Nebeker filed a petition for redetermination, asking the Tax Commission to reconsider the Auditing Division's decision. The Auditing Division moved to dismiss the case as being barred by res judicata, contending the issue should have been raised in the original assessment proceeding. The Tax Commission agreed and granted the motion to dismiss on the ground that the action was barred by res judicata. Accordingly, Nebeker petitioned this court to review the Tax Commission's dismissal of the second proceeding. Further, in its petition for review, Nebeker contended the Tax Commission had changed its position on available administrative remedies. Specifically, Nebeker argued that before the district court the Tax Commission had asserted Nebeker still had administrative remedies available, while in the second action, the Tax Commission took the position that Nebeker could not apply for any administrative remedies. Accordingly, Nebeker's petition for review seeks sanctions against the Tax Commission for violating the principle of judicial estoppel. We granted the petition to review the Tax Commission's ruling in the second proceeding and consolidated that appeal with Nebeker's appeal from the Eighth District Court's order dismissing his action for lack of jurisdiction.

DISCUSSION

¶ 10 The three issues before the court on appeal are, first, whether the district court erred in dismissing Nebeker's petition for lack of jurisdiction; second, whether the Tax Commission erred in holding Nebeker's claim was barred by res judicata; and, third, whether this court should impose sanctions against the Tax Commission for violating the principle of judicial estoppel.

I. DISTRICT COURT RULING

¶ 11 The first issue before us is whether the district court erred in dismissing Nebeker's petition for relief. "We review for correction of error a trial court's order on a motion to dismiss for lack of subject matter jurisdiction." Schwenke v. Smith, 942 P.2d 335, 336 (Utah 1997) (citing Barnard v. Utah State Bar, 857 P.2d 917, 919 (Utah 1993)).

¶ 12 On appeal, Nebeker contends the trial court's ruling granting the Tax Commission's motion to dismiss was erroneous for five reasons: (1) it was proper for Nebeker to challenge the Tax Commission's action by filing a petition under rule 65B of the Utah Rules of Civil Procedure in district court, (2) Nebeker did not need to exhaust administrative remedies in this case, (3) governmental immunity did not bar Nebeker's action, (4) Nebeker did not file the rule 65B petition outside any relevant limitations period, and (5) neither res judicata nor collateral estoppel bar Nebeker's rule 65B petition. We conclude the trial court correctly dismissed Nebeker's petition as Nebeker failed to exhaust his administrative remedies. Further, we conclude the trial court's dismissal of the action was proper because Nebeker failed to raise the constitutional claims in the initial proceeding before the Tax Commission.

A. Failure to Exhaust Administrative Remedies

¶ 13 Following the Tax Commission's final assessment, Nebeker filed his petition for relief in district court rather than filing another petition for redetermination with the Tax Commission. See Utah Code Ann. § 59-1-501 ("Any taxpayer may file a request for agency action, petitioning the commission for redetermination of a deficiency."). The district court held that this failure to exhaust administrative remedies barred its consideration of Nebeker's petition. We agree.

¶ 14 As a general rule, "parties must exhaust applicable administrative remedies as a prerequisite to seeking judicial review." State Tax Comm'n v. Iverson, 782 P.2d 519, 524 (Utah 1989). "Exceptions to this rule exist in unusual circumstances where it appears that there is a likelihood that some oppression or injustice is occurring such that it would be unconscionable not to review the alleged grievance or where it...