Robblee v. Department of Revenue, State of Or.
| Decision Date | 31 July 1997 |
| Citation | 325 Or. 515,942 P.2d 765 |
| Parties | Neil H. ROBBLEE, Appellant, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent, and George Maitland and Peter Morkill, Defendants. George MAITLAND, Appellant, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent, and Neil H. Robblee and Gary Garman, Defendants. Gary L. GARMAN, Plaintiff, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Defendant. OTC 3700, 3701, 3702; SC S43471. |
| Court | Oregon Supreme Court |
John Eric Wilkes, Salem, argued the cause and filed the briefs for appellant George B. Maitland.
James C. Wallace, Assistant Attorney General, Salem, argued the cause for respondent. With him on the briefs were Theodore R. Kulongoski, former Attorney General, and Hardy Myers, Attorney General.
Before CARSON, C.J., and GILLETTE, VAN HOOMISSEN, FADELEY, DURHAM and GRABER, JJ. *
In these consolidated tax cases, two corporate officers appeal from a judgment of the Tax Court holding them personally liable for unpaid withholding taxes of Harris of Pendleton, Inc. (HOPI), an Oregon corporation. Robblee v. Dept. of Rev., 13 OTR 505, 514, 1996 WL 263241 (1996). We review de novo, ORS 305.445; 19.125(3), and affirm.
In late 1988, four individuals agreed to buy the assets and inventory of the furniture division of Harris Pine Mills, Inc. (Harris), a large manufacturing concern then in bankruptcy. The four were George Maitland and Peter Morkill (furniture manufacturers), Neil Robblee (a lawyer), and Cary Garman (a certified public accountant). For that purpose they organized a new Oregon corporation, HOPI.
Robblee served as the chief executive officer of HOPI, as well as chair of the board of directors. He had a 51 percent ownership interest in HOPI. Robblee's wife, who had no separate ownership interest, became the corporate secretary. Maitland had a 35.6 percent ownership interest in the corporation and was its president. Garman, who had a 5 percent ownership interest in HOPI, acted as chief financial officer; and Morkill, who owned the remaining 8.4 percent, was named vice-president.
HOPI purchased the assets and inventory of Harris for about $8 million. HOPI needed to borrow most of the purchase price. 1 The principals arranged for financing through Congress Financial Corporation (CFC). CFC loaned HOPI $1.5 million to buy equipment and extended a line of credit of up to $3.5 million based on, and secured by, HOPI's accounts receivable and inventory. A note and second mortgage taken back by the owner of Harris provided the balance of the purchase price.
Despite the efforts of the principals, HOPI did not prosper. As a result, Robblee signed a loan modification agreement with CFC on September 1, 1989. That agreement provided that the maximum credit available against HOPI's inventory would be reduced by $300,000.
At about the same time, the principals began to anticipate problems in paying HOPI's payroll taxes. On September 26, 1989, Maitland asked Robblee and Garman to have his name removed from the signature cards at the bank where HOPI maintained its corporate account.
In early October of 1989, HOPI began to exceed its credit limits. CFC, which was becoming increasingly concerned about HOPI's financial situation, started to review HOPI's expenditures daily. Also, by agreement, HOPI arranged for CFC to receive all revenue from HOPI's operations and to make loan advances only for approved expenses.
On October 9, 1989, HOPI made its last Oregon withholding tax payment before its bankruptcy in December 1989. In November 1989, HOPI missed its federal and state withholding tax payments.
HOPI sought additional credit from CFC. By December 1, 1989, Robblee, Maitland, and Garman concluded that CFC would not increase their credit limit. For that reason they decided to stop cooperating with CFC. Garman continued to apply for loan advances to pay vendors approved by CFC, but instead used the money to pay federal withholding taxes. The officers made four payments on HOPI's federal withholding tax obligation before CFC stopped all loan advances.
At around the same time, Robblee and Garman began to place money in HOPI's vault, rather than depositing it in CFC's bank account pursuant to the loan agreement. When it learned of those actions, CFC obtained a temporary restraining order prohibiting HOPI from withholding the money. On December 18, 1989, HOPI filed a petition in bankruptcy.
On January 31, 1990, HOPI filed its fourth quarter 1989 state withholding tax return. During that fourth quarter, HOPI had paid less than the full amount of taxes shown as due on the return. The amount reported as due but unpaid was $36,083.20.
Following an investigation, on November 12, 1991, the Department of Revenue (department) sent notices to Robblee and to Garman asserting that the department deemed them to be personally liable for taxes, penalties, and interest relating to the first, third, and fourth quarters of 1989 and the second quarter of 1990. The documents also notified Robblee and Garman of their appeal rights. In part, those documents stated:
Also on November 12, 1991, the department sent notices to Maitland and to Robblee's wife stating that a proposed assessment of withholding tax liability had been made against them.
Robblee, Maitland, Garman, and Robblee's wife all appealed their assessments and proposed assessments. On April 15, 1992, the department held a conference with those four individuals to determine whether they were personally liable for the unpaid withholding taxes. As a result of the conference, the department dismissed the assessments and proposed assessments for all quarters except the fourth quarter of 1989. With respect to the fourth quarter of 1989, the department determined that Robblee, Maitland, and Garman were personally liable for HOPI's unpaid withholding taxes of $36,083.20, plus penalties and interest, but that Robblee's wife was not liable for any taxes.
On July 15, 1994, the Director of the department issued an opinion and order determining that Robblee, Maitland, and Garman were personally liable for HOPI's unpaid withholding taxes for the fourth quarter of 1989. Those three individuals challenged that determination in the Oregon Tax Court. The Tax Court held that all three were personally liable for HOPI's unpaid withholding taxes for the fourth quarter of 1989 and that the amount due (including interest) was $58,845.68 as of December 31, 1995. Robblee, 13 OTR at 514-15. Robblee and Maitland have appealed to this court.
Additional findings of fact will be incorporated, where appropriate, into the discussion below.
Robblee makes three different kinds of arguments on appeal.
The first is procedural. Robblee contends that the department's determination of personal liability against him for HOPI's unpaid withholding taxes is invalid, because the procedure that the department used to notify him of his liability was improper.
Robblee's second argument relates to the scope of the relevant statute. He asserts that ORS 316.207, providing for personal liability of certain officers and employees for unpaid corporate withholding taxes, does not apply to "large" corporations such as HOPI.
The third argument is a claim for an unwritten exception to ORS 316.207. Robblee argues that the actions of HOPI's lender, CFC, relieved him of personal liability for unpaid withholding taxes.
We consider each of those arguments in turn.
Under Oregon law, most employers--including HOPI--must withhold, by a method designated by statute, a specified amount from wages paid to any employee. ORS 316.167(1). When an employer files a quarterly tax return, the employer must pay the amounts required to be withheld under ORS 316.167 for that same quarterly period. ORS 316.197(1)(a). ORS 316.207(3) describes the procedure when an employer files a withholding tax return but pays less than all the taxes due as shown in the return:
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