Schmehl v. Helton

• Decision Date: 27 February 2008
• Docket Number: No. 33379.,33379.
• Citation: 222 W.Va. 98,662 S.E.2d 697
• Court: West Virginia Supreme Court
• Parties: Barry D. SCHMEHL, an individual as an officer of Filly's of America, Inc., Petitioner Below, Appellant v. Virgil T. HELTON, Acting State Tax Commissioner of West Virginia, Respondent Below, Appellee.

662 S.E.2d 697

222 W.Va. 98

Barry D. SCHMEHL, an individual as an officer of Filly's of America, Inc., Petitioner Below, Appellant v. Virgil T. HELTON, Acting State Tax Commissioner of West Virginia, Respondent Below, Appellee.

No. 33379.

Supreme Court of Appeals of West Virginia.

Submitted January 9, 2008.

Decided February 27, 2008.

Concurring and Dissenting Opinion of Justice Albright April 4, 2008.

Syllabus by the Court

1. "`To establish that a taxing statute, valid on its face, is so unreasonable or arbitrary as to amount to a denial of due process of law when applied in a particular case, the taxpayer must prove by clear and cogent evidence facts establishing unreasonableness or arbitrariness.' Point 4, Syllabus, Norfolk and Western Railway Company v. Field, 143 W.Va. 219 [100 S.E.2d 796 (1957)]." Syllabus Point 2, State ex rel. Haden v. Calco Awning, 153 W.Va. 524, 170 S.E.2d 362 (1969).

2. "W.Va.Code, 11-15-17 (1978), explicitly provides that an officer of a corporation shall be personally liable for any consumers sales and service tax along with any additions, penalties, and interest thereon owed by the corporation." Syllabus Point 1, Frymier-Halloran v. Paige, 193 W.Va. 687, 458 S.E.2d 780 (1995).

3. Under the due process protections of the West Virginia Constitution, Article III, Section 10, in the absence of statutory or regulatory language setting forth standards for the imposition of personal liability for unpaid and unremitted sales taxes on individual corporate officers pursuant to W.Va. Code, 11-15-17 [1978], such liability may be imposed only when such imposition is in an individual case not arbitray and capricious or unreasonable, and such imposition is subject to a fundamental fairness text. The burden is on the person seeking to avoid such liability to show with clear and convincing evidence, giving due deference to the statute's general authorization for the imposition of such liability, that it would be fundamentally unfair and an arbitrary and capricious or unreasonable act to impose such liability.

Michael E. Caryl, Esq., Bowles, Rice, McDavid, Graff & Love, Charleston, WV, for Appellant.

Darrell V. McGraw, Jr., Attorney General, A.M. "Fenway" Pollack, Assistant Attorney General, Charleston, WV, for Appellee.

STARCHER, J.

In this case we uphold a decision by the Circuit Court of Jefferson County holding that a corporate officer and bookkeeper for a bar and restaurant business can be held liable to the State Tax Department for consumer sales taxes that were collected by the business from customers, but were not sent in to the State as required by law.

I. Facts & Background

In the instant case, the Circuit Court of Jefferson County, in a July 5, 2006 order, upheld a ruling by the West Virginia Office of Tax Appeals in favor of the appellee, the Tax Commissioner of the State of West Virginia. The Tax Commissioner had ruled that the appellant, Barry D. Schmehl, was liable to the State of West Virginia for $172,816.63. This sum represented unremitted consumer sales taxes that were collected from customers making purchases at a bar and restaurant in the Town of Ranson, in Jefferson County, West Virginia—plus penalties and interest. The bar and restaurant was owned and operated by a West Virginia corporation, Filly's of America, Inc. ("Filly's"). Mr. Schmehl was Filly's corporate secretary and principal bookkeeper. Additional pertinent facts are presented in section III of this opinion.

II. Standard of Review

The issues in the instant case largely involve the application of the law to undisputed facts, in which circumstances we review the lower tribunals' rulings under a de novo standard. In re Petrey, 206 W.Va. 489, 490, 525 S.E.2d 680, 681 (1999).

III. Discussion

Two issues are presented in the instant case. The first issue is whether Mr. Schmehl can be held personally liable for sales taxes that were collected by Filly's but not remitted to the State.¹ The second issue is whether, assuming such personal liability is proper, the applicable statute of limitations bars collection of unremitted taxes from Mr. Schmehl.

A. Personal Liability for Unremitted Sales Taxes

We begin our discussion of this issue by identifying the principles of law that will guide our decision. Then we discuss the particular facts of the instant case in light of those principles.

The primary applicable statute involved in the instant case is W. Va.Code, 11-15-17 [1978], which states, in full:

If the taxpayer is an association or corporation, the officers thereof shall be personally liable, jointly and severally, for any default on the part of the association or corporation, and payment of the tax and any additions to tax, penalties and interest thereon imposed by article ten [§ 11-10-1 et seq.] of this chapter may be enforced against them as against the association or corporation which they represent.

Addressing a prior but similar version of W.Va.Code, 11-15-17 [1978], this Court held in Syllabus Point 2 of State ex rel. Haden v. Calco Awning, 153 W.Va. 524, 170 S.E.2d 362 (1969):

"To establish that a taxing statute, valid on its face, is so unreasonable or arbitrary as to amount to a denial of due process of law when applied in a particular case, the taxpayer must prove by clear and cogent evidence facts establishing unreasonableness or arbitrariness." Point 4, Syllabus, Norfolk and Western Railway Company v. Field, 143 W.Va. 219 (100 S.E.2d 796).

In Haden v. Calco Awning, a circuit court had declared that the prior version of W. Va.Code, 11-15-17 [1978] was unconstitutional. The circuit court concluded that the statute's facial imposition of personal liability on corporate officers for unpaid sales taxes, without any requirement to show connection, duty, or responsibility on the officer's part regarding the payment of the taxes in question, had the potential to unconstitutionally deprive a corporate officer of property without due process of law.

Reversing the circuit court in Calco Awning, this Court stated:

The principal issue on this appeal is the constitutionality of the provisions of Code, 1931, 11-15-17, as amended. That code section, where pertinent, provides: "If the taxpayer is an association or corporation, the officers thereof shall be personally liable, jointly and severally, for any default on the part of the association or corporation, and payment of the tax may be enforced against them as against the association or corporation which they represent."

The tax commissioner, of course, defends the constitutionality of that section. The individual defendants take the position that the subject statute deprives them of their property without due process of law by imposing upon them a tax of a third party (the corporation) and is therefore unconstitutional as violative of the Constitution of West Virginia and the Constitution of the United States.

* * *

These contentions [by the defendants in Calco Awning] are without merit. The position of an officer of a corporation, relative to his individual liability for the debts of the corporation, is not sacrosanct. While officers ordinarily are not held responsible for corporate debts, it is well established that where a statute so provides directors or officers may be required to account personally for certain obligations of the corporation. Such liability is usually imposed by statute for some official delinquency and so long as the statute is afforded a fair and reasonable interpretation so as to give effect to the legislative intent as indicated by the language used, it is valid.

* * *

While the presumption of the constitutionality of a statute is not conclusive it takes clear and convincing proof of unreasonableness or arbitrariness to successfully rebut it. As stated in 17 M.J. Statutes, Section 29, "A statute will not be declared unconstitutional unless its repugnance to the constitution be plain and palpable." In the instant case the defendants assert that the statute is arbitrary, unreasonable and capricious in its application. No proof, however, was offered in support of this assertion, the case having been submitted for decision on the pleadings. In the circumstance of the present record there is no way to determine whether the statute was applied in the manner alleged by the defendants.

An examination of the statute fails to reveal any language that would render it unconstitutional. This is a tax which the vendor shall collect from the purchaser and pay to the tax commissioner for the privilege of selling tangible personal property and of dispensing certain selected services. Code, 1931, 11-15-3, as amended. Said vendor, Calco in the instant case, merely collects and holds this tax money for the state. This money, in effect, is held in trust.²

* * *

This Court has repeatedly held that a statute may be constitutional on its face but may be applied in an unconstitutional manner. This is cogently reflected in Norfolk and Western Railway Company v Field, 143 W.Va. 219, 100 S.E.2d 796, wherein the Court said in point 3 of the syllabus, "A taxing statute, though valid on its face, may be invalid when applied to particular circumstances or conditions of a particular taxpayer." Demonstrating that the burden of proof in establishing unconstitutionality of a statute rests on the assailant of the tax is point 4 of the syllabus which reads as follows: "To establish that a taxing statute, valid on its face, is so unreasonable or arbitrary as to amount to a denial of due process of law when applied in a particular case, the taxpayer must prove by clear and cogent evidence facts establishing unreasonableness or arbitrariness."

Id., 153 W.Va. at 526-530, 170 S.E.2d at 364-366 (citations omitted, emphasis added).³

This Court also addressed W. Va.Code, 11-15-17 [1978] in Frymier-Halloran v. Paige, 193 W.Va. 687, 458 S.E.2d 780 (1995). In Frymier-Halloran, the corporate officer in question (the secretary of the corporation) was held to be ...