STROMBERG-CARLSON v. State Tax Assessor

• Decision Date: 18 January 2001
• Citation: STROMBERG-CARLSON v. State Tax Assessor, 765 A.2d 566, 2001 ME 11 (Me. 2001)
• Parties: STROMBERG-CARLSON CORP. v. STATE TAX ASSESSOR.
• Court: Maine Supreme Court

765 A.2d 566

2001 ME 11

STROMBERG-CARLSON CORP. v.STATE TAX ASSESSOR.

Supreme Judicial Court of Maine.

Argued December 13, 2000.

Decided January 18, 2001.

David W. Bertoni(orally), Martin I. Eisenstein, Brann & Isaacson, LLP, Lewiston, for plaintiff.

G. Steven Rowe, Attorney General, Crombie J.D. Garrett, Asst. Atty. Gen. (orally), Augusta, for defendant.

Jonathan A. Block, James G. Good, Pierce Atwood, Portland, for Me. Soc. of CPAs, amicus curiae.

Panel: WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, SAUFLEY, ALEXANDER, and CALKINS, JJ.

WATHEN, C.J.

[¶ 1]Plaintiff, Stromberg-Carlson Corp., appeals from a judgment entered in the Superior Court(Kennebec County, Atwood, J.) affirming an assessment ordered by the State Tax Assessor.Because the court misapplied the statute of limitations pertaining to a tax assessment, 36 M.R.S.A. § 141(1990), we vacate the judgment.

[¶ 2] The undisputed facts may be summarized as follows: In 1989 and 1990, Stromberg-Carlson Corp.(the taxpayer) reported and paid sales and use taxes to the State of Maine as required by 36 M.R.S.A. § 1951 (Supp.2000).The taxpayer reported gross sales on line 1 of the returns and sales of telephone equipment to Contel Material Management Co. as exempt sales on line 2a of the returns.It then deducted the exempt sales from the gross sales to arrive at taxable sales on line 3 of the returns.

[¶ 3] After an audit of the taxpayer's records in 1994, the State Tax Assessor assessed the taxpayer with additional sales and use tax, as well as interest and penalties, on its 1989 and 1990 sales to Contel.The assessment was made more than three years but less than six years from the date the taxpayer originally filed the returns.The Assessor determined that the Contel sales were not exempt, as had been reported, and thus should not have been deducted from gross sales.As a result, the amount of tax reported on the returns for the taxable years was less than 50 percent of the actual liability.

[¶ 4] The taxpayer sought timely reconsideration of the assessment with the Assessor pursuant to 36 M.R.S.A. § 151, claiming exemption on the basis that the Contel sales were for resale pursuant to 36 M.R.S.A. § 1752(11)(1990& Supp.2000) and providing a resale certificate.The Assessor denied reconsideration on the basis that the taxpayer had not proved that the sales were for resale because the required resale certificate was dated April 16, 1991, a date after the tax years in question, and that the requirements for allowing a six-year limitation period were met.The taxpayer then filed a timely petition for judicial review in the Superior Court pursuant to 36 M.R.S.A. § 151, 5 M.R.S.A. § 11002(1989)andM.R. Civ. P. 80C.The complaint included the taxpayer's assertion that the six-year statute of limitations requirements had not been met.The parties filed cross motions for summary judgment as to the limitations claim.In April 1999the court entered summary judgment in favor of the State Tax Assessor on the limitations claim, and the taxpayer appealed.¹With the consent of the parties pursuant to M.R. Civ. P. 75A(f)(1), the Maine Society of Certified Public Accountants filed an amicus brief.

[¶ 5]The Superior Court reviews decisions of the State Tax Assessorde novo.See36 M.R.S.A. § 151.In this case there is no factual dispute, and we review the Superior Court's interpretation of the statute of limitations directly for errors of law.SeeKoch Refining Co. v. State Tax Assessor,1999 ME 35, ¶4, 724 A.2d 1251, 1252(citation omitted).The court determined that, although the statute of limitations ordinarily expires three years after the date on which the return was filed or required to be filed, whichever occurs later, see36 M.R.S.A. § 141(1), an exception to the rule, providing an extension to six years, applied in this case, see36 M.R.S.A. § 141(2)(A).

[¶ 6]The statute provides in relevant part as follows:

1.General provisions.Unless other provided, any amount of tax which a person declares on a return filed by him with the State Tax Assessor to be due to the State shall be deemed to be assessed at the time the return is filed and shall be payable on or before the date prescribed for filing the return, determined without regard to any extension of time granted for filing the return.When a return is filed, the State Tax Assessor shall cause it to be examined and may conduct such audits or investigations as he believes necessary to determine the correct tax liability.If he determines that the amount of tax shown on the return is less than the correct amount, the State Tax Assessor shall assess the tax due the State.No such assessment shall be made after 3 years from the date the return was filed or the date the return was required to be filed, whichever is later.At any time within the appropriate assessment period prescribed by this section, the State Tax Assessor may make a supplemental assessment if he finds that any previous assessment is imperfect or incomplete in any material aspect.

2. Exceptions.

A.An assessment may be made within 6 years from the date the return was filed if the tax liability shown on the return is less than ½ of the tax liability determined by the State Tax Assessorand the additional liability is attributable to information which was required to be reported but was not reported in the return.

B.An assessment may be made at any time with respect to a time period for which a fraudulent return has been filed.

C.An assessment may be made at any time with respect to a time period for which a return has become due but has not been filed....

36 M.R.S.A. § 141(1990)(emphasis added).

[¶ 7] Thus, in order for the extended six-year limitations period to apply, two prongs must be met.The parties do not dispute the first prong, i.e., that the tax liability on the return was less than 50% of the actual liability determined after the audit.The issue is whether the second prong of the statutory requirement was met in this case, i.e., that "the additional liability is attributable to information which was required to be reported but was not reported in the return."The taxpayer and the amicus argue that the court erred in its interpretation of this statutory requirement, and we agree.The court interpreted the language as follows:

The petitioner claims that it reported its sales totally and accurately and hid nothing.But there is little difference in logic between mischaracterization of information and nondisclosure of information.The Legislature must have intended that information in a return be accurate and that that information, if required, be revealed on the return.That being so, inaccurate information on a return is tantamount to information that either misleads or is improperly disclosed and runs counter to the cited legislative purpose.As such, it is fair to infer that the Legislature authorized an extended period to make an assessment when a taxpayer disclosed all information but mischaracterized it.Were it otherwise, a taxpayer could avoid the six-year limitation period and escape tax liability by providing information on his/her return but mischaracterizing it.

Thus, as with the case at bar, reporting total sales but misidentifying some as exempt when they were not can fairly be characterized as providing "information which was required to be reported but was not reported in the return."36 M.R.S.A. § 141(2)(A).

Similarly, the Assessor found that although the taxpayer reported the sales as exempt sales, it "failed to report its actual taxable sales, and that this failure is information that the taxpayer was required to report on its return, but failed to do so."Thus, the issue is even more narrowly defined as whether a disputed mischaracterization of a separate line item, which the parties do not claim to be fraudulent, is the equivalent of not reporting the item at all.

[¶ 8] Both sides look to our opinion in Koch Refining Co. v. State Tax Assessor,1999 ME 35, 724 A.2d 1251 for guidance.Although we examined the requirements of section 141(2)(A) in Koch,we did not address the distinction at issue in this case, because we looked to the facial requirements of section 141(2)(A) and rested our decision on the fact that the taxpayer had not filed a required schedule and thus fell within the requirement that it had not reported required information.Seeid.¶ 10, 724 A.2d at 1255.The issue on appeal in Koch was the taxpayer's contention that it had filed enough information to adequately alert the Assessor to its actual tax liability so that the information should be "deemed reported for purposes of section 141(2)(A)" to prevent the six-year period from applying.Seeid.¶ 9, 724 A.2d at 1254.We concluded that the statutory language did not support this construction.We determined that, unlike 36 M.R.S.A. § 5270(1990) that contains additional language "in a manner adequate to apprise the assessor of the nature and amount of such item,""section 141(2)(A) contains no language precluding the extension of the limitations period if ... there is information attached to the return that should alert the Assessor to the fact that there may be a substantial underreporting of tax liability."Id.In contrast to Koch, rather than the information being "deemed reported for purposes of section 141(2)(A),"the court in this case has "deemed" the information as not reported because it was inaccurately characterized.

[¶ 9] When construing the language of a statute, we look first to the plain meaning of the language to give effect to the legislative intent.Seeid.¶ 4, 724 A.2d at 1252-53(citation omitted).In determining plain meaning, we"`consider the whole statutory scheme for which the section at issue forms a part so that a harmonious result, presumably the intent of the Legislature, may be achieved.'"Id.(citation omitted).We seek to avoid absurd, illogical or inconsistent results.SeeFairchild...