Suntrust Bnk v. Johnson, 97-00202

• Decision Date: 13 December 2000
• Docket Number: 97-00202
• Citation: Suntrust Bnk v. Johnson (Tenn. App. 2000)
• Parties: SUNTRUST BANK, NASHVILLE v. RUTH JOHNSONIN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE
• Court: Tennessee Court of Appeals

SUNTRUST BANK, NASHVILLE v RUTH JOHNSON

No. M1997-00202-COA-R3-CV

IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE

May 26, 1998 Session

Filed December 13, 2000

Appeal from the Chancery Court for Davidson County No. 95-2650-II

Ernest B. Pellegrin, Special Chancellor

This appeal involves a dispute between a commercial bank and the Tennessee Department of Revenue regarding the bank's claim for a refund of the sales taxes paid in connection with defaulted retail installment sales contracts purchased from various automobile dealers. After the Department denied its refund claim, the bank sued the Commissioner of Revenue in the Chancery Court for Davidson County seeking a refund. Both parties eventually sought a summary judgment. The trial court granted the Commissioner's motion for summary judgment after concluding that it did not have jurisdiction to consider the bank's claim. Alternatively, the trial court held that the bank was not entitled to the requested refund because it was not the dealer who originally remitted the sales tax to the Department. We have determined that the trial court erred by determining that it lacked jurisdiction to consider the bank's refund claim. However, we have also determined that the trial court correctly concluded that the bank was not entitled to the requested refund because it was not the dealer who remitted the sales tax at issue.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed in Part and Affirmed in Part

William C. Koch, Jr., J., delivered the opinion of the court, in which Henry F. Todd, P.J., M.S., and Ben H. Cantrell, J., joined.

Michael Hinchion and Dianna Baker Shew, Nashville, Tennessee, for the appellant, SunTrust Bank, Nashville, N.A.

Paul G. Summers, Attorney General and Reporter, and Christine Lapps, Assistant Attorney General, for the appellee, Ruth E. Johnson, Commissioner of Revenue.

OPINION

SunTrust Bank, Nashville, N.A., formerly known as Third National Bank, is a commercial bank doing business in Tennessee. It has entered into agreements with numerous automobile dealers to provide financing for the dealers' customers who desire to purchase a new automobile on credit. These arrangements work as follows. At the time of the sale of an automobile, the purchaser enters into a retail installment sales contract with the automobile dealer giving the dealer a security interest in the automobile. The amount financed by the retail installment sales contract includes (1) the portion of the purchase price not paid by the purchaser at the time of delivery, (2) the dealer's miscellaneous fees and charges, and (3) the full amount of the sales tax due on the sale of the automobile.

Thereafter, the automobile dealer sells the retail installment sales contract to SunTrust at a discount. The dealer also assigns to SunTrust all its right, title, and interest in the retail installment sales contract. As a result of this assignment, SunTrust becomes entitled to any and all payments from the purchaser and succeeds to all the rights and interests of the automobile dealer. When SunTrust receives the retail installment sales contract, it pays the dealer the agreed upon amount, which includes the full amount of the sales tax due on the sale of the automobile. Upon receiving these funds, the automobile dealer remits the sales tax due to the Tennessee Department of Revenue.

This arrangement works well as long as the purchaser continues making the payments required by the retail installment sales contract. However, a portion of new car purchasers eventually default on their contractual obligations. SunTrust bears the risk of loss in this circumstance because it purchases the retail installment sales contracts without recourse. Accordingly, when a purchaser defaults on a retail installment sales contract, SunTrust must repossess and dispose of the automobile, usually at a loss. It later charges off each of these losses for federal income tax purposes.

During the period covered by the bank's Tennessee sales and use tax returns filed in calendar year 1991, over 450 retail installment sales contracts purchased by SunTrust went into default. For each of these contracts, SunTrust wrote off the outstanding portion of the indebtedness as an uncollectible bad debt. The total amount of the write-offs during the period at issue was nearly $2,000,000. In December 1994, SunTrust filed a claim with the Department of Revenue seeking a $105,356.66 refund representing the amount of the sales tax attributable to the defaulted installment sales contracts.¹ The Department denied the claim in February 1995 based on Tenn. Comp. R. & Regs. r. 1320-5-1-.52(3) (1990) which stated that banks purchasing retail installment sales contracts without recourse are not entitled to a sales tax refund.

Believing that it was entitled to the requested refund, SunTrust filed suit against the Commissioner of Revenue in the Chancery Court for Davidson County. Both parties eventually agreed that the material facts were undisputed and filed motions for summary judgment. In an order entered on July 31, 1997, the trial court held that it did not have jurisdiction to consider SunTrust's refund claim because SunTrust had not initially remitted the sales tax to the State. In an alternative ruling, the trial court concluded that, even if it had jurisdiction over SunTrust's claim, SunTrust was not entitled to a refund because it was "not the dealer who paid the taxes at issue in this dispute, which is an explicit condition of relief under Tenn. Code Ann. § 67-6-507(e)." SunTrust has appealed.

I.

The Justiciability of SunTrust's Refund Claim

The threshold issue in this case involves the trial court's subject matter jurisdiction over SunTrust's claim. The Commissioner argued, and the trial court apparently agreed, that the trial court lacked jurisdiction over SunTrust's complaint seeking a tax refund under Tenn. Code Ann. § 67-1-1802(c)(1) (Supp. 2000) because SunTrust was not a "taxpayer" for jurisdictional purposes. This argument unnecessarily scrambles two distinct concepts subject matter jurisdiction and standing. We have concluded that the trial court clearly had subject matter jurisdiction over SunTrust's refund claim and that SunTrust also had standing to assert it.

A.

The Trial Court's Subject Matter Jurisdiction

As we have repeatedly said, the concept of subject matter jurisdiction implicates a court's authority to hear and decide a particular type of case. Meighan v. U.S. Sprint Communications Co., 924 S.W.2d 632, 639 (Tenn. 1996); Cashion v. Robertson, 955 S.W.2d 60, 63 (Tenn. Ct. App. 1997). A court derives its subject matter jurisdiction from the Constitution of Tennessee or from a legislative act, Kane v. Kane, 547 S.W.2d 559, 560 (Tenn. 1977), and thus it cannot exercise jurisdictional powers that have not been conferred on it directly or by necessary implication. Dishmon v. Shelby State Cmty. Coll., 15 S.W.3d 477, 480 (Tenn. Ct. App. 1999).

A court's subject matter jurisdiction depends on the nature of the cause of action and the relief sought. Landers v. Jones, 872 S.W.2d 674, 675 (Tenn. 1994). It does not depend upon the conduct or the agreement of the parties, Shelby County v. City of Memphis, 211 Tenn. 410, 413, 365 S.W.2d 291, 292 (1963). Thus, the parties cannot confer subject matter jurisdiction on a court by appearance, plea, consent, silence, or waiver. Caton v. Pic-Walsh Freight Co., 211 Tenn. 334, 338, 364 S.W.2d 931, 933 (1963); Dishmon v. Shelby State Cmty. Coll., 15 S.W.3d at 480. Without subject matter jurisdiction, a court cannot enter valid, enforceable orders. Brown v. Brown, 198 Tenn. 600, 610, 281 S.W.2d 492, 497 (1955); Riden v. Snider, 832 S.W.2d 341, 343 (Tenn. Ct. App. 1991).

No Tennessee court has subject matter jurisdiction to entertain a suit against the State unless the State has consented to be sued. Shell v. State, 893 S.W.2d 416, 420 (Tenn. 1995); Pool v. State, 987 S.W.2d 566, 568 (Tenn. Ct. App. 1998). This consent may be given only by the General Assembly, Tenn. Const. art. I, § 17; Quinton v. Board of Claims, 165 Tenn. 201, 215-16, 54 S.W.2d 953, 958 (1932), and when consent is given, suits may be brought only in the manner specifically provided by the General Assembly. State ex rel. Allen v. Cook, 171 Tenn. 605, 609, 106 S.W.2d 858, 860 (1937); Crowe v. John W. Harton Mem'l Hosp., 579 S.W.2d 888, 890 (Tenn. Ct. App. 1979).

Tenn. Code Ann. § 67-1-1802(c)(1)specifically allows taxpayers whose claim for a tax refund has been denied to file suit against the Commissioner within six months after the denial of the claim. These suits must be filed in the "appropriate chancery court of this state." For the purposes of the statute, a chancery court is "appropriate" if it meets the venue provisions in Tenn. Code Ann. § 67-1-1803(a) (1998) which requires that suits against the Commissioner be filed either (1) in the Chancery Court for Davidson County, (2) in the chancery court in the county of the taxpayer's domicile, or (3) in the chancery court of the county where the taxpayer's principal place of business is located. The designation of the Chancery Court for Davidson County as a proper forum for resolving disputes between taxpayers and the Commissioner vests the Chancery Courts for Davidson County with the adjudicatory power, i.e., subject matter jurisdiction, to determine controversies such as the present one. Accordingly, the trial court's conclusion that it lacked jurisdiction over SunTrust's refund claim is incorrect.

B.

Suntrust's Standing to Seek a Sales Tax Refund

In contrast to subject matter jurisdiction, standing is a judge-made doctrine used to determine whether a particular plaintiff is entitled to judicial relief. Knierim v. Leatherwood, 542 S.W.2d 806, 808 (Tenn. 1976); National Gas Distribs. v. Sevier County Util. Dist., 7 S.W.3d 41, 44 (Tenn. Ct. App. 1999); Metropolitan Air Research Testing Auth. v. Metropolitan...