Taylor v. Steager, 16-0910
| Decision Date | 06 April 2018 |
| Docket Number | No. 16-0910,16-0910 |
| Court | Supreme Court of West Virginia |
| Parties | Keith G. Taylor, Petitioner Below, Petitioner v. Dale W. Steager, West Virginia State Tax Commissioner, Respondent Below, Respondent |
Respondent State Tax Commissioner (Tax Commissioner)1 assessed Petitioner Keith G. Taylor $13,265 in taxes, interest and penalties for the 2012 tax year. Although Mr. Taylor unsuccessfully challenged the assessment with the Office of Tax Appeals (OTA), he prevailed in his subsequent appeal to the circuit court, which vacated the assessment. On appeal to this Court, Mr. Taylor claims that he also was entitled to a ruling on tax refunds for the 2009, 2010 and 2011 tax years and that he was denied due process.2 The Tax Commissioner cross-appeals and alleges that the circuit court should have affirmed the assessment and erred in imposing a burden on the Tax Commissioner to show that a fraudulent or false return was filed under West Virginia Code § 11-10-5c. We affirm the circuit court's rulings as to Mr. Taylor's assignments of error. However, because the circuit court applied the incorrect statute, we conclude that the circuit court's reversal of the OTA's final decision was erroneous. Thus, we affirm in part, reverse in part, and remand this case for entry of an order reinstating the OTA's assessment.
Because this case does not present a new or significant issue of law, and for the reasons set forth herein, we find this case satisfies the "limited circumstances" requirements of Rule 21(d) of the West Virginia Rules of Appellate Procedure and is proper for disposition as a memorandum decision.
Mr. Taylor and his wife reside in Mineral County, West Virginia. On April 15, 2013, Mr. Taylor filed his 2012 Federal Income Tax Return (federal tax return) as "married filing separately," showing an adjusted gross income of $222,716. On his 2012 West Virginia State Income Tax Return (state tax return), he reported his state taxable income as $212,716 due to an $8,000 credit and a $2,000 exemption. The return showed a balance due of $13,265, which Mr. Taylor did not pay.
On July 22, 2013, the Tax Commissioner issued a Notice of Assessment against Mr. Taylor based on his failure to pay the personal income tax shown due on the state tax return. It subsequently reissued the assessment against him for the 2012 tax year on December 20, 2013, due to Petitioner's continued failure to pay the tax due. On January 4, 2014, Mr. Taylor filed an amended federal tax return reducing his 2012 adjusted gross income to $10,900, stating that
On February 3, 2014, Mr. Taylor filed a Petition for Reassessment with the OTA challenging the assessment.3 He subsequently filed an amended 2012 state tax return on February 7, 2014 reflecting the change in his federal adjusted gross income. The Tax Commissioner issued a refund check to Mr. Taylor based upon his amended state tax return but later determined that it had committed an error in issuing a refund. Relying on his amended return, Mr. Taylor appealed the Tax Commissioner's determination that he owed taxes to the State for the 2012 tax year. He subsequently filed petitions for refund and amended West Virginia income tax returns for the years 2009, 2010, and 2011.
On August 27, 2014 a hearing was held before OTA Chief Administrative Law Judge A.M. "Fenway" Pollack (ALJ Pollack). Because the petition for reassessment with regard to the 2012 tax year was previously consolidated with the refund petitions that Mr. Taylor filed as to the 2009, 2010, and 2011 tax years, ALJ Pollack inquired about those refund petitions during the hearing. The Tax Commissioner responded that any refunds owed to Mr. Taylor for the 2009, 2010, and 2011 tax years were being held pending the outcome of his petition for reassessment for the 2012 tax year and that if ALJ Pollack determined that Mr. Taylor did not have any tax liability for 2012, refunds for the other tax years would be issued.
Following the Tax Commissioner's explanation regarding the 2009, 2010 and 2011 refunds owed to Mr. Taylor, ALJ Pollack asked Mr. Taylor whether those tax years were being withdrawn from its consideration because "we are limiting ourselves to DocketNumber 14-050, which concerns the December 20, 2013 assessment [for the 2012 tax year]." Mr. Taylor replied, "Correct." Later in the hearing, when Mr. Taylor attempted to introduce documents with regard to the 2009, 2010, and 2011 tax years, the ALJ ruled that documents about those tax years were unnecessary. Conceding that the ALJ's ruling was correct, Mr. Taylor stated "[w]e all agreed" that only "2012 remains in controversy."
With respect to the 2012 state tax assessment, Mr. Taylor argued that the Tax Commissioner had no power to issue it since the IRS had accepted his amended 2012 federal tax return for processing. However, ALJ Pollack ruled that the Tax Commissioner was not required to accept an amended personal income tax return simply because the IRS processed a corresponding federal tax return. ALJ Pollack determined that the bulk of the income that Mr. Taylor reported on his 2012 federal return included an IRA distribution of $209,847. When ALJ Pollack questioned Mr. Taylor to determine the basis for the reduction in his federal adjusted gross income, Mr. Taylor stated that it was offset by legitimate carryovers from prior years of capital losses incurred in trading precious metals. On cross-examination, Mr. Taylor stated that he was in possession of additional discovery material substantiating the reductions made to his federal adjusted gross income. ALJ Pollack continued the hearing and held the record open allowing Mr. Taylor time to submit additional documents detailing the capital losses he claimed that he incurred. Mr. Taylor submitted those documents to the Tax Commissioner and filed a motion to close the record on November 7, 2014.
On November 13, 2014, the OTA held a second hearing by telephone. The transcript reveals that although Mr. Taylor was on the telephone prior to the start of the hearing, he became disconnected. The OTA made several attempts to reach Mr. Taylor but was unsuccessful. Thus, the hearing continued in his absence.4 During this hearing, ALJ Pollack denied Mr. Taylor's motion to close the record. The Tax Commissioner presented testimony from Jan Mudrinich, Supervising Attorney for the Legal Division of the State Tax Department. Mr. Mudrinich testified that Mr. Taylor's case involved a simple assessment where he had filed a tax return stating that he owed taxes but failed to make payment.
On August 20, 2015, the OTA issued an order affirming the Tax Commissioner's assessment for the 2012 tax year, finding Mr. Taylor liable for $13,282.18.5 The OTA specifically addressed Mr. Taylor's amended 2012 state tax return and whether he was entitled to offset his 2012 ordinary income received from distribution of a retirement account against capital losses that occurred between 2010 and 2012 and concluded that Mr. Taylor failed to meet his burden of proof.6 Concluding that "it [was] black letter law that where a taxpayer has no capital gains in the tax year involved, no capital loss is allowable," the OTA found that 7 In its order, the OTA also noted that the refund claims for the 2009, 2010, and 2011 tax years presented no appealable issues, and thus, the only year at issue in the case was tax year 2012.
Mr. Taylor appealed the OTA's decision to the Circuit Court of Mineral County. In addition to challenging the OTA's decision, Mr. Taylor also alleged multiple assignments of error, in various filings, regarding the professionalism of ALJ Harlan, ALJ Pollack, and legal counsel for the Tax Commissioner. The circuit court reversed the OTA's decision on August 25, 2016, ruling that (1) Mr. Taylor's complaints regarding the professionalism of ALJ Harlan, ALJ Pollack, and legal counsel for the Tax Commissioner were without merit; and (2) the OTA's finding that the Tax Commissioner had "the power to investigate and to make changes to an individual's accounts or returns as well as to make appropriateassessments for non-payment of taxes when necessary pursuant to West Virginia Code § 11-10-7, § 11-21-12 et seq., and 110 C.S.R. 21, § 59" was arbitrary and erroneous.
The circuit court noted that the legality of the decrease between the 2012 tax return and amended return was, as identified by the Tax Commissioner, the only issue in the case. It also noted that an affidavit provided by the Tax Commissioner's agent indicated that the amended return was "accepted but the refund was made in error because of the subsequent filing of an appeal by Mr. Taylor relating to the 2012 tax assessment based upon his original filing." The circuit court found that while for state tax purposes, federal adjusted gross income can be adjusted depending on state tax law modifications provided by statute,8 there was no authority for the Tax Commissioner to disregard an accepted federal amended tax return's representation of adjusted gross income without conducting some form of investigation and making a determination of fraud or falsity.
The court found that West Virginia Code § 11-21-12 and its accompanying rules establish that federal adjusted gross income is the actual starting point for determining state tax...
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