Vermont Structural Steel v. State Dept. of Taxes

• Citation: 569 A.2d 1066,153 Vt. 67
• Decision Date: 03 November 1989
• Docket Number: No. 87-473,87-473
• Court: United States State Supreme Court of Vermont
• Parties: VERMONT STRUCTURAL STEEL v. STATE of Vermont DEPARTMENT OF TAXES.

Page 1066

569 A.2d 1066

153 Vt. 67

VERMONT STRUCTURAL STEEL v. STATE of Vermont DEPARTMENT OF TAXES.

No. 87-473.

Supreme Court of Vermont.

Nov. 3, 1989.

Charles T. Shea and Norman Williams of Gravel and Shea, Burlington, for plaintiff-appellant.

Jeffrey L. Amestoy, Atty. Gen., and Jacqueline A. Hughes, Asst. Atty. Gen., Montpelier, for defendant-appellee.

Before ALLEN, C.J., PECK, GIBSON and MORSE, JJ., and BARNEY, C.J. (Ret.), Specially Assigned.

PECK, Justice.

Vermont Structural Steel Corporation (taxpayer) appeals from a sales and use tax assessment of $33,708.95 for the period September 1, 1980, through October 31, 1983. In prior review, the Commissioner of Taxes and the superior court both upheld the assessment. We affirm.

Taxpayer manufactures fabricated steel in the form of steel girders and other steel construction products from raw steel. It sells the fabricated steel to contractors at retail, collecting a sales tax from the contractor on the full retail price. Taxpayer is not required to pay a sales tax when it purchases the raw steel from which it manufactures beams and girders for retail sale, since it collects a sales tax when it sells the product. See 32 V.S.A. § 9745.

However, taxpayer also does business as a construction contractor from time to time, using products it fabricates for its construction projects. It pays a sales tax on the purchase of the raw materials used to produce the fabricated products used on these contracts. The Department contends that taxpayer should have paid a compensating use tax on the full retail value of these products which the Department argues taxpayer in effect "sells to itself," and assessed a deficiency on that basis for the years 1980 through 1983, based on 32 V.S.A. § 9773(2). ^* Taxpayer appealed to the Commissioner, who upheld the assessment. The taxpayer then appealed to the Chittenden Superior Court pursuant to 32 V.S.A. § 9817 and V. R.C.P. 74. The superior court also upheld the assessment, and the present appeal followed.

I.

Taxpayer first contends that the Department is estopped to assess the tax retroactively after giving taxpayer the advice on which the latter relied during the three years at issue. After Vermont adopted a sales tax in 1969 taxpayer claimed that it sought advice from the Department and was told that it was only required to pay a tax at the time of purchase on steel beams which it intended to fabricate and erect under construction contracts. At trial the case for estoppel was based on the testimony of taxpayer's vice-president, John McDonald, and an affidavit of James Kendall, who had been chief of audits for the Department from 1962 to 1975. McDonald testified that a Department representative visited the plant and advised the company to collect a sales tax when it sold fabricated steel at retail, but to pay a sales tax only on the raw steel that it purchased when acting in a dual capacity as a fabricator and construction contractor. Kendall submitted an affidavit after the Department hearing, which was considered by the Commissioner in his decision, that:

to the best of my knowledge and belief, at all times while I was Chief of the Audits Division for the Vermont Tax Department, the Tax Department would not have levied a sales tax on transactions in which Vermont Structural Steel agreed to furnish materials and labor to erect a steel structure at a construction site for one fixed sum. However, the Department would have imposed [sales tax] on transactions in which Vermont Structural Steel agreed to furnish fabricated steel only.

(Emphasis in original.)

The Department does not dispute that one of its employees visited taxpayer's plant prior to the effective date of the sales and use tax, but responds that taxpayer's evidence as to what was said was vague and unverified, since McDonald did not remember who had visited the plant and did not obtain advice in writing. Moreover, McDonald testified that he had been aware of a controversy between the steel industry and the State of New York over a similar tax issue, and after meeting with the Vermont Tax Department representative "came away with the assumption that the tax was being applied the same way that it was applied in New York State and I guess some others."

A.

Taxpayer first asserts that the truth of McDonald's version of the meeting must be regarded as established because his testimony was unrebutted. The argument misapprehends the nature of the evidence and the proper role of the trier of fact. This Court has stated that "where a credible witness testifies distinctly and positively to a fact and is not contradicted, and there is no circumstance shown from which an inference against the fact testified to can be drawn, the fact may be taken as established, and a verdict directed on such evidence." Neill v. Ward, 103 Vt. 117, 160, 153 A. 219, 238 (1930).

The Neill rule appears to support taxpayer's position, but its implications deserve reappraisal in light of the case law in Vermont since 1930 dealing with the relationship of triers of fact and appellate courts. Neill suggested that if a party introduced evidence that was uncontroverted and dispositive, that party was entitled to a verdict as a matter of law, save only for the "circumstance shown" under which the court would retain the power to withhold entering judgment as a matter of law. The problem with applying the Neill rule usefully is that the nature of the countervailing "circumstances" negating the rule has never been made clear. We cited Neill as recently as our decision in In re New England Telephone & Telegraph Co., 135 Vt. 527, 535, 382 A.2d 826, 832 (1977). In that case we indicated in dictum that the Public Service Board should on remand "indicate the circumstances, if any, that discredit any factual testimony" to be offered on remand by a certain witness, whose prior testimony the board had rejected, though it had been uncontroverted. Id. at 535, 382 A.2d at 832 (emphasis in original). While the holding in Neill could be read as a substantive principle of law entitling a party introducing uncontroverted evidence the right to judgment, the dictum in In re New England Telephone & Telegraph Co., was simply directed at obtaining reasoned findings from the trier of facts.

More important, the Neill holding is at odds with the strong and often cited rubric that, to be set aside, findings must be shown to be clearly erroneous. See, e.g., A. Brown, Inc. v. Vermont Justin Corp., 148 Vt. 192, 194, 531 A.2d 899, 901 (1987). The rule is not a single, clear, guiding principle, but a patchwork of loosely related concepts applied differently in different contexts. Therefore, it is properly limited to those rare instances where the testimony concerns uncontroverted direct evidence, where rejection of that evidence by the trier appears arbitrary and unreasonable, and where no explanation of the rejection is provided or apparent. To the extent that Neill v. Ward holds to the contrary, it is overruled.

B.

Witness McDonald's testimony was entitled to whatever weight the court saw fit to accord it, as the question was not one based on uncontroverted direct evidence. Even if McDonald correctly recalled the conversation with the unidentified representative of the Department, what the representative said did not bind the Department and was not a sound basis for reliance by taxpayer. See In re Agency of Administration, 141 Vt. 68, 80-81, 444 A.2d 1349, 1355 (1982).

Equitable estoppel may be asserted against a governmental body. My Sister's Place v. City of Burlington, 139 Vt. 602, 433 A.2d 275 (1981), set forth the four elements of estoppel:

"(1) [t]he party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) he must rely on the former's conduct to his injury."

Id. at 609, 433 A.2d at 280 (quoting Town of Bennington v. Hanson-Walbridge Funeral Home, Inc., 139 Vt. 288, 293-94, 427 A.2d 365, 369 (1981)). It was taxpayer's burden to establish all of the elements of estoppel, particularly where estoppel was directed at a government agency. Heckler v. Community Health Services, 467 U.S. 51, 65, 104 S.Ct. 2218, 2226-27, 81 L.Ed.2d 42 (1984). Taxpayer seeks to distinguish Heckler because in that case a fiscal intermediary for the federal government gave incorrect advice, while in the present case the Department itself imposed a "retroactive change in position." Here, the sole evidence for the "retroactive change in position" was the Kendall affidavit, which did not counterbalance the overwhelming case against estoppel. The trial court's view that taxpayer simply showed "that for a period of time the Tax Department did not enforce the sales tax statute to its full extent" is more consistent with the tenor of the Kendall affidavit than are the broader conclusions inferred by taxpayer about the Tax Department's official interpretation of the statute.

Taxpayer argues incorrectly that the Department should be estopped because the advice from its representative was in fact the Department's position during the years in question. The estoppel issue is distinct from the question of what stance the Department actually took in interpreting 32 V.S.A. § 9773(2). Whether or not the representation of a government agent reflects accurately the state of the law at the time made, that representation can provide the basis for estoppel. See Interstate Fire Insurance Co. v. United States, 215 F.Supp. 586, 599 (E.D.Tenn.1963), aff'd, 339 F.2d 603 (6th Cir.1964); Lesavoy Foundation v. Commissioner, 238 F.2d 589, 592-93 (3d Cir.1956). On the other hand, in the absence of grounds for estoppel, the advice or opinion given by a government agency, though incorrect, does not bar later correction, even if there had been reliance on the government agent's...