Whitby v. Director of Revenue, 77462
| Decision Date | 25 April 1995 |
| Docket Number | No. 77462,77462 |
| Citation | 896 S.W.2d 636 |
| Parties | Gary S. WHITBY, Respondent, v. DIRECTOR OF REVENUE, Appellant. |
| Court | Missouri Supreme Court |
Jeremiah W. (Jay) Nixon, Atty. Gen., Andrea Spillars, Gretchen Garrison, Asst. Attys. Gen., Jefferson City, for appellant.
Daniel R. Dunham, Danieal H. Miller, Columbia, for respondent.
The Director of Revenue assessed Gary S. Whitby for unpaid sales tax of Level Eight, Inc. The Administrative Hearing Commission held that Whitby was not liable for the assessment because he did not have direct control, supervision, or responsibility for filing returns or paying the tax. Reversed and remanded.
The facts are not in dispute. In 1989, Whitby and Garland Middendorf formed Level Eight, Inc., a subchapter S corporation, for the purpose of operating a restaurant in Columbia, Missouri. Middendorf was to supply the necessary capital and tend to the financial affairs of the business while Whitby was to manage the restaurant's day-to-day operations. Middendorf initially held 48.5 percent of the corporate stock and Whitby jointly with his wife, held 46.5 percent, with a third party brought into the corporation by Whitby holding the remaining five percent. Whitby, Middendorf, Middendorf's wife, and the third shareholder constituted the corporation's board of directors.
Whitby was the president of the corporation. The corporate bylaws, which Whitby signed at the time of incorporation, provided that the president was to "control the business, property and affairs" of the corporation and "perform duties incident to his office." Middendorf was the treasurer of the corporation. The treasurer's duties included "control and custody of the funds" of the corporation, disbursement of the corporation's funds and securities, and "all duties incident to the office of Treasurer."
Whitby signed the corporation's tax registration application and surety bond and delivered them to the Department of Revenue. After the restaurant opened in January of 1990, Whitby deposited the daily receipts, including sales tax, into the corporation's checking account. Until December of 1990, Whitby paid the restaurant's bills and maintained possession of the corporate checkbook, although Middendorf directed Whitby when and how much to pay creditors. On several occasions, Whitby refused to sign checks when he knew the checking account contained insufficient funds.
At Middendorf's direction, Whitby hired an accounting firm. The accounting firm prepared the corporation's monthly sales tax returns for Whitby's signature. Whitby's practice was to sign each return and forward it, along with a check drawn on the corporation's account for the amount of sales tax due, to the Department of Revenue. At some point in 1990 the corporation ceased using the accounting firm. From then until the restaurant ceased operations in September of 1991, Middendorf's accountant prepared the returns and checks for Whitby's signature.
Almost immediately upon commencing operations, the corporation fell behind in payment of sales tax. Whitby received the director's notices that the corporation owed tax. On several occasions, the corporation filed sales tax returns, bearing Whitby's signature, without paying tax. In April of 1991, Middendorf directed Whitby to pick up a check from Middendorf's accountant and deliver it to the Department of Revenue in partial payment of delinquent sales taxes. Whitby called the corporation's bank to determine whether the checking account had sufficient funds to cover the approximately $7,000 check and learned that it did not. Whitby refused to sign the check prepared by the accountant. Middendorf then directed the accountant to prepare and sign a check in the same amount drawn on an account held by Middendorf Properties. Whitby delivered this check to the department, along with a letter requesting a partial payment plan.
In May of 1991, Middendorf, on behalf of the corporation, reached an agreement with the director for payment, in twelve monthly installments, of delinquent sales tax for the period May, 1990, through March, 1991. Middendorf told Whitby of the arrangement, and Whitby signed checks in payment of the agreement.
Whitby called the Department of Revenue in June of 1991 to inquire whether the corporation was meeting its obligations under the agreement. On that occasion, Whitby was informed that the department still awaited sales tax returns for April and May of 1991. Whitby called back later that day to inform the department that the April return had already been mailed. Whitby also gave the director the sales tax figures for May over the telephone at that time. The next day, Whitby called the department and learned that the April return had been received. Later that day, Whitby delivered to the department the May return, bearing his signature, and a cashier's check.
The corporation filed a sales tax return for June of 1991 but did not pay the tax. The corporation did not file returns or pay tax for July, August, or September of 1991. The director assessed the corporation for the amounts due, but the corporation did not pay. The restaurant ceased operations in September of 1991. In June of 1992, the corporation was administratively dissolved.
On October 7, 1992, the director sent Whitby a letter indicating that the corporation still had unpaid sales tax liability. The letter indicated that the director was authorized by statute to assess the liability against those who were responsible for failure to collect or pay the tax. The letter stated that Whitby, as the corporation's president, might be such a person because he had the authority to participate in the corporation's financial decisions.
On August 11, 1993, the director determined that Whitby was liable for the corporation's unpaid sales taxes and issued Whitby an assessment in the amount of $38,001.96. This amount included tax, additions, interest, and fees, but no penalties.
Whitby filed a complaint seeking the Administrative Hearing Commission's redetermination of the director's decision. The commission concluded that...
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