Wilson v. Commissioner of Revenue, C9-02-362.

• Decision Date: 20 February 2003
• Docket Number: No. C9-02-362.,C9-02-362.
• Citation: 656 N.W.2d 547
• Parties: James L. WILSON, Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

656 N.W.2d 547

James L. WILSON, Relator, v. COMMISSIONER OF REVENUE, Respondent.

No. C9-02-362.

Supreme Court of Minnesota.

February 20, 2003.

Rehearing Denied April 1, 2003.

Mark A. Pridgeon, Edina, for Relator.

Michael A. Hatch, Minnesota Attorney General, Barry R. Greller, Assistant Attorney General, St. Paul, for Respondent.

Heard, considered and decided by the court en banc.

OPINION

ANDERSON, RUSSELL A., Justice.

A corporate employee owed over $45,000 to the State of Minnesota in delinquent sales and income taxes. The Commissioner of Revenue ("Commissioner") served a notice of levy on the corporate employer to collect approximately 25 percent of the employee's biweekly wages in order to partially satisfy the employee's delinquent tax debt. When the corporate employer willfully failed to withhold and remit from the employee's biweekly wages the portion levied upon by the Commissioner, the Commissioner assessed the entire amount of the delinquent tax debt, plus interest, against the corporate employer. When the corporation failed to pay this assessment, the Commissioner assessed the entire amount personally against Relator James A. Wilson ("Wilson"), the corporate officer responsible for withholding and remitting the levied portion of the employee's biweekly wages.

We are asked whether the Commissioner's assessment of liability against Wilson violates the Excessive Fines Clauses of the Eighth Amendment to the United States Constitution and Article I, Section 5 of the Minnesota Constitution. We hold that it does, and we reverse the tax court's decision to the contrary.

In 1994, Jay R. Hanson III ("Hanson"), while working as an independent contractor providing janitorial services to the Apple Valley Oldsmobile ("Valley Oldsmobile") car dealership, failed to pay substantial amounts of sales and income taxes to the Commissioner. On May 12, 1994, the Commissioner served notice of levy on Valley Oldsmobile, requiring it to pay to the Commissioner all money owed to Hanson. The levy for delinquent taxes was authorized by statute and allows the Commissioner to collect from the employer 100 percent of the income owed to an independent contractor. Minn.Stat. § 571.73, subds. 1, 3 (1994).

Because Hanson was delinquent in his payment of sales tax, the Commissioner revoked Hanson's sales tax permit in mid-June 1994, effectively terminating Hanson's ability to work as an independent contractor. Hanson retained Wilson, a former IRS collection agent and freelance tax consultant, who attempted to negotiate a personal payment plan between Hanson and the Commissioner to replace the Commissioner's levy on Hanson's income from Valley Oldsmobile. The negotiations failed, and the Commissioner reminded Wilson that Hanson could not work as an independent contractor because his sales tax permit had been revoked. The Commissioner advised Hanson that the only way he could continue to work legally at Valley Oldsmobile was as an employee.

Wilson was also the owner and president of Hazardous Waste Controls of Bloomington, Inc. ("HWC"). HWC contracted with Valley Oldsmobile to perform janitorial services and hired Hanson as an HWC employee. As an independent contractor, Hanson had been paid $18 per hour by Valley Oldsmobile. Under the new contractual arrangement, HWC paid Hanson a wage of $6 per hour.

Wilson informed the Commissioner that Hanson was now working at Valley Oldsmobile as an employee of HWC. On September 12, 1994, the Commissioner served a notice of levy on HWC that required HWC to withhold and remit to the Commissioner 25 percent of Hanson's biweekly wages from the date of the levy. The Commissioner was authorized to collect from the employer approximately 25 percent of the wages owed to an employee. Minn.Stat. § 571.922(1) (1994). The notice advised HWC that the levy remained in effect unless the Commissioner notified HWC otherwise and required that HWC complete the wage levy disclosure form and return it, with payment, to the Commissioner no later than September 22, 1994. HWC failed to return the wage levy disclosure form to the Commissioner with payment by September 22, 1994.

On October 4, 1994, the Commissioner reminded HWC by letter that the wage levy disclosure form with payment had not been received and warned HWC that it would be liable for $45,352.55, the total amount of Hanson's delinquent taxes, plus interest. Wilson delivered a check in the amount of $315.08 to the Commissioner on October 12, 1994, but did not include the wage levy disclosure form that the Commissioner required with payment. Because HWC failed to return the wage levy disclosure form, the Commissioner was unable to determine how HWC calculated its payment of $315.08. Wilson claimed that HWC did not receive the initial wage levy notice with the wage levy disclosure form until after the $315.08 payment was made.

On October 19, 1994, Wilson again attempted to negotiate a personal payment plan with the Commissioner on Hanson's behalf. The Commissioner refused to negotiate a personal payment plan and again advised Wilson that Hanson could not perform any taxable services as an independent contractor because his sales-tax permit had been revoked. Hanson continued to work as an employee of HWC until November 30, 1994. Except for the payment of $315.08 delivered October 12, 1994, HWC failed to remit any further payments and failed to return any wage levy disclosure forms to the Commissioner for the duration of Hanson's employment.

By order of November 3, 1994, the Commissioner concluded that HWC had willfully failed to remit the portion of Hanson's biweekly wages as required by the Commissioner's wage levy notice and assessed liability against HWC for $45,352.55. A Minnesota employer is liable for the total amount of an employee's delinquent taxes, together with accrued interest, if, after notice, the employer willfully fails to withhold and remit to the Commissioner a portion of the delinquent tax from the employee's wages. Minn.Stat. § 290.92, subd. 23(3) (1994).¹ On November 4, 1994, one day after assessing liability for Hanson's tax debt against HWC, the Commissioner assessed personal liability against Wilson, HWC's primary corporate officer, for all of Hanson's delinquent taxes, plus penalties and interest. The Commissioner relied upon Minn.Stat. § 270.101, subd. 1, which provides that a person who has the control or responsibility of withholding and remitting taxes to the Commissioner may be personally liable "for the payment of taxes, penalties and interest arising under * * * section[] * * * 290.92 * * *." Minn. Stat. § 270.101, subd. 1 (2002).² HWC maintains that, on December 15, 1994, it mailed to the Commissioner its first wage levy disclosure form with a check in the amount of $146.90, and that this payment was in satisfaction of the wage levy on Hanson's wages from November 16 to November 30, 1994. The Commissioner does not acknowledge receipt of either the $146.90 payment or the wage levy disclosure form, but bank records indicate that HWC's checking account was debited in the amount of $146.90 on December 21, 1994. On March 17, 1995, HWC, through its attorneys, sent to the Commissioner five wage levy disclosure forms covering the biweekly pay periods from August 1, 1994 to November 15, 1994. According to HWC's calculations on the five wage levy disclosure forms, HWC paid Hanson a total of $4,855.58 in wages during this period (excluding the wages paid from September 13 through September 30 for which $315.08 was remitted). Wilson calculated the outstanding balance owed to the Commissioner based upon the wage levy disclosure forms and enclosed a check in the amount of $578.81. The Commissioner's office acknowledges receipt of the check in the amount of $578.81, though its records do not indicate whether that specific amount was credited toward the personal assessment against Wilson.

HWC appealed to the tax court from the Commissioner's order of November 3, 1994 assessing liability against it for the total amount of Hanson's delinquent taxes, plus interest. Hazardous Waste Controls of Bloomington, Inc. v. Comm'r of Revenue, No. 6589, 1997 WL 158263, at *2 (Minn. T.C. Mar. 17, 1997). The tax court concluded that HWC's failure to withhold and remit 25 percent of Hanson's wages with a wage levy disclosure form was willful and, on March 17, 1997, directed that judgment be entered affirming the assessment. Id. HWC did not appeal from or satisfy the judgment.

Wilson subsequently appealed to the tax court from the order assessing liability against him personally, claiming, inter alia, that the personal assessment constituted an excessive fine under the United States and Minnesota Constitutions. Wilson v. Comm'r of Revenue, No. 6918, 1999 WL 285896, at *1, *3 (Minn. T.C. May 5, 1999). The tax court granted the Commissioner's motion in limine and ruled that Wilson was barred by the doctrine of res judicata from raising the constitutional issues. Id. at 4. It found that Wilson was in privity with HWC and could have raised the constitutional issues in HWC's earlier appeal to the tax court. Id. at *2-*3. The tax court ultimately concluded that the Commissioner was entitled to summary judgment affirming the personal assessment against Wilson. Wilson v. Comm'r of Revenue, No. 6918, 2000 WL 306677, at *1 (Minn. T.C. March 14, 2000).

On appeal, we reversed the tax court's decision, concluding that the tax court did not have jurisdiction in HWC's appeal to determine the constitutional issues because it failed to comply with the procedures required by our decision in Erie Mining Co. v. Comm'r of Revenue, 343 N.W.2d 261, 264 (Minn.1984). Wilson v. Comm'r of Revenue, 619 N.W.2d 194, 199 (Minn. 2000). We held that Wilson's constitutional claims were therefore not barred by res judicata. Id.

On remand, the tax court concluded that the Commissioner's personal assessment against Wilson did not violate the Excessive Fines Clauses of the...