HUF Rest. v. Commonwealth

1

HUF Restaurant, Inc., Petitioner v. Commonwealth of Pennsylvania, Respondent

No. 394 F.R. 2018

Commonwealth Court of Pennsylvania

April 19, 2024

ARGUED: September 11, 2023

BEFORE: HONORABLE CHRISTINE FIZZANO CANNON, JUDGE HONORABLE STACY WALLACE, JUDGE HONORABLE BONNIE BRIGANCE LEADBETTER SENIOR JUDGE

OPINION

STACY WALLACE, JUDGE

Petitioner HUF Restaurant, Inc. (HUF) petitions for review of the April 26, 2018 order of the Board of Finance and Revenue (Board) denying HUF's appeal of a bulk sale assessment resulting from HUF's purchase of a restaurant from Zola New World Bistro, Ltd. (Zola), including the purchase and transfer of a liquor license. The Board denied HUF's appeal due to its failure to obtain and present the Department of Revenue (Department) with a bulk sale tax clearance certificate (bulk sale certificate) pursuant to Section 1403(a) of The Fiscal Code,^[1] 72 P.S. § 1403(a).^[2]After thorough review, we are constrained to affirm.

I. Factual Background and Procedural History

A. Zola's Sale to HUF

The facts of this matter are not in dispute, having been established by joint stipulation of the parties.^[3] Zola operated a restaurant on West College Avenue in State College, Pennsylvania, for a number of years, up through 2014. On February 6, 2015, Zola entered into an Agreement of Sale with HUF wherein Zola agreed to sell its restaurant assets and liquor license to HUF for the sum of $725,000, of which $425,000 was allocated to the liquor license. Stipulation of Facts (SOF) ¶¶ 3, 6; SOF Exs. A, B.

Zola warranted and represented to HUF in the Agreement of Sale that it "owes no undisclosed outstanding liabilities affecting the business or that might affect consummation of the transfer of the business (including the bulk sale laws) nor will such transfer violate any agreements or law." SOF ¶ 7 (quoting SOF Ex. A ¶ 13(b)). The Agreement of Sale further "provided that Zola would indemnify HUF for all taxes due and payable by Zola prior to closing, and for any taxes that arose as a result of the sale." Id. ¶ 9; see also SOF Ex. A ¶ 15(b).^[4] The parties twice agreed to extend the date of closing via addendums to the Agreement of Sale dated March 2 and April 14, 2015. SOF ¶¶ 11-12; SOF Exs. C, D. The Agreement of Sale and both addendums were signed on behalf of Zola by its President, David R. Fonash. SOF Exs. A, C, D. Closing on the asset purchase occurred on May 15, 2015, at which time HUF paid Zola the remaining balance of $672,000, including $425,000 for the liquor license. SOF ¶ 14.

Because the transaction involved the sale in bulk of more than 51% of Zola's assets, Section 1403(a) of The Fiscal Code was triggered, 72 P.S. § 1403(a). SOF ¶ 24. That section provides as follows:

Every corporation, joint-stock association, limited partnership, or company, which shall sell or transfer in bulk [51%] or more of any stock of goods, wares, or merchandise of any kind, fixtures, machinery, equipment, buildings, or real estate, shall give the Department [] [10] days' notice of the sale or transfer prior to the completion of the transfer of such property. It shall also be the duty of every corporation, joint-stock association, limited partnership or company to file all State tax reports with the Department [], to and including the date of such proposed transfer of property, and pay all taxes due the Commonwealth to and including said date. The seller or transferer shall present to the purchaser of such property a certificate from the Department [], showing that all State tax reports have been filed and all State taxes paid to and including the date of the proposed transfer. The failure of the purchaser to require this certificate shall render such purchaser liable to the Commonwealth for the unpaid taxes owing by the seller or transferer to and including the date of such transfer, whether or not at that time such taxes have been settled, assessed, or determined: Provided, That nothing contained in this act shall apply to sales or transfers made under any order of court, or to any sales or transfers made by assignees for the benefit of creditors, executors, administrators, receivers, or any public officer in his official capacity, or by any officer of a court. Whenever it shall become necessary for the [D]epartment to make an estimated tax settlement for the purpose of issuing a certificate under the provisions of this section, the [D]epartment may strike off such an estimated settlement when the annual tax report is settled.

Section 1403(a) of The Fiscal Code, 72 P.S. § 1403(a) (emphasis added). Crucially, HUF admits that a bulk sale occurred and that it failed to obtain the required bulk sale certificate. SOF ¶¶ 24, 25, 57, 59.

On February 3, 2015, before closing on the transaction, HUF submitted a letter request to the Department for a lien certificate. SOF ¶ 18; SOF Ex. F. The Department issued a lien certificate on February 23, 2015, indicating that it had no outstanding liens against Zola. SOF ¶¶ 15-16; SOF Ex. E. Notably, the lien certificate expressly states that it "is not to be confused or used in lieu of a bulk sale [] certificate, which must be obtained by completing REV-181, Application for Tax Clearance Certificate, and submitted to the [D]epartment pursuant to [Section 1403 of The Fiscal Code,] 72 P.S. § 1403." SOF ¶ 17 (emphasis added) (quoting SOF Ex. E). While "[l]ien certificates show the character and amount of all outstanding tax liens of record maintained by the Department [] against a taxpayer," SOF ¶ 22, bulk sale certificates reveal more information, including "that all state tax reports have been filed and all state liabilities (including those subject to a tax lien and those that are not) up to and including the date of the proposed transfer have been paid." SOF ¶ 20.

Because the transaction included the purchase and transfer of Zola's liquor license, the provisions of the Liquor Code^[5] pertaining to license transfers also applied. See SOF ¶¶ 26-27. In particular, Section 477 of the Liquor Code states:

(a) An applicant for the grant, renewal or transfer of any license issued pursuant to this article shall provide to the [Pennsylvania Liquor Control B]oard [(PLCB)], upon forms approved by the Department[], the following:

(6) a statement that:

(i) all State tax reports have been filed and all State taxes paid;

(ii) all State taxes are subject to a timely administrative or judicial appeal; or

(iii) all State taxes are subject to a duly approved deferred payment plan.

(b) An applicant for the grant, renewal or transfer of any license issued pursuant to this article shall, by the filing of an application insofar as it relates to the [PLCB], waive any confidentiality with respect to State tax information regarding said applicant in the possession of the Department[], the Office of Attorney General or the Department of Labor and Industry [(L&I)], regardless of the source of that information and shall consent to the providing of that information to the [PLCB] by the Department[], the Office of Attorney General or [L&I].

(c) Upon receipt of any application for the grant, renewal or transfer of any license issued pursuant to this article, the [PLCB] shall review the State tax status of the applicant. The [PLCB] shall request State tax information regarding the applicant from the Department[], the Office of Attorney General or [L&I] and said information shall be provided.

(d) The [PLCB] shall not approve any application for the grant, renewal or transfer of any license issued pursuant to this article where the applicant has failed to:

(1) provide any of the information required by subsection (a);

(2) file required State tax reports; or

(3) pay any State taxes not subject to a timely administrative or judicial appeal or subject to a duly authorized deferred payment plan.

(e) For the purpose of this section, the term "applicant" shall include the transferor and transferee of any license issued under this act.

Added by the Act of June 29, 1987, P.L. 32, 47 P.S. § 4-477 (emphasis added).

Both Zola and HUF submitted clearance tax certification statements to the PLCB^[6] to initiate the liquor license transfer process, which prompted the PLCB to make requests to L&I and the Department regarding Zola's and HUF's clearances. SOF ¶¶ 26, 29. The parties stipulated to the following additional facts regarding the PLCB liquor license transfer process:

32. In an email dated March 11, 2015, Dave Trexler, Revenue Enforcement Collections Agent for the Department[], communicated the following to Mr. Fonash. []

"You contacted the office, Zola was cleared in Feb[ruary]." [(Quoting SOF Ex. I.)] . . . .

34. On April 20, 2015, Mr. Fonash forwarded the March 11, 2015[] email from Mr. Trexler to HUF Counsel with the following message.

"I hear we have some sort of tax clearance issue on someones [sic] end . . . [.] Please see email below, from [the Department] that I got last month when I double checked that we were good on our end. Jeff, please let me know what you find out.["] [(Quoting SOF Ex. I.)]

35. HUF and HUF Counsel understood the reference to Zola being cleared in February in the email from Mr. Trexler related to the tax clearance sought for the [l]iquor [l]icense under Section [] 477 of the Liquor Code[, 47 P.S § 4-477].

36.HUF solely relies on the statement from Mr. Trexler and the other facts contained in this S[OF] for purposes of establishing reliance in this appeal.

37.By letter dated April 23, 2015 ("Discrepancies Letter"), the PLCB communicated to HUF Counsel that tax clearance from the Department[] had not been received for HUF and tax clearance from [L&I] had not been received for Zola, among other discrepancies. [See SOF Ex. K.]

38. The Discrepancies Letter does not note

...