Rawan Hayaf, LLP v. Frierson

323 So.3d 555

RAWAN HAYAF, LLP, Ali M. Saleh, Hayaf Saleh and Sena Edha, Appellants,

v.Herb FRIERSON, in His Official Capacity as the Commissioner of Revenue of The Mississippi Department of Revenue, Appellee.

NO. 2019-SA-01600-COA

Court of Appeals of Mississippi.

June 15, 2021

ATTORNEY FOR APPELLANTS: JAMES GARY McGEE JR., Flowood

ATTORNEYS FOR APPELLEE: MATTHEW TIMMONS HENRY JOHN STEWART STRINGER

BEFORE BARNES, C.J., WESTBROOKS AND SMITH, JJ.

BARNES, C.J., FOR THE COURT:

¶1. After an audit, the Mississippi Department of Revenue (MDOR) issued tax assessments of sales tax and prepaid wireless tax to Rawan Hayaf LLP (Hayaf) and individual income tax to Ali M. Saleh, Hayaf Saleh,¹ and Sena Edha (referred to collectively as "Saleh"). Hayaf and Saleh appealed the decision to the Mississippi's Board of Tax Appeals (Board of Appeals), which upheld the MDOR's assessments. Hayaf and Saleh sought judicial review of the ruling in the Hinds County Chancery Court. The chancery court granted summary judgment in favor of the MDOR. Hayaf and Saleh appeal the court's decision. Finding no error, we affirm.

STATEMENT OF FACTS

¶2. Hayaf is a limited liability partnership (LLP) created in June 2013 and owned by Ali Saleh and Hayaf Saleh. Hayaf operates a convenience store and gas station called Five Star, which is located in Meadville, Mississippi. The MDOR notified the Appellants on June 13, 2016, that their records were being audited for taxes due to the State of Mississippi for the period from "June 1, 2013, through current period(s)." The notice of audit advised them to "have available all records that prove income, deductions, exemptions, and credit necessary to determine their Mississippi tax liability."

¶3. On May 10, 2017, the MDOR assessed Hayaf sales tax in the amount of $120,860 and prepaid wireless tax in the amount of $3,175, for the audit period of June 1, 2013, through October 31, 2016. Ali M. Saleh was assessed $11,096 in individual income tax for the audit period of January 1, 2013, through December 31, 2015, and Hayaf Saleh and Sena Edha were assessed $17,226 in individual income tax for the same period. The assessments included penalty and interest.

¶4. The auditor based the tax assessments on documentation such as (1) the auditor's recapped² daily and monthly sales sheets, which were based on the Appellants’ own records; (2) the LLP's bank statements from 2015; (3) the 2015 general ledger; (4) 2015 purchase invoices; (5) monthly sales sheets for December 2014 through October 2016; (6) daily sales sheets for the audit period; (7) vender verification from third parties for gas purchases and sales; and (8) income-tax return information. However, according to the MDOR, much of the taxpayers’ records were "sporadic and incomplete." Although there were 1,249 days in the sales-tax audit period (June 2013 through October 2016), Hayaf only provided records for 767 days. Therefore, the auditor had to use those records that were complete to calculate an average daily sales amount of $2,801.66, which was applied to the 482 missing days for which no records were available in order to calculate the total sales amount. Further, "the auditor could not tie the provided sales tax returns," which were prepared by a local accountant, to the taxpayer's bank statements; so additional records were requested. These were never provided.

¶5. For this reason, the MDOR's sales-tax findings were entitled to a presumption of prima facie correctness under Mississippi Code Annotated section 27-65-37(1) (Supp. 2016), which states in relevant part:

If adequate records of the gross income or gross proceeds of sales are not maintained or invoices preserved as provided herein, or if an audit of the records of a taxpayer, or any return filed by him, or any other information discloses that taxes are due and unpaid, the commissioner shall make assessments of taxes, damages, and interest from any information available, which shall be prima facie correct.

In United Roofing and Construction of Mississippi v. Mississippi Department of Revenue , No. 2019-CA-00570-COA, 319 So.3d 1164, 1173 (¶25) (Miss. Ct. App. Dec. 8, 2020), this Court explained that section 27-65-37 "comports with Mississippi Rule of Evidence 301," dealing with presumptions in civil cases. Rule 301 provides:

In a civil case, unless a Mississippi statute or these rules provide otherwise, the party against whom a presumption is directed has the burden of producing evidence to rebut the presumption. But this rule does not shift the burden of persuasion, which remains on the party who had it originally.

When taxpayers fail to keep adequate records of gross income and sales, "a presumption that the Commission's assessments are prima facie correct arises." United Roofing , 319 So.3d at 1173 (¶25) (citing Miss. Code Ann. § 27-65-43 (Rev. 2017)). "[I]n order for the assessments to be prima facie correct, the auditor must make them ‘from any information available’ according to section 27-65-37, not necessarily ‘from the best information available.’ " Id. (quoting Marx v. Bounds , 528 So. 2d 822, 826 (Miss. 1988) ). "[O]nce this presumption arises, the taxpayer bears the burden of proof showing that a genuine dispute exists regarding the correctness of the assessment." Id. (quoting In re Fugitt , 539 B.R. 289, 299 (Bankr. S.D. Miss. 2014) ). The Appellants, however, have not challenged this presumption of prima facie correctness on appeal except with regard to the assessments of individual income tax, which we will address below.

PROCEDURAL HISTORY

¶6. Hayaf and Saleh filed an appeal with the MDOR's Board of Review, and a hearing was conducted on October 3, 2017. The Board of Review granted them two additional weeks to provide documentation to refute the MDOR's findings. However, after the taxpayers produced no documentation in rebuttal, the Board of Review affirmed and upheld the tax assessments. Hayaf and Saleh appealed the decision to the Board of Appeals, which also affirmed the assessments and issued its orders on June 12, 2018.³

¶7. Hayaf and Saleh thereafter filed an appeal with the chancery court. Upon the conclusion of discovery, the MDOR filed a motion for summary judgment on April 15, 2019, attaching exhibits of the notices⁴ and the Appellants’ responses to the MDOR requests for admission. The MDOR's notices and audit papers fell within the public-records exception to hearsay found in Mississippi Rule of Evidence 803(8), which is identical to Federal Rule of Evidence 803(8).⁵ "[T]he hearsay exception for public records is grounded on the ‘assumption that a public official will perform his duty properly and the unlikelihood that he will remember details independently of the record.’ " Cooper v. Meritor Inc. , 363 F. Supp. 3d 695, 699 (N.D. Miss. 2019) (quoting Fed. R. Evid. 803(8) advisory committee note); see also United States v. Filson , 347 F. App'x 987, 992 (5th Cir. 2009) (finding no error in magistrate's decision to admit Internal Revenue Service (IRS) forms under Federal Rules of Evidence 803(8) and 902 for purposes of summary judgment, as they "constitute[d] valid evidence of a taxpayer's assessed liabilities and the IRS's notice thereof").⁶

Thus, because this hearsay evidence would have been admissible at trial, it was admissible for the purposes of summary judgment. Ill. Cent. R.R. Co. v. Jackson , 179 So. 3d 1037, 1043 (¶14) (Miss. 2015) ; accord Indem. Ins. Co. of N. Am. v. Guidant Mut. Ins. Co. , 99 So. 3d 142, 154-55 (¶34) (Miss. 2012) (recognizing a trial court's discretion "to consider any evidence at a summary judgment hearing that would be admissible at trial").

¶8. The chancery court subsequently denied the taxpayers’ request for additional time for discovery and granted the MDOR's motion for summary judgment on September 16, 2019. Appealing the chancery court's decision to grant summary judgment, Hayaf and Saleh contend that (I) the MDOR failed to provide proper statutory notice of the sales tax and prepaid wireless tax assessments for the tax period from July 1, 2016, through October 31, 2016; (II) there was a genuine issue of material fact whether the CRIND (Card Reader in Dispenser Fuel Pump System) transactions were included in the MDOR's sales tax calculations; (III) there was insufficient evidence to support the MDOR's assessment of penalty and interest; and (IV) there was insufficient evidence to support the individual income tax assessments.

STANDARDS OF REVIEW

¶9. Mississippi Code Annotated section 27-77-7(5) (Rev. 2017) establishes the process and standard of review for the chancery court's review of the MDOR's and Board of Appeals’ decisions.:

[T]he chancery court shall give no deference to the decision of the Board of Tax Appeals, the Board of Review or the Department of Revenue, but shall give deference to the department's interpretation and application of the statutes as reflected in duly enacted regulations and other officially adopted publications.⁷ The chancery court shall try the case de novo and conduct a full evidentiary judicial hearing on all factual and legal issues raised by the taxpayer which address the substantive or procedural propriety of the actions of the Department of Revenue being appealed. The chancery court is expressly prohibited from trying any action filed pursuant to this section using the more limited standard of review specified for appeals in [s]ection 27-77-13 of this chapter. Based on the evidence presented at trial, the chancery court shall determine whether the party bringing the appeal has proven by a preponderance of the evidence or a higher standard if required by the issues raised, that he is entitled to any or all of the relief he has requested.

Further, "issues related to tax appeals are questions of law, which are reviewed by [our appellate courts] de novo." Miss. Dep't of Rev. v. Comcast of Ga./Va. Inc. , 300 So. 3d 532, 535 (¶12) (Miss. 2020).

¶10. We also review a grant or denial of summary judgment de novo. Dailey v....