Toolpushers Supply Co. v. Miss. Dep't of Revenue

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TOOLPUSHERS SUPPLY CO. APPELLANT v. MISSISSIPPI DEPARTMENT OF REVENUE APPELLEE

No. 2021-SA-01186-COA

Court of Appeals of Mississippi

June 6, 2023

DATE OF JUDGMENT: 09/23/2021

HINDS COUNTY CHANCERY COURT, FIRST JUDICIAL DISTRICT HON. CRYSTAL WISE MARTIN, TRIAL JUDGE

ATTORNEY FOR APPELLANT: C. TED SANDERSON JR.

ATTORNEYS FOR APPELLEE: JOHN STEWART STRINGER, BRIDGETTE TRENETTE THOMAS

BEFORE BARNES, C.J., LAWRENCE AND EMFINGER, JJ.

EMFINGER, J.

¶1. The Mississippi Department of Revenue (MDOR) audited Toolpushers Supply Co. (Toolpushers) and made an assessment against Toolpushers for unpaid retail sales tax, penalties and interest. This assessment was affirmed on appeal to MDOR's Board of Review (BOR). The assessment was again affirmed on appeal to the Mississippi Board of Tax Appeals (BTA). Toolpushers then filed a petition appealing the BTA's decision to the Chancery Court of the First Judicial District of Hinds County, Mississippi, pursuant to Mississippi Code Annotated section 27-77-7 (Rev. 2017). Both parties filed motions for summary judgment. The chancellor granted MDOR's motion for summary judgment to affirm the assessment and denied Toolpushers' motion for summary judgment, which sought reversal of the assessment. Aggrieved by that decision, Toolpushers appealed.

FACTS AND PROCEDURAL HISTORY

¶2. Toolpushers is a Wyoming corporation registered to do business in Mississippi and has a retail location in Laurel, Mississippi. Toolpushers sells "various items of property to purchasers in the oil and gas industry" including "casing, tubing, drill pipe, pumping units, valves and wellheads, sucker rods, tanks, fiberglass and poly pipe, as well as other parts and miscellaneous items related to energy exploration and production."

¶3. The audit of Toolpushers covered the period from April 1, 2013, to June 30, 2016. MDOR found:

After reviewing the taxpayer's applicable records for sales tax, it was determined that the taxpayer has an additional $124,728.00 (including interest and penalties) owed. The taxpayer had failed to charge and remit sales tax on some of its sales. The taxpayer considered some of its sales exempt when they were actually not exempt. They made sales to oilfield service providers that would be consumables or for their own use and subject to sales tax. This caused our audit assessment.

MDOR issued a notice of assessment to Toolpushers by a letter dated November 22, 2016.^[1] Toolpushers appealed the auditor's assessment to the BOR, which found that

the plain language of the statute requires the taxpayer to sell to a reseller who will not consume the property in order to meet the definition of a wholesale sale. In this case, the invoices and other documentation provided by the taxpayer indicates that supplies and equipment were sold to oilfield service companies. Regardless of whether these customers hold a sales tax permit, the evidence clearly shows that they are using and consuming rather than reselling the products purchased.^[2]

¶4. Toolpushers appealed the BOR's order to the BTA, which conducted a hearing on August 16, 2017. Before the BTA, Toolpushers again argued that the sales at issue were "wholesale sales" and not "retail sales" subject to the 7% retail sales tax. In its order dated February 14, 2018, the BTA affirmed the decision of the BOR and stated:

Based on the evidence presented to this Board,^[3] we find that Toolpushers failed to fulfill its obligation under the wholesale sales statute because it did not meet the first requirement of Miss. Code Ann. § 27-65-5(1); specifically, Toolpushers did not exercise the requisite "good faith" in making the determination at the time of the sale that the items at issue it sold to its customers were to a retailer regularly selling or renting that property.

¶5. On April 16, 2018, Toolpushers filed a petition in Hinds County Chancery Court appealing the BTA's order. The petition requested reversal of the BTA's order "due to the erroneous imposition of the 'regular retail sales tax' under Mississippi Code Annotated section 27-65-17"; a declaration that the "application of the 'wholesale sale' statute by MDOR and BTA is an unconstitutional exercise of legislative authority by a state administrative agency and a violation of Toolpushers' due process and equal protection rights"; and an order "enjoin[ing] MDOR from [acting on] the assessment and collection of the 'regular retail sales tax' against Toolpushers."

¶6. MDOR responded to the petition on May 16, 2018, in the form of a general denial. The parties filed cross-motions for summary judgment, which were heard on September 24, 2019. The chancellor advised the parties that "the Court will take this matter under advisement and will issue a ruling," and they would "receive notice when the ruling has been issued."

¶7. On September 23, 2021, the chancery court's "Final Order on Cross Motions for Summary Judgment" was entered. The chancellor found that Toolpushers had failed to meet its burden to show that it was entitled to the relief requested and that "MDOR was entitled to a judgment as a matter of law." The chancery court granted MDOR's motion for summary judgment and denied Toolpushers' motion for summary judgment. Toolpushers now brings the instant appeal.

STANDARD OF REVIEW

¶8. In Mississippi Department of Revenue v. Hotel and Restaurant Supply, 192 So.3d 942, 945 (¶5) (Miss. 2016), the supreme court stated the standard of review for cases such as this:

Mississippi Code Section 27-77-7(5) provides the process and standard of review for chancery court review of MDOR and MBTA decisions, and issues related to such are questions of law. See Equifax [Inc. v. Miss. Dep't of Revenue], 125 So.3d [36,] 41 (¶7) [(Miss. 2013)]. As customary, questions of law are reviewed de novo. Id. (citation omitted). Further, "[a] de novo standard is applied when the Court reviews a chancery court's grant or denial of summary judgment." Miss. Dep't of Revenue v. Isle of Capri Casinos, Inc., 131 So.3d 1192, 1194 (¶5) (Miss. 2014) (citing In re Guardianship of Duckett, 991 So.2d 1165, 1173 (¶15) (Miss. 2008)).

ANALYSIS

¶9. Pursuant to section 27-77-7(1),^[4] Toolpushers filed its petition in the chancery court appealing the order of the BTA affirming the assessment made against Toolpushers for unpaid retail sales tax, penalties, and interest. However, unlike most appeals, section 27-777(5) requires a summons to be issued and served upon MDOR. The statute further requires the MDOR to file an answer or otherwise respond to the petition within thirty days of service of the summons. This appeal is not to be decided based on a record from the proceedings before the BTA because, as noted supra n. 3, there is no record of those proceedings. Instead, section 27-77-7(5) provides that "[t]he 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." This statute also provides that "[b]ased 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." Miss. Code Ann. § 27-77-7(5).

¶10. The Mississippi Supreme Court has given the bench and bar guidance as to how to apply this somewhat unusual statutory appeal process. In Equifax, 125 So.3d at 41 (¶¶7-8), the supreme court explained:

The proper standard of review and burden of proof for an appeal to chancery court of a judgment of the Commission are questions of law dictated by Mississippi statute. Miss. Code Ann. § 27-7-7(4) (2005) (amended 2009). This Court reviews questions of law de novo. Hankins v. Md. Cas Co./Zurich Am. Ins. Co., 101 So.3d 645, 652 (Miss. 2012) (citation omitted).

All agree that the applicable standard of review and burden of proof in chancery court for judicial review of a Commission decision are found in Mississippi Code Section 27-77-7(4),^[5] but much disagreement arises over the practical application of that language. The relevant portion of Section 27-77-7(4) reads as follows:

the chancery court shall give deference to the decision and interpretation of law and regulations by the commission as it does with the decisions and interpretation of any administrative agency,^[6] but it shall try the case de novo and conduct a full evidentiary judicial hearing on the issues raised. Based on the evidence presented at the hearing the chancery court shall determine whether the taxpayer 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.

Miss. Code Ann. § 27-77-7(4) (2005) (amended 2009) (emphasis added). We hold that, under this language, the chancery court must hold a judicial hearing to determine whether the taxpayer challenging the Commission decision can prove entitlement to any or all of the relief requested by a preponderance of the evidence (footnote omitted). In this case, the evidence to be considered by the chancellor was the record from the Commission, including the agreed-upon facts. As in other appeals of administrative-agency decisions, to be entitled to reversal of the agency decision, a petitioner must raise and prove one or more of the following: the agency's decision was unsupported by substantial evidence, the agency's decision was arbitrary and capricious, the agency's decision was beyond the power of the administrative agency to make, and/or the agency's decision violated the complaining party's statutory

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