A. D. Buffington v. Mississippi State Tax Commission ( 2009 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2009-CA-01658-SCT
A. D. BUFFINGTON AND RUTH BUFFINGTON
v.
MISSISSIPPI STATE TAX COMMISSION
DATE OF JUDGMENT: 09/15/2009
TRIAL JUDGE: HON. WILLIAM H. SINGLETARY
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS: ASHLEY WHITE PITTMAN
J. STEPHEN STUBBLEFIELD
ATTORNEYS FOR APPELLEE: STEPHANIE RUTLAND JONES
HEATHER STAMPER DEATON
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED - 09/09/2010
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
GRAVES, PRESIDING JUSTICE, FOR THE COURT:
¶1. The Buffingtons reached a settlement with the Internal Revenue Service (IRS)
regarding additional tax liability assessed by the federal government for previously
unreported income. The Mississippi State Tax Commission (MSTC), within three years of
being notified by the IRS that the IRS had increased the Buffingtons’ reported taxable
income, issued an assessment to the Buffingtons for the additional amount the Buffingtons
owed in state income taxes.
¶2. Mississippi Code Section 27-7-49 provides that, when the IRS increases a taxpayer’s
reported taxable income, the MSTC may issue an assessment for additional state income
taxes, but may not issue such an assessment “after three (3) years from the date the Internal
Revenue Service disposes of the tax liability in question.” Miss. Code. Ann. § 27-7-49(3)
(Rev. 2006). The Buffingtons argue that the IRS “disposes of the tax liability in question”
on the date a written settlement between the IRS and the taxpayer is executed. The MSTC,
on the other hand, argues that the IRS “disposes of the tax liability in question” on the date
the MSTC receives notice from the IRS of the change in the taxpayer’s reported taxable
income. If the Buffingtons’ interpretation stands, the MSTC issued its assessment after the
expiration of the three-year statute of limitations. But if the MSTC’s interpretation stands,
the MSTC issued its assessment before the expiration of the statute of limitations.
¶3. Having considered the reasonableness of each party’s proposed interpretation, the
common meaning of “dispose of,” and the standard of review affording deference to the
agency’s interpretation, we find that the MSTC’s interpretation should stand and that the
chancery court order granting summary judgment in favor of the MSTC should be affirmed.
FACTS AND PROCEDURAL HISTORY
¶4. In 2004, A.D. and Ruth Buffington reached a settlement with the IRS regarding
additional tax liability assessed by the federal government based on previously unreported
income in excess of $350,000 for tax year 2001. As evidence of that settlement, on March
23, 2004, A.D. Buffington and an IRS representative executed Form 4549, entitled Income
Tax Examination Changes. On April 2, 2004, the Buffingtons submitted a check in the
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amount of $96,038.95 to the IRS for full payment of the agreed-upon liability. The check
did not clear the bank that same day, and neither party knows when the check cleared.
¶5. Although Form 4549 explained to the Buffingtons that they should file the appropriate
state form if the change in their reported taxable income would affect the amount of state
income tax they owed, the Buffingtons admit that they did not file an amended 2001
Mississippi income tax return.
¶6. On June 24, 2004, the IRS mailed Form 3210 to the MSTC, advising the MSTC that
the IRS had increased the Buffingtons’ income for tax year 2001. The MSTC signed for
receipt of Form 3210 on July 7, 2004. On June 22, 2007, the MSTC issued a $37,999
assessment to the Buffingtons for the additional state income tax they owed for tax year
2001.
¶7. Despite the Buffingtons’ argument to the MSTC that the MSTC’s assessment fell
outside the three-year statute of limitations during which the MSTC is statutorily permitted
to make assessments (see Miss. Code. Ann. § 27-7-49(3) (Rev. 2006)), the MSTC continued
to send the Buffingtons notices of assessment. The Buffingtons therefore requested a hearing
before the MSTC’s Review Board. The hearing took place on February 26, 2008, and on
March 18, 2008, the Review Board issued Order No. 8814, upholding and affirming the
MSTC’s assessment of tax liability. The Buffingtons then appealed to the MSTC. The
MSTC hearing took place on July 23, 2008, and on August 19, 2008, the MSTC issued an
order upholding the order of the Review Board and affirming the assessment of tax liability.
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¶8. Having exhausted their administrative remedies, on September 18, 2008, the
Buffingtons filed their Petition for Appeal of Mississippi State Tax Commission Order in the
Chancery Court of Hinds County.1 There being no disputed fact in this case, the MSTC filed
a Motion for Summary Judgment on June 12, 2009. The Buffingtons filed a Response to
Defendant’s Motion for Summary Judgment and Counter-Motion for Summary Judgment on
June 30, 2009. The parties presented oral argument on July 28, 2009. On September 15,
2009, the chancery court affirmed the MSTC’s order affirming the assessment against the
Buffingtons and granted the MSTC’s motion for summary judgment. A final judgment
prepared in accordance with the order was filed on September 29, 2009. Aggrieved, the
Buffingtons timely appealed to this Court.
DISCUSSION
¶9. At issue is interpretation of Mississippi Code Section 27-7-49(3), which sets forth the
three-year statute-of-limitations period during which the MSTC is permitted to make
assessments, following the IRS’ increase or decrease of a taxpayer’s reported taxable income.
Miss. Code. Ann. § 27-7-49(3) (Rev. 2006). Section 27-7-49 reads as follows:
(1) Returns shall be examined by the commissioner or his duly
authorized agents within three (3) years from the due date or the date the return
was filed, whichever is later, and no determination of a tax overpayment or
deficiency shall be made by the Commissioner, and no suit shall be filed with
respect to income within the period covered by such return, after the expiration
of said three-year period, except as hereinafter provided.
1
In accordance with statutory requirements (see Miss. Code Ann. § 27-77-7(3) (Rev. 2008)),
before filing their petition in the chancery court, the Buffingtons paid the assessment to the MSTC
under protest.
4
...
(3) Where the reported taxable income of a taxpayer has been increased
or decreased by the Internal Revenue Service, the three-year examination
period provided in subsection (1) of this section shall not be applicable, insofar
as the Mississippi income tax liability is affected by the specific changes made
by said Internal Revenue Service. However, no additional assessment or no
refund shall be made under the provisions of this article after three (3) years
from the date the Internal Revenue Service disposes of the tax liability in
question.
...
Miss. Code. Ann. § 27-7-49 (Rev. 2006) (emphasis added).
¶10. The Buffingtons and the MSTC propose different interpretations of the underlined
statutory language: “the date the Internal Revenue Service disposes of the tax liability in
question.” Miss. Code. Ann. § 27-7-49(3) (Rev. 2006). The Buffingtons argue that the IRS
disposes of the federal tax liability on the date a written settlement between the IRS and the
taxpayer is executed, which in this case occurred on March 23, 2004, through the execution
of IRS Form 4549. The MSTC, on the other hand, argues that the IRS disposes of the tax
liability on the date the MSTC receives IRS Form 3210, which is accompanied by
information regarding changes in a taxpayer’s reported income for the applicable year. In
this case, the MSTC received IRS Form 3210 on July 7, 2004. The MSTC mailed its initial
letter of assessment to the Buffingtons on June 22, 2007. Thus, if the Buffingtons’
interpretation stands, the MSTC’s assessment was issued after the three-year statute of
limitations imposed by Section 27-7-49(3) had expired. But if the MSTC’s interpretation
stands, the assessment was issued within the three-year statute of limitations.
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¶11. The chancery court found that the interpretation proposed by the MSTC is not the only
possible interpretation of the statute, but found in favor of the MSTC, based on an analysis
of which party’s interpretation was more reasonable and on the applicable standard of review
affording deference to the agency’s interpretation.
¶12. Appellate review of an agency’s decision is a limited inquiry. Hinds County Sch.
Dist. Bd. of Trs. v. R.B., 10 So. 3d 387, 394 (Miss. 2008). As this Court has held:
We will reverse the decision of an administrative agency only if the
decision (1) was unsupported by substantial evidence; (2) was arbitrary and
capricious;2 (3) was beyond the power of the administrative agency to make;
or (4) violated the complaining party’s statutory or constitutional right. . . .
An agency’s interpretation of a rule or statute governing the agency’s
operation is a matter of law that is reviewed de novo, but with great deference
to the agency’s interpretation. This duty of deference derives from our
realization that the everyday experience of the administrative agency gives it
familiarity with the particularities and nuances of the problems committed to
its care which no court can hope to replicate. However, if an agency’s
interpretation is contrary to the unambiguous terms or best reading of a statute,
no deference is due. An agency’s interpretation will not be upheld if it is so
plainly erroneous or so inconsistent with either the underlying regulation or
2
This Court has defined “arbitrary” and “capricious” as follows:
“Arbitrary” means fixed or done capriciously or at pleasure. An act is arbitrary when
it is done without adequately determining principal [sic]; not done according to
reason or judgment, but depending on the will alone, – absolute in power, tyrannical,
despotic, non-rational, – implying either a lack of understanding of or a disregard for
the fundamental nature of things.
“Capricious” means freakish, fickle, or arbitrary. An act is capricious when it is
done without reason, in a whimsical manner, implying either a lack of understanding
of or a disregard for the surrounding facts and settled controlling principles.
Miss. Methodist Hosp. and Rehab. Ctr., Inc. v. Miss. Div. of Medicaid, 21 So. 3d 600, 610 (Miss.
2009).
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statute as to be arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with the law.
Miss. Methodist Hosp. and Rehab. Ctr., Inc. v. Miss. Div. of Medicaid, 21 So. 3d 600, 606-
07 (Miss. 2009) (internal quotations and citations omitted).
¶13. In addition, this Court has established the following regarding statutory interpretation:
[We] will not engage in statutory interpretation if a statute is plain and
unambiguous. However, statutory interpretation is appropriate if a statute is
ambiguous or is silent on a specific issue.[3] In either case, the ultimate goal
of this Court is to discern the legislative intent. The best evidence of
legislative intent is the text of the statute; the Court may also look to the
statute’s historical background, purpose, and objectives. If a statute is
ambiguous, it is this Court’s duty to carefully review statutory language and
apply its most reasonable interpretation and meaning to the facts of a particular
case.
Id. at 607-608 (internal quotations and citations omitted).
¶14. We find that the statute is ambiguous, and we agree with the chancery court that the
MSTC’s interpretation of the statute, which the MSTC historically has applied, is not
arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.
¶15. The MSTC’s interpretation of the disputed statutory language – “the date the Internal
Revenue Service disposes of the tax liability in question” – is reasonable, because the MSTC
is not informed of the date the IRS and the taxpayer executed the written settlement changing
the taxpayer’s reported taxable income (Form 4549). The MSTC is not notified that there
has been a change in the taxpayer’s reported taxable income until the MSTC receives Form
3
This Court has found that, when there is more than one fair reading of statutory language,
the statute is ambiguous. Pope v. Brock, 912 So. 2d 935, 936-37 (Miss. 2005).
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3210 from the IRS. And Form 3210 does not inform the MSTC of the date the written
settlement was executed, nor of the date the liability ultimately was paid.4 Therefore, the
interpretation of the statute proposed by the Buffingtons is unreasonable because, although
the MSTC would not be informed of the alleged date of disposition, it would nevertheless
have three years from that date to issue an assessment for tax liability.
¶16. Furthermore, no existing authority interprets the meaning of “disposed of” as used in
Section 27-7-49(3) (Miss. Code. Ann. § 27-7-49 (Rev. 2006)), and in the absence of a
statutory definition of a phrase, it must be given its common and ordinary meaning. Tower
Loan of Miss., Inc. v. Miss. State Tax Comm’n, 662 So. 2d 1077, 1083 (Miss. 1995).
Black’s Law Dictionary defines “dispose of” as “. . . [t]o exercise finally, in any manner,
one’s power of control over; to pass into the control of someone else; to alienate, relinquish,
part with, or get rid of; to put out of the way; to finish with; to bargain away. . . .” Black’s
Law Dictionary 471 (6th ed. 1990).5 Random House Webster’s Unabridged Dictionary
defines “dispose of” as “to deal with conclusively; settle. . . . to get rid of; discard. . . . to
4
The Buffingtons contend that Form 3210 provides the MSTC with “the exact date of
disposition” – which the Buffingtons argue is the date a written settlement agreement is executed
– but the Buffingtons offer no evidence that this is true. The MSTC asserts that the IRS does not
provide it with the date of written settlement (neither on the date the written settlement is executed
nor thereafter), and the MSTC is in the best position to inform the courts of whether or not the
MSTC receives this information. The chancery court found that the MSTC had no notice of the
execution of Form 4549 (nor of the Buffingtons’ later payment of the liability).
5
The most recent edition of Black’s Law Dictionary does not define “dispose of.” Black’s
Law Dictionary 539 (9th ed. 2009).
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transfer or give away . . . . to do away with; destroy.” Random House Webster’s Unabridged
Dictionary 568 (2d ed. 2001).
¶17. The MSTC’s interpretation of “disposed of” as the date the MSTC receives Form
3210 is consistent with these common and ordinary meanings of the phrase. The definitions
of “dispose of” include “to finish with” and “to deal with conclusively,” which the IRS has
not done until it has fulfilled its agreement with the MSTC, explained on Form 4549, to
exchange information with the MSTC regarding federal tax increases or decreases. While
the execution of Form 4549 and the subsequent payment of the liability may have marked
the disposition of the federal matter for the Buffingtons, it did not mark the disposition of the
matter for the IRS. The definitions of “disposes of” also include “to transfer or give away”
and “to pass into the control of someone else,” which is arguably what occurred when the
MSTC received Form 3210 from the IRS.
¶18. Additionally, the IRS could not have “disposed of” the tax liability before the
Buffingtons had paid the IRS the agreed-upon amount, which the Buffingtons did not do until
some time after the date they executed the written settlement agreement – i.e., which the
Buffingtons did not do until after the date they contend the IRS “disposed of” the tax
liability. The Buffingtons admit that they did not submit payment to the IRS until April 2,
2004, and further, that the check did not clear the bank that same day. The Buffingtons do
not know when the check cleared. Thus, not only could the IRS not have “disposed of” the
tax liability before the Buffingtons had paid it, but it would be unreasonable to find that the
date payment is made to the IRS is the date the IRS “disposes of” the tax liability, because
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the MSTC is not notified of the date the taxpayer submits payment to the IRS nor of the date
the taxpayer’s check to the IRS clears the bank.
¶19. Accordingly, we find that the MSTC’s interpretation is supported by substantial
evidence and is not arbitrary and capricious, an abuse of discretion, or otherwise not in
accordance with the law. See Miss. Methodist Hosp. and Rehab. Ctr., Inc., 21 So. 3d at
606-07. To the contrary, the MSTC’s interpretation is reasonable in that it results in the
statute of limitations beginning to run on the date the MSTC became aware of the change in
the taxpayer’s reported taxable income, not on a date undisclosed to the MSTC. Therefore,
we find that the IRS did not dispose of the tax liability in question until July 7, 2004, when
the MSTC received the pertinent information from the IRS on Form 3210. Thus, the
MSTC’s June 22, 2007, assessment was issued within the three-year statute of limitations
period set forth in Mississippi Code Section 27-7-49(3). Miss. Code. Ann. § 27-7-49(3)
(Rev. 2006).
CONCLUSION
¶20. For the reasons discussed above, we affirm the chancery court’s judgment granting
summary judgment in favor of the MSTC and affirming the MSTC’s assessment against the
Buffingtons.
¶21. AFFIRMED.
WALLER, C.J., CARLSON, P.J., RANDOLPH, CHANDLER AND PIERCE,
JJ., CONCUR. DICKINSON, J., DISSENTS WITH SEPARATE WRITTEN
OPINION JOINED BY LAMAR AND KITCHENS, JJ.
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DICKINSON, JUSTICE, DISSENTING:
¶22. The issue before the Court is fairly uncomplicated. The Buffingtons – who settled a
tax dispute with the Internal Revenue Service – had their federal taxes increased. When that
happens, Mississippi law allows the Mississippi State Tax Commission (“Commission”) to
issue an assessment for additional state taxes, provided it does so within “three (3) years from
the date the Internal Revenue Service disposes of the tax liability in question.” 6 So the key
question in today’s case is when the IRS disposed of the Buffington’s federal tax liability.
¶23. After settling with the IRS, the Buffingtons tendered a check to pay the settlement on
April 2, 2004. One would think – even under the interpretation most generous to the
Commission – that the Buffingtons’ IRS tax liability was disposed of when it was paid (I
think most folks understand that a debt is disposed of when it is paid). And after all, once the
tax is paid, there remains no tax liability to be disposed of.
¶24. The Commission did not issue an assessment until June 22, 2007 – more than three
years after the federal tax was paid. So one would think it is statutorily time-barred from
doing so. Not so, says the majority.
¶25. The Commission has persuaded the majority that the Buffingtons’ tax liability was not
actually “disposed of” when it was paid. Rather it takes the interesting position that, even
though the liability no longer exists, it nevertheless has not been disposed of. Instead
(according to the majority) the tax liability (which no longer exists) is disposed of only after
6
Miss. Code. Ann. § 27-7-49 (Rev. 2006) (emphasis added).
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the IRS decides (if it does) to notify the MSTC that the tax liability has been disposed of.
Only then is the already disposed-of tax liability really disposed of.
¶26. The notice at issue is curiously absent from the record. So we don’t even know what
it says. The Commission provides us with no evidence to inform us of when, and under what
circumstances, such notices are provided by the IRS. One would think if the notice really
does trigger the beginning of the running of the statute of limitations, the record would
include a copy of it.
¶27. Section 27-7-49 unquestionably imposes a difficulty on the Commission. But the
statute says what it says. This Court didn’t draft it and we are not responsible for its
language. The Commission’s remedy should lie with the Legislature, not here.
¶28. Interestingly, the Commission does not even argue that the language of the statute
supports its position. Instead, it argues that strict application of the statute’s language is
“unworkable.”
¶29. Since joining this Court in 2004, I perceive that we are slowly moving toward strict
application of statutory language – two steps forward and one step back. Today, we take a
step back. I respectfully dissent.
LAMAR AND KITCHENS, JJ., JOIN THIS OPINION.
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