Summary
In Belgrade Gardens, Inc. v. Kosydar (1974), 38 Ohio St.2d 135, 67 O.O.2d 147, 311 N.E.2d 1, paragraph one of the syllabus, we approved and followed the "mandatory duty" language of Niles Bank.
Summary of this case from Chicago Freight Car Leasing Co. v. LimbachOpinion
No. 73-816
Decided May 8, 1974.
Taxation — Sales tax — Claimed erroneous overpayment — Duty of Tax Commissioner to investigate, mandatory, when — Must issue certificate of abatement, when — Evidence — Test check — Amount of refund — Determined, how.
1. On written application of any taxpayer claiming to have overpaid to the Treasurer of State, at any time within five years prior to the making of such application, a tax payable under a law which the Department of Taxation is required to administer, it becomes the mandatory duty of the Tax Commissioner to investigate the facts in connection with such claim, and, if he shall find that there has been an overpayment, to issue to the taxpayer a certificate of abatement. (Paragraph two of the syllabus in Niles Bank Co. v. Evatt, 145 Ohio St. 179, approved and followed.)
2. A valid test check conducted by the Tax Commissioner in fulfilling his mandatory duty to investigate a claim of erroneous overpayment of sales taxes is substantive evidence of the amount of overpayment.
3. In the absence of other evidence, a valid test check conducted by the Tax Commissioner determines the amount of refund due a taxpayer who has made an erroneous overpayment of sales taxes.
APPEAL from the Board of Tax Appeals.
The subject of this cause is a claim for refund of sales taxes erroneously overpaid by appellee, Belgrade Gardens, Inc. (hereinafter, taxpayer), for the period of September 1967 to July 1971, inclusive.
The taxpayer operated a restaurant wherein meals, wine and beer were sold at retail. There were two cash registers in use at the restaurant.
Register A was used to record all food and beverages served in the dining room and carry-out food and beverages, and had four keys which recorded the following items: Key 1 — food consumed in the dining room; key 2 — tax charged and collected on food and beverages consumed in the dining room; key 3 — beverages consumed in the dining room; and key 4 — food and beverages sold for carry-out.
Register B, located at a bar, had only one key which recorded a tax-included total of beverages consumed at the bar.
The facts giving rise to the alleged erroneous tax payments were summarized by the Board of Tax Appeals as follows:
"It * * * appears that * * * [taxpayer's] bookkeeper, who was acting under the supervision of * * * [taxpayer's] accountant, was under the erroneous impression that the sales tax collected and recorded on cash register `A' key 2, was the sales tax charged and collected for only food consumed on the premises. The testimony and evidence, however, support the * * * [taxpayer's] contention that the tax rung up on said key 2 was for sales tax charged and collected for sales of both food and beverages consumed in the dining room areas (keys 1 and 3). When the sales tax returns were made up the sales tax on the beverages sold and registered on key 3 was calculated and this tax was added to the sales tax rung up on key 2, when the tax returns were filed.
"It also appears that the bookkeeper was under the false impression that all beverages sold and consumed on the premises as recorded on cash registers `A' and `B' had the sales tax included in the price of the beverages. She then proceeded, again in error, by using a `formula' provided for her by the accountant to determine the applicable sales tax that should be payable on all beverages consumed on the premises as recorded on cash registers `A' and `B.' By the use of this `formula,' she then determined the applicable sales tax rate and the amount of sales tax due the Division of Sales Tax on all beverages consumed on the premises being the total sales of all beverages as recorded on cash register `A,' Key 2 and cash register `B' and sent this amount of sales tax to the Division of Sales Tax along with the sales tax charged, collected and recorded on cash register `A,' Key 2."
An examiner from the Department of Taxation conducted an audit of the taxpayer's sales and bookkeeping practices, and, in conjunction with the audit, made a "test check" of guest checks to determine the accuracy of the book records. Upon the basis of the test check, the examiner determined that an overpayment had occurred and that the maximum refund recoverable by the taxpayer would be $4,643.95, as opposed to $7,979.11 claimed by the taxpayer. However, the examiner's report concludes as follows:
"It can be readily seen that from January 1, 1968 to July 31, 1971 tax has been reported on register A, key 3, beverages, twice. However, because of the absence of detailed records * * * the amount of overpayment is indeterminable."
The Tax Commissioner denied the taxpayer's claim, finding that the taxpayer had not maintained complete and accurate records required by R.C. 5739.11 and Tax Commissioner's Rule TX-11-02, i. e., cash register tapes and guest checks, and that "* * * in the absence of such original records it is impossible to determine the amount of any overpayment of taxes that may have been made."
R.C. 5739.11 provides:
"Each vendor shall keep complete and accurate records of sales, together with a record of the tax collected thereon, which shall be the amount due under Sections 5739.01 to 5739.31, inclusive, of the Revised Code, and shall keep all invoices, bills of lading, and such other pertinent documents, and exemption certificates required to be obtained under Section 5739.03 of the Revised Code. If the vendor makes sales not subject to the tax and not required to be evidenced by an exemption certificate the vendor's records shall show the identity of the purchaser, if the sale was exempted by reason of such identity, or the nature of the transaction if exempted for any other reason. Such records and other documents shall be open during business hours to the inspection of the Tax Commissioner, and shall be preserved for a period of four years, unless the commissioner, in writing, consents to their destruction within that period, or by order requires that they be kept longer."
Tax Commissioner's Rule TX-11-02 provides:
"Since all sales of tangible personal property in this state are presumed to be subject to sales tax until the contrary is established, the burden of proof rests upon each vendor to show what part, if any, of their gross receipts from sales resulted from nontaxable sales.
"Each vendor must maintain complete and accurate records which include both:
"(1) Primary records such as purchase invoices, bills of lading, sales invoices, guest checks, exemption certificates, tax payment receipts, and cash register tapes;
"(2) Secondary records such as bank deposit receipts and day books, journals, or any other records in which accumulated data is recorded.
"Any record in which accumulated data is recorded by the vendor must be supported by complete detail records from which such data was accumulated.
"Sales invoices and cash register tapes for taxable sales must have separately stated thereon the total price and the tax amount charged, which amounts are to be accumulated and recorded in a secondary record. Invoices for lodging must also clearly show the length of stay, in terms of consecutive days for each guest.
"All records must be preserved for a period of four years unless the commissioner consents, in writing, to their destruction within that period or by order requires that they be kept for a longer period.
"The tax collected by a vendor, as trustee for the state of Ohio, is a collection for the benefit of the state and no person other than the state shall derive any benefit from such collection other than that provided for in Revised Code 5739.12.
"If any vendor fails to maintain complete primary sales records which may be utilized in verifying the accuracy of the figures reflected in their secondary record and/or reported on their tax returns, the commissioner will use one of the following methods for such verifications:
"(1) Determine taxable and nontaxable sales and the tax due on sales subject to the bracket tax levied in Revised Code 5739.02, as provided for in Revised Code 5739.13.
"(2) Determine `net receipts' as the basis for application of the four percent tax levied in Revised Code 5739.10.
"`Net receipts' means the total amount of the prices of all sales less (1) the sale price of property returned by the consumers when the full price of tax has been refunded either in cash or by credit, (2) sales under sixteen cents, and (3) sales of food for human consumption off the premises where sold.
"The above described determinations will be based upon (1) purchase records, (2) a sampling of the vendor's business activity for a representative period, and/or (3) other information relating to the sales made by such vendor.
"If any vendor fails to maintain complete secondary records reflecting the total amount of the prices of sales subject to tax and the tax due thereon which may be utilized in verifying the tax liability reported on their tax return, the commissioner will verify the reported tax liability by use of a sample of the vendor's business activity for a representative period. If this verification method reveals an error in the reported tax liability, the rate of tax as determined by the commissioner will be deemed to be the rate of tax collection by such vendor and will be applied to the receipts from taxable sales made during the entire period of time under review."
The Board of Tax Appeals reversed the order of the Tax Commissioner, finding: (1) That "* * * it is obvious that the * * * [taxpayer] has overpaid its sales tax liability for the audit period"; (2) that the taxpayer's claim of $7,979.11 was based on somewhat inaccurate records; but that (3) the test check had provided an ascertainable figure for the overpayment and that $4,643.95, as determined by the test check, should be refunded to the taxpayer.
The cause is now before this court upon an appeal as a matter of right.
Mr. George T. Manos, for appellee.
Mr. William J. Brown, attorney general, and Mr. John C. Duffy, Jr., for appellant.
The question presented is whether a taxpayer may receive a refund for an erroneous overpayment of sales taxes where the taxpayer has not retained primary records of taxable sales transactions, but the Tax Commissioner has ascertained the amount of overpayment by way of a test check conducted in an audit for a representative period.
The Tax Commissioner's argument may be summarized as follows: The taxpayer had the burden of proving the amount of refund; failure to maintain primary records required by R.C. 5739.11 and Rule TX-11-02 precluded the taxpayer from meeting his burden of proof; and a test check conducted by the Tax Commissioner cannot be used to the advantage of the taxpayer.
It is clear that the taxpayer failed to maintain the records required to be kept pursuant to R.C. 5739.11 and Rule TX-11-02, and that an overpayment of sales taxes was made. Had the taxpayer in this case maintained guest checks and cash register tapes the amount of overpayment would have been subject to precise calculation, and no controversy would have arisen.
However, the absence of records does not, per se, preclude a refund to a taxpayer who has erroneously overpaid sales taxes.
R.C. 5703.05, in pertinent part, provides that the Tax Commissioner shall have the power, duty and function of:
"(B) Exercising the authority provided by law relative to * * * refunding taxes * * * erroneously * * * collected, or for any other reason overpaid * * * and in addition, the commissioner may on written application of any person, firm or corporation claiming to have overpaid * * * any tax * * * or on his own motion, investigate the facts and make * * * a written statement of his findings, and, if he finds that there has been an overpayment, issue * * * a certificate of abatement payable to the taxpayer * * * which shows the amount of the overpayment and the kind of tax overpaid. * * *" (Emphasis ours.)
R.C. 5703.05 superseded G.C. 1464-3, which provided that "the Tax Commissioner shall have authority," instead of "the commissioner may," emphasized above in R.C. 5703.05(B). It is our opinion that the difference in phraseology is insubstantial.
In construing G.C. 1464-3, this court held, in paragraph two of the syllabus in Niles Bank Co. v. Evatt (1945), 145 Ohio St. 179:
"On written application of any taxpayer claiming to have overpaid to the Treasurer of State at any time within five years prior to the making of such application, a tax payable under a law which the Department of Taxation is required to administer, it becomes the mandatory duty of the Tax Commissioner to investigate the facts in connection with such claim and, if he shall find that there has been an overpayment, to issue to the taxpayer a certificate of abatement." (Emphasis ours.)
In this case, the Tax Commissioner exercised his mandatory duty by investigating the facts in connection with the taxpayer's claim, and found that an overpayment had occurred. However, the Tax Commissioner refused to issue a certificate of abatement because, in his opinion, it was "impossible" to determine the amount of the overpayment.
We fail to perceive the reasonableness of the Tax Commissioner's position. His examiner conducted a test check and audit of taxpayer's place of business and determined that taxable beverage sales had been twice-reported on register A, resulting in an overpayment of taxes which did not exceed $4,643.95.
The audit period herein exceeded three years. There is no question that a test check conducted to determine the appropriate tax liability for that period could provide an accurate figure for the amount of overpayment. An audit of guest checks and cash register tapes maintained by the taxpayer for the period would provide a more accurate figure than the calculated approximation provided by a test check. However, adequate records were not available in this case, and the Tax Commissioner conducted a test check to fulfill his mandatory duty to investigate the facts in connection with the taxpayer's claim.
Neither party has contested the accuracy of the test check. Although the taxpayer's original claim was for $7,979.11, it argues that the test check determination of $4,643.95 should stand.
In Cherry Street Corp. v. Porterfield (1971), 27 Ohio St.2d 260, this court addressed the issue of validity of test checks conducted by the Tax Commissioner, and held that:
"In order for a test check conducted pursuant to R.C. 5739.10 to be valid, it must be conducted under conditions which approximate, as nearly as possible, the conditions under which the business being checked was operated during the audit period."
Thus, we hold that a valid test check conducted by the Tax Commissioner in fulfilling his mandatory duty to investigate a claim of erroneous overpayment of sales taxes is substantive evidence of the amount of overpayment.
However, the Tax Commissioner proposes that a valid test check conducted by him cannot be used to the advantage of the taxpayer. The Tax Commissioner's argument in support of this proposition is twofold:
First, he argues that his acceptance of the taxpayer's return rendered R.C. 5739.10 inapplicable under the provision that: "* * * where a vendor does not have adequate records * * * the Tax Commissioner may refuse to accept the vendor's return and, upon the basis of test checks * * *" determine the proper tax assessment. Thus, as the argument goes, if the return has not been refused, any subsequent test check should not have been made and is therefore inoperative.
That argument is an attempt to stretch the scope of R.C. 5739.10 to include the claim for refund situation. It is difficult to imagine any claim for refund case where the taxpayer's return has not been previously accepted by the Tax Commissioner.
The test check conducted herein by the Tax Commissioner was made pursuant to his duty to investigate the claim of erroneous overpayment of taxes, and not pursuant to any statutory grant of authority contained in R.C. 5739.10.
Second, the Tax Commissioner contends that the taxpayer must prove the amount of overpayment without taking into account the existence of a valid test check conducted by the Tax Commissioner.
That contention is without merit. This court has never held that any specific burden of proof attaches to a taxpayer who claims to have made an erroneous overpayment of sales tax. Indeed, R.C. 5703.05 places the duty of ascertaining the amount of overpayment upon the Tax Commissioner.
Of course, if the taxpayer chooses to contest the Tax Commissioner's determination of the amount of overpayment, it is then incumbent upon the taxpayer, as it is in assessment cases, to show in what manner and to what extent the Tax Commissioner was wrong. Cf. Ohio Fast Freight v. Porterfield (1972), 29 Ohio St.2d 69, 71.
However, in this case the taxpayer has acquiesced in the Tax Commissioner's audit which disclosed an overpayment of $4,643.95.
Accordingly, we hold that, in the absence of other evidence, a valid test check conducted by the Tax Commissioner determines the amount of refund due a taxpayer who has made an erroneous overpayment of sales taxes.
The decision of the Board of Tax Appeals is, therefore, affirmed.
Decision affirmed.
O'NEILL, C.J., HERBERT, CORRIGAN, STERN, CELEBREZZE and P. BROWN, JJ., concur.