Appeal from the District Court of Laramie County The Honorable Peter G. Arnold, Judge
The opinion of the court was delivered by: Kite, Chief Justice.
Before KITE, C.J., and GOLDEN, HILL, VOIGT, and BURKE, JJ.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of typographical or other formal errors so correction may be made before final publication in the permanent volume.
[¶1] This case involves issues of administrative procedure and sales tax audits and refunds. After an audit by the Department of Audit (DOA), the Department of Revenue (DOR) determined that Qwest was not entitled to a refund of sales tax which was incorrectly collected from its customers and remitted to the state because Qwest did not provide data showing the actual amount of tax collected and remitted by month and by county. Qwest appealed the DOR's determination to the State Board of Equalization (SBOE), asserting it did not retain that type of information and its refund should be estimated using a process employed in a prior audit to assess sales tax.
[¶2] The SBOE held a contested case hearing, then stayed the matter to give the parties an opportunity to settle their differences. Two months after the evidentiary portion of the contested case hearing concluded, Qwest produced to the DOR the actual sales tax information it had claimed did not exist. It explained that another department of the Qwest organization had the material and Qwest employees involved with the DOA audit were not previously aware that the information existed. The SBOE supplemented the record with the actual data, reversed the DOR's decision that Qwest was not entitled to a refund and remanded the case to the DOR to accomplish the refund in accordance with the newly produced evidence.
[¶3] The DOR petitioned the district court for review, it affirmed, and the DOR appealed to this Court. At issue in this appeal is the specific question of whether the SBOE erred by considering the newly produced evidence. The general issues presented include the interrelationship between the DOR, DOA and SBOE and the rights of taxpayers to refunds of incorrectly collected sales taxes. We affirm the SBOE's decision that Qwest was entitled to a refund, but conclude the SBOE erred by considering Qwest's evidence which was not produced to the DOR/DOA during the audit. The refund amount should have been calculated using the estimate procedure and information available during the audit. This matter is remanded for further proceedings consistent with this decision.
[¶4] The DOR sets out eight issues in its opening brief, many of which are redundant. The critical issues for our consideration are:
I. Did the SBOE err by considering, in a contested case proceeding, Qwest's evidence of the actual sales tax collected when Qwest did not provide such information to the DOR/DOA prior to the final assessment, despite repeated requests by the DOR/DOA for such information?
2. Is there substantial evidence in the record to support the SBOE's ruling that Qwest was entitled to a refund of sales tax?
[¶5] Qwest provides telephone service to customers within Wyoming. Its bills include a federal access line charge called the Customer Access Line Charge (CALC)*fn1 and a charge for 911 emergency services. The CALC charge is governed by tariffs which require approval by the Federal Communications Commission (FCC). Charges for 911 services are not revenue to Qwest. Instead, they are simply collected by Qwest and then remitted to the taxing authorities. The 911 taxing authorities in Wyoming are the counties; therefore, Qwest tracks the 911 charges by individual county.
[¶6] The DOA audited Qwest's sales and use tax compliance for 1997 through 2001 and the DOR determined that sales tax should have been assessed on the CALC charges. As part of that audit, the DOA requested a list of cumulative CALC charges by county for the audit period. Qwest stated that cumulative CALC charges were not available on either the county or state level. In the absence of that information, the DOA and Qwest agreed to estimate the CALC charges to calculate the amount of sales tax due. Specifically, the auditors estimated the CALC charges by analyzing the relationship between the single line residential CALC charge ($5.00 per line) and the 911 charge ($0.50 per line). The 911 charges were used for the estimate because they were available by county, while the CALC charges were not. The ten to one ratio between the CALC charges and the 911 charges was applied to the total 911 fees remitted by Qwest to the various counties to project the taxable CALC on a county by county basis. The sales tax due was calculated by applying the applicable sales tax rate to the projected CALC. The ratio method was found to be the best information available at that time to determine the amount of sales tax to be assessed.
[¶7] Qwest did not believe the CALC should be subject to sales tax. Consequently, at the conclusion of the 1997-2001 audit and after the DOR assessed the sales tax, Qwest appealed to the SBOE, which ruled the CALC was taxable. Qwest sought judicial review of the SBOE decision. This Court issued a decision on March 22, 2006, ruling that the CALC (referred to in the opinion as the EUCL charge) was not subject to sales tax.
Qwest Corp. v. State ex rel. Wyo. Dep't of Revenue, 2006 WY 35, 130 P.3d 507 (Wyo. 2006) (Qwest I).
[¶8] In the meantime, Qwest started collecting sales tax on the CALC charges in February 2003 as directed by the DOR. In January 2005, the DOA began another sales and use tax audit of Qwest for 2002 through 2004. At first the auditors were focused, among other things, on determining the sales tax due on the CALC charges for 2002 and January 2003. To that end, the DOA reviewed information in Qwest's corporate office, including 911 and CALC charges as shown on a sample of accounts requested by the DOA, and calculated a ratio between the charges comparable to the previous audit. The auditors did not do a similar calculation for the remainder of 2003 or 2004 because Qwest had collected sales tax on the CALC charges during that time period and the auditors believed if a sales tax refund was due, Qwest would know the amount of the refund since it had charged the customers.
[¶9] When the decision in Qwest I was issued, Qwest submitted amended tax returns to the DOR seeking a refund of sales tax paid on the CALC charges for February 2003 through 2004. Qwest sought refunds of $60,000 per month, totaling more than a million dollars. Qwest did not, however, submit any supporting documentation to justify the amounts of the refund requests.
[¶10] Because the audit was on-going, the DOR asked the DOA to review Qwest's refund requests. The DOA requested additional information and when Qwest did not submit anything, the DOA determined Qwest was not entitled to refunds for the CALC sales tax because it had not adequately verified its requested refund amounts. The DOR adopted the audit findings and issued a decision denying Qwest's requests for refund of the CALC sales tax.*fn2
[¶11] Qwest appealed the DOR's decision to the SBOE, arguing that it was entitled to a refund of sales tax on the CALC charges. The SBOE held a contested case hearing. The DOR asserted that it was justified in denying the refunds because, despite specific requests, Qwest had not provided sufficient information to determine the amount of refund, in particular the actual amount of sales tax collected and remitted on the CALC charges by month and by county. Qwest responded that it did not retain data showing the amounts actually collected and the estimate procedure used in the first audit to assess sales tax on CALC charges should have been applied to the sample of accounts requested by, and provided to, the DOA to calculate the refund amounts. Qwest also provided expert testimony calculating the refunds using the estimate methodology. Qwest's expert calculations resulted in an estimate of sales tax paid (and subject to refund) of almost exactly $69,000 per month for February through December 2003 and $65,793 per month for 2004.*fn3
[¶12] At the end of the hearing, the SBOE issued a stay and encouraged the parties to reach an agreement on the matter. Two months after the hearing concluded, Qwest presented to the DOR, in a supplemental discovery response, records showing the actual sales tax collected on CALC charges by month and county for February 2003 through 2004. Qwest explained that its employees involved with the audit were unaware the sales tax data was maintained by a different Qwest department. The actual sales tax data indicated the amount collected was similar to, though somewhat higher than, the amounts estimated by Qwest's expert. The DOR requested that the record be supplemented with the new information*fn4 or, in the alternative, the hearing be reopened so that it could challenge the newly produced evidence and confront the Qwest employees who had claimed such information was not available. The SBOE held a hearing on the motion to supplement and reopen. It ruled that there was a "complete absence of any evidence of bad faith on the part of Qwest in its failure to produce the monthly tax calculations prior to or during the evidentiary hearing in this matter." It granted the motion to supplement and reopened the hearing, but only for the purpose of allowing Qwest to present a plan to distribute the refund to its customers.
[¶13] The SBOE subsequently held a hearing to consider Qwest's proposed plan for refunding its customers. The SBOE issued a decision allowing a refund in accordance with the actual sales tax data Qwest ultimately produced and concluding that Qwest's refund plan was "a clearly reasonable and common sense approach to return to the original source, the Wyoming customers of Qwest, the sales tax collected on exempt CALC charges." The SBOE remanded to the DOR for implementation of the refund plan. The ...