Iowa Department of Inspections and Appeals

                                                 Administrative Hearings Division

                                         Wallace State Office Building – Third Floor

                                                                

In the Matter of:                                                      )

)           DIA No. 09DORFC005      

Rodney A. Sawvell,                                                  )           (Rev. Docket No. 05-30-2-0081)

d/b/a Prairie Camper Sales,                                   )

1834 S. Marquette Road                                         )

Prairie Du Chien, Wisconsin  53821                       )

                                                                                    )          

v.                                                                                 )           PROPOSED DECISION

)          

Iowa Department of Revenue.                               )          

)

                                                                

Statement of the Case

 

On February 28, 2005, the taxpayer filed a sales tax refund claim for the tax periods 2000 through 2003, seeking refund of taxes paid by Iowa customers on the purchase of campers/trailers delivered in Wisconsin.  The Iowa Department of Revenue (Department) granted the claim for the 2002 and 2003 tax periods, but denied the refund claim for the 2000 and 2001 tax periods (April 1, 2000  - December 31, 2001).  

 

This case arises from a protest filed by the taxpayer on July 8, 2005, following denial of the sales tax refund claim for 2000 and 2001.  The parties agreed to submission of the case through filing of a statement of stipulated facts, affidavits, briefs, and oral argument.  A statement of stipulated issues and facts was filed on August 10, 2009, with copies of agreed upon documents attached and labeled as exhibits 1 – 16. 

 

An initial brief was filed by the Protestor on September 14, 2009, the Department’s responsive brief was filed on October 13, 2009, and the Protestor filed a final reply brief on October 26, 2009.  Oral argument was conducted by telephone conference call on October 29, 2009.  A supplement to exhibit 10, was attached to the Protestor’s reply brief and admitted into evidence at the time of argument.  

 

Statement of Issues Presented

 

1.      What statute of limitations is applicable to the taxpayer’s claim for sales tax refund.

 

2.      If the Department applied the correct general limitation period, is the taxpayer entitled to equitable relief from the statute of limitations; and

 

3.      If equitable relief is not available, is it constitutional for sales tax on a single transaction to be imposed and collected by both the State of Iowa and the State of Wisconsin.

 

Findings of Fact

 

Protestor Rodney Sawvell operates Prairie Camper Sales in Prairie du Chien, Wisconsin, about one mile from the Mississippi River and the Iowa border. The business has been in operation since 1978.  The businesses sells campers and non- motorized recreational vehicles (RVs), motorized RVs, and camper and RV supplies and repair services.  The vast majority of the Protestor’s sales are of non- motorized campers and RVs.  Many of the Protestors customers are Iowa residents.  (Exhibits 4, 7, & 10)

 

At the time of his business start up in 1978, the Protestor obtained a Wisconsin sales tax permit and sought information regarding how tax and title laws applied to the titleable campers sold to Iowa residents.  The Protestor telephoned the Wisconsin department of revenue and transportation.  He recalls being told that the sales tax on titleable vehicles – campers and RVs – was only to be collected on sales to Wisconsin residents unless the Iowa customer titled and registered the camper in Wisconsin.  He understood that Iowa customers would pay tax on the purchase price when the customer titled and/or registered the vehicle in Iowa.  (Exhibit 10, at ¶ 3)

 

The Protestor also telephoned the Iowa Department of Revenue regarding sales to Iowa customers.   He recalls that they informed him that retailers were not required to collect tax on titleable vehicles and that the tax was to be paid by the Iowa resident to the county treasurer when the vehicle was registered.  The Protestor then called the treasurer of Clayton County Iowa – directly across the river from Prairie du Chein.  The county treasurer provided the forms necessary to apply for title and registration in Iowa and explained to the protestor how to complete the forms.   (Exhibit 10 at ¶ 4)

 

Prior to a field audit by the Wisconsin Department of Revenue, the Protestor’s standard practice was to collect and remit Wisconsin sales tax when selling a camper or trailer to a Wisconsin resident.  When selling to customers in other states, including Iowa, the Protestor typically advised the purchasers to pay any sales or use tax due on their purchanses to the state where the vehicle would be titled, registered and licensed.  The Protestor did not collect or remit any Wisconsin sales tax on these purchases and did not collect or remit sales or use tax to Iowa or any other state.  (Exhibit 7)

 

A field audit of the Protestor’s sales tax payments was conducted by the Wisconsin Department of Revenue in 2004.  On August 21, 2005, the Wisconsin department issued a Notice of Assessment against the Protestor for the period of January 1, 2000 through December 31, 2003 in the amount of $40,044.35, including $30,324.67 in tax, plus interst.  A large portion of the assessment was for sales tax on the sales of campers and trailers to non-residents where the transfer occurred in Wisconsin.  (Exhibits 4 & 7)

 

While the Wisconsin audit was in process, the Protestor – with the consent of his customers – filed a sales tax refund claim with the Iowa Department of Revenue for $30,471.89 in taxes paid by Iowa customers on the purchase of campers or trailers delivered to them in Wisconsin during tax periods from 2000 through 2003 – the years at issue in the audit.  (Exhibit 6 & Exhibit 10 at ¶ 7)  The Iowa Department agreed no sales or use tax was due to the State of Iowa on these sales, but determined that the 2000 and 2001 tax yaers were outside of the 3-year statutory period for filing a claim for refund.  The Iowa Department approved a $19,563.00 refund of taxes remitted during 2002 and 2003 with interest paid through May of 2005.  (Exhibit 5)  Mr. Sawvell filed a timely protest of the denial of refund for taxes paid on 2000 and 2001 sales.

 

The Protestor also pursued relief from the Wisconsin tax assessment.  There he argued that sales tax due to the State of Wisconsin should be reduced by the amount of tax that Iowa did not refund, arguing that collection of the tax by both states constituted double taxation. The Wisconsin Department of Revenue and Tax Appeals Commission each concluded that Wisconsin law allowed credit for tax properly paid to another state, but not for tax paid to another state in error, and each rejected the taxpayer’s attempt to assert the doctrine of equitable estoppel as a defense.  (Exhibits 4 & 7)

 

In this proceeding, the Protestor seeks relief from the Iowa Department of Revenue.  The State of Wisconsin was able to reach back four years with its audit and held the Protestor responsible for the payment of sales tax that Iowa customers should have paid to Wisconsin for the 2000 and 2001 tax periods. The Protestor believes that it is inconsistent and unfair for Iowa to refuse a refund of sales tax paid to Iowa for the same sales.  He seeks reversal of the department’s denial of his refund claims for 2000 and 2001. The Iowa Department of Revenue (the department) contends that the taxpayer’s refund claim for the 2000 and 2001 tax periods were properly denied because the claim was beyond the statute of limitations. 

 

Conclusions of Law

 

Applicable limitation statute:  Iowa law provides a means for taxpayers to seek a credit or refund for sales or use tax paid in error.  At issue in this case is a request for refund of tax paid in the State of Iowa during the years 2000 and 2001. 

 

Prior to July 1, 2003, the refund provision located at Iowa Code section 422.73(1) was applicable to sales and use tax refunds.  Before amendment of that section in 1999, a five year limitations period applied to sales and use tax refunds.  See Iowa Code § 422.73(1) (1999).  The 1999 amendment shortened the claim period from five to three years.  As a transition provision, the amendment imposed a four year limitation period for tax quarters ending during the year 2000.  The amended statute provided as follows:  

 

  If it shall appear that, as a result of mistake, an amount of tax, penalty, or interest has been paid which was not due under the provisions of division IV of this chapter [sales tax] or chapter 423 [use tax], then such amount shall be credited against any tax due, or to become due, on the books of the department from the person who made the erroneous payment, or such amount shall be refunded to such person by the department. A claim for refund or credit that has not been filed with the department within four years after the tax payment for quarterly periods beginning on or after January 1, 2000, and before January 1, 2001, upon which a refund or credit is claimed became due, and within three years after the tax payment for quarterly periods beginning on or after January 1, 2001, upon which a refund or credit is claimed became due, or one year after such tax payment was made, whichever time is the later, shall not be allowed by the director.

 

Iowa Code § 422.73(1) (Supp. 1999) (enacted by 1999 Iowa Act (78 G.A.), ch. 156, § 4 – effective January 1, 2000) (emphasis added); see Iowa Code § 423.23 (1999) (the use tax imposed under chapter 423 was subject to all of the powers, duties, authority and restrictions contained in sections 422.67 to 422.75). 

 

In 2003 Iowa’s sales and use tax laws were revised and re-codified. The refund provision for sales and use tax was moved to Code section 423.47.  The transition provision was dropped from the statute and the three year limitation remained in place.    

 

  If it shall appear that, as a result of mistake, an amount of tax, penalty, or interest has been paid 

which was not due under the provisions of this chapter, such amount shall be credited against any 

tax due, or to become due, on the books of the department from the person who made the erroneous 

payment, or such amount shall be refunded to such person by the department.  A claim for refund or 

credit that has not been filed with the department within three years after the tax payment for which 

a refund or credit is claimed became due, or one year after such tax payment was made, whichever 

time is the later, shall not be allowed by the director.  

 

2003 Iowa Acts (80 G.A.), 1^st Ex., ch. 2, § 140 (effective July 1, 2003)(emphasis added).  This refund provision has not been revised since 2003 and is now codified as Iowa Code § 423.47 (2009). 

 

The portion of the Protestor’s claim which was denied included a request for refund of taxes paid for the 2^nd and 3^rd quarters of 2000 and the 2^nd, 3^rd, and 4^th quarters of 2001.  (Exhibit 6)  The transitional 4-year limitation period applied to the 2000 tax periods.  The 3-year limitation period applied to the 2001 tax periods. 

 

Quarterly sales tax reports and payments are due on the last day of the month following the close of each calendar quarter.  See Iowa Code § 423.31(1) (2003) and Iowa Code § 422.52 (2001).  There is no evidence in the record to establish the date on which the Protestor’s customers actually paid the taxes at issue.  Assuming the taxes were timely paid, the deadlines for refund claims for the 2000 and 2001 quarterly periods were as follows:

 

Quarterly tax period	Deadline for filing	Limitation period	Deadline for Refund Claim
2nd quarter 2000	7/31/2000	4 years	7/31/2004
3rd quarter 2000	10/31/2000	4 years	10/31/2004
2nd quarter 2001	7/31/2001	3 years	7/31/2004
3rd quarter 2001	10/31/2001	3 years	10/31/2004
4th quarter 2001	1/31/2002	3 years	1/31/2005

 

The Protestor’s refund claim was filed with the Iowa Department of Revenue on February 28, 2005.  The Department correctly determined that the claim was untimely as to all of the 2000 and 2001 quarterly tax periods.

 

The Protestor does not directly challenge the Department’s calculation of the limitation period.  Rather, the Protestor asserts that the circumstances of his case should preclude application of the limitation period.  He presents both equitable and constitutional arguments in support of the refund claim.

 

In tax cases, the taxpayer typically has the burden of proof to show that the department's decision was made in error.  Camacho v. Iowa Dept. of Revenue and Finance, 666 N.W.2d 537, 542 (Iowa 2003).   When a constitutional challenge is advanced, the burden of proof remains with the taxpayer, who must overcome a presumption of constitutionality and demonstrate beyond doubt that application of the challenged statute violates the constitution.  A tax statute will not be declared “unconstitutional unless it is so clearly and plainly in contravention of the constitutional limitations and its guarantees as to leave no reasonable doubt as to its unconstitutionality.’” Camacho v. Iowa Dept. of Revenue and Finance, 666 N.W.2d at 543,  quoting Hope Evangelical Lutheran Church v. Iowa Dep't of Revenue and Fin., 463 N.W.2d 76, 79 (Iowa 1990).

 

Constitutional claim:  In this case, the Protestor’s customers paid use tax to the State of Iowa when registering the new vehicles in their home counties.  Subsequently, the State of Wisconsin determined that the transactions were subject to taxation and that sales tax should have been collected at the point of sale – in Wisconsin.  The Wisconsin Tax Appeals Commission has upheld that state’s ability to collect sales tax and the Wisconsin assessment of the tax has been paid “under protest.”

 

For purposes of this proceeding, the parties have agreed that the sales in question were properly subject to Wisconsin sales tax.   The Protestor asserts that since Wisconsin has now collected sales tax for the transactions, Iowa’s refusal to refund use tax paid on the same transactions in Iowa constitutes double taxation in violation of the Commerce Clause of the United States Constitution. 

 

If Iowa law required the payment of use tax in Iowa despite the fact that sales tax had been paid in Wisconsin, the Protestor would have a valid point.  Article I, section 8, clause 3 of the United States Constitution, commonly referred to as the “Commerce Clause,” has long been held to impose a requirement for fair apportionment of taxes among the states and a prohibition upon certain state taxation, including the imposition of sales or use tax by multiple states upon a single transaction in interstate commerce.  See Oklahoma Tax Commission v. Jefferson Lines, Inc., 514 U.S. 175, 179-184, 115 S.Ct. 1331, 1335-1338, 131 L.Ed.2d 261 (1995); Corning Laboratories, Inc. v. Iowa State Dept. of Revenue, 270 N.W.2d 463,464 (Iowa 1978).

 

A “use tax” is commonly levied to compensate the taxing state for a transaction which is beyond reach of the state of sales tax.   Jefferson Lines, 514 U.S. at 194.  In order to avoid repeated taxation of the same transaction, nearly every state which imposes a use tax on out-of-state transactions correspondingly offers an exemption or credit for sales tax paid in the state of purchase.  “These credit provisions create a national system under which the first state of purchase or use imposes the tax.  Thereafter, no other state taxes the transaction unless there has been no prior tax imposed . . . or if the tax rate of the prior taxing state is less, in which case the subsequent taxing state imposes a tax measured only by the differential.” Jefferson Lines, 514 U.S. at 195, quoting KSS Transportation Corp. v. Baldwin, 9 N.J.Tax 273, 285 (1987).   

 

As long as a state use tax scheme allows for a credit for sales tax paid to another state on the same transaction, double taxation is avoided and the use tax system will survive a commerce clause challenge.  Id., see also Goldberg v. Sweet, 488 U.S. 252, 264, 109 S.Ct. 582, 590, 102 L.Ed.2d 607 (1989), and cased cited therein.  The Iowa sales and use tax statutes include the following provision for credit of out of states sales tax:

 

423.22  Taxation in another state.

If any person who causes tangible personal property to be brought into this state or who uses in this state services enumerated in section 423.2 has already paid a tax in another state in respect to the sale or use of the property or the performance of the service, or an occupation tax in respect to the property or service, in an amount less than the tax imposed by subchapter II or III, the provisions of those subchapters shall apply, but at a rate measured by the difference only between the rate fixed by subchapter II or III and the rate by which the previous tax on the sale or use, or the occupation tax, was computed.  If the tax imposed and paid in the other state is equal to or more than the tax imposed by those subchapters, then a tax is not due in this state on the personal property or service. 

 

Iowa Code § 423.22 (2009).

 

The department notes that no Iowa sales or use tax was paid by the Protestor and argues that the Protestor is not entitled to equitable consideration of taxes paid by a different taxpayer.  The use taxes which were paid in Iowa were paid by the purchasers of the vehicles when they were registered.  The Protestor’s customers paid the Iowa tax.  But the Protestor has obtained authorization from each of the customers to seek refund of the taxes on the customer’s behalf and the department paid that portion of the Protestor’s claim which was not barred by the statute of limitations.  For purposes of this proceeding, I conclude that the Protestor stands in his customers’ shoes. 

 

I believe that the Protestor can legitimately pursue this constitutional claim on behalf of his customers, but I do not believe he can succeed.  Simply put, multiple taxes were not imposed against the Protestor or his customer.  The Iowa use tax was paid mistakenly.  Iowa Code section 423.47, formerly section 422.73(1), allows a person who has mistakenly paid sales or use tax to the State of Iowa to request and receive a refund of the tax.  The Protestor was able to use this remedy to recover the use tax mistakenly paid by his customers during tax years 2002 and 2003.  Refund of the Iowa tax was denied for the 2000 and 2001 tax period only because the refund request was not filed within the time allowed by Iowa law.

 

Even if the Iowa use tax had been unconstitutionally imposed upon the Protestor or his customers, instead of being voluntarily paid by mistake, the constitutional nature of the Commerce Clause claim does not excuse the taxpayer from the requirements of the statutory refund scheme.  “The principle that a “constitutional claim can become time-barred just as any other claim can,” . . . [is]  fully applicable to unconstitutional taxation claims.”  United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 2, 128 S.Ct. 1511, 1513, 170 L.Ed.2d 392 (2008).  The existence of the double-taxation claim does not entitle the Protestor to relief from the 3-year limitation upon sales and use tax refund claims.

 

Equitable relief:  There is no question that the State of Wisconsin collected sales/use tax on all of the same transactions for which the State of Iowa now holds and retains sales/use tax revenue.  The Protestor asserts that Iowa’s refusal to refund the taxes results in a windfall, unjustly enriching the State of Iowa.  He argues that there is no legitimate public policy rational for cutting off his refund claim.  

 

In presenting arguments in favor of equitable relief, the Protestor misses the point of the refund statute’s limitation period. As the Iowa Court has recognized, the “legislature, having the power to create a right, may affix the conditions under which it is to be enforced, and compliance with those conditions is essential.”  Arnold v. Lang, 259 N.W.2d 749, 751 (Iowa 1977), quoting Seacrest v. Galloway Co., 239 Iowa 168, 172, 30 N.W.2d 793, 796 (1948).

 

Strictly speaking, a statute of limitation affects the remedy not the right . . . A wide distinction exists between pure statutes of limitations and a special statutory limitation qualifying a given right.  In the later instance time is made an essence of the right created, and the limitation is an inherent part of the statute, or agreement out of which the right in question arises, so that there is not right of action whatever independent of the limitation.  A laps of a statutory period operates, therefore, to extinguish the right altogether.

 

Arnold v. Lang, 259 N.W.2d at 751-52.

 

The sales/use tax refund provisions found in Iowa Code section 422.73(1) (Supp. 1999) and in current Code section 423.47 grant a taxpayer the right to obtain a refund or credit for tax paid to the State of Iowa as a result of mistake, but provide that claims for the refund which are not filed within the statutory time period, “shall not be allowed by the director.”

 

The limitation period on a taxpayer’s ability to request a refund is not a “statute of limitations,” but a special limitation qualifying the taxpayer’s right to a refund.  The statute waives the immunity of the state for the limited purposes of allowing a claim to be made against the state for the refund of mistakenly paid sales and use tax.  The sovereign immunity of the state has been waived only to the extent of the government’s consent to be sued, as set forth in the statute.  All requirements of the statute, including the time limitation, are prerequisites for a claim to proceed and compliance with the time limit is mandatory and jurisdictional.   See United States v. Dalm, 484 U.S. 596, 609-10, 110 S.Ct. 1361, 1368, 108 L.Ed.2d 548 (1990); Pruss v. Iowa Dep’t. of Revenue,  330 N.W.2d 300, 306 (Iowa 1983) (“The legislature can validly extinguish existing claims by a requirement that they be presented within a reasonable, specified time or be forever barred.”); Acton Construction Co. v. Commissioner of Revenue, 391 N.W.2d 828, 835 (Minn. 1986) (strictly applying statutory time limit for filing sales/use tax refund claim in Minnesota).

 

In the absence of statutory authority, none of the equitable theories advanced by the Protestor can be applied here.  See M. J. Ocean, Inc. v. Director, Division of Taxation, 23 N.J. Tax 646 (NJ Tax Court 2008) (“case law dealing with statutes of limitations and the relaxation thereof in contexts other than those relating to taxation are not persuasive in the tax refund area”).  The department lacks authority to grant exception to the time limit for the filing of refund claims, regardless of the potential inequity of cutting off the claim.  Although I understand that this bright-line rule strikes the Protestor as harsh, the rule is necessary to achieve the goal of limiting the scope of the state’s waiver of sovereign immunity.

 

 

The statute of limitations is not flexible and cannot be waived by the department.  The statute provides that a late claim “shall not be allowed by the director.”  The word “’shall’ imposes a duty.”  Iowa Code § 4.1(30)(a).  No exceptions tolling the limitation period based equitable principles are included in the applicable limitation statute.  Therefore, the department can not grant a refund claim which is filed after the limitation period, regardless of the cause for the late filing.

 

Finally, the Protestor asserts that the State of Iowa is equitably estopped from enforcing the limitation period because: the state represented that his customers owed the Iowa use tax, accepted payments of the tax for many years, and failed to inform him or his customers that the tax payments were made in error. 

 

[The doctrine of] equitable estoppel is based on the idea that one who has made certain representations should not thereafter be permitted to change his position to the prejudice of one who has relied thereon.  It is resorted to when otherwise manifest injustice would result.  It is not generally invoked against the state, particularly when the collection of revenue is involved.

 

Iowa Movers and Warehousemen’s Ass’n. v. Briggs, 273 N.W.2d 759, 765 (Iowa 1976).  The Iowa Supreme Court has not decided whether equitable estoppel can be invoked against the state in a tax collection matter, but the Iowa Court has found the doctrine generally cannot be used against the state.  See Sievertsen v. Employment Appeal Bd., 483 N.W.2d 818, 819 (Iowa 1992); Sullivan v. Iowa Departmental Hearing Bd., 325 N.W.2d 923, 927 (Iowa App. 1982), and cases cited therein.

 

Further, the facts of this case do not support the application of equitable estoppel.  The record shows that the Protestor spoke by telephone to representatives of the Wisconsin and Iowa revenue departments and the Clayton County Auditor at the time he was starting up his business in 1978 and that he based his actions for the next 25 years upon his understanding of those conversations.  There is no showing that he requested or received written advice or ruling from the state at that time, or that he attempted to determine if the law had changed at any time thereafter.  The Protestor has not proven that he and his customers reasonably relied upon the Department or its representatives in determining use taxes were due to the State of Iowa. 

 

The department of revenue was required to deny the Protestor’s claim for refund of the use taxes paid in 2000 and 2001.  I have no authority to expand the authority of the department.  Therefore, I must affirm the department’s action.

 

ORDER

 

The department’s decision denying Prairie Camper Sales claim for a sales/use tax refund is AFFIRMED (found to be correct).   

 

Issued this 16^th day of July, 2010.

 

Christie J. Scase

Administrative Law Judge

Telephone:  515-281-7114

Facsimile:  515-281-4477

 

CC:      Rodney A. Sawvell, Taxpayer

            Mark A. Peterson, Attorney for Taxpayer

            Daniel M. Key, In-State Attorney

            Valencia Voyd McCown, Assistant Attorney General