Littlefield Management, Inc. v. Commissioner of Revenue (September 10, 2008)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


LITTLEFIELD MANAGEMENT, 	    v.     COMMISSIONER OF REVENUE
INC.

Docket No. C281119				 Promulgated:
							 September 10, 2008


	This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee to abate penalties assessed under G.L. c. 62C, § 33, and the double assessment of taxes under G.L. c. 62C, § 28, for the late filing and payment of sales tax for the monthly periods beginning June 1, 2002, and ending October 31, 2003, and for the late filing and payment of withholding tax for the period ending March 31, 2002 (collectively, "periods at issue").  
	Chairman Hammond heard the appeal and Commissioners Scharaffa, Rose and Mulhern joined him in a decision for the appellee.
	These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32. 

	Timothy J. Burke, Esq. for the appellant. 

Sean M. Fontes, Esq., Brett M. Goldberg, Esq., and Daniel Shapiro, Esq. for the appellee.  
           FINDINGS OF FACT AND REPORT
	Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact. 
	Littlefield Management, Inc. ("appellant") is a corporation which owns and operates Salsa's Restaurants and The Sausage Guy, a concession business.  Salsa's Restaurant has locations in South Boston and Hingham, while The Sausage Guy is a vendor cart which sells sausage sandwiches and other assorted items outside of various locations in Boston, including Fenway Park.  Littlefield Management, Inc., is owned by David Littlefield.  
The appellant failed to timely file sales ("meals") and withholding tax returns and failed to timely pay the tax due for the periods at issue.  The Commissioner of Revenue ("Commissioner") issued to the appellant Notices of Failure to File ("NFFs") dated November 18, 2002, September 5, 2003 and February 11, 2004, and a Notice of Intent to Assess dated November 1, 2003, for the periods at issue.  By Notices of Assessment dated December 27, 2003, March 27, 2004, June 2, 2004 and June 22, 2004, the Commissioner assessed the withholding and meals taxes at issue.   The Commissioner's assessments included interest and penalties for the late filing and payment of the taxes that were due.      
On March 9, 2004, the appellant filed meals tax returns for the periods beginning June 1, 2002, and ending October 31, 2003.  After receiving the tax returns, the Commissioner granted the appellant a partial abatement, abating the taxes originally assessed down to double the taxes reported on the appellant's returns.  On or about November 17, 2004, the appellant filed Applications for Abatement with the Commissioner for the periods at issue.  By Notice of Abatement Determination dated May 26, 2005, the Commissioner denied the appellant's abatement application.  The appellant filed a Petition Under the Formal Procedure with the Board on July 5, 2005.  On the basis of these facts, the Board found and ruled that it had jurisdiction to hear this appeal.  
The primary issue before the Board in this appeal is whether the appellant's failure to timely file and pay its meals and withholding taxes was due to reasonable cause rather than willful neglect.  A secondary issue is whether the Commissioner notified the appellant of its failure to file tax returns as required under G.L. c. 62C, § 28, such that the double assessment of the taxes at issue under that section was warranted.  The total amount of tax, penalties and interest at issue in this appeal is $48,898.80.  
	The appellant argued that the interest and penalties associated with its late filing and payment of meals and withholding taxes should be abated because its owner, Mr. Littlefield, was overwhelmed with handling the day-to-day operations of the businesses and was unable to keep up with the tax returns which the appellant was required to file.  The appellant further argued that it filed its tax returns within a reasonable period of time after learning that it was delinquent in its payments, and that it therefore acted reasonably and the penalties should be abated.  The appellant also argued that it had since hired personnel to handle tax matters in a timely fashion.  
The appellant presented its case through the testimony of Mr. Littlefield, who testified that he has a degree in business management and had taken accounting courses.  Mr. Littlefield had been operating The Sausage Guy for over fifteen years at the time of the hearing, and he had been operating Salsa's Restaurants since 1998.  Mr. Littlefield testified that he was solely responsible for the management of both businesses.  During the periods at issue, Mr. Littlefield hired various individuals to perform the corporation's accounting and bookkeeping, but overall he did not have consistent help with the corporation's finances.  By 2002, Mr. Littlefield became aware that he had mounting tax obligations and that he was unable to make each tax payment in its entirety in a timely fashion.  He explained that he was overwhelmed by these mounting tax obligations and admitted that, at times, he would not open all of his mail, including mail that he received from the Department of Revenue.  Mr. Littlefield stated that he was so overwhelmed that he sometimes threw mail from the Department of Revenue directly into the trash.  
Mr. Littlefield testified that he was afraid to make tax payments because he was unsure that the payments would be properly credited to the corporation. He further explained that he had met with the Commissioner's representatives to discuss the appellant's tax liability on a few occasions, but nevertheless did not understand how to proceed with payments.  Finally, in 2004, Mr. Littlefield hired Mark Anderson to help him file the overdue meals tax returns.  
As for the withholding tax at issue, Mr. Littlefield testified that he thought the payroll company which he had engaged was paying the withholding tax.  Mr. Littlefield also testified that he did not recall receiving the NFFs from the Commissioner, but that it was possible he did receive them.           
The Commissioner presented the testimony of Paul O'Sullivan, an employee of the Department of Revenue.  Mr. O'Sullivan testified regarding the amount of penalties incurred by the appellant.  The Commissioner also presented the testimony of Robert Fiore, Gary Palmieri and Robert Duval of the Department of Revenue, who testified regarding the Commissioner's procedures for mailing notices, including NFFs, to taxpayers, and the Board found their testimony to be credible. Through a combination of testimony and exhibits entered into evidence, the Commissioner's witnesses showed that the Commissioner printed NFFs addressed to the appellant, verified that the address was the address on file for the appellant, and mailed the NFFs.  Based on the evidence of record, the Board found that the appellant failed to provide any credible evidence that the Commissioner did not send the NFFs. On the other hand, the Commissioner introduced substantial, credible evidence showing that the NFFs had in fact been mailed to the appellant's address of record, and the Board so found. 
  For the reasons discussed in the following Opinion, the Board found and ruled that the appellant's failure to timely file and pay the tax at issue was the result of willful neglect rather than reasonable cause. The Board also found that the Commissioner gave notice to the appellant of its failure to file as required by G.L. c. 62C, § 28.  Accordingly, the Board issued a decision for the appellee in this appeal. 

    	OPINION 
I.	Section 33 Penalties
	The Commissioner assessed penalties to the appellant under G.L. c. 62C, § 33, which states: 					
(a) If any return is not filed with the commissioner on or before its due date or within any extension of time granted by him, there shall be added to and become a part of the tax, as an additional tax, a penalty of one per cent of the amount required to be shown as the tax on such return for each month or fraction thereof during which such failure continues, not exceeding, in the aggregate, twenty-five per cent of said amount. 
     (b) If any amount of tax is not paid to the commissioner on or before the date prescribed for payment of such tax, determined with regard to any extension of time for payment, there shall be added to the amount shown as tax on such return a penalty of one-half of one per cent of the amount of such tax for each month or fraction thereof during which such failure continues, not exceeding, in the aggregate, twenty-five per cent of said amount. (emphasis added).  
Penalties assessed under G.L. c. 62C, § 33 for the late filing and payment of taxes may be abated when a taxpayer establishes that its failure to timely file and pay was the result of reasonable cause rather than willful neglect. G.L. c. 62C, § 33(f).  The determination of reasonable cause requires factual findings as to the reasons why the taxpayer failed to file and pay taxes when they were due. See M&T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 144 (1989). The Board must focus on the existence of reasonable cause at the time the tax and returns were due.  Commissioner of Revenue v. Wells Yachts South, Inc., 406 Mass. 661, 663 (1990).  					In order to establish reasonable cause, "[a]t a minimum, the taxpayer must show that he exercised the degree of care that an ordinary taxpayer in his position would have exercised." Id. at 665.  A person who claims to be aggrieved by the refusal of the Commissioner to abate a tax in whole or in part has the burden of establishing the right to an abatement.  Staples v. Commissioner of Corp. & Tax., 305 Mass. 20, 26 (1940).  See also Commissioner of Corp. & Tax. v. Filoon, 310 Mass. 374, 376 (1941); Stone v. State Tax Commission, 363 Mass. 64, 65-66 (1973).  		The evidence offered by the appellant in the instant case primarily consisted of Mr. Littlefield's testimony that he was overwhelmed by the demands of operating his businesses.  "In order to avoid the imposition of penalties, a taxpayer at a minimum must exercise ordinary business care and prudence. This means that even during and following periods of rapid growth a corporation must be managed properly and must have effective business controls in place."  Morris Electric Supply Co. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1996-403, 410.  Mr. Littlefield's testimony that he was overwhelmed by the demands of operating his businesses does not establish reasonable cause for the appellant's failure to timely file and pay the taxes at issue.  The testimony showed that Mr. Littlefield was an experienced businessman who had a degree in business management and had taken accounting courses.  He had owned and operated The Sausage Guy and Salsa's Restaurants for many years prior to the periods at issue and should have been well aware of the tax filings required by both businesses.  
	Moreover, given that the taxes at issue in this appeal are withholding and meals taxes - in essence, money that has been collected from employees and customers - it is all the more imperative to have an effective mechanism in place for the remittance of the taxes. Taxpayers who failed to remit such taxes have been looked upon with additional scrutiny by the Board: 
Neither the bookkeeper's inexperience or personal problems, nor the accountant's or the DOR's supposed failures to help, relieved the appellant of its non-delegable tax obligations. It does not take a tax expert to know that if you collect sales tax from your customer, you are obligated to report and remit the sales tax to the Commonwealth. It is the board's opinion that ordinary business care and prudence, in these circumstances, would dictate more internal oversight and controls, and more effort exerted on behalf of the appellant to obtain the advice which it supposedly needed. 

Peter Ruggiero, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 1995-162, 176.  The Board found that the appellant did not exercise an ordinary degree of care when it failed to put into place effective business controls to ensure the payment of its meals and withholding taxes.  								The appellant also offered Mr. Littlefield's testimony that he did not make payments because he was afraid payments would not be properly credited to the corporation and that he did not know how to proceed with payments despite several meetings with the Commissioner's representatives.  This testimony does not support a finding of reasonable cause.  By the time Mr. Littlefield accrued a debt and met with the Commissioner's representatives, the appellant was already tardy in its filing obligations.  As reasonable cause must be determined as of the time the returns were due, Mr. Littlefield's subsequent concerns and confusions do nothing to support a finding of reasonable cause for the periods at issue. Wells Yachts South, Inc., 406 Mass. at 663. 	Similarly, the fact that the appellant hired Mark Anderson to assist with its tax filing obligations subsequent to the periods at issue is irrelevant to the issue before the Board, as reasonable cause must be determined as of the time the returns were required to be filed. Id. 								Most strikingly, Mr. Littlefield testified that he often failed to open all of the mail he received and even threw out mail from the Department of Revenue. This transgression occurred even after he realized the appellant had mounting tax obligations.  "At a minimum, the taxpayer must show that he exercised the degree of care that an ordinary taxpayer in his position would have exercised." Id. at 665.  Mr. Littlefield failed to exercise an ordinary degree of care when he threw out unopened mail from the Department of Revenue while aware that tax liabilities continued to accrue.  The Board found that these actions amounted to willful neglect.  	
With respect to the withholding taxes, the appellant's evidence consisted of the bare assertion that Mr. Littlefield believed that the payroll company that he had engaged was paying the withholding taxes at issue.  The appellant offered no evidence to support the reasonableness of Mr. Littlefield's assumption, and regardless, the filing and payment of tax is a responsibility that cannot be delegated to a third party.  "Reliance on an agent or employee to make the required filings and payments does not constitute reasonable cause on the part of the corporate taxpayer." Morris Electric Supply Company, Mass. ATB Findings of Fact and Reports at 1996-410 (citing United States v. Boyle, 469 U.S. 241, 251 (1985)(reliance on an agent does not constitute reasonable cause)); Peter Ruggiero, Inc., Mass. ATB Findings of Fact and Reports 1995-176 (neither reliance on inexperienced bookkeeper nor accountant's failure to advise constitute reasonable cause).  The Board therefore found that this argument did not support a finding of reasonable cause.  	


II. Double Assessment Under Section 28
In the present appeal, the appellant failed to timely file and pay the taxes and also failed to respond to the Commissioner's NFFs within 30 days, and therefore the Commissioner assessed, and doubled, the taxes at issue under G.L. c. 62C, § 28.  General Laws c. 62C, § 28 states: 
If a person who has been notified by the commissioner that he has failed to file a return or has filed an incorrect or insufficient return refuses or neglects within thirty days after the date of such notification to file a proper return, or if a person has filed a false or fraudulent return or has filed a return with a willful attempt in any manner to defeat or evade the tax, the commissioner may determine the tax due, according to his best information and belief, and may assess the same at not more than double the amount so determined, which additional tax shall be in addition to the other penalties provided by this chapter. (emphasis added).
The statute requires that notice be given to the taxpayer of its failure to file and allows the taxpayer 30 days to respond to such notice before the double tax can be assessed. G.L. c. 62C, § 28.  The Commissioner's regulation, 830 CMR 62C.26.(13), sets forth the information to be contained on an NFF, and that information is:   The name of the taxpayer; the taxpayer identification number; the type of tax for which the return must be filed; the tax period or periods for which the return must be filed; an explanation of the double deficiency assessment that may be imposed if the taxpayer refuses to file a proper return or correct the return; and any other information the Commissioner deems appropriate. 830 CMR 62C.26 (13).  	After the appellant filed its tax returns, the Commissioner abated the assessed taxes down to double the tax reported on the appellant's returns.  As with the § 33 penalties, the appellant argued that the double assessment should be abated because its failure to timely file and pay the taxes was due to reasonable cause and not willful neglect.  The appellant's argument was misplaced, however, because reasonable cause provides grounds only for the abatement of penalties imposed under § 62C, § 33, and not for taxes doubled under G.L. c. 62C, § 28.  G.L. c. 62C, § 33(f).  											In addition, the appellant argued that the double assessment was invalid because the Commissioner failed to provide notice as required under G.L. c. 62C, § 28.  The Board, however, was not persuaded by the appellant's argument that it never received the NFFs.  The appellant failed to introduce any credible evidence showing that the Commissioner did not send the NFFs.  Mr. Littlefield's lukewarm testimony on this matter - that he may have received the NFFs but didn't recall receiving them - was inadequate to support a finding that the appellant did not receive the NFFs. He even admitted to throwing mail from the Department of Revenue into the trash.  The Commissioner, on the other hand, introduced substantial, credible evidence demonstrating that the NFFs were mailed to the address of record of the appellant.    Based on the evidence presented, the Board found that the Commissioner gave notice to the appellant of its failure to file as required by G.L. c. 62C, § 28.							The appellant further argued that the NFFs issued by the Commissioner were insufficient to meet the requirements set forth under 830 CMR 62C.26 (13) and the requirements of due process.  The appellant made no argument and offered no evidence showing that the NFFs lacked the information required by 830 CMR 62C.26 (13). Rather, its argument appeared to rest solely on the fact that the NFFs contained a field called "filing entity" marked with the designation "AB," without any explanation of the meaning of that designation.  At the hearing, Paul O'Sullivan of the Department of Revenue testified that the "AB" designation is the Department of Revenue's way of recognizing that different entities - in this case, Salsa's Restaurants and The Sausage Guy - are associated with one taxpayer identification number.  Based on the evidence of record, the Board found and ruled that the inclusion of information on an NFF, over and above the information required by regulation, did not invalidate the NFF or otherwise frustrate the demands of due process. The Board found that that the NFFs issued by the Commissioner met all of the statutory requirements, and accordingly found that the double assessment of the taxes reported by the appellant was proper. 
 	
III.	Conclusion
	For all of these reasons, the Board found and ruled that the appellant did not meet its burden of proving that its failure to timely file and pay the taxes at issue was due to reasonable cause.  Accordingly, the Board found and ruled that the Commissioner did not err when he refused to abate the penalties assessed under G.L. c. 62C, § 33.  Additionally, the Board found and ruled that the Commissioner gave notice to the appellant of its failure to file, as required by G.L. c. 62C, § 28, and that the double assessment of the taxes was proper.  

Accordingly, the Board issued a decision for the appellee in this appeal. 

					    APPELLATE TAX BOARD

				By: ________________________________
					Thomas W. Hammond Jr., Chairman





A true copy,

Attest:  __________________________________
		      Clerk of the Board

				
				

 The NFF dated February 11, 2004 addressed meals taxes for the periods beginning May 31, 2003 through the end of the last period at issue in this appeal - October 31, 2003.  Because the appellant responded to that NFF within 30 days by filing meals tax returns on March 9, 2004, the Commissioner did not double assess the meals taxes for those periods.  
 There is no evidence in the record as to whether Mr. Anderson was an accountant, lawyer or other tax professional. 
 The NFFs entered into evidence contained a field called "filing entity."  For some of the monthly periods at issue, that field contained the designation "AB."  Paul O'Sullivan testified that this designation is used to signify that different entities - in this case Salsa's Restaurants and The Sausage Guy - are associated with one taxpayer identification number.  

ATB 2008-1176