Title: Murphy v. State of Department of Taxes

State: vermont

Issuer: Vermont Supreme Court

Document:

Murphy v. Department of Taxes (2000-524); 173 Vt. 571; 795 A.2d 1131

[Filed 26-Dec-2001]

[Motion for Reargument Denied 29-Jan-2002]

                                 ENTRY ORDER

                      SUPREME COURT DOCKET NO. 2000-524

                             DECEMBER TERM, 2001

Thomas C. Murphy and	               }	APPEALED FROM:
Carol A. Presley	               }
                                       }
     v.	                               }	Washington Superior Court
                                       }	
State of Vermont 	               }
Department of Taxes	               }	DOCKET NO. 385-7-99 Wncv

                                                Trial Judge: Mary Miles Teachout

             In the above-entitled cause, the Clerk will enter:

       Taxpayers appeal a superior court decision granting State of Vermont
  Department of Taxes'  Rule 60(b) motion and upholding the Commissioner's
  decision that taxpayers are liable for land  gains and property transfer
  taxes pursuant to 32 V.S.A. §§ 9602 and 10006.  On appeal, taxpayers  argue
  the superior court: (1) abused its discretion in finding that the elements
  of estoppel were not  met; (2) abused its discretion under Rule 60(b); (3)
  failed to make adequate findings for this Court to  review; and (4) erred
  in finding taxpayers liable for land gains tax.  We affirm.  

       This case arises from facts we considered in Murphy v. Stowe Club
  Highlands, 171 Vt. 144,  761 A.2d 688 (2000) (Murphy I).  The events
  leading up to Murphy I are fully recounted there. In  brief, the dispute
  arose from a purchase and sales contract, signed by Thomas Murphy and Carol 
  Presley (taxpayers) in July of 1994, for an undeveloped lot in Stowe Club
  Highlands, a residential  development.  As part of the contract, Stowe Club
  Highlands, Robinson's Springs Partnership and  Robinson Springs Corp.
  (developers) agreed to complete substantial excavation and site preparation 
  by December 1995.  However, in August 1996, just under two years from the
  time of closing, the  developers had not completed the work, and taxpayers
  filed suit against developers for trespass,  negligence, breach of
  contract, and violation of the Vermont Consumer Fraud Act.  

       Following a five day jury trial, the jury found for taxpayers on the
  breach of contract claim  and awarded taxpayers $100,000 in punitive
  damages and $58,000 in compensatory damages minus  $5000 from an escrow
  account that developers had already returned to taxpayers, for a total for 
  $153,000.  Developers appealed arguing, inter alia, that there was no basis
  for punitive damages,  compensatory damages were excessive, and that
  taxpayers' damages should have been limited to the  amount in escrow.  On
  review, this Court affirmed the judgment as to compensatory damages, but 
  reversed the jury's award of punitive damages.  Murphy I, 171 Vt. at 167,
  761 A.2d  at 704.         
        
  

       This appeal concerns the property transfer and land gains taxes the
  Department now seeks  from taxpayers relative to the 1994 purchase of the
  land.  At the closing in September of 1994,  taxpayers filed a property
  transfer tax return claiming the property as their intended principal 
  residence and paying the property transfer tax at a reduced rate pursuant
  to 32 V.S.A. § 9602(1).  In  1995, they filed a land gains tax return
  claiming the principal residence exemption pursuant to 32  V.S.A §10002(b),
  under the assumption that they would occupy the property no later than two
  years  after the closing date.  

       In the fall of 1996, the Department contacted taxpayers to determine
  whether taxpayers had  occupied the property within two years and
  consequently met the requirements for the principal  residence exception to
  the land gains and property transfer taxes.  In December of 1996, the 
  Department billed taxpayers $15,906.90 - the amount due on the land gains
  tax.  See 32 V.S.A.  §10002(b).  In a letter dated January 2, 1997,
  taxpayers asked the Department for a waiver from the  two year requirement,
  enclosing a copy of the complaint they had filed against developers for 
  untimely completion of the project.  The Department responded in a February
  26, 1997 letter.

    Your claim has been placed in appeal status pending the outcome of 
    your complaint. You will continue to get notices every 45 days 
    updating the amount due but the collection division will not
    contact  you requesting payment . . . .Please notify me when you
    have moved  into your new home and when[] you have gone to court.

  Taxpayers kept the Department informed of their pending litigation against
  the developer, and  immediately following the jury award in favor of
  taxpayers, the Department scheduled a hearing for  taxpayers' appeal on the
  land gains and property transfer taxes determination.  The Commissioner 
  denied taxpayers' appeal and affirmed the assessment of taxes. Taxpayers
  appealed this  determination to the Washington Superior Court.  

       On October 25, 1999, the Washington Superior Court heard oral argument
  on the appeal.   Taxpayers argued that the Department should be estopped
  from collecting tax because it knew or  should have known that taxpayers
  would rely on its 1996-97 letters to mean that the Department  would not
  collect the tax if taxpayers were successful in their litigation against
  the developer and that  taxpayers relied on these representations to their
  detriment by not pursuing a claim against developer  for the tax.  During
  argument, taxpayers proffered to the court that if not for the Department's 
  representations, they would have amended the complaint to include a claim
  for reimbursement of the  taxes.  On December 29, 2001, the court reversed
  the determination of the Commissioner, found that  all of the elements of
  estoppel were present, and concluded that this circumstance was one of the 
  extraordinary times that estoppel should be used against the government.

       On July 18, 2000, the Department moved for relief from the superior
  court's order, pursuant  to Rule 60(b), on the grounds that following this
  Court's decision in Murphy I, the Department was  made aware that the taxes
  were in fact part of the damages claim made in the litigation against 
  developer, and, therefore, the fourth element of estoppel was not
  established becasue taxpayer's had 

 

  not relied on the Department's representations to their detriment.  The
  motion was argued in front of  the superior court on August 31, 2000, and
  the court made findings from the bench.  On September  18, 2000, the
  superior court granted the Rule 60(b)(1) motion in a written order, finding
  the initial  order was based on mistake, that new information revealed that
  the fourth element of estoppel was  not met and, therefore, affirming the
  determination of the Commissioner.  This appeal followed.  

       We review a Rule 60(b) decision narrowly as "the power to grant relief
  from a final judgment  rests solely in the sound discretion of the trial
  court."  Goshy v. Morey, 149 Vt. 93, 95,