Title: Gottsch Feeding Corp. v. State

State: nebraska

Issuer: Nebraska Supreme Court

Document:

621 N.W.2d 109 (2001) 261 Neb. 19 GOTTSCH FEEDING CORP., Appellant, v. STATE of Nebraska et al., Appellees. No. S-99-1156. Supreme Court of Nebraska. January 12, 2001. *111 David A. Domina and James F. Cann, of Domina Law, P.C., Omaha, for appellant. Don Stenberg, Attorney General, and L. Jay Bartel, for appellees. HENDRY, C.J., and WRIGHT, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ. MILLER-LERMAN, J. Gottsch Feeding Corp. (GFC) appeals the order of the district court for Lancaster County which affirmed an order of the State Tax Commissioner (Commissioner) sustaining deficiency assessments for Nebraska use and withholding taxes issued by the State of Nebraska, Department of Revenue (Department) against GFC. The deficiency assessment for unpaid use tax was based on the Department's determination that GFC was liable for such taxes as a "successor" to RFD-TV, Inc. (RFD) pursuant to Neb.Rev.Stat. § 77-2707 (Reissue 1996). The deficiency assessment for unpaid withholding taxes was based on the Department's determination that GFC was liable for such taxes as a "transferee" of RFD, pursuant to Neb. *112 Rev.Stat. § 77-27,110 (Reissue 1996). The Commissioner agreed with the Department's rulings. In affirming the order of the Commissioner on appeal, the district court found that RFD sold its stock of goods to GFC, that GFC acquired the RFD business, and that GFC did not conduct itself merely as a stockholder and concluded that GFC was the "successor" and "transferee" of RFD under §§ 77-2707 and 77-27,110. GFC argues on appeal that because it purchased stock of RFD, it became a mere shareholder of RFD but did not become either a "successor" or a "transferee" of RFD and was, therefore, not liable for RFD's unpaid use and withholding taxes. Based on the facts of this case, we affirm the order of the district court. This case has previously been before us. In our memorandum opinion, Gottsch Feeding Corp. v. Department of Revenue, 254 Neb. xvii (case No. S-97-205, Apr. 29, 1998), we dismissed the appeal for lack of jurisdiction because the summary judgment entered by the Commissioner from which the appeal was taken was entered without authority. Because the Commissioner's order was a nullity, the district court and this court lacked jurisdiction to review the Commissioner's order. Id. Following our memorandum opinion and order in case No. S-97-205, an administrative hearing was held on September 17, 1998, after which hearing the Commissioner issued an order dated December 15, 1998. The Commissioner determined that GFC was liable for the deficiency assessments as a "successor" and a "transferee" of RFD within the scope of §§ 77-2707 and 77-27,110, respectively. The Commissioner further determined, however, that pursuant to § 77-2702(2), GFC's liability for RFD's unpaid use and withholding tax was limited to the purchase price GFC paid for RFD stock. The Commissioner therefore ordered that the combined tax liability of GFC be reduced to $56,611.96 plus a 10-percent penalty and interest at the statutory rate from December 29, 1989. GFC appealed the Commissioner's order to the district court for Lancaster County pursuant to Neb.Rev.Stat. § 84-917 (Reissue 1999) of the Administrative Procedure Act. The district court reviewed the case pursuant to its standard of review, which is de novo on the record. See § 84-917(5)(a). The district court determined that the facts were generally not in dispute and adopted the facts as set forth in the Commissioner's December 15, 1998, order as well as determining additional facts. The facts set forth in the Commissioner's order as adopted by the district court were as follows: RFD's business did not prove financially viable. On July 25, 1989, Patrick Gottsch and Edward Zachary, directors of RFD, adopted a resolution authorizing the officers of the corporation to file a Petition for Relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Nebraska. Also authorized by the directors was the execution *113 of a "Post Petition Loan and Security Agreement" between RFD and Livestock Marketing Association of Kansas City, Missouri.... "RFD TV, Inc. has entered into a Common Stock Purchase Warrant (copy attached) with the Transferee, [GFC]. Upon FCC approval of the transfer of the earth station license requested herein, and satisfaction of other conditions, Transferee may exercise its warrant and acquire 5,661,096 shares of common stock of RFD TV, Inc., representing 80% of the common shares then issued and outstanding. [Citation to record omitted.]" On December 27, 1989, Judge Mahoney [U.S. Bankruptcy Court for the District of Nebraska], by means of a Journal Entry, authorized GFC to exercise the common stock purchase warrant.... On December 29, 1989, Mr. Robert Gottsch wrote, on a GFC check, a check (# 5738) in the amount of $56,611.96 to the order of RFD. The notation on the deposit slip of RFD stated "stock purchase." The check was deposited in RFD's bank account on, or about January 3, 1990.... There is no direct evidence in the record that the stock certificates were actually issued by *115 RFD to GFC, or that the warrant was transferred on the books of RFD. However, it was represented to the Bankruptcy Court in RFD's operating report that such stock transfer indeed occurred.... (Citations to record omitted.) Upon review, the district court concluded that GFC was RFD's "successor" under § 77-2707 and its "transferee" under § 77-27,110 and was therefore liable for the use and withholding taxes due from RFD. The district court's conclusion was based in part on its findings that "GFC acquired the business of RFD," which we understand to mean that RFD sold out its business to GFC, that "RFD became a part of GFC and was operated by GFC," that RFD sold its "stock of goods" to GFC, that GFC ran RFD's business, and that although GFC had purchased 80 percent of RFD's common stock on December 27, 1989, "GFC clearly did not conduct itself merely as a stockholder" of RFD. The district court's specific factual findings are detailed in the "Analysis" section below. The district court affirmed the Commissioner's December 15, 1998, order. GFC appeals. GFC asserts that the district court erred in (1) determining that GFC was *116 RFD's "successor" pursuant to § 77-2707; (2) determining that GFC was RFD's "transferee" pursuant to § 77-27,110; (3) determining that RFD sold out its business and its stock of goods to GFC; and (4) determining that GFC was liable for unpaid use and withholding taxes of RFD. Neither party addresses or challenges the limits of liability under either § 77-2707 or § 77-27,110, in regard to which the Commissioner held that GFC's total liability was limited to the amount it paid to purchase RFD's stock. Accordingly, we do not address this issue. A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified by an appellate court for errors appearing on the record. Big John's Billiards v. Balka, 260 Neb. 702, 619 N.W.2d 444 (2000). When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. Id. An appellate court, in reviewing a district court judgment for errors appearing on the record, will not substitute its factual findings for those of the district court where competent evidence supports those findings. Id. Whether a decision conforms to law is by definition a question of law, in connection with which an appellate court reaches a conclusion independent of that reached by the lower court. Id. Statutory interpretation presents a question of law, in connection with which an appellate court has an obligation to reach an independent conclusion irrespective of the decision made by the court below. Id. The Department assessed liability against GFC for the unpaid use taxes of RFD based on § 77-2707, which provides: The Department assessed liability against GFC for the unpaid withholding taxes of RFD based on § 77-27,110(1), which provides: The liability for sales and use taxes addressed in § 77-2707 applies to "successors" or "assigns." See § 77-2707(1). We note that the broad category of "transferee" in the successor income tax statute, § 77-27,110, includes, inter alia, "successors" and "assignees." Both § 77-2707, pertaining to sales and use tax, and § 77-27,110, pertaining to income tax, were enacted as part of the Nebraska Revenue Act of 1967. A court will construe statutes relating to the same subject matter together so as to maintain a consistent and sensible scheme. In re Estate of Myers, 256 Neb. 817, 594 N.W.2d 563 (1999). Reading §§ 77-2707 and 77-27,110 together, we conclude that one found to be a "successor" pursuant to § 77-2707 would logically be considered the kind of "transferee" denominated "successor" under § 77-27,110. Accordingly, we may look to the sales and use concepts applicable to a successor under § 77-2707 and comparable statutes elsewhere to determine liability under both §§ 77-2707 and 77-27,110. We have not previously had occasion to construe § 77-2707. However, other state courts have interpreted similar state statutes which impose liability for sales and use tax on successors. Some states construe successor tax liability statutes broadly while others construe such statutes strictly. Those courts which have construed successor tax liability statutes broadly do so in order to achieve the purpose of securing the collection of tax due the state by imposing liability on a successor. See Bates v. Director of Revenue, 691 S.W.2d 273 (Mo.1985) (purpose of successor liability statutes is to secure collection of taxes by imposing derivative liability on purchasers of business who are generally in better financial position to collect or pay tax); Bank of Commerce v. Woods, 585 S.W.2d 577 (Tenn.1979) (clear intention of successor liability statutes is to provide that tax debt follows business, its assets or any portion of them and such statutes are broadly construed in order not to jeopardize interest of public in ensuring collectability of taxes); Tri-Financial Corp. v. Dept. of Rev., 6 Wash. App. 637, 495 P.2d 690 (1972) (successor provisions intended to ensure collectability of taxes remaining unpaid by taxpayer who quits, sells out, exchanges, or otherwise disposes of business or stock of goods); Annot., 65 A.L.R.3d 1181 (1975). See, also, Revenue Cabinet v. Triple R Food A Rama, 890 S.W.2d 638, 640 (Ky.App.1994) (citing Bates and Woods and stating interpretation of Kentucky law is consistent with that in Missouri and Tennessee and is demanded by "public interest in collecting taxes"). Those states which have construed successor liability statutes strictly do so in order to favor the taxpayer, especially where the statutes seek to impose the tax liability of one person on another. In re McKeever, 169 Ariz. 312, 819 P.2d 482 (1991); Knudsen Dairy Products Co. v. State Bd. of Equalization, 12 Cal. App. 3d 47, 90 Cal. Rptr. 533 (1970). It has also been suggested that neither a "broad" nor "strict" approach need be adopted, but, rather, the statute should be interpreted to effectuate intent as evidenced by the language of the statute. See, e.g., Sterling Title Co. of Taos v. Commissioner of Rev., 85 N.M. 279, 511 P.2d 765 (N.M.App.1973) (Sutin, J., specially concurring). We favor the approach articulated in the concurrence in Sterling Title Co. of Taos, to the effect that we need not characterize the interpretation of the successor tax liability statutes as either *118 a "strict" or a "liberal" interpretation for or against the taxpayer, but, rather, "[o]ur duty is to construe the statute with a fair, unbiased and reasonable interpretation, without favor to the taxpayer or the state, to the end that the legislative intent is effectuated and the public interests to be subserved thereby furthered." 85 N.M. at 282, 511 P.2d at 768. GFC argues that the district court erred in finding it to be RFD's successor because RFD did not "sell out its business or stock of goods" to GFC or "quit the business." See § 77-2707(1). GFC argues that it is not RFD's successor because RFD merely sold shares of its stock to GFC and RFD continued in business after selling its stock to GFC. We do not find error by the district court which found that RFD sold out its business to GFC, that RFD sold its stock of goods to GFC, and that "GFC did not conduct itself merely as a stockholder or creditor of RFD" and concluded that GFC was RFD's "successor." We note that the provisions of § 77-2707(1) imposing successor tax liability apply when a taxpayer "sells out his business or stock of goods or quits the business." The conditions for creating a successor under § 77-2707 are stated in the disjunctive, and it is therefore not required that a taxpayer sell out the business and the stock of goods and quit the business. Under the statute, the district court could have properly concluded on the record before it that GFC was RFD's successor based solely on a finding supported by competent evidence that RFD had sold out its business to GFC and/or sold its stock of goods and/or quit the business. In reviewing the district court's determination that GFC was RFD's successor, our inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. See Big John's Billiards v. Balka, 260 Neb. 702, 619 N.W.2d 444 (2000). An appellate court, in reviewing a district court judgment for errors appearing on the record, will not substitute its factual findings for those of the district court where competent evidence supports those findings. Id. The district court in its order set forth its factual findings and conclusions as follows: A strong indication of a sale of RFD's stock of goods to GFC is the van purchased by RFD in September 1989 to haul equipment, the title to which was later transferred to GFC. Another factor *119 was GFC's advertising on RFD during the period of the Chapter 11 reorganization. Advertising time, which is comparable to customer lists and customer goodwill and, as such, assets of a company, was one of RFD's few viable assets. Although GFC used considerable advertising time, the record does not show that it made any payments to RFD for this service. In addition, the court finds that GFC acquired the business of RFD and was a successor. Although GFC denies that it actually exercised the stock purchase warrant, the evidence does not support this. According to the warrant, GFC was to pay $56,610.96, on or before November 1, 1989. As noted above, GFC issued a check in this amount, payable to RFD, on December 27, 1989. Obviously, the parties waived the time limitations of the warrant. This check was *120 deposited on January 3, 1990 with a RFD deposit slip that contained the notation "stock purchase." Additionally, GFC later represented to the bankruptcy court that it was a majority stockholder in the August 9, 1990 objection to disclosure statement filed by RFD. The court finds GFC did purchase 80 percent of RFD's common stock on December 27, 1989. We have reviewed the district court's judgment for errors appearing on the record. As a result of that review, we determine that competent evidence supports the district court's factual findings and we do not substitute our findings therefor. See Big John's Billiards v. Balka, 260 Neb. 702, 619 N.W.2d 444 (2000). We conclude that the district court's factual findings support its conclusion that GFC was RFD's "successor" and its "transferee." See §§ 77-2707 and 77-27,110. Given the circumstances in this case, the district court reasonably found that RFD sold out its business and stock of goods to GFC and that GFC "did not conduct itself merely as a stockholder ." With respect to the stock, GFC's purchase of RFD stock was one part of a series of steps by which GFC took over control of RFD's assets and business. Rather than purchasing outstanding stock from existing shareholders, GFC purchased stock which was newly issued in an amount equal to four times the then-existing shares in order to create and give GFC an 80 percent interest in the resulting common stock of RFD. GFC did not merely acquire RFD stock. On the contrary, there was evidence that GFC and its management became actively involved in the management and operation of RFD shortly before and subsequent to the stock purchase. There was also evidence that RFD sought and gained approval from the FCC to transfer its license to GFC and that title to a van purchased by RFD was transferred to GFC. The district court's conclusion that GFC was RFD's "successor" is supported by competent evidence. GFC argues that its relationship to RFD was merely that of a shareholder and that a shareholder cannot become liable for the unpaid taxes of a corporation merely by purchasing stock in the corporation. We are aware that ordinarily under corporate law, stockholders are not personally liable for the debts of the corporation and that a stockholder stands to lose what he, she, or it has dedicated to the corporate enterprise and nothing more. See Service-Master Indus. v. J.R.L. Enterprises, 223 Neb. 39, 388 N.W.2d 83 (1986). However, the determination of successor tax liability under §§ 77-2707 and 77-27,110 is made pursuant to Nebraska tax statutes, and our analysis is guided by concepts in the area of tax law. In this regard, we note that as detailed more below, tax law makes certain distinctions in situations in which a corporation, as distinguished from an individual or other entity, owns or purchases a controlling interest in another corporation. In connection with GFC's stock ownership of RFD, we observe that the 80 percent level of stock ownership which GFC acquired is significant in various aspects of federal corporate tax law. For example, the Internal Revenue Code allows corporations to file a consolidated tax return if a common parent corporation directly owns stock possessing at least 80 percent of the total voting power and having a value at least equal to 80 percent of the total value of the stock of the corporation. I.R.C. §§ 1501 and 1504(a)(2) (1994). The 80 *121 percent requirement is also significant in determining whether a corporation is part of a controlled group, see I.R.C. § 1563(a) (1994), and a purchasing corporation may elect to have its purchase of another corporation's stock meeting the 80 percent requirement of § 1504(a)(2) treated as an asset acquisition rather than as a stock purchase, see I.R.C. § 338 (1994). We do not intend to imply that federal corporate income tax law controls the interpretation of the Nebraska sales and use tax and withholding statutes. Nor do we intend to delineate a bright-line rule that a purchase of 80 percent or more of a corporation's stock invariably makes the purchaser the successor of that corporation under § 77-2707 or § 77-27,110 or that the purchase of less than 80 percent shields the purchaser from successor tax liability pursuant to § 77-2707 and thus § 77-27,110. Instead, we observe that the 80 percent feature in other areas of tax law indicates a legislative determination in those areas that acquisition of 80 percent or more of another corporation's stock by a purchaser corporation suggests control of one corporation by another. Therefore, the fact that GFC purchased 80 percent of RFD's stock tends to support the district court's findings that "RFD became a part of GFC," that GFC ran RFD's business, and, ultimately, that RFD "sold out its business" to GFC. We agree with GFC that the mere purchase of stock in a corporation standing alone would not ordinarily be sufficient to impose successor tax liability under § 77-2707 and thus § 77-27,110. However, we determine that under the totality of the facts of this case, the district court's determination that GFC was a successor and transferee is supported by competent evidence and was not arbitrary, capricious, or unreasonable. As noted above, the record in this case shows that in addition to the 80-percent ownership, RFD's board of directors was replaced by GFC personnel, that RFD's officers were replaced by GFC personnel, that GFC management operated RFD, and that RFD transferred or took steps to transfer its tangible and intangible assets to GFC. GFC's purchase of an 80 percent stock ownership when combined with other evidence that GFC took control of RFD's assets and the management and operation of RFD's business is competent evidence supporting the district court's finding that RFD sold out its business and stock of goods to GFC. The district court's conclusion that GFC was a "successor" and a "transferee" for tax liability purposes under §§ 77-2707 and 77-27,110 was not error. We determine that the district court's findings that RFD sold out its business and stock of goods to GFC and that GFC acquired the RFD business are supported by competent evidence. The district court's conclusion that GFC was RFD's "successor" pursuant to § 77-2707 and RFD's "transferee" pursuant to § 77-27,110 and therefore liable for unpaid use tax under § 77-2707 and withholding tax under § 77-27,110 was not error. The order of the district court affirming the order of the Commissioner is, therefore, affirmed. AFFIRMED. CONNOLLY, J., not participating.