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293 Nebraska Report

ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.

Cite as 293 Neb. 623

Aline Bae Tanning, Inc., a Nebraska corporation

appellants and cross-appellees, v. Nebraska Depart

of Revenue, an agency of the State of Nebra

and Kimberly K. Conroy, Tax Commis

appellees and cross-appellant

JB & Associates, Inc., doing business as Sun

a Nebraska corporation, appellant, v. Nebras

Department of Revenue, an agency of th

of Nebraska, and Kimberly K. Con

Tax Commissioner, appell

___ N.W.2d ___

Filed May 20, 2016. Nos. S-15-643, S-15-644.

1. Administrative Law: Judgments: Appeal and Error. 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. 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 not 

arbitrary, capricious, or unreasonable.

2. Administrative Law: Statutes: Appeal and Error. On review, an 

appellate court determines the meaning of a statute independently of the 

determination made by an administrative agency.

3. Administrative Law: Parties: Standing: Appeal and Error. Under the 

Administrative Procedure Act, only an aggrieved party may seek judicial 

review of an agency action; an appellate court addresses the aggrieved 

party in terms of standing.

4. Parties: Standing: Jurisdiction. A party must have standing before a 

court can exercise jurisdiction, and either a party or the court can raise a 

question of standing at any time during the proceeding.

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

05/20/2016 11:06 AM CDT
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5. Standing: Words and Phrases. Standing involves a real interest in the 

cause of action, meaning some legal or equitable right, title, or interest 

in the subject matter of the controversy.

6. Taxation: Standing. The consumer is the taxpayer of an admissions tax, 

and thus, only the consumer has standing to claim a refund.

7. Taxation: Proof. The legal incidence of a tax depends upon who the 

law declares has the ultimate burden of the tax.

Appeals from the District Court for Lancaster County: 

Andrew R. Jacobsen, Judge. Affir

Steve Grasz and Henry L. Wiedrich, of Husch Blackwell, 

L.L.P., for appellants.

Douglas J. Peterson, Attorney General, and L. Jay Bartel for 

appellees.

Heavican, C.J., Wright, Connolly, Miller-Lerma

and Kelch, JJ., and Irwin, Jud

Heavican, C

NATURE OF CASE

Several indoor tanning salon businesses appeal from the 

district court’s decision affirming the denial of tax refund 

claims by the Tax Commissioner (Commissioner). The salons 

assert that the Nebraska Department of Revenue (Department) 

improperly collected more than $1.7 million in admissions 

taxes from the salons. The Commissioner reasoned that the 

salons were not the taxpayers and, therefore, found that the 

salons lacked standing to claim refunds. The district court 

affirmed the Commissioner’s decision. The salons appealed, 

and we granted their petition to bypass. The Department 

and Commissioner cross-appeal, claiming the district court 

lacked subject matter jurisdiction over some of the claims. 

We affirm.

BACKGROUND

In May 2013, Aline Bae Tanning, Inc.; Ashley Lynn’s, Inc.; 

Maple 110 Tanning, L.L.C.; RSB LLC; Tanning Horizons, 
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ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.

Cite as 293 Neb. 623

L.L.C.; and Wilson-Bonn, L.L.C. (collectively Ashley Lynn’s) 

filed a total of 15 claims for tax refunds with the Department. 

The Ashley Lynn’s salons claimed refunds of admissions taxes 

on gross receipts totaling more than $1 million. In December 

2013, JB & Associates, Inc., doing business as Suntan City 

(JB), filed a claim with the Department for a refund of over 

$600,000 in admissions tax.

Though not entirely clear, it appears that in November 2012, 

the Attorney General’s office had issued an opinion that Neb. 

Rev. Stat. § 77-2703(1) (Reissue 2009) did not authorize subjecting tanning salons to admissions taxes. The Department has 

since repealed the regulation listing tanning salons among the 

businesses subject to the tax1 and has ceased collecting the tax. 

The Ashley Lynn’s and JB salons (collectively salons) argue 

that as the Attorney General had opined, they are not subject 

to the admissions tax and, as such, are entitled to a refund of 

the tax paid.

The Commissioner disallowed the Ashley Lynn’s salons’ 

claims on October 7, 2013, and disallowed JB’s claims on 

December 31. The Commissioner sent all of the salons nearly 

identical letters separately denying each claim. The letters 

explained that “[a] refund of a tax improperly or erroneously 

collected can only be issued by the State directly to the purchaser who paid the tax.” (Emphasis in original.)

The salons sought judicial review in both cases, naming 

both the Department and the Commissioner as defendants. In 

November 2013, the Ashley Lynn’s salons filed one petition 

for all 15 of the Commissioner’s disallowances. Each of the 

15 disallowance notice letters were attached to the petition. 

JB filed a petition for judicial review in January 2014. The 

district court consolidated the two cases and heard arguments 

in January 2015.

1 See 316 Neb. Admin. Code, ch. 1, § 044.06 (2013).
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Neb. Rev. Stat. § 77-2708(2)(b) (Reissue 2009) permits 

“the person who made the overpayment” to file a claim for a 

refund of erroneously or illegally collected taxes. The district 

court below held that under § 77-2708 and our opinions in 

Governors of Ak-Sar-Ben v. Department of Rev. (Ak-Sar-Ben)2

and Anthony, Inc. v. City of Omaha,

3

 the salons were not the 

“person[s]” who made the overpayments and thus lacked standing to claim refunds.

The salons jointly appealed and petitioned for bypass, which 

this court granted. The Department and Commissioner crossappealed. We affirm because the salons lack standing.

ASSIGNMENTS OF ERROR

The salons assign, restated, that the district court erred by 

(1) finding the salons had no standing to claim refunds and (2) 

failing to reach the merits and find that the salons were entitled 

to refunds.

The Department and Commissioner cross-appeal, assigning that the district court erred in finding it had subject matter 

jurisdiction over the claims by the Ashley Lynn’s salons.

STANDARD OF REVIEW

[1] A judgment or final order rendered by a district court in 

a judicial review pursuant to the Administrative Procedure Act 

(APA) may be reversed, vacated, or modified by an appellate 

court for errors appearing on the record. When reviewing an 

order of a district court under the APA for errors appearing on 

the record, the inquiry is whether the decision conforms to the 

law, is supported by competent evidence, and is not arbitrary, 

capricious, or unreasonable.4

2 Governors of Ak-Sar-Ben v. Department of Rev., 217 Neb. 518, 349 

N.W.2d 385 (1984).

3 Anthony, Inc. v. City of Omaha, 283 Neb. 868, 813 N.W.2d 467 (2012).

4 Liddell-Toney v. Department of Health & Human Servs., 281 Neb. 532, 

797 N.W.2d 28 (2011).
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[2] On review, an appellate court determines the meaning 

of a statute independently of the determination made by an 

administrative agency.5

ANALYSIS

Standing.

In the salons’ first assignment of error, they argue that 

the district court erred by affirming the Commissioner’s 

conclusion that the salons lacked standing to claim refunds. 

Both the Commissioner and the district court found that the 

salons’ customers, and not the salons themselves, were the 

proper parties to bring claims for refunds. We affirm the 

district court’s determination, because the salons were not 

the taxpayers.

[3-5] Under the APA, only an “aggrieved party” may seek 

judicial review of an agency action.6 We have addressed the 

“aggrieved party” in terms of standing.7 A party must have 

standing before a court can exercise jurisdiction, and either a 

party or the court can raise a question of standing at any time 

during the proceeding.8 Standing involves a real interest in the 

cause of action, meaning some legal or equitable right, title, 

or interest in the subject matter of the controversy.9 Section 

77-2708(2)(b) permits “the person who made the overpayment” to claim a refund of erroneously or illegally collected 

sales or use tax. Thus, only the person who made the overpayment has a real interest in the controversy of a sales tax 

refund claim.

5 CenTra, Inc. v. Chandler Ins. Co., 248 Neb. 844, 540 N.W.2d 318 (1995).

6 Neb. Rev. Stat. § 84-917(1) (Reissue 2014).

7 See Central Neb. Pub. Power v. North Platte NRD, 280 Neb. 533, 788 

N.W.2d 252 (2010).

8 Frenchman-Cambridge Irr. Dist. v. Dept. of Nat. Res., 281 Neb. 992, 801 

N.W.2d 253 (2011).

9 In re Interest of Enyce J. & Eternity M., 291 Neb. 965, 870 N.W.2d 413 

(2015).
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[6] We have previously addressed whether businesses that 

remit admissions taxes to the Department have standing to 

claim refunds. In Ak-Sar-Ben, we held that operators of a 

horseracing track did not have standing to claim refunds of 

admissions taxes.10 Instead, we determined that the consumer 

is the taxpayer and that thus, only the consumer has standing 

to claim a refund of admissions tax.

As we explained in Ak-Sar-Ben, § 77-2703 requires purchasers to pay the admissions tax to the seller, and then 

requires the seller to remit the tax to the Department. The tax 

constitutes both a debt of the purchaser to the seller, and of 

the seller to the State. The statute prohibits businesses from 

absorbing the cost of admissions taxes. Under the terms of 

§ 77-2703, the tax revenue is merely held in trust by the seller 

for the State, and the State reimburses the seller for expenses 

associated with collection.

The salons argue that Ak-Sar-Ben is either inapplicable or 

incorrect. They assert that the legal incidence of the admissions tax falls upon the salons and that therefore, they are the 

persons who made the overpayments and who have standing.

[7] In Anthony, Inc., we used the legal incidence test to 

determine whether a municipal tax on restaurants in Omaha, 

Nebraska, was a sales tax or an occupation tax.11 As a municipality, Omaha was without the authority to impose a sales tax, 

but could establish an occupation tax. The primary difference 

between a sales tax and an occupation tax, we held, is who 

bears the legal incidence, or “who the law declares has the 

ultimate burden of the tax.”12 The legal incidence of a true 

sales tax falls upon the purchaser, whereas the legal incidence 

of an occupation tax is on the seller for the privilege of operating a particular type of business. Neither the name given to a 

10 Ak-Sar-Ben, supra note 2.

11 Anthony, Inc., supra note 3.

12 Id. at 877, 813 N.W.2d at 476.
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tax, nor the fact that a tax is assessed from gross receipts, are 

dispositive of where the legal incidence falls.13

In Anthony, Inc., we distinguished Ak-Sar-Ben, noting that 

§ 77-2703 (at issue in both Ak-Sar-Ben and the present case) 

explicitly requires that the purchaser pay the cost of the admissions tax. The restaurant tax at issue in Anthony, Inc., however, explicitly imposed the legal burden upon restaurants and 

merely gave restaurants the discretion to decide whether to 

pass along the cost (i.e., the economic incidence) to the purchaser. Therefore, we held that the restaurant tax was a valid 

exercise of municipal power to create occupation taxes.

The salons argue that Ak-Sar-Ben is not binding in this case 

because it is inconsistent with the test set forth in Anthony, Inc. 

In Anthony, Inc., we stated:

If the customer refuses to pay the occupation tax when 

itemized on his or her bill, action by the City will be 

taken against the restaurant, not against the consumer. 

Because the legal incidence of the tax falls on the business and not the customer, the Restaurant Tax is an occupation tax, not a sales tax.14

The salons argue that this passage supports the contention 

that legal incidence falls upon them, because taxes under 

§ 77-2703(1)(a) “constitute[] a debt owed by the retailer to 

this state” and the retailers are subject to penalties for failure 

to perform collection duties and remit the taxes to the State.15

The salons do not challenge their statutory duty to collect the 

taxes, nor do they challenge any penalties imposed for a failure 

to fulfill that duty.

Though the above language from Anthony, Inc. could 

appear to support the salons’ contention, when read in context, it does not. In Anthony, Inc., we clearly stated that the 

13 Id.

14 Id. at 881-82, 813 N.W.2d at 479.

15 See Neb. Rev. Stat. §§ 77-2709 and 77-2713(1) (Reissue 2009).
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legal incidence of a tax depends upon “who the law declares 

has the ultimate burden of the tax.”16 That a party acting as a 

tax collector is subject to penalties for failing to perform its 

statutory duties is irrelevant. Rather, as we did in Anthony, 

Inc. and Ak-Sar-Ben, we must look backward from the point 

at which the Department receives the revenue until we find the 

final person legally liable for payment under the statute.

While § 77-2703(1)(a) calls the admissions tax a debt from 

the retailer to the State, the immediately preceding sentence 

specifically states that the tax “shall constitute a part of the 

purchase price and until collected shall be a debt from the consumer to the retailer and shall be recoverable at law in the same 

manner as other debts.” Clearly, while the retailer is legally 

responsible for passing the revenue on to the Department, the 

ultimate burden of the tax falls upon the consumer who is 

legally liable to the retailer. Thus, the fact that retailers may 

be subject to penalties for failing to perform collection duties 

has no bearing upon our analysis; even when such penalties 

are imposed, the consumer is still liable for the tax under 

§ 77-2703(1)(a). As the salons themselves admit, the legal incidence of a tax is not placed upon a retailer simply because the 

retailer “‘is typically required to collect the tax . . . and remit 

it to the taxing authority.’”17

The salons argue that by looking backward in this manner, 

we are confusing legal incidence with economic incidence. 

To prove this point, the salons cite an array of case law from 

other jurisdictions. We have reviewed these cases and find 

that they are distinguishable; none of the cases interpret a 

statute that imposes liability upon the consumer in the same 

16 Anthony, Inc., supra note 3, 283 Neb. at 877, 813 N.W.2d at 476 (emphasis 

supplied).

17 Brief for appellants at 25 (quoting Southern Pacific Transp. Co. v. State, 

202 Ariz. 326, 44 P.3d 1006 (Ariz. App. 2002)).
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ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.

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manner as does § 77-2703.18 Instead, the salons cite only to 

tax schemes in which retailers are permitted, but not required, 

to pass along costs to consumers. In other words, these cases 

consider scenarios in which the businesses shifted the economic incidence of a tax, but the legal incidence remained 

upon the businesses. Therefore, the cases cited by the salons 

are distinguishable.

The salons also allege due process violations. This argument 

fails because, as discussed above, the consumers are the taxpayers. As Neb. Rev. Stat. § 77-3905(6) (Reissue 2009) makes 

clear, taxes collected by retailers “as agent[s] for the State of 

Nebraska . . . shall constitute a trust fund in the hands of the 

. . . retailer . . . and shall be owned by the state.” Therefore, 

in this narrow context, the taxes collected never belonged to

the salons and the salons have no property interest in the taxes 

sufficient to warrant due process rights.

Finally, the salons assert that because § 77-2708(2)(c) prohibits refund claims of fewer than $2, none of their customers 

will be able to claim refunds and those customers’ due process rights will be violated. Therefore, they argue, we should 

find that the salons have standing and permit the customers 

to seek refunds from the salons. We note three reasons this 

argument fails. First, the record does not contain evidence 

that no customers would have refund claims of $2 or greater. 

The salons claim that none of their customers paid more than 

$2 in admissions tax, but have not provided records of all of 

their customers’ payments. Second, the salons do not have 

standing to challenge a statute’s constitutionality on the basis 

of third-parties’ due process rights; they have not shown that 

18 See, e.g., Loeffler v. Target Corp., 58 Cal. 4th 1081, 324 P.3d 50, 171 Cal. 

Rptr. 3d 189 (2014); South Cent. Bell Telephone Co. v. Olsen, 669 S.W.2d 

649 (Tenn. 1984); Ferrara v. Director, Div. of Taxation, 127 N.J. Super. 

240, 317 A.2d 80 (1974); Martin Oil Ser. Inc. v. Dept. of Revenue, 49 Ill. 

2d 260, 273 N.E.2d 823 (1971).
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the $2 minimum in § 77-2708(2)(c) will cause a deprivation of 

their own protected rights.19 Third, to find that the salons have 

standing in this case could limit customers’ ability to later 

claim refunds.

As discussed in Ak-Sar-Ben and above, the customers were 

the taxpayers of the admissions tax. We will not rewrite the 

law and completely overhaul the refund scheme put in place 

by the Legislature because of a hypothetical argument the 

salons attempt to make on their customers’ behalf.

For these reasons, we find that the salons do not have standing to claim a refund and their first assignment of error has 

no merit.

Merits.

Because we find that the salons did not have standing, 

we do not address whether the tanning salons’ gross receipts 

should have been subject to the admissions tax. Therefore, we 

do not reach the salons’ second assignment of error.

Subject Matter Jurisdiction.

On cross-appeal, the Department and Commissioner assign 

that the district court erred by finding it had subject matter 

jurisdiction over the 15 claims filed jointly by the Ashley 

Lynn’s salons. We have already held that the Ashley Lynn’s 

salons lacked standing; therefore, the district court lacked 

jurisdiction over the claims. Thus, we do not reach the assigned 

error on cross-appeal.

CONCLUSION

The decision of the district court is affirmed.

Affirmed

Irwin, Judge, not participating in the decisio

Stacy, J., not participating

19 See Bullock v. J.B., 272 Neb. 738, 725 N.W.2d 401 (2006).