Opinion ID: 2516613
Heading Depth: 1
Heading Rank: 4

Heading: review of tax commission's order of forfeiture

Text: ¶ 10 From a preliminary review of title 68, it would appear that an order of bond forfeiture is directly reviewable by this Court. However, an in-depth review of the applicable statutes necessitates a contrary result making this Court's order denying the motion to dismiss to be in error. ¶ 11 Under the Sales Tax Code, the Tax Commission may require an entity holding a sales tax permit to furnish a surety bond. Okla.Stat. tit. 68, § 1368 (1991). The bond serves as collateral to protect this state against failure of the taxpayer to pay the tax levied for sales taxes by the Tax Commission. Id. ¶ 12 Subsection A of section 225 of title 68 of the Oklahoma Statutes provides: Any taxpayer aggrieved by an order . . . of the Oklahoma Tax Commission directly affecting the taxpayer . . . may appeal therefrom directly to the Supreme Court of Oklahoma. Subsection 202(d)(1) defines taxpayer as [a]ny person owing or liable to pay any state tax. Subsection 202(e) includes a corporation in the definition of person, and subsection 202(g)(3) includes insurance companies, including surety and bond companies in the definition of corporation. Under these provisions, a surety company may directly appeal to this Court adverse decisions of the Tax Commission when the surety company is liable for taxes which it directly incurs. A review of the tax code shows that this conclusion only applies if the surety company is subject to liability for having incurred the tax liability in the first place, not by virtue of its surety status and not because of the failure of its principal to properly remit taxes. ¶ 13 Under Oklahoma's Uniform Tax Procedure Act, Okla.Stat. tit. 68, §§ 201-263 (1991), a surety may fall within two different classifications: one as a business or corporation who has directly incurred tax liability, and the other as a surety who has incurred a contractual collateral obligation for another's default. Under the first classification, a surety is included within the definition of taxpayer. The issue then is whether, under the second classification, a surety is a taxpayer for purposes of section 225 when it is acting as a surety. ¶ 14 A tax is a pecuniary burden imposed upon a class of individuals, businesses, or other entities for support of government. Black's Law Dictionary 1307 (5th ed.1979). A sales tax is a statutorily imposed burden on the sale of goods and based on their value. Id. at 1308. A tax liability is incurred by operation of law, not by contract. See id. Because a surety's liability is contractual, it cannot be a tax liability. ¶ 15 Rather, a surety is defined as one who, at the request of another, and for the purpose of securing to him a benefit,... hypothecates property as security therefor. Okla.Stat. tit. 15, § 371 (1991). Hypothecate means [t]o pledge property as security or collateral for a debt. Black's Law Dictionary 668 (5th ed.1979). A statutorily-required surety bond is a contract subject to statutory mandates. Lum v. Lee Way Motor Freight, Inc., 1987 OK 112, ¶¶ 16-22, 757 P.2d 810, 815-816. Thus, the liability incurred by a surety is contractual for losses incurred by the principal's failure to properly remit taxes owed to the state; the liability is not a result of a statute imposing a tax. The liability incurred by the surety is not for taxes but a collateral obligation for the principal's failure to perform its statutory obligations. Thus, a surety acting in its capacity as a surety is not a taxpayer for purposes of section 225 of title 68. Even though this distinction is technical, it is the one made by the Legislature in Oklahoma's tax code. ¶ 16 The Oklahoma Legislature has recognized this difference in the manner provided for collection procedures. The collection procedures for taxes is statutorily different than for collection of the surety bond proceeds. When a tax assessment becomes final, the Tax Commission may issue a tax warrant for the collection of taxes. Okla. Stat. tit. 68, § 231 (1991). The tax warrant constitutes a judgment against the taxpayer and a lien upon the taxpayer's property. Id. In the present case, the Tax Commission did not seek recourse against the taxpayer Sun River except for sending notices. ¶ 17 In contrast as a prerequisite to collecting on a surety bond, the Tax Commission issues an order of forfeiture. Unlike a tax warrant, the order of forfeiture is not a final order or judgment. It does not completely dispose of all the issues nor does it prevent judgment against the surety. Gilliland v. Chronic Pain Associates, Inc., 1995 OK 94, ¶¶ 6-7, 904 P.2d 73; see Okla.Stat. tit. 12, § 953 (2002); Okla.Stat. tit. 68, § 225 (2002); Okla.Stat. tit. 75, § 312 (2002) [1] ; Black's Law Dictionary 567, 756 (5th ed.1979). The forfeiture order does not create any liability on the surety's part, the Tax Commission must seek a judgment in the district court in order to effectuate the surety's liability, and the forfeiture order does not conclude the litigation between the Tax Commission and the surety. The forfeiture order is no more than a finding that taxes are owed by the bond's principal and a statement of intent that the Tax Commission intends to proceed on the bond. ¶ 18 If the surety does not pay over the bond proceeds, then the Tax Commission shall proceed against the surety in district court. Okla.Stat. tit. 68, § 213 (2002). The Tax Commission's forfeiture order is similar to that addressed in State ex rel. Okla. Dept. of Mines v. Jackson, 1997 OK 149, 950 P.2d 306. The Tax Commission, like the Department of Mines, is vested with the statutory authority to declare the performance bonds forfeited but lacks power to affect the sureties' liabilities. See 1997 OK 149 at ¶ 13, 950 P.2d 306. This Court stated: Suit may be brought in the district court either to recover on the bonds or to secure exoneration of liability. Id. As in Jackson, the Tax Commission may sue in district court to recover on the bonds at which time USF & G may assert any available defenses. Also USF & G may seek exoneration of liability by filing suit. Okla.Stat. tit. 68, § 213 (2002). This is the procedure that should have been followed in the case now before this Court.