Court Opinion

ID: 9618288
Source: CourtListenerOpinion
Date Created: 2023-08-22 05:10:15.908946+00
Date Added: 2024-06-11T18:04:27.638360
License: Public Domain

PETERSON, C. J.,
dissenting.
The majority concludes that the plaintiff is personally liable for delinquent taxes because he was an “employer” as defined in ORS 316.162 (3) (b). I dissent.
I agree that the corporation in this case was the type of corporation that the Commission described and targeted in its proposed legislation and that plaintiff Olson is within the class of persons potentially subject to personal liability by virtue of his position as a director and officer in the corporation. Plaintiff Olson, however, does not fit the Commission’s description of an officer who was “charged with the responsibility for withholding and remitting taxes,” failed to do so and *248sought to use the corporate form to avoid the penalties for failure to remit withholding taxes. Although no corporate bylaws, minutes, resolutions or other corporate documents define the plaintiffs duties as vice president and secretary, the evidence is clear that Bowman was “in charge of all management and the office” while the plaintiff was “in charge of production and the shop.” Olson v. Dept. of Rev., 10 OTR 272, 273 (1986). As stated by the Tax Court:
“The undisputed evidence established that office employees hired and supervised by Bowman knew more about the company’s affairs and had more control than plaintiff did. The testimony of former office employees established that plaintiff never prepared or took part in the preparation of any of the corporate records, documents, tax returns or management activities of the company. Mr. Osborne testified that plaintiff signed checks or other documents only when Bowman was absent because he, Osborne, knew that plaintiff was an ‘owner’ of the company and had the authority. * * *”
10 OTR at 275.
Even though plaintiff Olson supervised 15 to 25 employes in his capacity as shop foreman, Bowman supervised Olson in the sense that he directed the shop and the plaintiff as to the work to be done. The plaintiff testified:
“Q. Was anyone supervising you in your work in the shop?
“A. Yes, Mr. Bowman.
“Q. He was supervising you?
“A. Well, I would get my directives from him because he was the salesman and that’s where it would come in from.
“Q. Oh, in terms of what type of work you needed to put out, correct?
“A. I don’t know. No, there was jobs coming into the shop that had to be done.
“Q. Okay.
“A. And that’s where I — my function was just to run the shop.
“Q. All right. Now you referred to separation of duties. You said certain things weren’t your — your job or weren’t your duties. Those were somebody else’s duties. Was that in a written document anyplace?
*249“A. Not to my knowledge, no.
“Q. How — did that evolve? Did you and — did you talk about this?
“A. Other than the fact I was to run the shop, and that was it, and that’s all I would do, yes, that was it.”
The plaintiff did, on occasion, sign corporate checks in Bowman’s absence. Employes working for Bowman would go to the plaintiff in Bowman’s absence because they “knew that plaintiff was an ‘owner’ of the company and had the authority.” 10 OTR at 275. However, the plaintiff never had the corporate responsibility of seeing that bills were paid or determining what creditor to pay when the corporation lacked funds to pay all its creditors.
The majority apparently agrees that the evidence of the way “[bjusiness ordinarily was conducted” establishes the plaintiffs nonparticipation in corporate business matters. 304 Or at 245. The majority nonetheless states that the plaintiff failed in his burden of proof. The majority states that the fact that a taxpayer is involved in the ownership and management of a corporation and has signed corporate checks raises an inference that the taxpayer had a duty to the corporation to assure compliance with the withholding law — even if such management or check-signing activity was unrelated to the withholding law. The majority concludes that if this inference is raised the taxpayer must make his case by rebutting the inference with “contrary indications in corporate bylaws or resolutions,” 304 Or at 245, that define the taxpayer’s duties in order to avoid personal liability for the withholding tax. This is a new and unusual construction of the withholding law.1
*250The Department of Revenue has not interpreted the law in this manner. OAR 150-316.162(3)(1) sets forth a list of factors to be considered. It provides:
“ ‘Employer’ includes, but is not limited to an officer or employe of a corporation or other usiness [sic] entity if, among other duties, that individual has:
“(a) the power or authority to see that the withholding taxes are paid when due;
“(b) power or authority to prefer one creditor over another;
“(c) authority to hire and fire employes;
“(d) authority to set working conditions and schedules;
“(e) authority to sign or co-sign checks;
“(f) authority to compute and sign payroll tax reports;
“(g) authority to make fiscal decisions of the corporation;
“(h) authority to incur debt on behalf of the corporation;
“(i) knowledge of the nonpayment of the withholding taxes;
“(j) exercised authority on behalf of the corporation at or after the time the duty arose to collect and hold the taxes;
“(k) exercised authority on behalf of the corporation at or after the time the duty arose to pay over the taxes required to be withheld; or
“(1) performed duties other than those outlined by the corporate bylaws.”
The plaintiffs “authority” existed only in the technical sense. Actual responsibility did not rest with him. The majority’s interpretation violates our own precedent to the effect that “in interpreting revenue statutes[,] substance and not form control[s],” Frutiger v. Department of Revenue, 270 Or 821, 823, 529 P2d 910 (1974), and ignores the virtually uncontradicted evidence as to the actual division of responsibility in the corporation.
Frutiger involved our only other examination of ORS 316.162(3) (b). In that case we stated that “the mere title of a corporate officer does not, standing alone, establish liability” and our main inquiry involved determining whether the taxpayer plaintiffs exercised day-to-day control or supervision *251over corporate affairs. 270 Or at 823, 826.2 Our inquiry focused on the way business ordinarily was conducted. We in effect recognized that paper authority to engage in corporate management, as the plaintiff had in this case, is not the equivalent of having the duty of corporate management and assuring compliance with the withholding law. See id. (plaintiffs authority to sign corporate checks not conclusive where plaintiff did not exercise day-to-day control). The relevant inquiry under ORS 316.162(3)(b) is whether one is under a duty to the corporation to comply with the withholding law, not whether one had the paper authority to take over the duty of another corporate manager and assure compliance.
The majority analogizes a director’s or an officer’s personal liability under the withholding law to a director’s or officer’s personal liability to the corporation in an action brought by the corporation or by a shareholder in a derivative action, and embraces that body of law as stating the predicate for liability under the withholding law. The majority states:
“When a corporation gets into trouble for neglecting to pay taxes, or to meet other obligations, some officers will face liability to the corporation for their neglect (that is, breach of duty) and others will not. Those responsible to the corporation for the failure to comply with the withholding law are also responsible under ORS 316.162(3)(b). Of course, administrative tasks like bookkeeping and tax accounting are delegated, but the delegation does not relieve the responsible officers of their responsibilities for seeing that the tasks are carried out. * * *”
304 Or at 244.
One problem with this analysis is that, unlike the majority’s interpretation of the withholding law, delegation to or reliance on a subordinate employe may relieve a director or an officer from liability to the corporation. The plaintiff, in his *252capacity as a director and an officer, could incur personal liability to the corporation if he failed to act “in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances and in a manner [he] reasonably believe[d] to be in the best interests of the corporation.” Or Laws 1987, ch 52, § 85(1) and (4) (standard of conduct for directors); Or Laws 1987, ch 52, § 91(1) and (4) (standard of conduct for officers). Cf. former ORS 57.228 (1985) (stating similar standard for directors). Good faith reliance upon or delegation to officers or subordinate employes (to carry out administrative tasks such as bookkeeping and tax accounting) reasonably believed to be competent is consistent with this standard of conduct. Or Laws 1987, ch 52, § 85(2) (director not liable to corporation if director reasonably relied on information or statement, including financial statements, prepared or presented by officers or employes of the corporation or other persons on matters within the persons’ professional competence); Or Laws 1987, ch 52, § 91(2) (same standard for officers). Cf. former ORS 57.228(1) to (3) (1985) (stating similar standard for directors).
The purpose and scope of a corporate action or shareholder’s derivative action against a director or officer strikes me as being broader than that stated in the statute. ORS 316.162(3)(b) concerns only responsibility for acts described in specified statutes. I am convinced that the plaintiff had none.
When an IRS agent told the plaintiff that the corporation’s withholding taxes were delinquent, he exercised due care by taking the matter promptly to Bowman. The evidence indicates that Bowman was the responsible person to resolve this matter. Bowman assured the plaintiff that the taxes would be paid. The plaintiff was entitled to rely on this statement. Or Laws 1987, ch 52, § 85(1) and (4); Or Laws 1987, ch 52, § 91(1) and (4).
I conclude, as did the Tax Court, that although in form the plaintiff comes within the class of persons potentially personally liable for the corporation’s failure to withhold taxes solely because of his position as a director and an officer in the type of corporation targeted by the legislature, in substance, evidence of the daily operation of the corporation proves that within the actual corporate organization the *253plaintiff had no responsibility for compliance with the withholding law.
I would affirm the decision of the Tax Court.
Jones and Gillette, JJ., join in this dissenting opinion.

 Although such evidence may more clearly define an officer’s or other person’s duties to the corporation, the lack of such evidence is not conclusive as to whether a person is an “employer” under the statute. For example, a corporation could enter into a financing arrangement with a lender after which the lender participates in the management of the corporation. Particularly in small closely held corporations the corporate bylaws, minutes, resolutions and other records may not reveal the extent of the lender’s participation in the management of the corporation. However, the lender may nevertheless be an “employer” for purposes of ORS 316.162(3) if other evidence shows sufficient participation. Cf. Frutiger v. Department of Revenue, 270 Or 821, 824-25, 529 P2d 910 (1974) (review of evidence showed third party corporation, who had entered into financing agreement with subject corporation in financial difficulty, was not an “employer”).

 In Frutiger, two spouses were the officers of the corporation: the husband was the president and the wife was the secretary-treasurer. The husband controlled the payment of bills, the signing of checks and the depositing of funds in a payroll account. The wife worked at the corporation three days a month, balanced the ledger and signed the monthly and quarterly tax reports. She was authorized to sign corporate checks, but never exercised this authority. The wife exercised no control of the day-to-day operation of the corporation and received no compensation for her services. We concluded that because the wife was “a corporate officer in name only, * * * she was not an ‘employer’within the meaning of [ORS 316.162(3)(b)].” 270 Or at 826.