Murphy v. State of Department of Taxes

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, 539 A.2d 543, ___ (1987)
  (citation omitted).  We will not overturn a Rule 60(b) order unless
  discretion was  withheld or abused.  Altman v. Altman, 169 Vt. 562, 563-64
  ,730 A.2d 583, 585 (1999) (mem.). 

       Taxpayers challenge the superior court's denial of their estoppel
  claim on appeal from the  determination of the Commissioner. "Estoppels
  against the government are rare and are to be  invoked only in
  extraordinary circumstances."  Wesco, Inc. v. City of Montpelier, 169 Vt.
  520, 523-34, 739 A.2d 1241, 1244 (1999) (citation omitted).  To meet the
  elements of estoppel taxpayers  would have had to establish that (1) the
  Department knew the law required the assessment of taxes  regardless of the
  results of taxpayers' litigation; (2) the Department intended that their
  letters would  create the impression that the tax would not be assessed if
  taxpayers were successful in their breach  of contract claim, or taxpayer
  had the right to that impression based on the Department's letters; (3) 
  taxpayers did not know that the law would require them to pay the taxes
  even if they succeeded in  their litigation against developer; and (4)
  taxpayers must have relied on the Department's letters and  communications
  to their detriment.  See Beecher v. Stratton Corp., 170 Vt. 137, 140, 743 A.2d 1093,1096 (1999).  Here, the fourth element was not met.  

       Taxpayers asserted in the initial argument before the superior court
  that they had relied on the  Department's representation to their detriment
  because they had not amended the complaint in their  suit against developer
  to include a claim for the land gains tax.  This assertion was somewhat 
  misleading, however, as taxpayers argued to the trial court that taxes
  should be part of damages for  breach of contract, and evidence of the
  taxes was presented to the jury.  Furthermore, in briefs  submitted on
  appeal in Murphy I, taxpayers argued to this Court that the jury-awarded
  compensatory  damages were not excessive because the land gains tax was
  included in the award.  Taxpayers  asserted that the loss in value
  ($38,600) added to the land gains tax with interest ($19,000) minus the 
  escrow already returned ($5000) came to a total of $52,600 - just shy of
  the $53,000 award.  On  review, we held that the award of compensatory
  damages was supported by the evidence.  Murphy I,  171 Vt. at 158, 761 A.2d 
  at 698.  Taxpayers cannot in good faith argue to this Court in one case
  that  the land gains tax was part of their judgment, and in another, that
  it was not.  "The doctrine of  equitable estoppel is based upon the grounds
  of public policy, fair dealing, good faith, and justice."   Wesco, 169 Vt.
  at 523-34, 739 A.2d  at 1244 (internal citation and punctuation omitted). 
  Taxpayers  not only ask us to grant estoppel where they have failed to meet
  the elements but ask us to grant it 

 

  in contravention of its purpose - equity.  The trial court did not abuse
  its discretion under Rule  60(b)(1) by determining that the initial order
  was premised on a mistake. (FN1) 

       Taxpayers further assert that the superior court erred by failing to
  make adequate findings for  this Court to review. The superior court held
  both a hearing on the appeal of the tax determination  and a hearing for
  the Rule 60(b) motion; it made substantial written findings after the
  initial  argument and oral findings on the record at the close of the Rule
  60(b) hearing.  

    [It] was the Court's understanding . . . that there had not been
    any  pursuit of the land gains tax liability component in the
    civil litigation  against the developer.  The review of the record
    . . . show[s] that I  was mistaken in that. . . .  In fact, there
    was pursuit of that claim  through pre-trial motions, through
    interrogatory answers . . . .[the trial  court's] instructions are
    broad enough to permit the jury to include   land gains tax in the
    breach of contract award. . . .  Therefore, this  Court was
    mistaken in its understanding which led to the conclusion  that
    the fourth element of estoppel was met and the Court does grant 
    the State's motion based on Rule 60(b)(1) on the grounds of 
    mistake . . . .

  Further, the superior court's entry order on the Rule 60(b) hearing
  explained, the "[c]ourt was  mistaken based on oral argument.  New
  information shows that the fourth element for estoppel is not  met. 
  Pursuant to 60(b)(1), motion granted."  Together, these findings were
  specific in nature and  make it clear to this Court the basis of the
  superior's court decision.  Goshy, 149 Vt. at 99, 539 A.2d  at
  547-48ecision on motion must give findings that will enable Court to
  determine basis for decision  and demonstrate how trial court used its
  discretion).   

       Finally, taxpayers argue that they are not liable for the land gains
  tax because developer failed  to file a timely tax return as required under
  32 V.S.A §10006.  The land gains tax is imposed on  gains from the sale of
  land, but not where the land is ten acres or less and where the purchaser 
  intends to use the land as a principal residence.  Id. § 10002(b).  The
  transferor is ordinarily liable for  the tax, however, 

 

    whenever in this chapter the transferor is relieved from liability
    for  the payment of the tax on account of a certification or
    statement made  by the transferee concerning the use or intended
    use of the land, and  such certification or statement is, or turns
    out to be, untrue or  incorrect, then the tax otherwise due from
    the transferor shall become  the liability of, and shall be paid
    by the transferee.  

  Id. § 10006(a).  In interpreting a statute, we look to the plain meaning of
  the words.  Tarrant v. Dep't  of Taxes, 169 Vt. 189, __, 733 A.2d 733, __
  (1999).  In this case, the certification by the developer,  at the time the
  return was filed, passed liability to taxpayers.  See 32 V.S.A. § 10006(a). 
  Taxpayers  argue that developer's errors on that return, specifically, that
  developer indicated that the amount of  liability being transferred was
  "0", absolves them of liability because they had no notice of the  amount
  to be due should they not meet the conditions of the principal residence
  exception.  First,  taxpayers were on full notice of the liability that
  would result if they did not meet the conditions of  the exemption, as all
  of the figures with the exception of the total were accurate. Moreover, 
  developer's error does not relieve taxpayers of liability - the return
  clearly states, "if buyer fails to  comply with all necessary requirements
  for an exemption, buyer will be liable for tax."  
 
       Affirmed. 



                                       BY THE COURT:


                                       _______________________________________
                                       Jeffrey L. Amestoy, Chief Justice

                                       _______________________________________
                                       John A. Dooley, Associate Justice

                                       _______________________________________
                                       James L. Morse, Associate Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice


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                                  Footnotes


FN1.  We note that given the facts of this case the court could have
  determined that relief from  the order was available under Rule 60(b)(3)
  "misrepresentation."  At the very least, taxpayers here  are attempting to
  turn to their advantage a mistake that would have been unlikely to have
  been made  had the State and the court realized the extent to which damages
  for the land gains tax were a part of  the underlying case as presented to
  the jury in Murphy v. Stowe Club Highlands, No. 160-8-96LeCv.  See MIF
  Realty L.P. v. Rochester Assocs., 92 F.3d 752, 756 (1996) (when district
  court dismissed  case on mistaken belief that parties had reached
  settlement, plaintiff entitled to relief under Rule  60(b) notwithstanding
  defendant's contention that relief not warranted).