Opinion
C.A. No: 02A-02-003 RSG
Submitted: July 11, 2002
Decided: August 30, 2002
Upon Appeal from a Decision of the Tax Appeal Board. Decision AFFIRMED.
ORDER
Having reviewed the parties' submissions in this appeal of a decision of the Tax Appeal Board ("Board") entering a judgment in favor of KMC Foods, Inc. ("Petitioner") regarding an assessment by the Division of Revenue that Petitioner owed the Division a payment in excess of $330,000 in taxes, penalties and interest for the tax years 1989 through 1991, the Court concludes as follows:
1. Petitioner operated a food processing facility in Clayton, Delaware from 1988 to 1991. Petitioner purchased the facility in 1988 from the Joseph Campbell Company ("Campbell's"), a New Jersey corporation. Prior to the sale of the Clayton facility to Petitioner, the Clayton facility produced processed vegetables and meat products, all of which were used by Campbell's in its prepared soups and frozen entrees.
2. Simultaneous with Petitioner's purchase of the Clayton facility, Petitioner entered into a Processed Ingredients Purchase Agreement with Campbell's pursuant to which Campbell's agreed to purchase substantially all of the Clayton facility's product.
3. The parties agree that in operating the Clayton facility Petitioner was a "wholesaler" as that term is defined in 30 Del. C. § 2901 (7)(a)(2).
4. Clayton facility's entire product was delivered to Campbell's by placing the product in the hands of common or contract carriers for delivery to locations outside the State of Delaware.
5. In 1989, the Division of Revenue responded to an inquiry by Petitioner regarding compliance with the Delaware gross receipts tax. By letter dated July 13, 1989, a special investigator for the Division of Revenue advised Petitioner that it was exempt from the gross receipts tax as a wholesaler/food processor under 30 Del. C. § 2903 because Petitioner sold no goods in the State of Delaware.
6. On November 1, 1991, Petitioner sold the Clayton facility to a third party. Thereafter, Petitioner had no Delaware operations.
7. On July 19, 1995, the Division of Revenue sent Petitioner a Notice of Assessment advising Petitioner that the Division had determined that Petitioner had failed to pay gross receipts tax for the tax years 1989 through 1991. The Division sought payment in excess of $330,000 in taxes, penalties and interest.
8. Relying on 30 Del. C. § 2903(c)(1), the Division argued that goods placed on common carrier for delivery outside the State are subject to gross receipts tax and that Petitioner had to pay a tax of 2/10 of 1 percent of the aggregate of Petitioner's monthly sales in excess of $13,000.
9. Petitioner filed a timely appeal from the Division's assessment and the matter was presented to the Tax Appeal Board.
10. The Board determined that the goods placed on a common carrier and shipped outside the State were not subject to the gross receipts tax under 30 Del. C. § 2903, because 30 Del. C. § 2901(2)(b)(i) defines Petitioner's gross receipts to exclude the sale of any product that is placed on a common carrier and shipped outside the State, and granted judgment in favor of Petitioner.
11. Pursuant to 30 Del. C. § 331, and Superior Court Civil Rule 72, the Director of Revenue filed an appeal with the Superior Court on February 15, 2002, on the grounds that the Board erred in determining that sales made by Petitioner at it's Clayton, Delaware facility are not subject to the wholesale gross receipt tax under the provisions of 30 Del. C. § 2903(c)(1).
12. The proceedings in the appeal were stayed till June 30, 2002, the date at which the legislative session in which the Director of Revenue was in the process of seeking an amendment to Title 30, which if obtained, would moot the appeal and result in a voluntary dismissal of it by the Director.
13. Since this appeal was not resolved by amending legislation or otherwise before the end of the legislative session, it can undergo appellate review.
14. The Delaware Administrative Procedures Act, specifically 29 Del. C. Ch. 101, includes the Tax Appeal Board as one of the agencies over which the Superior Court has appellate jurisdiction.
Dir. Of Revenue v. J.E. Rhoads Sons, Inc., Del.Super., C.A. No. 92-A-01-003, Gebelein, J. (Nov. 10, 1992), rev'd on other grounds, 628 A.2d 1388 (Del. 1993) (Mem. Op. at 1).
15. The Supreme Court and this Court have repeatedly emphasized the limited appellate review of the factual findings of an administrative agency. The function of the reviewing Court is to determine whether the agency's decision is supported by substantial evidence. Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. The appellate court does not weigh the evidence, determine questions of credibility, or make its own factual findings. It is within the exclusive purview of the Board to determine and weigh the credibility of witnesses and the Court will not disturb these findings. The Court merely determines if the evidence is legally adequate to support the agency's factual findings.
Johnson v. Chrysler Corp., 213 A.2d 64, 66-67 (Del. 1965); General Motors v. Freeman, 164 A.2d 686, 688 (Del. 1960).
Oceanport Ind. v. Wilmington Stevedores, 636 A.2d 892, 899 (Del. 1994); Battisa v. Chrysler Corp., 517 A.2d 295, 297 (Del.Super. 1986), app. dism., 515 A.2d 397 (Del. 1986).
Johnson v. Chrysler, 213 A.2d at 66.
Starkey v. Unemployment Ins. Appeal Bd., 340 A.2d 165, 166 (Del.Super. 1975), aff'd 364 A.2d 651 (1976).
16. In reviewing a decision of the Tax Appeal Board, this Court has a duty to sustain its decision if it is based on substantial evidence unless there has been an abuse of discretion or error of law.
State Tax Commissioner v. Wilmington Trust Co., 266 A.2d 419 (Del.Super. 1968).
17. The Court finds that the decision of the Board is supported by substantial evidence, and it takes into account the assertions and arguments made by both the Division of Revenue and the Petitioner. Only after considering the arguments of both parties' did the Board determine that Petitioner's interpretation of the statute is proper.
18. In its decision, the Board explains in a clear and concise manner, the reasoning and the law behind its determination. The reason why the Divisions' analysis was not deemed proper by the Board is because it did not interpret the relevant statute in a manner that harmonizes all the statute's provisions; the Division's analysis focused on the language of Section 2903(c)(1) while ignoring the definition of gross receipts found in Section 2901.
19. The Board's decision goes on to explain why it's conclusion is not inconsistent with the Court's decision in Franklin Fibre, the case cited by the Division in support of its position. The Board's decision states that, "the Section 2901(2)(b)(i) language we rely on was adopted after the tax in Franklin Fibre was imposed but before the issue had been finally resolved by the courts. Speaking to this amendment, the Superior Court stated `Subsequent to the decision of the Tax Appeal Board, 30 Del. C. Chapter 29 has been amended to provide [an exception for goods placed on common carriers and transported for sale outside the State] from its definition of gross receipts. Therefore, the decision of the Court is limited to the pre-amendment period.' Franklin Fibre, 505 A.2d at 1298 n. 3. As the Franklin Fibre Court expressly limited its opinion to the pre-amendment statute and as we rely on the statutory language the Court expressly declined to address, our conclusion is not inconsistent with Franklin Fibre."
Franklin Fibre-Lamitex v. Director of Revenue, 505 A.2d 1296, aff'd Del. Supr., 511 A.2d 385 (1986).
20. The Board's opinion also states that the matter of the special investigator's July 13, 1989 letter estopping the Division from assessing gross receipts tax against Petitioner requires a factual hearing and, pursuant to the parties agreement, is not before the Board for consideration at this time.
21. Since the matter of the special investigator's July 13, 1989 letter estopping the Division from assessing gross receipts tax against Petitioner was not considered by the Board, it is outside the purview of this reviewing Court.
22. Based on the foregoing reasons, the Board's determination that the goods placed on a common carrier and shipped outside the State are not subject to the gross receipts tax under 30 Del. C. § 2903, because 30 Del. C. § 2901(2)(b)(i) defines Petitioner's gross receipts to exclude the sale of any product that is placed on a common carrier and shipped outside the State is AFFIRMED.
IT IS SO ORDERED.