Opinion
18-P-951
10-08-2019
LABOR SOLUTIONS, INC. v. COMMISSIONER OF REVENUE.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Labor Solutions, Inc. (LSI) seeks review of an Appellate Tax Board (board) ruling upholding a decision by the Commissioner of Revenue (commissioner) declining to abate withholding tax and additions thereto assessed against LSI for the years 2004 through 2008. LSI argues that (1) the board's decision is not supported by substantial evidence, in particular on the question whether numerous LSI workers were employees rather than independent contractors; (2) the board erroneously shifted the burden of proof to LSI; and (3) the board should have required the commissioner to prove the alleged false or fraudulent filings by clear and convincing evidence. We affirm.
Background. LSI and its principal, Tam C. Vuong, provided temporary workers to several light manufacturing facilities. In 2008, the Attorney General began an investigation which concluded that in 2004 and later years, LSI had paid its employees at least $11 million in cash without reporting those wages to the commissioner or to LSI's workers' compensation carrier. LSI and Vuong were indicted on numerous charges, to which they eventually pleaded guilty.
The indictments charged LSI with six counts of failing to provide a proper pay stub as required by G. L. c. 149, § 148, a statute that requires pay stubs only for "employee[s]." Vuong was charged with, among other things, knowingly failing to pay minimum wage to fourteen different "employee[s]" ( G. L. c. 151, §§ 1, 19 [2] ), failing to pay overtime to six different "employee[s]" ( G. L. c. 151, §§ 1A, 1B ), charging excessive transportation fees to two different "employee[s]" ( G. L. c. 149, § 159C ), willfully failing to provide proper pay stubs to fourteen different "employee[s]" ( G. L. c. 149, § 148 ), knowingly evading workers' compensation premiums from 2004 through about April 12, 2008 ( G. L. c. 152, § 14 [3] ), and knowingly failing to report or refusing to pay unemployment tax from 2004 through about October 1, 2008 ( G. L. c. 151A, § 47 ).
The workers' compensation statutes require the payment of compensation to certain injured "employee[s]." See, e.g., G. L. c. 152, § 26.
The unemployment insurance statutes require "employer[s]" to make contributions to an unemployment compensation fund, G. L. c. 151A, § 13, for the purpose of paying compensation to certain unemployed individuals who have previously been paid "wages," G. L. c. 151A, § 24 (a ), which are in turn defined in relevant part as "remuneration of an employee subject to this chapter for employment by an employer." G. L. c. 151A, § 1 (s ) (A).
Although LSI had filed timely withholding tax returns every year, none of the cash wages were reported in those filings. Significantly, Vuong also pleaded guilty to two counts (covering the years 2007 and 2008) of willfully aiding or assisting in the presentation of fraudulent or false quarterly wage reports or other documents required to be filed by "employers" pursuant G. L. c. 62E, § 2, in violation of G. L. c. 62C, § 73 (f ) (2).
In 2010, aware of the Attorney General's investigation, the commissioner issued to LSI a notice of assessment for the years 2004 through 2008, as authorized by statute. The commissioner also acted under his authority "[i]n the case of a false or fraudulent return filed with intent to evade a tax ... [to] make an [immediate] assessment at any time ... determining the tax due according to his best information and belief." G. L. c. 62C, § 26 (d ). The assessment was calculated based on the $11 million in unreported cash wages determined by the Attorney General. Because LSI's filings were false or fraudulent, the amount of tax due was doubled, as authorized by G. L. c. 62C, § 28. With interest, the total amount assessed was $1,565,957.
Pursuant to G. L. c. 62B, § 2, "[e]very employer making payment to employees ... of wages subject to tax under chapter sixty-two shall deduct and withhold a tax upon such wages in accordance with tables prepared by the commissioner." If an employer fails to withhold and pay over to the commissioner any amount required to be withheld under § 2, that amount is to be assessed against the employer under G. L. c. 62C, §§ 26 -29. See G. L. c. 62B, § 6.
Assessments are ordinarily subject to a three-year limitations period. See G. L. c. 62C, § 26 (b ) (1).
The Attorney General, in a press release, ultimately concluded that the amount was approximately $15 million, but the commissioner based his assessment on the lower, $11 million, amount.
LSI applied for an abatement, which was denied, and LSI appealed that denial to the board. After an evidentiary hearing, the board upheld the denial. LSI then sought review in this court.
Discussion. 1. Substantial evidence. We reject LSI's claim that the board's decision is unsupported by substantial evidence, defined as "such evidence as a reasonable mind might accept as adequate to support a conclusion." G. L. c. 30A, § 1 (6). We review the board's decision on that basis, mindful that the decision is final as to findings of fact. G. L. c. 58A, § 13. Although we also review whether the evidence is sufficient to support the board's conclusions of law, that review is limited to "whether a contrary conclusion is not merely a possible but a necessary inference from the findings" (citation omitted). Kennametal, Inc. v. Commissioner of Revenue, 426 Mass. 39, 43 (1997), cert. denied, 523 U.S. 1059 (1998). See Schussel v. Commissioner of Revenue, 472 Mass. 83, 87 n.6 (2015) (explaining that "substantial evidence" is " ‘sufficient’ evidence").
First, there was substantial evidence that LSI had unreported "employees." LSI and Vuong pleaded guilty to numerous criminal charges that were predicated on LSI's workers being "employees," rather than independent contractors. The various charges named fourteen individual employees as victims. The commissioner was not required to prove the names or the precise number of other affected employees. Vuong testified before the board that he was aware of his obligation to file withholding tax returns "for all [his] employees." For those workers who he paid by check, he did withhold and report the withholding tax, but for those who wanted to be paid in cash, he claimed he had "no way to withhold the tax" and so could not file corresponding reports. The only difference Vuong identified was that some workers were paid by check but others would not work unless they were paid in cash. From this evidence the board could reasonably infer that there were more than fourteen affected "employees."
There was also substantial evidence that LSI had failed to pay over withholding tax to the commissioner, and that the commissioner's assessment of such tax was warranted. See note 3, supra. A Department of Revenue employee, Lawrence King, who supervised the assessment against LSI, testified before the board that LSI had underreported the wages it paid and underpaid withholding tax in the years in question.
Likewise, there was substantial evidence supporting the commissioner's adoption, under the applicable statute, of the $11 million unreported cash wages figure as the basis for the assessment. The commissioner may "[i]n the case of a false or fraudulent return filed with intent to evade a tax ... make an [immediate] assessment at any time ... determining the tax due according to his best information and belief" (emphasis added). G. L. c. 62C, § 26 (d ). See G. L. c. 62C, § 28. In doing so, the commissioner could reasonably rely on the $11 million figure appearing in the Attorney General's "Statement of the Case" filed in the criminal proceedings against Vuong. The board could credit King's testimony that it was common and reasonably necessary for the commissioner to rely on the results of other government agencies' investigations of taxpayers. There is no requirement that the commissioner himself determine the precise amount a taxpayer unlawfully failed to pay. See Schussel, 472 Mass. at 84, 87 (after taxpayer's conviction of Federal tax evasion, commissioner, acting under G. L. c. 62C, § 28, could make assessment based on Internal Revenue Service's determination of taxpayer's income for period at issue).
King testified that he had obtained the $11 million figure from the statement of the case, "which was the lower number than [in] the press releases" issued by the Attorney General.
There was also substantial evidence that LSI had filed false or fraudulent tax returns with intent to evade a tax. The board could reasonably rely in this regard on Vuong's guilty pleas to two counts of willfully aiding or assisting in the presentation of fraudulent or false quarterly wage reports or other documents required to be filed by "employers" pursuant G. L. c. 62E, § 2. Moreover, Vuong testified that he was aware of his obligation to file withholding tax returns for all of his employees. And King testified that LSI had filed some withholding tax returns, and paid the withheld tax over to the commissioner, albeit on a gross wage amount of less than $2 million over the period in question. This evidence amply supported the board's conclusion that Vuong "understood [LSI's] obligation to withhold tax and file withholding returns" and that LSI had "filed false or fraudulent ... [r]eturns with the intent to evade a tax throughout the [relevant] periods," thus justifying the commissioner's assessment and her refusal to abate it.
2. Allocation of burden of proof. We are unpersuaded by LSI's argument that the board, rather than requiring the commissioner to prove that LSI failed to withhold and report tax for "employees," improperly shifted to LSI the burden of proving that its workers were not employees but, instead, independent contractors. To the contrary, the board began by recognizing LSI's and Vuong's guilty pleas "to more than sixty counts of violating various wage laws as well as the commission of insurance and tax fraud." As discussed supra, many of these charges were predicated on LSI's workers being "employees"; by pleading guilty, LSI and Vuong admitted that these workers were employees. The board then merely noted that LSI and Vuong had failed to offer any evidence to support their argument, which "bordered on disingenuous," that the workers paid in cash (rather than by checks, from which tax was withheld) were actually independent contractors. "[W]ith the exception of the manner in which they were paid, all of [LSI's] workers were similarly situated, fulfilling the temporary needs of light-industrial businesses."
In short, we read the board's decision as recognizing LSI's and Vuong's own admissions that the workers in question were employees, and then noting that LSI and Vuong offered no evidence calling those admissions into question. There was no burden shifting.
3. Standard of proof. LSI argues that the board should have required the commissioner to prove the alleged false or fraudulent filings by clear and convincing evidence. But we need not consider issues of law not raised before the board. See Schussel, 472 Mass. at 87. Moreover, an argument must be raised "adequately." See Sugarman v. Board of Registration in Med., 422 Mass. 338, 347 (1996) (one-page conclusory argument before agency, unsupported by citation, inadequate to preserve issue for judicial review). Here, so far as the record before us shows, LSI raised the argument only in a single sentence in its closing argument to the board, unsupported by any citation to authority. The argument is therefore waived.
The board did expressly recognize that "the [c]ommissioner bears the burden of demonstrating that a taxpayer has filed a false or fraudulent return or a return filed with a willful attempt to defeat or evade the tax." The board did not, however, address what standard of proof applied.
Even if the argument were properly before us, we would be unpersuaded. LSI makes no argument as to why the United States Tax Court decisions under Federal law cited in support of its position should be binding on or adopted by the commissioner, the board, or the reviewing court. The two board decisions cited by LSI contain no mention of any clear and convincing evidence standard.
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Decision of Appellate Tax Board affirmed.