Opinion
No. 2003-CA-00325-SCT.
May 26, 2005. Time granted to file a Motion for Rehearing June 6, 2005. Petition for Rehearing filed June 23, 2005.
COURT FROM WHICH APPEALED: SIMPSON COUNTY CHANCERY COURT, TRIAL JUDGE: HON. J. LARRY BUFFINGTON, DATE OF JUDGMENT: 1/21/2003
DISPOSITION: REVERSED AND RENDERED
ATTORNEYS FOR APPELLANT: GARY WOOD STRINGER, SAMUEL T. POLK
ATTORNEYS FOR APPELLEE: JAMIE G. HOUSTON, III, W. TERRELL STUBBS
EN BANC.
¶ 1. In 1999, the Mississippi State Tax Commission ("Commission") examined the Mississippi Combined Income and Franchise tax returns of Murphy Oil U.S.A., Inc. ("Murphy") for the following tax years: 1995, 1996, and 1997. As a result of this examination, on September 30, 1999, the Commission assessed additional franchise taxes and interest against Murphy in the amount of $87,952.00. After two internal agency appeals, Murphy sought judicial review in the Chancery Court of Simpson County pursuant to Miss. Code Ann. § 27-13-45 (Rev. 2003). On January 17, 2003, the chancellor ordered that the additional franchise tax assessment made by the Commission "shall not be allowed." The Commission now appeals to this Court.
¶ 2. We find that the chancery court reweighed the facts, exceeded its authority, and wrongfully overturned an agency action in failing to apply the appropriate standard of review. Therefore, we reverse, render and reinstate the Commission's order.
FACTS AND PROCEDURAL HISTORY
¶ 3. Murphy is a Delaware corporation with its principal place of business located in El Dorado, Arkansas and is authorized to do business in the State of Mississippi. Murphy is in the business of refining and marketing petroleum products for wholesale and retail purposes. As part of its operations, Murphy owned and operated a refinery in Meraux, Louisiana, and refined products produced at this refinery were shipped through tank trunks, by barge or through a pipeline known as the Collins Pipeline located in Collins, Mississippi. In addition to refining and selling products at wholesale, Murphy also owned and operated service stations in Mississippi to sell products at retail.
¶ 4. The Collins Pipeline starts at Meraux, Louisiana, and terminates at the TM terminal located in Collins, Mississippi. From 1995 to the present, a corporation by the name of Collins Pipeline Company owns Collins Pipeline. During the tax years in issue, Collins Pipeline Company was owned by Murphy and Chalmette Refining, Inc. The facility at which this pipeline terminates, TM Terminal, is owned by TM Terminal Company. TM Terminal Company, during the years in question, was also owned by Murphy and Chalmette.
¶ 5. The TM terminal at which the Collins Pipeline terminates consists of ten tanks, referred to as "breakout tankage" where products shipped on the pipeline can be stored. Additionally, at the TM terminal, there are pipes, valves and other equipment that connect that facility to both Colonial Pipeline and Plantation Pipeline to allow for the injection of product from the TM terminal into either of these pipelines. Colonial Pipeline begins at Pasadena, Texas, and terminates in New Jersey, with numerous terminals and facilities along its pipeline system in Texas, Louisiana, Mississippi, Alabama, Tennessee, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, and New Jersey. Plantation Pipeline begins in Baton Rouge, Louisiana, and terminates in Washington, D.C., with numerous terminals and facilities along its pipelines in Louisiana, Mississippi, Alabama, Tennessee, Georgia, South Carolina, North Carolina, Virginia, and the District of Columbia.
¶ 6. The sales by Murphy, which the auditor reclassified as Mississippi sales resulting in the assessment of additional franchise taxes, were sales made by Murphy where title and control of the property sold was transferred to the purchaser at Collins, Mississippi. The amount of these sales for each of the tax years in issue is as follows: (1) tax year 1995 = $156,826,131.00; (2) tax year 1996 = $199,285,823.00; and (3) tax year 1997 = $155,652,973.00. The negotiations of these sales began with traders in El Dorado, Arkansas determining what product being manufactured in Meraux is available for sale. The trader would then review the market conditions and based on this review, they would determine which pipeline would give Murphy the greatest return on its sale. After this was determined, the trader would attempt to market the product to potential buyers who were willing to purchase the product using the pipeline selected.
¶ 7. The product to be sold belonged to Murphy while it was being shipped from Meraux to Collins on the Collins Pipeline and while it was in the breakout tankage at the TM terminal. The product would remain in the breakout tankage at TM terminal for a few hours up to several days. The length of this time the product is stored in Collins, Mississippi depends on quantity and product cycle requirements of the pipelines. Many times, Murphy would already have a buyer for the product before it left the refinery in Meraux, Louisiana. At other times, Murphy would not have a buyer for the product until after the product had left the refinery and at times, even after it had been placed in the breakout tankage at the TM terminal. Under the terms of the sales in issue, title, possession and control of the product passed from Murphy to the purchaser when the product was injected from the TM terminal into either the Colonial Pipeline or the Plantation Pipeline in Collins, Mississippi. Title actually passed as the product was being metered when it was injected into the pipelines. This metering of the injection of the product into Colonial or Plantation Pipeline was used by Murphy to bill its purchaser for payment. Upon receipt of the report of this metering that took place in Collins, Mississippi, Murphy would bill its customers who would then pay Murphy by wire transfer.
¶ 8. Upon injection into Colonial or Plantation Pipelines, Murphy had no knowledge of the whereabouts of the product or where the product is ultimately offloaded. Murphy contends that these sales are not Mississippi sales for determining its Mississippi sales factor. Furthermore, Murphy had not included these sales as sales in any other state in determining the sales factors.
¶ 9. The proceedings of this action began with an examination of the Mississippi Combined Income and Franchise Tax Returns of Murphy for tax years 1995, 1996 and 1997. As a result of this examination, an assessment of additional Mississippi franchise tax and interest was issued against Murphy on September 30, 1999. Murphy, pursuant to Miss. Code Ann. § 27-13-43, appealed this assessment to the Board of Review of the Commission for a hearing on this matter. After proper notice and a hearing before the Board of Review on March 9, 2000, the Board entered its order affirming the assessment in the original amount of $87,952.00. Following this decision by the Board of Review, Murphy appealed to the full Mississippi State Tax Commission for a hearing on the decision of the Board of Review to affirm the tax in question. A hearing before the full Commisssion was held on June 21, 2000. On December 6, 2000, the full Commission rendered its decision in this matter wherein it affirmed the assessment in issue. Murphy was ordered to pay to the Commission the entire assessment of $87,952.00 plus up to date interest.
¶ 10. Following the decision of the full Commission, Murphy timely filed a petition for judicial review in the Chancery Court of Simpson County. After discovery and trial, the chancellor signed a final judgment wherein he ordered "that the additional assessment made by the Mississippi State Tax Commission shall not be allowed and that the sales for the years in question shall be those that were, in fact, downloaded in the state of Mississippi for final destination in the state of Mississippi." The Commission timely filed its appeal with this Court. The chancellor failed to apply the correct standard of review, therefore we decline to review the other issues and errors in this case. DISCUSSION
The dissent claims that neither party raised the issue of whether the chancellor applied the correct legal standard in the case sub judice. However, the Commission, in its brief quotes the applicable standard of review ("Since this action is an action under Miss. Code Ann. § 27-13-45 for a judicial review of the findings of the Mississippi State Tax Commission, an administrative agency of the State of Mississippi, the familiar arbitrary and capricious standard must be applied.") and states that "it is not clear from the Final Judgment of the Court below as to what standard was applied, but since it is so clear in the case law of this State that this is the standard to be applied to this action, it is assumed that it was the standard applied."
¶ 11. In reviewing the order of a state agency, the trial court and this Court are limited by the arbitrary and capricious standard. Miss. State Tax Comm'n v. Mask , 667 So. 2d 1313, 1315 (Miss. 1995) (citing Miss. State Tax Comm'n v. Dyer Inv. Co. , 507 So. 2d 1287, 1289 (Miss. 1987)). An appeal of an agency decision should be to determine whether the order of the administrative agency "(1) was supported by substantial evidence, (2) was arbitrary or capricious, (3) was beyond the power of the administrative agency to make, or (4) violated some statutory or constitutional right of the complaining party." Miss. State Tax Comm'n v. Vicksburg Terminal, Inc. , 592 So. 2d 959, 961 (Miss. 1991) (quoting Miss. State Tax Comm'n v. Miss. Ala. State Fair , 222 So. 2d 664, 665 (Miss. 1969)).
¶ 12. This Court has generally accorded great deference to an administrative agency's construction of its own rules and regulations and the statutes under which it operates. Mask , 667 So. 2d at 1314 (citing Melody Manor Convalescent Ctr. v. Miss. State Dep't of Health , 546 So. 2d 972, 973 (Miss. 1989); Gen. Motors Corp. v. Miss. State Tax Comm'n , 510 So. 2d 498, 502 (Miss. 1987)). Notwithstanding this Court's usual de novo review of questions of law, this Court has "accepted an obligation of deference to agency interpretation and practice in areas of administration by law committed to their responsibility." Gill v. Miss. Dep't of Wildlife Conserv. , 574 So. 2d 586, 593 (Miss. 1990). This Court has noted that "[a]n agency's interpretation of a regulation it has been authorized to promulgate is entitled to great deference and must be upheld unless it is so plainly erroneous or so inconsistent with either the underlying regulation or statute as to be arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law." Tower Loan of Miss., Inc. v. Miss. State Tax Comm'n , 662 So. 2d 1077, 1081 (Miss. 1995) (quoting Bd. of Trustees of State Insts. of Higher Learning v. Sullivan , 763 F. Supp. 178, 184 (S.D. Miss. 1991)).
¶ 13. Courts acting in an appellate capacity are bound "to give due deference to the factual findings of the administrative agency and to the chancellor who adopted the same findings." Miss. Dept. Of Marine Res. v. Brown , ___ So. 2d ___, 2005 WL 427895 (Miss. 2005) (citing Miss. State Bd. of Nursing v. Wilson , 624 So. 2d 485, 489 (Miss. 1993) (citations omitted)). This Court has held:
Our Constitution does not permit the judiciary of this state to retry de novo matters on appeal from administrative agencies. Our courts are not permitted to make administrative decisions and perform the functions of an administrative agency. Administrative agencies must perform the functions required of them by law. When an administrative agency has performed its function, and has made the determination and entered the order required of it, the parties may then appeal to the judicial tribunal designated to hear the appeal. The appeal is a limited one, however, since the courts cannot enter the field of the administrative agency. The court will entertain the appeal to determine whether or not the order of the administrative agency (1) was supported by substantial evidence, (2) was arbitrary or capricious, (3) was beyond the power of the administrative agency to make, or (4) violated some statutory or constitutional right of the complaining party. This rule has been thoroughly settled in this State.
Id.
¶ 14. Here, the chancery court reweighed the evidence in the case sub judice. The chancery court clearly did not adhere to the correct standard of review. In the final judgment, the chancellor stated that "the additional assessments shall not be allowed and that the sales for the years in question shall be those that were, in fact, downloaded in the state of Mississippi for final destination in the state of Mississippi." Throughout the final judgment the chancellor stated that "the Court recognizes . . ." and "the Court is satisfied that the sales either occurred in the state of Louisiana . . . or in other states." The chancellor also stated that "the Court heard the testimony as well as reviewing the exhibits that were presented and having considered the same is of the opinion that the sales were not sales that occurred or accrued in the state of Mississippi."
¶ 15. The chancellor clearly tried this case de novo, which our Constitution does not permit. The chancellor did not adhere to the correct standard of review and never found that the Commission's assessment was not supported by substantial evidence, was arbitrary or capricious, was beyond their power to make or violated some statutory or constitutional right of the party. This Court has held that the appellate court may not reweigh the facts, nor may it substitute its judgment for that of the agency. Id. (citing Miss. Comm'n on Envtl. Quality v. Chickasaw County Bd. of Sup'rs , 621 So. 2d 1211, 1216 (Miss. 1993)). Since the chancery court acts in an appellate capacity in reviewing the Commission's decision, it may not reweigh the facts. Here, there was sufficient evidence in the record to support the Commission's decision. Where a circuit or chancery court exceeds its authority and overturns an agency action, this Court will reverse and reinstate the agency's order. Id. (citing Miss. Comm'n on Envtl. Quality , 621 So. 2d at 1215).
CONCLUSION
¶ 16. The chancery court impermissibly reweighed the evidence in this matter and substituted its judgment for that of the administrative agency. For these reasons, we reverse the judgment of Simpson County Chancery Court, and we render judgment here reinstating and affirming the order of the Mississippi State Tax Commission.
¶ 17. REVERSED AND RENDERED. WALLER AND COBB, P.JJ., EASLEY, CARLSON, DICKINSON AND RANDOLPH, JJ., CONCUR. GRAVES, J., DISSENTS WITH SEPARATE WRITTEN OPINION. DIAZ, J., NOT PARTICIPATING.
¶ 18. The majority concludes that the trial court applied the incorrect legal standard in reaching its decision. The majority opines that the chancellor incorrectly applied a de novo standard when it reviewed the decision of the Mississippi State Tax Commission (hereinafter "State Tax Commission"), but that the arbitrary and capricious standard should have been utilized. Whether or not the chancellor applied the correct legal standard is an issue which was not raised by either party in the instant action. Without addressing any of the issues raised by the litigants in their briefs, the majority opinion takes a swift, yet misguided approach toward resolving the instant litigation. Because the majority opinion is counter to basic principles of bedrock jurisprudence, I am forced to dissent. Issue of What Standard the Chancellor Applied is Procedurally Barred
¶ 19. Neither Murphy nor the Commission at any time during this appeal raised the issue of whether the chancellor applied the correct legal standard in the case sub judice. This Court has long held that issues not properly raised on appeal are procedurally barred from our consideration. Goodwin v. Dep't Human Servs. , 772 So.2d 1051, 1055 (Miss. 2000); Glover v. Jackson St. Univ. , 755 So.2d 395, 398 (Miss. 2000); Moore v. State , 676 So.2d 244, 245 (Miss. 1996); Beck Enter., Inc. v. Hester , 512 So.2d 672, 678-79 (Miss. 1978). Since the issue of whether the chancellor applied the correct legal standard in reaching his findings was not raised on appeal by either party, this Court is procedurally barred from addressing it.
The Standard of Review
¶ 20. Following two unsuccessful internal agency appeals, Murphy appealed the Commission's decision to the Chancery Court of Simpson County pursuant to Miss. Code Ann. § 27-13-45. Section 27-13-45 provides in part:
The findings of the State Tax Commission shall be final unless the taxpayer shall, within thirty days from the date of the receipt of notice of such findings, file a petition in the chancery court of the county in which the taxpayer is a resident. . . . . . . . . . The chancery court shall have jurisdiction to hear and determine said cause or issue joined as in other cases. Either the State Tax Commission or the taxpayer, or both, shall have the right of appeal to the Supreme Court as in other cases.
Id. (emphasis added). A full evidentiary hearing was held on August 13-15, 2002. The majority opinion states that the chancellor erroneously conducted a trial de novo. After a thorough review of the Mississippi Constitution of 1890, I find no provision(s) which state(s) the standard of review for chancery courts when considering State Tax Commission findings. Section 27-13-45 unambiguously provides that when considering State Tax Commission findings, "the chancery court shall have jurisdiction to hear and determine said cause or issue joined as in other cases." Id. The statutory provision makes clear that the chancery court has the jurisdiction to hear and determine the issues (both factual and legal) brought to it through the judicial review of the administrative agency's decision. The State Tax Commission admitted in its response to Murphy's Petition for Judicial Review that Murphy was entitled to a full evidentiary hearing. The fact that the chancellor held an evidentiary hearing is not conclusive evidence of the application of an incorrect legal standard. I reiterate, no one on behalf of the State Tax Commission has ever raised the issue of the correctness of the legal standard applied by the chancellor. Moreover, neither party raised any objection to the fact that a full evidentiary hearing was being conducted. In fact, both sides called witnesses and adduced evidence.
¶ 21. I concede that the arbitrary and capacious standard applies to those factual findings of the administrative agency. See D.J. Koenig Assocs. Inc. v. Miss. State Tax Comm'n , 883 So.2d 246, 252 (Miss. 2003); Miss. State Tax Comm'n v. Jenkins , 624 So.2d 91, 92 (Miss. 1993); Miss. State Tax Comm'n v. Package Store, Inc. , 208 So.2d 46, 48 (Miss. 1968). However, as to those questions of law raised by the adverse party, as is the case here, application of the arbitrary and capricious standard is less clear. See Miss. State Tax Comm'n v. Mask , 667 So.2d 1313, 1314 (Miss. 1995). In Mask , this Court did not draw any distinction between questions of law and questions of fact. However, the law is clear that in reviewing questions of law, we have always applied a de novo standard of review. There is nothing to indicate or suggest that the instant case is one where the de novo standard of review for questions of law should not be applied. Therefore, a cursory review of Mask and its predecessors and progeny, without any effort to distinguish between questions of law and fact, is misleading.
¶ 22. In the instant action, Murphy raises a question as to the applicability and scope of a statute concerning the formulation of sales for franchise tax liability purposes. Both Murphy and the State Tax Commission presented witnesses during the hearing as to the applicability and scope of the statute. Both parties offered evidence to the chancellor. I am convinced that the trial court properly applied the de novo standard of review to this question of law.
¶ 23. The wisdom behind Section 27-13-45 is lucid. When a taxpayer has unsuccessfully sought internal agency review, a judicial review by an unbiased and disinterested judge is afforded the taxpayer in order to determine whether the agency was correct. Thus, it appears that this statute solely protects the interests of the taxpayer by providing access to the judicial system. To this end, it is problematic to think that following an adverse decision by the Commission, the taxpayer would come to the chancery court to seek judicial review solely through the prism of the arbitrary and capricious standard. Where questions of law are raised, then the standard of review is de novo.
¶ 24. It is clear that Section 27-13-45 provides the taxpayer a right of judicial review to the chancery court where the taxpayer is a resident. The majority holds that as a reviewing court, the chancellor should have applied the arbitrary and capricious standard to the findings of the State Tax Commission. However, when we review a chancellor's findings, this Court notes a bifurcated standard of review. As to questions of fact, we will not disturb the factual findings when supported by substantial evidence unless the Court can say with reasonable certainty that the chancellor abused his discretion, was manifestly wrong, clearly erroneous or applied an erroneous legal standard. Gannett River States Publ'g Corp. v. City of Jackson , 866 So.2d 462, 465 (Miss. 2004); Morgan v. West , 812 So.2d 987, 990 (Miss. 2002) (citing Cummings v. Benderman , 681 So.2d 97, 100 (Miss. 1996); Miss. State Tax Comm'n v. Med. Devices , 624 So.2d 987, 990 (Miss. 1993)). However, when reviewing questions of law, this Court employs a de novo standard of review and will only reverse for an erroneous interpretation or application of law. Bank of Miss. v. Hollingsworth , 609 So.2d 422, 424 (Miss. 1992); Harrison County v. City of Gulfport , 557 So.2d 780, 784 (Miss. 1990). It is equally correct that the chancellor employ the arbitrary and capricious standard when dealing with questions of fact and the de novo standard when addressing questions of law. Section 27-13-45 provides that, "the chancery court shall have jurisdiction to hear and determine said cause or issue joined as in other cases." Because the statute confers on the chancellor the ability to hear and determine the action and issues as in other cases, a harmonious standard which is both efficient and effective is warranted. Where the chancellor applies the arbitrary and capricious standard to factual findings and a de novo standard to questions of law, on appeal our review of the chancellor's findings would involve the same standards. Invariably, this would allow for uniformity of results as well as fairer, more accurate decisions. Because this case involves the Commission's interpretation of a statute, a de novo standard of review was correctly employed and the chancellor's decision should stand.
Application of the Correct Standard by the Chancellor
¶ 25. Assuming arguendo that the chancery court applied the incorrect legal standard, it is, nevertheless, improper for the majority to reverse and render judgment in favor of the State Tax Commission. Notions of fair play and substantial justice would require that this matter be remanded to the chancery court for application of the correct legal standard. By rendering a judgment in favor of the Commission, the majority completely circumvents the legislative purpose and intent of Miss. Code. Ann. § 27-13-45. While the judicial power of the State was vested in this Court via Article 6, Section 144 of the Mississippi Constitution of 1890, trial courts were also created to hear and resolve disputes. See Miss. Const. of 1890. This Court should concern itself with the appellate jurisdiction conferred upon it by the Mississippi Constitution of 1890 and allow trial courts to address the issues regarding resolution of disputes.
¶ 26. Although the majority has failed to consider any of the issues raised by the parties, I am compelled to reach the merits of the case sub judice. I am of the opinion that the chancellor correctly held that the Destination Sales Theory applies to determine those "sales" assignable to Mississippi for purposes of franchise tax liability. Further, Miss. Code Ann. § 27-7-23(c) (Rev. 1991) is authoritative on the question of how "sales" are to be determined in tax formulations. Thus, for these reasons, I would affirm the trial court. I respectfully dissent.