S & M Finance Co. Fort Dodge v. Iowa State Tax Commission

SNELL, Justice

(dissenting).

I dissent as I cannot agree with the conclusion reached in Division III of the majority opinion.

A discussion of what was told plaintiff and plaintiff’s reliance thereon is in my opinion completely irrelevant and not an issue before us. With commendable frankness the commission says in its reply brief, (I quote):

“The fact is that appellee was advised in 1945 by tax commission personnel that it did not have to collect sales tax on sales of repossessed merchandise and, as a consequence, appellee surrendered its retail sales tax permit.”

That the commission was fully advised appears without question.

It is thus admitted that there was advice and reliance thereon. That there was damage appears from the fact that the plaintiff is now required to pay $2,264.48 plus $245.66 penalty.

We thus have a situation where the commission’s representative advised plain *512 tiff that it need not collect the tax. This was not a casual conversation. It was admittedly advice, as distinguished from mere conversation, given by commission personnel to plaintiff in plaintiff’s place of business. The commission admits that as a consequence of this advice plaintiff surrendered its sales tax permit. The commission was advised of plaintiff’s action and for nearly 20 years or more acquiesced by silence and inaction. After that lapse of time the commission now goes back S years (1960 to 1965) and asks plaintiff to pay with penalty what plaintiff was told it need not collect.

Every element of estoppel is present. There was advice, reliance thereon, acquiescence and now a determination of loss.

There is neither claim nor evidence of any fraud, misrepresentation, concealment or nondisclosure on the part of plaintifff.

It is, of course, true and need not be discussed here that a taxpayer may not take advantage of an error or omission to escape taxes or charges against his own property. If a tax assessor fails to assess or the county auditor fails to list property for taxation or the county treasurer fails to collect, liability remains.

Such is not the case before us.

The nature, of our sales tax should be kept in mind. It is an excise tax as distinguished from a property or income tax. The State makes a holder of a sales tax permit a tax collector. The tax is upon the sale of goods and is payable by the purchaser.

Section 422.43, Code of Iowa, so far as applicable here, imposes a tax upon, the gross receipts from sales of tangible personal property sold at retail to consumers or users.

Section 422.48 provides:

“Adding of tax. Retailers shall, as far as practicable, .add the tax imposed under this division, or the average equivalent thereof, to the sales price or charge and when added such tax shall constitute a part of such price or charge, shall be a debt from consumer or user to retailer until paid, and shall be recoverable at law in the same manner as other debts. * * * ”

Section 422.49 provides:

“Absorbing tax prohibited. It shall be unlawful for any retailer to advertise or hold out or state to the public or to any consumer, directly or indirectly, that the tax or any part thereof imposed by this division will be assumed or absorbed by the retailer or that it will not be considered as an element in the price to the consumer, or if added, that it or any part thereof will be refunded.”

In the case before us the commission is asking plaintiff to absorb and pay, not its own tax but a tax plaintiff was prohibited by law from saying it would absorb, and was told it need not collect. This argument is based on the theory that plaintiff should have known more about the tax laws than the commission’s own agent. The imposition of such a liability is manifestly unfair.

Equitable estoppel is a doctrine resorted to when otherwise manifest injustice would result. 28 Am.Jur.2d, Estoppel, section 27, page 627, section 28, page 629. It is not generally invoked against the state, particularly when the collection of revenue is involved. 28 Am.Jur.2d, Estoppel, section 122, page 783, section 123, page 783, 31 C.J.S. Estoppel § 138, page 675, § 140, page 690, § 147, page 730; Annotations, 1 A.L.R. 2d 341 .

However, there is growing concern over unconscionable results which are sometimes inevitable if this doctrine is never permitted as a defense against the state or one of its agencies. A number of courts have questioned the soundness of public policy that prevents a taxpayer from urging es-toppel to prevent manifest injustice.

This is even more true where the taxpayer, as here, collects and remits for a tax which he is permitted or required to pass on to another. In such cases a later deter *513 mination of tax liability compels the taxpayer to pay from his own funds a tax he could have collected from others except for the erroneous representation.

In 31 C.J.S. Estoppel § 147, page 733, after discussing the general rule, this appears :

“Under exceptional circumstances, however, there may be an equitable estoppel of the government in connection with tax matters, but the case must be clear and the injustice great. In a proper case a tax official may be estopped with reference to tax matters arising as between him and the government.”

In support of this statement the following authorities are cited by C.J.S.:

U.S.-City of St. Louis v. Mississippi River Fuel Corp., D.C.Mo., 57 F.Supp. 549 ; Cal.-U.S. Fidelity & Guaranty Co. v. State Bd. of Equalization, 303 P.2d 1034 , 47 C[al.] 2d 384; Ohio-Crown Pipe & Foundry, Inc. v. Davis [Ohio] Com.Pl. 167 N.E.2d 390 ; Pa.-In re Heberton’s Estate, 51 Pa.Dist. & Co. 285, affirmed 41 A.2d 654 , 351 Pa. 564 ; Tenn.-City of Memphis v. W. M. S. Co., 326 S.W.2d 828 , 46 Tenn.App. 153 ; Wash.-Seward v. Fisken, 210 P. 378 , 122 Wash. 225 , 27 A.L.R. 1208 ; Wis.-Libby, McNeill & Libby v. Wisconsin Dept. of Taxation, 51 N.W. 2d 796 , 260 Wis. 551 .

Where a taxpayer is a mere collecting agency the state may be estopped to impose tax by act of its employees. Market St. Ry. Co. v. California State Board of Equalization, 290 P.2d 20 , 137 C[al.] A[pp.] 2d 87.

The commission cites and relies heavily on City of Ames v. State Tax Commission, 246 Iowa 1016 , 71 N.W.2d 15 , wherein it is held that the rule-making power of the commission may not be inconsistent with the statute, and Michigan-Wisconsin Pipe Line Company v. Johnson, 247 Iowa 583 , 73 N.W.2d 820 , involving changes in .administrative rules. Both cases involved the liability of the taxpayer for use tax. The liability of a collecting agent such as we have here was not involved.

An extensive discussion by the Supreme Court of California appears in United States Fidelity & Guaranty Company v. State Board of Equalization, 47 Cal.2d 384 , 303 P.2d 1034 . That case involved the liability of casualty companies for premium taxes on their agents’ commissions and fees for arranging bonds. Estoppel of the state was claimed and rejected but the plaintiffs were not mere collecting agents. Plaintiffs had relied on an erroneous ruling by an official but their only claim of loss was that they would have otherwise raised their premium rates.

We quote excerpts from- the opinion:

“There are many instances in which an equitable estoppel in fact will run against the government where justice and right require it. [Citations] * * *

“The government may be estopped in tax matters. [Citations] * * * However, it is the unusual case in which estoppel will be applied in tax cases; the case must be clear and the injustice great (see authorities last cited). This is indicated by the general rules in the field. ‘The power of taxation shall never be surrendered or suspended by any grant or contract to which the State shall be a party.’ * * * Obviously, a tax administrator should not be permitted by an erroneous ruling to exempt a taxpayer from the obligation to pay taxes. But that is as far as the rule goes. The proper limitations on that rule were pointed out by this court in La Societe Francaise v. California Emp. Comm., 56 Cal.App.2d 534 , 133 P.2d 47 , * * *.”

In the La Societe case the plaintiff relying on a ruling that was later reversed did not deduct the unemployment insurance tax from employee’s wages. The court held the state was estopped from collecting the .amount of tax representing employee’s contribution, but was not estopped to collect contributions imposed on the employer.

I have no quarrel with the general rule that estoppel may not be invoked against the government in tax or revenue matters. However, I think the present case presents *514 that unusual situation where manifest justice requires an exception. The result sought by the commission and approved by the majority in my opinion is unconscionable.

Tax laws are enacted to get money and rarely give peace and comfort to the taxpayer but they should not be so administered as to entrap and penalize the innocent.

If the taxing authorities made a mistake the correct rule should be applied prospectively but not retrospectively at the expense of one whose only mistake was reliance on the advice of the commission’s agent.

Because of the facts in this particular case I think the commission should be estopped from collecting the tax.

I would affirm.

GARFIELD, C. J., and STUART and BECKER, JJ., join in this dissent.