8 Or. Tax 428 | Or. T.C. | 1980
The plaintiff appealed to this court from the defendant's Order No. VL 80-167, dated April 11, 1980. The defendant demurred to the plaintiff's first amended complaint on the ground that the complaint did not state a cause of suit and, further, that the time in which relief from taxation could be granted had expired. The court and counsel agreed that the defendant's demurrer, filed on July 8, 1980, should be treated as a motion to dismiss the amended complaint, pursuant to ORCP Rule 21 A.1
[1.] As in the case of the former demurrer, the motion to dismiss admits as true all the facts in the complaint which are well pleaded and all the intendments and inferences therefrom that can properly and reasonably be drawn.2 Lincoln Loan Co. v.State Hwy. Comm.,
In its amended complaint, the plaintiff states (and the defendant, by its motion to dismiss, except for items (8) and (9), has admitted, for purposes of its motion) (1) that plaintiff is and was an Oregon corporation with its principal place of business in Portland; (2) that by letter dated June 1, 1978, the Director of the Hood River County Department of Records and Assessments (hereinafter referred to as the "county assessor" or "assessor") notified plaintiffs that real property which plaintiff leased from the Port of Cascade Locks would be treated as omitted property under ORS
Items (8) and (9), above, raise legal questions which must be answered in connection with both grounds of defendant's motion to dismiss.
Defendant's second ground for its motion is "* * * that the time for appeal of the value of the sawmill property as recited in paragraph six of plaintiff's complaint has expired." This is surplusage; plaintiff, in paragraph 9, page 3, lines 17-21, of its complaint, has agreed that its overpayments of tax (admitted by the defendant for purposes of its motion) cannot be recovered by claims for refunds because of the applicable statute of limitations, but it affirmatively pleaded the doctrine of equitable recoupment in paragraph 8 *432 of its complaint and prayed for an order of this court, determining "that the omitted property tax assessments proposed by Hood River County [on the leased bare land] be eliminated, or reduced by such dollar amount' as the court determines to be appropriate.4
A legal question is presented by plaintiff's pleading of the doctrine of equitable recoupment. This was addressed by counsel in their written and oral arguments; i.e., is the doctrine of equitable recoupment applicable under these pleaded facts, serving the plaintiff by nullifying the applicable statute of limitations on claims for refund of the allegedly overpaid taxes and allowing an offsetting of the taxes imposed through the omitted property assessments in the amount of overpayment in each taxable year, but not to exceed the amount of additional tax assessed for that year?
The nature and scope of the remedy of recoupment in contractual matters is well described in 20 Am Jur2d 231, § 6, as follows (with citations to footnotes omitted):
[2.] "Recoupment is sometimes spoken of as a rule of strict justice, or as based on the principle that it is just to settle both sides of a transaction at once. It is a method of preventing circuity of action, and rests on a principle that to avoid circuity and multiplicity of actions a defendant should be allowed, at his election, to give in evidence matters growing out of the same transaction by way of defense, instead of being required to file a cross action, when this can be done without violation of legal principles or great inconvenience in practice. The doctrine of recoupment does not allow one transaction to be offset against another, but only permits a transaction which is made the subject of suit by the plaintiff to be examined in all its aspects and a judgment to be rendered that does justice in view of the transaction as a whole. It is said to be based on the doctrine of failure of consideration; it looks through the whole contract, treating *433 it as an entirety, and treating the things done and stipulated to be done on one side as the consideration for the things done and to be done on the other. It must be predicated on a factor which would vitiate a contract either in whole or in part as of the time the contract was made.
"Recoupment exists in equity as well as at common law, and has been said to be equitable in nature. It reduces the claim affirmatively urged so far as in reason and conscience it ought."
[3.] "Recoupment" has been defined in Krausse v. Greenfield,
The Oregon cases arose out of contract, but it appears that the doctrine of equitable recoupment has been considered in a substantial number of tax cases. The tax application of the doctrine may have arisen in the first instance following the important decision in Lewis v. Reynolds,
"While the statutes authorizing refunds do not specifically empower the Commissioner to reaudit a return whenever repayment is claimed, authority therefor is necessarily implied. An overpayment must appear before refund is authorized. Although the statute of limitations may have barred the assessment and collection of any additional sum, it does not obliterate the right of the United States to retain payments already received when they do not exceed the amount which might have been properly assessed and demanded." (Emphasis supplied.)
[4.] It was thus established that in order for the United States to offset barred taxes against a claim for a refund, it must establish that the taxes are due and that it would be inequitable to permit the taxpayer to recover the amount of his claim without such offset. In the leading case of Bull v.United States,
In reaching his decision in the Bull case, supra, Mr. Justice Roberts described in detail the great difference in procedure in the levying and collection of a tax as compared to an action on a contract:
"* * * Thus, the usual procedure for the recovery of debts is reversed in the field of taxation. Payment precedes defense, and the burden of proof, normally on the claimant, is shifted to the taxpayer. The assessment supersedes the pleading, proof, and judgment necessary in an action at law, and has the force of such a judgment. The ordinary defendant stands in judgment only after a hearing. The taxpayer often is afforded his hearing after judgment and after payment, and his only redress for unjust administrative action is the right to claim restitution. But these reversals of the normal process of collecting a claim cannot obscure the fact that after all what is being accomplished is the recovery of a just debt owed the sovereign. * * *
"In a proceeding for the collection of estate tax, the *436 United States through a palpable mistake took more than it was entitled to. Retention of the money was against morality and conscience. But claim for refund or credit was not presented or action instituted for restitution within the period fixed by the statute of limitations. If nothing further had occurred, congressional action would have been the sole avenue of redress.
"In July, 1925, the government brought a new proceeding arising out of the same transaction involved in the earlier proceeding. This time however, its claim was for income tax. The taxpayer opposed payment in full, by demanding recoupment of the amount mistakenly collected as estate tax and wrongfully retained. * * * While here the money was taken through mistake without any element of fraud, the unjust detention is immoral and amounts in law to a fraud on the taxpayer's rights. * * * A claim for recovery of money so held may not only be the subject of a suit in the Court of Claims, as shown by the authority referred to, but may be used by way of recoupment and credit in an action by the United States arising out of the same transaction. * * *"
The court held that, although the money was treated as being subject to income tax in one procedure and the estate tax in another, it was essentially one transaction and that recoupment is not barred by the statute of limitations so long as the main action itself is timely.
In National Cash Register Co. v. Joseph,
The same tax years must be involved when recoupment is pleaded. Where a taxpayer obtained a refund in 1935 for excise taxes paid for years 1922 to 1926, inclusive, the taxpayer could not at the same time recoup an amount of excise taxes paid for the years *437
1919 through 1921 against additional tax caused by inclusion of refund as income for the year 1935, since refund of excise taxes paid for the years 1919 to 1921, inclusive, were barred by the statute of limitations and were not within the time period for which recoupment was properly sought. Rothensies v.Electric Storage Battery Co.,
Pond's Extract Co. v. U.S.,
" '* * * In both cases a single transaction constituted the taxable event claimed upon and the one considered in recoupment. In both, the single transaction or taxable event had been subjected to two taxes on inconsistent legal theories, and what was mistakenly paid was recouped against what was correctly due.' "
It quotes the Supreme Court in that "the doctrine of recoupment should not be expanded in tax cases." It then adds:
*438"The task of distinguishing between factual situations that warrant the application of equitable recoupment in tax cases is admittedly a difficult one, and the distinction when made in some cases will be a tenuous one. * * *"6
(On this point see Annot, 12 ALR2d 815, 822 (1950), "Claim of government against taxpayer (or one in privity with him) which is barred by lapse of time as available to defeat or diminish claim of taxpayer against government, or vice versa.")
The Court finds that the doctrine of equitable recoupment is applicable in the present suit.
In its argument against the use of equitable recoupment herein, the defendant cited Nepom v. Dept. of Revenue,
In the present suit, the issues relating to the bare land and to the improvements have been raised sufficiently. Although the assessment of the plaintiff's mill improvements arose from an appraisal made by the defendant under contract to the county assessor and the appraisal of the bare land was made directly by the assessor's staff (belatedly), both appraisals were *439 the assessor's responsibility and would normally be deemed one transaction and the court so holds, for purposes of this suit, that only one transaction actually was involved, but the transaction was only partially completed by the county during each of the years before the court.
The court is not unmindful of the importance and necessity of statutes of limitation. (See Rothensies, supra.) It is also aware of the policy which makes imperative the rule of exhaustion by the taxpayer of administrative remedies. RosboroLbr. Co. v. Heine et al.,
[5.] The importance to the state of the regular collection of taxes is particularly emphasized by the mandate of the omitted property statute, ORS
The defendant's motion for dismissal, on both counts, must be denied. It is, therefore,
ORDERED that defendant's motion to dismiss the plaintiff's first amended complaint should be and hereby is denied. Defendant is allowed 10 days in which to plead further, pursuant to ORCP 15 B.
The parties further conceded that the real property improvements, the value of which was stated upon the several tax statements under the category of improvements, was annually determined by the Department of Revenue on behalf of the Hood River County Assessor pursuant to a contract under ORS