THE ANACONDA COMPANY, Appellant, υ. DEPARTMENT OF REVENUE, Respondent.
(TC 991, SC 24690)
Supreme Court of Oregon
Argued April 4, reversed and remanded June 28, 1977
565 P2d 1084
Walter J. Apley, Assistant Attorney General, argued the cause for respondent. With him on the brief was James A. Redden, Attorney General, Salem.
LINDE, J.
Howell, J., dissenting opinion.
Plaintiff appeals from a decision of the Tax Court sustaining a tax deficiency assessment ordered by the Department of Revenue. Anaconda Co. v. Dept. of Revenue, 6 OTR 475 (1976). The main issue presented is the effect of the department‘s noncompliance with the statute entitling the taxpayer upon request to confer with the department before a final assessment is made.
The department began an audit of an Anaconda subsidiary, the Anaconda Wire and Cable Company, in 1969 to determine whether the subsidiary‘s taxes should have been reported in combined, unitary returns with those of the parent company. In December 1970 the department sent Wire a deficiency notice proposing to assess $133,526.11 in additional taxes for the years 1965-1968. After a 60-day extension allowed by the department, taxpayer in March 1971 filed a protest and requested a conference. The department replied in April that before scheduling a conference it would have the file reviewed by a Mr. Tepper, who would call the taxpayer.
During the next seven months, however, Mr. Tepper apparently did not get around to this file, and no conference was held or scheduled. In November 1971 the department proceeded to send notices of deficiency assessments to taxpayer, with an explanation that the case was approaching the one-year statutory deadline,
Orders assessing a much reduced deficiency and involving both Wire and another subsidiary, the Anaconda American Brass Company, were finally issued in September 1974 and August 1975 after a
The assessment of deficiencies in income tax returns is governed by
If requested by the taxpayer in his written objection to the proposed deficiency, the taxpayer shall have an opportunity to confer with the department or its delegate as to the proposed assessment at any time prior to the date such assessment is made.
Subsection (8) of the same section provides that “deficiency assessments . . . shall be made pursuant to this section, and not otherwise,” within specified time limits.
The department concedes that it made the assessment before according taxpayer the requested opportunity to confer, and thus “otherwise” than provided in
The Tax Court stated the question to be whether the statutory directive is “mandatory” or “directory,” and that this question, in turn, was to be determined as a “general rule” by whether plaintiff can show abridgment of some substantial right by the failure to follow the statute. This approach tends to confuse two
First, it should be clear that the catchwords “mandatory” or “directory” do not serve as premises for deciding whether noncompliance with a prescribed procedure voids administrative action; they are labels for the conclusion. Action is not invalidated because a statutory requirement is “mandatory” or permitted to stand because the requirement is “directory;” rather, the requirement will be called one or the other according to the effect sought to be attached to noncompliance. Such an issue cannot be decided by examining whether the legislature “directed” that the procedure be followed or “mandated” it, for the issue arises only when the legislative words make compliance obligatory. So understood, the conventional usage of “mandatory” or “directory” may be harmless, but for the risk of encouraging an agency to misconstrue a decision that a procedural failure is not fatal into a holding that compliance is not legally required.
Since the question always arises from a particular enactment, there can be no “general rule” for concluding when failure to follow an obligatory procedure nevertheless does not invalidate an action. It is a matter of interpretation, not much helped by general formulas in opinions construing different statutes in this or other states. Statutes are not fungible, and their interpretation is not a form of common law. It is, of course, possible for a legislature to mandate certain procedures while limiting the legal effects of noncompliance, as for instance in the Public Meetings Law,1 but draftsmen commonly give no attention to the
matter and leave courts to attribute the more probable
Moreover, in the present case the text and its prior interpretation by the agency charged following it are not silent on the question.
amendment reflected awareness of these opinions, and
The second question is whether taxpayer may not complain of the failure to follow the statute and the department‘s rule unless it can show substantial harm from the failure, as the Tax Court thought. The fact that a required procedure safeguards the interest of individuals bears on interpreting the legislative purpose to make the requirement “mandatory,” as we have stated, but that criterion obviously relates to the interest of taxpayers as a class at the time of enactment, not its extent in the circumstances of a particular case. The right to a preassessment conference in
Reversed and remanded.
HOWELL, J., dissenting.
We are not involved in this suit with whether or not Anaconda owed corporate excise taxes for the years involved. That issue was not raised in the pleadings and does not appear to be an issue in the briefs.1 The sole issue is whether the deficiency assessment made by the Department of Revenue is void for procedural reasons. The majority opinion finds that it is void because the defendant failed to comply with one of the provisions of
In order to understand the specific issue in this case—whether the failure to have “an opportunity to confer” renders the assessment void—an overview of the general deficiency assessment procedure should be expressed.
The majority opinion would invalidate the tax in this case because the statute
The Tax Court held that the statutory language was directory and not mandatory. That is, while the language is obligatory, failure to follow the literal terms of the statute does not automatically extinguish the underlying tax liability. The majority opinion in this court, however, prefers to rely on a strict and literal interpretation of the statutory language quoted above and holds that the assessment is invalid because of the failure to provide an opportunity to confer. Before adopting such an approach, we should carefully consider some of the practical consequences of employing such an exacting standard.
In support of its position, the majority places substantial reliance upon subsection 8 of
“Additional assessments and deficiency assessments with respect to any tax return shall be made pursuant to this section, and not otherwise, within the time limits prescribed by
ORS 314.410 * * *” (Emphasis added.)
This provision was added to the statute in 1965 as a result of the passage of House Bill 1854. The majority construes this language as evidence that the legislature intended that a “mandatory” rather than a “directory” meaning should thereafter attach to its use of the word “shall” in all other sections of the same statute. The legislative history of this provision, however, clearly does not support that construction.
House Bill 1854 was a legislative response to our decision in Atkinson Co. v. Tax Commission, 239 Or 588, 399 P2d 166 (1965). In that case, this court held that the personal property tax offset provided by subsection 2 of
As the drafter of H.B. 1854 stated in his appearance before the Senate Committee on Taxation:
“* * * I think it has long been felt that there should be no difference between asserting additional taxes by reason of the disallowance of a deduction or the disallowance of a personal exemption or dependency credit or the inclusion of items of income which the taxpayer thought were not properly taxes, and the assertion of additional tax where the taxpayer has in good faith erroneously claimed a credit or offset against the tax. HB 1854 is designed as a general section applicable to all such cases. That is, under this bill as written, if the taxpayer is to be billed for additional taxes not shown on the return as filed, the Commission must make its assertion normally within the three years after the tax is filed. If there is an omission from income, it has five years. In the case of fraud or false returns, there is no time limit. But the section makes it clear that these things are treated as deficiencies the same as omitted income or improper deductions or offsets or credits. They are all treated the same. The bill refers only to future years.” Minutes of the Senate Committee on Taxation, May 3, 1965.
Thus, the purpose of the 1965 amendment to
“Rep. Bazett presented subcommittee report on the above bills, advising that the subcommittee, consisting of himself, Rep. Lent and Rep. Rogers, met with Dean Ellis, Committee Counsel, C. Roberts of the Tax Commission, Jay Hay, Portland attorney, William Hedlund,
representing West Coast Oil Companies, John Misko and Bradon Daggett of the Tax Commission. It was agreed by the subcommittee that HB 1854 should be the vehicle for establishing a proposed statute of limitations.”
Therefore, the majority‘s reliance on the 1965 amendment to
As this court stated in Childs v. Marion County, 163 Or 411, 97 P2d 955 (1940), which was also a tax case involving procedural irregularity:
“The principle of construction applicable to this subject is thus well stated in 2 Lewis’ Sutherland Statutory Construction (2d Ed.) 1116, § 611:
” ‘Unless a fair consideration of a statute, directing the mode of proceeding of public officers, shows that the legislature intended compliance with the provision in relation thereto to be essential to the validity of the proceeding, it is to be regarded as directory merely.’ * * *” 163 Or at 414-15.
I find no evidence that the legislature intended such a construction of this statute. As this court concluded in Childs, I believe that the procedural provisions of
” ‘designed to secure order, system and dispatch in proceeding‘, and, while the legislature undoubtedly intended that public officers should obey them, otherwise they
would not have been enacted, it was not the intention, we think, to stamp them with the character of essential acts, the failure to perform which at the exact times prescribed would vitiate everything that might thereafter be done. * * * We do not think that any such absurdity was contemplated by the legislature.” Id. at 415-16.
Although the majority has chosen to avoid specifically doing so, it is apparent to me that the practical and unavoidable effect of today‘s decision is to overrule the decision in Childs v. Marion County, supra, as well as Equitable Savings & Loan v. Tax Com., 251 Or 70, 444 P2d 916 (1968), affirming 3 OTR 1 (1967), at least by implication. However, it is my view that these cases were correctly decided and that, at least in the absence of any affirmative indication that the legislature intended a different result, we should continue to follow the rationale of those decisions.
It is also significant that the federal courts, when considering a similar issue arising under federal law, have uniformly held that regulations calling for a pre-assessment conference were directory rather than mandatory and that a failure to provide a conference prior to a deficiency assessment was not fatal. In Luhring v. Glotzbach, 304 F2d 560 (4th Cir 1962), for example, the court, in holding that the provisions of
“Even if it should be supposed that the procedural rules have the same authority as if they had been issued by the Commissioner with the approval of the Secretary in strict conformity to
Section 7805 , their directory character would still be apparent. Obviously, they are rules to govern the conduct of the agents of the Internal Revenue Service in the performance of their duty to determine the correctness of the income tax returns of the taxpayers. They are carefully devised to avoid litigation in disputed cases by affording an opportunity to the taxpayer to agree with examining agents in adjustments of the tax shown on the return and by authorizing the representatives of the Commissioner to enter into compromises and settlements when completeagreement cannot be had. To this end, if a return has been audited and found to be incorrect the taxpayer is notified and given an opportunity to agree to the changes suggested by the agent and, if no agreement is reached, further informal conferences between the taxpayer and the Government agents may be had in the auditing office of the District Director and later with the Appellate Board of the District. Obviously, this pretrial procedure is of great value both to the taxpayer and to the Government in composing disputed questions of fact and law and avoiding the delay and expense of litigation; and it is so much to the interest of the parties that it is customarily employed. We think, however, that the rules are directory and not mandatory in legal effect, and they do not curtail the power conferred upon the Secretary of the Treasury or his delegate by § 6212, I.R.C. to send a notice of deficiency if he determines that there is a deficiency in the tax shown on the taxpayer‘s return.” (Footnote omitted; emphasis added.) Id. at 564-65.
To the same effect see Smith v. United States, 478 F2d 398, 400 (5th Cir 1973); Rosenberg v. C.I.R., 450 F2d 529, 531-33 (10th Cir 1971); Cleveland Trust Co. υ. United States, 421 F2d 475, 481-82 (6th Cir), cert. denied 400 US 819 (1970); Crocker v. United States, 323 F Supp 718, 722-23 (ND Miss 1971). See also Geurkink v. United States, 354 F2d 629, 632 (7th Cir 1965).
I am of the opinion that the same effect should be given to the essentially similar pre-assessment conference requirement of