Brown v. Ohio Tax Commr.Brown v. Ohio Tax Commr.
Rendered on December 6, 2012
Goldenberg Schneider, L.P.A., Jeffrey S. Goldenberg and Todd B. Naylor; Taft Stettinius & Hollister, LLP, and Charles R. Saxbe, for appellant.
Michael DeWine, Attorney General, Sophia Hussain and Julie E. Brigner, for appellee.
APPEAL from the Franklin County Court of Common Pleas
CONNOR, J.
{¶ 1} Plaintiff-appellant/cross-appellee, James Brown (“Brown“), appeals from a judgment of the Franklin County Court of Common Pleas denying the motion to dismiss for lack of subject-matter jurisdiction filed by defendant-appellee/cross-appellant, Joseph W. Testa, Tax Commissioner of the State of Ohio (“Tax Commissioner“), but granting the Tax Commissioner‘s motion to dismiss on the merits. Because the trial court erred in proceeding to the merits when Brown failed to exhaust the administrative
I. Facts and Procedural Background
{¶ 2} Brown commenced this action on February 4, 2010, by filing a class action complaint against the Tax Commissioner and on behalf of a class of similarly situated Ohio consumers seeking the equitable remedy of restitution for funds he asserts were wrongfully taken by the Tax Commissioner. Brown‘s complaint alleges the Tax Commissioner improperly collected sales tax on the value of vehicles traded-in as part of the “Cash for Clunkers” program established when President Barack Obama signed the Consumer Assistance to Recycle and Save Act of 2009 (“CARS“).
{¶ 3} Under the “Cash for Clunkers” program, consumers could trade-in an eligible trade-in vehicle and purchase a new fuel efficient vehicle and receive a trade-in credit of $3,500 or $4,500 towards the purchase or lease of that new vehicle from a participating car dealer. Participating car dealers could then seek reimbursement from the federal government for the credits given to the consumers.
{¶ 4} Brown‘s complaint alleges he purchased a new motor vehicle from Columbia Hyundai in Cincinnati, Ohio, on August 5, 2009. In executing the transaction, Brown traded in an eligible vehicle and purchased a new fuel efficient vehicle and received $3,500 toward the purchase of his new vehicle, pursuant to the terms of the “Cash for Clunkers” program. Brown alleges he paid Ohio sales tax on the total purchase price of the vehicle, which included the $3,500 value of his trade-in vehicle. Brown asserts his trade-in should have reduced the purchase price of the vehicle for sales tax purposes. Brown‘s complaint further alleges the dealership from which he purchased the vehicle charged said sales tax in conformity with Information Release ST 2009-02—Sales and Use Tax: Car Allowance Rebate System (“Information Release ST 2009-02“), issued by the Tax Commissioner in July 2009.
{¶ 5} Information Release ST 2009-02 addressed the issue of whether the $3,500 or $4,500 allowance “is part of the sales price for computing Ohio sales and use tax, or [whether it] can be deducted from the price as a ‘trade-in.’ ” Information Release ST 2009-02 declared that the allowance under the “Cash for Clunkers” program was not a trade-in and did not reduce the price of the purchased vehicle for tax purposes. Instead, it
{¶ 6} Brown‘s complaint alleges Information Release ST 2009-02 conflicts with
{¶ 7} On March 11, 2010, the Tax Commissioner filed a motion to dismiss Brown‘s complaint pursuant to Civ.R. 12(B)(1), arguing the trial court lacked subject-matter jurisdiction, and pursuant to Civ.R. 12(B)(6), arguing Brown failed to state a claim upon which relief could be granted. On March 25, 2010, Brown filed a memorandum contra to the Tax Commissioner‘s motion to dismiss, arguing (inter alia): the trial court had jurisdiction over this equitable action; the administrative remedy under
{¶ 8} On March 1, 2011, the trial court issued a decision overruling the motion to dismiss as to subject-matter jurisdiction, but granting the Tax Commissioner‘s motion to dismiss on the merits as a matter of law.
{¶ 9} First, the trial court determined it had subject-matter jurisdiction, finding that because the complaint sought the return of specific funds wrongfully collected or held, it was an action in equity properly before the court of common pleas. The trial court further found equitable relief was available because
{¶ 10} Nevertheless, the trial court found the Tax Commissioner was entitled to dismissal on the merits. First, the trial court stated the Tax Commissioner‘s interpretation of the taxation statutes was entitled to deference, and therefore, its
II. Assignments of Error
{¶ 11} Brown has filed a timely appeal in which he asserts the following assignment of error:
ASSIGNMENT OF ERROR: The Trial Court Erred As A Matter Of Law In Granting the Tax Commissioner‘s Motion to Dismiss.1
{¶ 12} The Tax Commissioner has filed a timely cross-appeal in which he assigns the following errors:
- The trial court erred in not holding that Mr. Brown‘s action was barred because he did not follow the exclusive statutory scheme for sales tax refunds in
R.C. 5739.07 . - The trial court erred in not holding that Mr. Brown‘s action was barred because he failed to exhaust
R.C. 5739.07‘s administrative remedies. - The trial court erred in not holding that Mr. Brown‘s action in equity was barred because he had an adequate statutory remedy at law under
R.C. 5739.07 .
The trial court erred in not holding that Mr. Brown‘s action was barred because he did not challenge the constitutionality of R.C. 5739.07 .- The trial court erred in holding that the administrative remedy in
R.C. 5739.07 was an inadequate legal remedy.
{¶ 13} Because the assignments of error raised in the Tax Commissioner‘s cross-appeal are dispositive, we shall address them first. Additionally, because the first, second, third, and fifth cross-assignments of error are interrelated, we shall address them together.
III. Standard of Review
{¶ 14} In ruling on a Civ.R. 12(B)(1) motion to dismiss for lack of subject-matter jurisdiction, the trial court determines whether the claim raises any action cognizable in that court. Robinson v. Ohio Dept. of Rehab. & Corr., 10th Dist. No. 10AP-550, 2011-Ohio-713, ¶ 5. Subject-matter jurisdiction involves ” ‘a court‘s power to hear and decide a case on the merits and does not relate to the rights of the parties.’ ” Id., quoting Vedder v. Warrensville Hts., 8th Dist. No. 81005, 2002-Ohio-5567, ¶ 14. An appellate court reviews de novo a trial court‘s order granting or denying a Civ.R. 12(B)(1) motion to dismiss. Robinson at ¶ 5, citing Hudson v. Petrosurance, 10th Dist. No. 08AP-1030, 2009-Ohio-4307, ¶ 12. In deciding a motion to dismiss for lack of subject-matter jurisdiction, the trial court may consider evidence outside of the complaint. Cerrone v. Univ. of Toledo, 10th Dist. No. 11AP-573, 2012-Ohio-953, ¶ 5, citing Southgate Dev. Corp. v. Columbia Gas Transm. Corp., 48 Ohio St.2d 211 (1976), paragraph one of the syllabus.
{¶ 15} A motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Civ.R. 12(B)(6) tests the sufficiency of the complaint. Volbers-Klarich v. Middletown Mgt., 125 Ohio St.3d 494, 2010-Ohio-2057, ¶ 11. The movant may not rely on allegations or evidence outside the complaint. Id. In reviewing whether a motion to dismiss should be granted, we must accept all factual allegations in the complaint as true. Mitchell v. Lawson Milk Co., 40 Ohio St.3d 190, 192 (1988). In order to dismiss a complaint for failure to state a claim upon which relief can be granted, it must appear beyond doubt that plaintiff can prove no set of facts entitling him to relief. O‘Brien v. Univ. Community Tenants Union, Inc., 42 Ohio St.2d 242 (1975), syllabus. A judgment
IV. Tax Commissioner‘s Cross-Appeal—First, Second, Third, and Fifth Cross-Assignments of Error Addressing the Trial Court‘s Decision to Deny Dismissal Pursuant to Civ.R. 12(B)(1)
{¶ 16} The Tax Commissioner‘s first, second, third, and fifth cross-assignments of error collectively address the issue of whether the trial court could properly hear the merits of the case when Brown failed to pursue the administrative remedies set forth under
A. Tax Commissioner‘s Argument
{¶ 17} The Tax Commissioner contends a taxpayer seeking a refund of Ohio sales tax must submit to the special statutory remedy set forth in
{¶ 18} The Tax Commissioner submits
B. Brown‘s Argument in Response
{¶ 19} Brown argues the trial court did not err in denying the Tax Commissioner‘s Civ.R. 12(B)(1) motion to dismiss because
{¶ 20} In support of this conclusion, Brown argues the exclusivity and exhaustion doctrines do not require dismissal here because: (1) it is unnecessary to allow the agency to further develop additional factual background, as there are no facts to be determined, no evidence to be weighed, and the issue involved is strictly one of statutory interpretation; (2) it would be futile to pursue this action with the Tax Commissioner because the Tax Commissioner has already released a formal interpretation of the relevant statutory provisions (i.e., Information Release ST 2009-02) and its interpretation is adverse to applicants requesting refunds; (3) it would be futile and onerous to require thousands of individual consumers to file separate refund applications involving only small amounts of money with the Tax Commissioner when the costs and attorneys’ fees involved in pursuing this matter before the BTA (and possibly the Supreme Court of Ohio) far outweigh the refund amount Brown could recover; instead, a single class action could be brought to maximize efficiency; (4) there is no authority finding
{¶ 21} Finally, Brown attempts to distinguish this case from Telsat, arguing the factual circumstances in the two cases are distinguishable. He further argues he has adequately alleged an unjust enrichment claim seeking equitable restitution, which can be pursued in a court of common pleas.
{¶ 22} Pursuant to
{¶ 23} The Tax Commissioner contends this statutory procedure presents an exclusive remedy for seeking a refund of illegally or erroneously paid sales tax. See Franklin Cty. Law Enforcement Assoc. v. Fraternal Order of Police, Capital City Lodge No. 9, 59 Ohio St.3d 167, 169 (1991), and Zanesville v. Fannan, 53 Ohio St. 605 (1895), paragraph two of the syllabus. (“Where a statute which creates a new right prescribes the remedy for its violation, the remedy is exclusive; but when a new remedy is given by statute for a right of action existing independent of it, without excluding other remedies already known to the law, the statutory remedy is cumulative merely, and the party may pursue either at his option.“). See also Telsat at ¶ 10, quoting Avon Lake School Dist. v. Limbach, 35 Ohio St.3d 118, 119 (1988) (” ‘A litigant has no inherent right to appeal a tax determination, only a statutory right.’ “).
{¶ 24} However, to the extent it is not an exclusive remedy, the Tax Commissioner submits that it is an adequate statutory remedy which Brown must first exhaust, rather than initiating an action for equitable relief in the court of common pleas.
{¶ 25} The doctrine of exhaustion requires a person to exhaust administrative remedies before seeking relief from the judicial system. Derakhshan v. State Med. Bd. ofOhio, 10th Dist. No. 07AP-261, 2007-Ohio-5802, ¶ 23. The purpose behind the exhaustion doctrine “is to allow an administrative agency to apply its expertise in developing a factual record without premature judicial intervention in administrative processes.” Id., citing Nemazee v. Mt. Sinai Med. Ctr., 56 Ohio St.3d 109, 111 (1990). While many courts have described the exhaustion doctrine as a jurisdictional concept, the Supreme Court of Ohio, as well as this court, have clarified that a party‘s failure to exhaust available administrative remedies is not a jurisdictional defect, but rather an affirmative defense that must be timely asserted or it will be considered waived. Derakhshan at ¶ 24, citing Jones v. Chagrin Falls, 77 Ohio St.3d 456, 462 (1997); Prairie Twp. Bd. of Trustees v. Hay, 10th Dist. No. 01AP-1198, 2002-Ohio-4765, ¶ 26.
{¶ 26} Nevertheless, whether a party‘s failure to exhaust administrative remedies is considered a jurisdictional defect or an affirmative defense, it has been established that allowing ” ‘a claimant * * * to raise an issue for the first time in an appeal to the court of common pleas would frustrate the statutory system for having issues raised and decided through the administrative process.’ ” Derakhshan at ¶ 24, quoting Carmack v. Caltrider, 164 Ohio App.3d 76, 2005-Ohio-5575, ¶ 6 (2d Dist.), quoting Kaltenbach v. Mayfield, 4th Dist. No. 89-CA-10 (Apr. 27, 1990).
{¶ 27} The procedure set forth under
{¶ 28} In Telsat, the plaintiff (Telsat, Inc.) filed a complaint in court of common pleas alleging it had been wrongfully charged sales tax on the full price of a television, rather than on the price as it was reduced by various rebates. Telsat Inc. also sought to certify a class of individuals who had been similarly charged. The complaint further alleged that it was not necessary to pursue the refund through the administrative scheme set forth in
{¶ 30} In addressing the appeal, we found:
[W]hether we construe the procedure available in
R.C. 5739.07 as an exclusive statutory proceeding or an administrative remedy to be exhausted before an action may be filed in the common pleas court, the issue resolves to whether the common pleas court should have reached the merits of plaintiff‘s complaint or should have determined plaintiff‘s action to be inappropriate because the procedure set forth inR.C. 5739.07 was available.
{¶ 31} On appeal, Telsat, Inc. argued that even if its request for relief fell within
{¶ 32} In addressing Telsat, Inc.‘s arguments, we determined the process for seeking a refund was not overly burdensome, as the only information necessary to request the refund under
{¶ 34} We also rejected Telsat, Inc.‘s argument that the potential lack of cost-effectiveness made the remedy inadequate. Despite acknowledging that the costs of pursuing a small sales tax claim to the BTA and the Supreme Court of Ohio may substantially exceed the amount of the refund, we nevertheless found the administrative remedy to be adequate in Telsat. “The General Assembly * * * was aware that sales tax issues typically involve small amounts but nonetheless prescribed the process set forth in
{¶ 35} In the end, we held “even if the
{¶ 36} We reach the same conclusion here. We believe the principles and reasoning applied in Telsat are equally applicable to the instant case. Despite our holding in Telsat, Brown attempts to distinguish this case from Telsat. Upon review, however, we find any differences to be of little or no significance.
{¶ 37} Unlike in Telsat, Brown argues the Tax Commissioner in this case issued Information Release ST 2009-02, an “official statement” declaring the policy of the Tax Commissioner, which is adverse to Brown and any putative class. Because of this well-known, adverse position, Brown argues it is certain that any application filed under
{¶ 38} We reject Brown‘s argument that the issuance of Information Release ST 2009-02 makes this case distinguishable from Telsat. An information release is not a final determination of the Tax Commissioner, as it may be subject to revision or the application of new factual scenarios producing different results. Also, as noted in Telsat, the possibility that a refund claim will be denied does not render
{¶ 39} Brown also argues that this case lacks the statistical evidence provided in Telsat setting forth the number of consumers who have filed refund applications to recover small refund amounts, thereby demonstrating that the
{¶ 41} Brown further notes that the Telsat court failed to consider the case of Herrick v. Kosydar, 44 Ohio St.2d 128 (1975), in conducting its analysis. Brown submits that Herrick supports his position that a taxpayer may bring a class action for equitable relief against the Tax Commissioner in a court of common pleas if it provides a superior remedy for the plaintiffs. However, we disagree.
{¶ 42} In Herrick, the Supreme Court of Ohio determined that the court of common pleas had jurisdiction to render a declaratory judgment, despite the existence of an administrative remedy under R.C. Title 57, because the plaintiffs’ claim was based upon the constitutionality of two statutes, and as the court noted, an administrative agency is without jurisdiction to determine the constitutionality of a statute. This is very different from Telsat and from the case before us, as Brown has specifically argued that his action is not one seeking a declaratory judgment and he has not challenged the constitutionality of the statute. See also Zupancic v. Wilkins, 10th Dist. No. 08AP-472, 2009-Ohio-3688, ¶ 19 (actions for declaratory judgment are inappropriate where a special statutory proceeding would be bypassed; while Civ.R. 57 permits declaratory relief where appropriate, even when another adequate remedy exists, it should not be granted in situations where a special statutory proceeding has been provided for that purpose).
{¶ 43} Consequently, based upon our analysis as set forth above, we find Brown‘s attempts to distinguish this case from Telsat to be meritless. Furthermore, because we find the trial court erred in hearing this case on the merits, it now matters not whether the trial court‘s decision regarding the Tax Commissioner‘s use and application of Information Release ST 2009-02 is correct. Therefore, it is unnecessary for us to address the assignment of error raised in Brown‘s appeal in which he challenges the trial court‘s decision granting the Tax Commissioner‘s motion to dismiss on the merits or to address the Tax Commissioner‘s fourth cross-assignment of error.
{¶ 44} Accordingly, we sustain the Tax Commissioner‘s first, second, third, and fifth cross-assignments of error, rendering moot the fourth cross-assignment of error as well as Brown‘s single assignment of error. We find the trial court erred in concluding Brown was not required to exhaust the administrative remedies set forth in
Judgment reversed;
cause remanded.
TYACK and FRENCH, JJ., concur.