9 Or. Tax 100 | Or. T.C. | 1981
Decision for plaintiffs rendered December 2, 1981.
Reversed
Plaintiffs allege that the department failed to credit a payment of $1,226.10, made by the employer in October 1971, for the third quarter of 1971. Because of this, all withholding tax payments made by the plaintiffs from the first quarter of 1972 to the third quarter of 1975 were erroneously applied to a prior quarter. This allegedly resulted in the wrongful assessment of interest and penalties to plaintiffs' account and the alleged overpayments.
This case is a distressing (and confusing) saga of poor record keeping on the part of both plaintiffs and defendant. From 1965 to December 1975, the plaintiff Marvin Martin was the sole owner and manager of the plaintiff Martin's Foodliner, Inc. He personally maintained the corporate checkbook and payroll accounts. Evidence presented by the plaintiffs indicates that, prior to 1971, Martin's Foodliner, Inc., was current in and even made early payments of withholding taxes to the defendant Department of Revenue.
Mr. Martin testified on his own behalf. He stated that he often overestimated the withholding tax due for a particular quarter and paid the tax early. He testified that he was notified only once in the five-year period that the withholding tax account was overpaid. This occurred in November 1973 with respect to an overpayment made in January 1973. Mr. Martin testified that he often received notices of delinquency, which, without examination, he promptly paid, along with the interest and penalty allegedly due thereon.
At the trial, the plaintiffs presented to the court a detailed summary of all payments made by Martin's Foodliner, Inc., on its withholding tax account, from the first quarter of 1971 through the fourth quarter of 1975, and of all assessments to that account. The plaintiffs thereby attempted to demonstrate that interest and penalty were often charged when the account, in fact, contained a positive balance. Many of the alleged payments which the plaintiffs stated were made were substantiated by cancelled checks which have been retained by Mr. Martin and which were introduced into *102 evidence. Payments for which Mr. Martin has not submitted cancelled checks were reflected in the annual reconciliation reports of the defendant, the Department of Revenue, which also were placed in evidence. According to Mr. Martin's calculations, by January 31, 1976, the excess balance in the withholding tax account of Martin's Foodliner, Inc., was $3,408.07. Mr. Martin calculated the interest on that amount to be $1,698.68, for a total amount owed to the plaintiffs by the Department of Revenue of $5,106.75.
Mr. William E. Mauerhan, Unit Manager of the Withholding Area of the Collection Division for the Department of Revenue, testified on behalf of the defendant. He stated that he was familiar with the Martin's Foodliner, Inc., account in that he had performed an audit of it in 1974 and 1975. From computer printout annual reconciliation reports maintained by the Department of Revenue, Mr. Mauerhan made an analysis of the balance contained in the Martin's Foodliner, Inc., account. No records from the years prior to 1971 were available to Mr. Mauerhan in making his study. According to his analysis, Martin's Foodliner, Inc., was consistently one quarter delinquent in its payments. This resulted in the assessment of penalties and interest to the account for almost every quarter for 1972 to 1975. Mr. Mauerhan calculated that, in the fourth quarter of 1975, $3,714.66 was owing by Martin's Foodliner, Inc., to the Department of Revenue for the withholding purposes.
Mr. Donald E. Papke of the Accounts and Records Section, Collections Division, Department of Revenue, who also testified on behalf of the defendant, assisted Mr. Mauerhan in the preparation of the Martin's Foodliner, Inc., account analysis. He testified that original returns filed by Martin's Foodliner, Inc., could not be found in the department's records and for this reason the annual reconciliation reports (found in computerized records) were relied upon in making the analysis. He admitted that Mr. Martin was never asked for his copies of the original returns.
The plaintiffs challenged Mr. Mauerhan's and Mr. Papke's use, in their analysis of the Martin's Foodliner, Inc., account, of the data contained in the computerized annual reconciliation reports, instead of the original withholding tax returns filed by Martin's Foodliner, Inc. The court recognizes *103 that the original withholding tax returns for the years in question are the ideal indicators of the status of the account. The annual reconciliation reports are computer printouts and merely perpetuate any errors made in the original recording of payments. These are the errors which the plaintiffs allege were made. This is illustrated by the fact that the reconciliation reports failed to give credit for two payments this court finds were made by the plaintiffs, as evidenced by cancelled checks.
The court has been supplied with sufficient information to enable it to make an independent analysis of the Martin's Foodliner, Inc., account.
The evidence shows that at the end of the fourth quarter of 1970, plaintiff Marvin Martin was current in his payments of withholding tax.1 On April 15, 1971, plaintiffs made an early payment by check of $1,347.46 for the first quarter of 1971.2 Apparently this payment was not credited to plaintiffs' account by the Department of Revenue; it is not reflected in any departmental evidence, including the annual reconciliation report for 1971. On April 30, 1971, the withholding tax for the first quarter of 1971 became due in the amount of $1,045.70. The plaintiffs' balance was thereby reduced from $1,347.46 to $301.76.
On July 31, 1971, the second quarter withholding tax for 1971 became due in the amount of $1,226.10. This reduced plaintiffs' account balance to a minus $924.34. On August 2, 1971, the Department of Revenue processed a check from the plaintiffs for the amount of $1,045.70.3 The payment of this amount was timely for the second quarter and increased plaintiffs' account balance to $121.36. On September 14, 1971, the Department of Revenue received and processed a check *104 for $246.37.4 The positive balance in the account was now $367.73.
The withholding tax for the third quarter of 1971 became due on October 31, 1971, in the amount of $1,300. This was timely paid by a check received by the Department of Revenue on November 1, 1971, for the amount of $1,226.10,5 creating a positive balance in plaintiffs' account of $293.83. On January 31, 1972, the withholding tax for the fourth quarter of 1971 became due in the amount of $1,259. A check processed on February 1, 1972, for that amount, left the account balance at $293.83.6 On March 8, 1972, the department received a payment from the plaintiffs in the amount of $333.51 for penalty and interest incorrectly charged for the second quarter of 1971.7 Plaintiffs' new account balance was $627.34. On the same date the department received a check to be applied early to the first quarter of 1972, in the amount of $1,594.63,8 bringing plaintiffs' account balance to $2,221.97.
On April 30, 1972, the withholding tax for the first quarter of 1972 became due in the amount of $1,244.40, thus reducing plaintiffs' account to $977.57. On June 26, 1972, the department received a check from the plaintiffs for $139.87,9 and plaintiffs' new account balance was $1,117.44.
On July 28, 1972, the department received a check for the amount of $1,244.40, payment for the second quarter of 1972, increasing plaintiffs' balance to $2,361.84.10 On July 31, *105 1972, the second quarter withholding tax became due, in the amount of $1,106.30, reducing plaintiffs' account balance to $1,268.54. On September 29, 1972, the department received a payment of $211.52 from the plaintiffs for penalty and interest erroneously assessed on the first quarter of 1972.11 This increased plaintiffs' account balance to $1,467.06.
On October 31, 1972, the withholding tax for the third quarter of 1972 became due in the amount of $1,250, reducing plaintiffs' account balance to $217.06. On November 10, 1972, the department processed a check from plaintiffs in the amount of $1,093.30, which brought plaintiffs' balance up to $1,310.36.12 On November 24, 1972, the department processed a check from the plaintiffs in the amount of $15.95, which was partly in payment of withholding taxes and partly in payment of penalty and interest erroneously charged on the second quarter of 1972, bringing plaintiffs' account balance up to $1,326.31.13
On January 31, 1973, the tax for the fourth quarter of 1972 became due in the amount of $979.80. This was timely paid by a check for the same amount, received by the department on February 1, 1973.14 Plaintiffs' account balance remained at $1,326.31.
On February 14, 1973, the department received a check for the amount of $247.79, which was paid for penalty and interest erroneously charged for the second quarter of 1972.15 This increased plaintiffs' account balance to $1,574.10. On March 30, 1973, the department received a payment in the amount of $1,604.19, for the first quarter of 1973,16 which *106 included interest and penalty of $354.19. This brought plaintiffs' account balance up to $3,178.29.
On April 30, 1973, the tax for the first quarter of 1973 became due in the amount of $1,067.30. This reduced plaintiffs' account balance to $2,110.99. On May 28, 1973, the department received a payment of $136.89, increasing plaintiffs' account balance to $2,247.88.17 On July 31, 1973, the tax for the second quarter of 1973 became due in the amount of $1,209.90, reducing plaintiffs' balance to $1,037.98.18 On August 1, 1973, the department processed a check from the plaintiffs in the amount of $1,067.30 for the second quarter of 1973, leaving plaintiffs' account with a positive balance of $2,105.28.19 On August 19, 1973, a check for $71.30 was processed,20 bringing plaintiffs' account balance up to $2,176.58. At a date uncertain, another payment in the amount of $241.96 was received21 and was charged to penalty and interest for the first quarter. This brought plaintiffs' account balance up to $2,418.54. On October 12, 1973, the department received payments of $60.45 and $1,067.30, increasing plaintiffs' account balance to $3,546.29.22
On October 31, 1973, the withholding tax for the third quarter of 1973 became due in the amount of $1,399.50, reducing plaintiffs account balance to $2,146.79. No withholding tax payment was made for that quarter. On January 31, 1974, the fourth quarter tax was due in the amount of $1,380.98, reducing plaintiffs' balance to $765.81. On February 21, 1974, a check for the amount of $253.23 was received by *107 the defendant, increasing plaintiffs' balance to $1,019.04.23 On that same date, the plaintiffs applied a credit of $1,127.75 to the account, based on a notice received from the defendant on November 15, 1973.24 On April 30, 1974, the withholding tax for the first quarter of 1974 became due in the amount of $1,138.40. This reduced the plaintiffs to a negative balance of $119.36.
On May 30, 1974, the Department of Revenue received a check for $14.35 from the plaintiffs.25 At this point, plaintiffs' account had accrued one month penalty and interest, from April 30, 1974, to May 30, 1974. The rate of interest charged by the department during this period was two-thirds of one percent per month. ORS
On July 31, 1974, tax for the second quarter of 1974 became due in the amount of $1,341.61. By this time, a two-month penalty, from May 30, 1974, to July 31, 1974, had accrued in the amount of $11.10 (.10 X $110.98). This, added to plaintiffs' account balance, would bring the balance down to a negative $122.08. Interest of $1.49 also had accrued (.0067 X 2 X $110.98). The charge of $1,341.61 brought plaintiffs' balance down to a negative $1,463.69.
On September 13, 1974, the department received a check for $1,104.26 By this time, a penalty for two months, from July 31, 1974, to September 13, 1974, had accrued, in the amount of $146.37 (.1 X $1,463.69). This amount was added to plaintiffs' account balance, bringing it down to a minus $1,610.06. Additionally, interest of $19.61 had also accrued *108 (.0067 X 2 X $1,463.69). The payment of $1,104 improved plaintiffs' account balance to a minus $506.06.
On October 31, 1974, the tax for the third quarter of 1974 became due in the amount of $1,427.30. Once again, two months' penalty and interest had accrued, from September 13, 1974, to October 31, 1974. A penalty of $50.61 (.1 X $506.06) is added to the account balance, bringing it to minus $556.67. Interest of $6.78 had accrued (.0067 X 2 X $506.06). The tax of $1,427.30, currently assessed, brought the balance down further to minus $1,983.97.
On December 11, 1974, another payment of $1,104 was received by the Department of Revenue.27 At this time, two more months of penalty and interest had accrued on the balance, from October 31, 1974, to December 11, 1974. A penalty of $198.40 (.1 X $1,983.97) should have been added to plaintiffs' account balance, bringing it down to minus $2,182.37. Interest of $26.59 was also accrued (.0067 X 2 X $1,983.97). The payment of $1,104 brought plaintiffs' balance to a minus $1,078.37.
On January 3, 1975, plaintiffs paid $1,427.30, the amount of tax assessed in the third quarter of 1974.28 At this time two more months' penalty and interest had accrued, from December 11, 1974, to January 3, 1975. A penalty of $107.84 (.1 X $1,078.37) was chargeable to the account, bringing the balance to minus $1,186.21. Interest of $14.45 was also due (.0067 X 2 X $1,078.37). The payment of $1,427.30 brought plaintiffs' account balance to a surplus of $241.09.
Mr. Mauerhan testified that in early 1975 he completed an audit of the Martin's Foodliner, Inc., account. As a result of this audit, Mr. Martin was informed that he owed $3,130.36. This was paid by him on January 14, 1975, bringing plaintiffs' account balance up to $3,371.45.29
On January 31, 1975, the fourth quarter tax for 1974 *109 became due in an amount of $1,571.44. This reduced plaintiffs' actual account balance to $1,800.10. On April 1, 1975, a payment for $1,749.59 was processed by the Department of Revenue, bringing plaintiffs' account balance to $3,549.60.30 The first quarter tax for 1975 became due on April 30, 1975, in the amount of $1,373.15, reducing plaintiffs' balance to $2,176.45. On June 30, 1975, plaintiffs paid $1,528.78, bringing the balance to $3,705.23.31
The second and third quarter taxes for 1975 became due on July 31, 1975, and October 31, 1975, for the amounts of $1,281.09 and $2,024.56. No payment was received for those periods. On October 31, 1975, plaintiffs' true balance was a surplus of $399.58. On November 21, 1975, plaintiffs paid $1,561.12, bringing the account balance up to $1,960.70.32 On December 8, 1975, a payment for $1,238.07 was processed by the department, and the new balance in the account was $3,198.77.33
The tax for the fourth quarter of 1975 became due on January 31, 1976, in the amount of $1,278.23. At this time plaintiffs' actual account balance was reduced to $1,920.54. Interest owed to the department for late payment for the first quarter through the third quarter of 1974 was $69.75, thereby reducing plaintiffs' balance to $1,850.79.
1. The large positive balances which frequently existed in plaintiffs' account entitled plaintiffs to repayment of interest at a rate of two-thirds of one percent per month, from November 10, 1972, to September 13, 1975, and at a rate of one-half of one percent per month from September 13, 1975, to the present. ORS
Although the issue has not been raised by the defendant, in order to obtain a refund for overpayment of taxes, a taxpayer must meet the requirements of ORS
2. The defendant has cited, in its Memorandum of Law, authority which states that the employer who deducts withholding taxes from the employee's payroll check holds the amount in trust for the State of Oregon. ORS
The court therefore finds that the plaintiffs are entitled to a refund of $1,850.79, for withholding taxes overpaid, plus interest of $680.66 accrued thereon.
Because the record shows, without contradiction, that plaintiff Marvin Martin was treated by an agent of the *111 department with discourtesy, amounting to harassment, and the department is deemed to be more at fault than plaintiffs in this series of unhappy incidents, the plaintiffs are also entitled to their statutory costs and disbursements incurred in bringing this suit, including reasonable attorney fees.34