Expedito Duarte, d/b/a Expo's and Expo's II v. Commissioner of Revenue (July 10, 2006)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


EXPEDITO DUARTE, d/b/a EXPO'S   v.	 COMMISSIONER OF REVENUE
AND EXPO'S II 

Docket No. C271911				 Promulgated:
							 July 10, 2006


	This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 68 from the decision of the appellee Commissioner of Revenue to suspend the license of the appellant Expedito Duarte, d/b/a Expo's and Expo's II, to sell cigarettes as a retailer under G.L. c. 64C, § 2, for cigarette pricing allegedly in violation of 830 CMR 64C.14.1, during 2003.
	Commissioner Gorton heard this appeal. He was joined in the decision for the appellant by Commissioners Scharaffa, Egan, and Rose. Chair Foley took no part in the deliberation or decision of this appeal.
	These findings of fact and report are made on the Board's own motion under G.L. c. 58A, § 13.

	Joseph P. Fingliss Jr., Esq. for the appellant
	Andrew M. Zaikis, Esq. for the appellee

FINDINGS OF FACT AND REPORT
	Appellant Expedito Duarte ("appellant" or "Mr. Duarte)operates two small convenience stores in New Bedford: "Expo's" at 332 Brock Avenue, and "Expo's II" at 309 Dartmouth Street. He is a licensed cigarette retailer, and depends on the revenue from the sale of cigarettes for a major portion of his business. 
	Department of Revenue ("DOR") tax examiner Scott Cliff testified at trial that he conducted inspections of both of Mr. Duarte's business sites on June 9, 2003. He was engaged in the enforcement of DOR's regulatory provision for the "Fair Pricing of Cigarettes" at 830 CMR 64C.14.1. Under this regulation, DOR purports to set presumptive minimum prices for the various brands of cigarettes marketed to consumers. Retailers determined to be selling cigarettes below the DOR prescribed minimum price without prior approval are subject to suspension or revocation of their licenses.
Mr. Cliff said that he was acting in response to an underpricing complaint specific to Mr. Duarte's businesses, and had not been assigned to inspect cigarette retailers in New Bedford generally. Mr. Cliff said that, during the course of the June 9, 2003 site visit, he provided to Mr. Duarte a list of the "presumptive minimum" prices of various brands of cigarette as set by the Cigarette Tax Unit of the Bureau of Desk Audit of DOR. With one minor exception the cigarettes on offer for sale at Mr. Duarte's business displayed the proper stamps reflecting the payment of the cigarette excise tax. Mr. Cliff said he warned Mr. Duarte to raise his prices to the prescribed "presumptive minimum" levels or face possible enforcement action.
Mr. Cliff conducted another inspection of Mr. Duarte's Dartmouth Street business on October 15, 2003. Mr. Cliff advised Mr. Duarte, who was working at the store at the time, that his cigarette prices were "below the state mandated minimum price[s]". He told Mr. Duarte that he would have to remove signs advertising cigarettes for sale at sub-minimum prices. Mr. Duarte asserted that since his prices were in line with a competitor's, BJ's Wholesale Club, his cigarette pricing was within the law, in the view of his attorney. 
Two days later on October 17th, Mr. Cliff inspected the Brock Avenue store. While Mr. Duarte was not working there at the time, he was reached by phone. Mr. Cliff told Mr. Duarte that his attorney had been advised that his stores were charging prices below the presumptive minimum levels. Site visits were also conducted at both of Mr. Duarte's stores on October 24th, where it was confirmed that Mr. Duarte's prices were below the "state mandated minimums."
Mr. Cliff went back to Mr. Duarte's Dartmouth Street store on December 23, 2003, again to verify the prices being charged for cigarettes. Mr. Cliff reported that the signs advertising the sub-minimum prices had been removed, but that two out of three packages of cigarettes purchased had been priced under the "state mandated minimum". Finally, DOR tax examiners Steve Twarog and Robert Correia visited both stores on December 29, 2003. Cigarettes were purchased at both locations for prices the examiners found to be below the "state mandated minimum." 
It does not appear that during the six-month time period when Mr. Duarte's two stores were repeatedly inspected, that there was other ongoing enforcement activity in the New Bedford area. Mr. Duarte appears to have been singled out, allegedly on the basis of a complaint (details of which do not appear on the instant record).
Meanwhile, proceedings to suspend Mr. Duarte's license had been initiated after the October 15, 2003 and October 17, 2003 inspections. On October 27, 2003, the Commissioner of Revenue wrote Mr. Duarte to indicate that he had "been informed that Expo's [and Expo's II] … [were] advertising, offering to sell, or selling cigarettes at below the applicable presumptive cost without my prior approval." Mr. Duarte was notified that his license to sell cigarettes at retail would be suspended for five days. A pre-suspension hearing was offered to Mr. Duarte. Attached to the Commissioner's letter was a document captioned "Massachusetts Department of Revenue/Bureau of Desk Audit/Cigarette Tax Unit" and titled "Minimum Retail Prices Effective October 9, 2003." 
By letter dated October 31, 2003, attorney Joseph Fingliss, Jr., representing Mr. Duarte, requested a hearing on the proposed license suspension, acting within the 15 days allowed for the hearing request. DOR's Office of Appeals responded to attorney Fingliss by letter dated November 26, 2003. A hearing on the license suspension was set for December 18, 2003 at DOR's offices in Boston. 
The hearing took place as scheduled, and the Office of Appeals notified attorney Fingliss by letter dated January 9, 2004 that the order for the suspension had been upheld. The following determination was made:
At the hearing, the Licensee failed to demonstrate that no advertisements, offers to sell, or sales were made at prices below the presumptive minimum cost as required by 830 CMR 64C.14.1(5)(h). The Commissioner has, therefore, determined that the Licensee's License will be suspended for five days. Pursuant to 830 CMR 64C.14.1.(5)(I), the suspension will take effect as of … January 19, 2004[.]

	No determination was ever made that cigarettes were being sold for less than their actual cost to Mr. Duarte's businesses. Nor was there any finding that Mr. Duarte had ever defaulted on his obligations relative to the payment of cigarette excise taxes, or in displaying the appropriate stamps on cigarette packages that reflect the payment of tax. The suspension order was based solely on a determination that, without prior permission, Mr. Duarte had advertised and sold cigarettes for less than the DOR-prescribed minimum prices, as reflected in the price sheet attached to the original suspension order dated October 27, 2003. 
Prior to the effective date of the suspension, on January 14, 2004, an appeal was initiated with the Appellate Tax Board. The filing of the appeal had the effect of staying the order of suspension. On the basis of the foregoing facts, the Board found that it had jurisdiction of the instant appeal.
Mr. Duarte's defense at trial relied on a provision of the cigarette excise tax statute that appears to permit cigarette pricing in line with what a business's competitors are charging. Mr. Duarte submitted at trial receipts for cigarette purchases from a large number of New Bedford retail businesses. These receipts reflected that a wide range of retail businesses in New Bedford, including grocery stores, convenience stores, pharmacies, and gas stations, charged prices beneath the DOR prescribed minimums as those appear in the October 9, 2003 price sheet. These receipts bear dates beginning in November of 2003 and continue through calendar year 2004 and into 2005. Through his testimony and the exhibits Mr. Duarte showed that his competitors were generally charging less than the DOR mandated prices, right up to the time of the trial.
Mr. Duarte, through his attorney, provided to DOR lengthy lists of retailers said to be charging less than the DOR mandated prices for cigarettes, through correspondence dated November 10, 2003 and December 22, 2003. Moreover, 52 complaints of retailers charging less than the DOR prescribed minimum prices for cigarettes were filed in 2004 using the designated DOR "Form CCRF", entitled the "Cigarette Complaint Referral Form." 
Mr. Duarte, meanwhile, had raised his cigarette prices to conform to the DOR directive after he became the subject of enforcement proceedings. He testified that his business depended on revenue from the sale of cigarettes, and that he suffered lost cigarette sales of approximately $350,000 in 2004 as a result of the DOR enforcement action. He said he also received numerous customer complaints that his cigarette prices were higher than his competitors' prices. From Mr. Duarte's testimony and the exhibits he offered the Board concluded that cigarettes were readily and widely available for purchase in the New Bedford area for prices below the DOR mandated minimums. Whatever general enforcement activity DOR undertook was notably ineffective in maintaining compliance with the cigarette minimum pricing scheme among cigarette retailers in New Bedford.

STATUTORY AND REGULATORY SCHEME
At G.L. c. 64H, § 14, the cigarette excise tax statute prohibits what the section title calls "unfair competition" in the pricing of cigarettes:
(a) It shall be unlawful for any retailer, with intent to injure competitors, destroy substantially or lessen competition, to advertise, offer to sell or sell at retail cigarettes at less than cost to the retailer, or for any wholesaler, with intent to injure competitors, destroy substantially or lessen competition, to advertise, offer to sell or sell at wholesale cigarettes at less than cost to the wholesaler. Any such retailer or wholesaler violating this subsection shall be punished by a fine of not more than five hundred dollars. 
(b) Evidence of advertisement offering to sell, or sale, of cigarettes by any retailer or wholesaler at less than cost to him, shall be prima facie evidence of intent to injure competitors, destroy substantially or lessen competition. 

G.L. c. 64H, § 14, according to its plain terms, seems intended to act against so-called "predatory pricing" by cigarette retailers and wholesalers. See generally Whitehall Co., Ltd. v. Merrimack Valley Distributing Co., Inc., 56 Mass. App. Ct. 853, 860-61 (2002). The gravamen of the statutory prohibition is the injury to competition which might result if a cigarette vendor charged prices below actual cost. 
G.L. c. 64C, § 13(a) supplies a definition of the key statutory phrase "'cost to the retailer'," beneath which cigarettes may not be priced out of anti-competitive motives. The definition looks to "invoice cost" or "replacement cost," which is increased by a factor representing the "cost of doing business by said retailer as evidenced by the standards and methods of accounting regularly employed by him in his allocation of overhead costs and expenses." Id.  Other sections of c. 64C refine and qualify the general rule of § 14(a). G.L. c. 64C, § 15 enumerates exceptions to the prohibition against anti-competitive pricing. G.L. c. 64C, § 16 makes it clear that a retailer is permitted to sell cigarettes priced in good faith to meet a competitor's prices. 
The provisions against anti-competitive pricing of cigarettes were adopted by the legislature at the same time as the cigarette excise tax statute, in 1945. In 1989, the Commissioner of Revenue issued the regulation at 830 CMR 64C.14.1, entitled the "Fair Pricing of Cigarettes", invoking G.L. c. 64C, §§ 13-21 and the Commissioner's general authority to interpret the taxing statutes. See G.L. c. 62C, § 3. The regulation purported to introduce a requirement that cigarette wholesalers and retailers "who wish to advertise, offer to sell, or sell cigarettes at a price that is less than the applicable statutory presumptive cost … show first a lesser actual cost of selling cigarettes." 830 CMR 64C.14.1(1).
The general rule established by the regulation is stated as follows:
No licensee shall advertise, offer to sell, or sell cigarettes at a price that is less than the applicable presumptive cost without obtaining the Commissioner's prior written approval.  The Commissioner may periodically announce the retailers' and wholesalers' presumptive cost.  The Commissioner may suspend any license for a period of five days if the licensee advertises, offers to sell, or sells cigarettes at less than the applicable presumptive cost without the Commissioner's prior written approval.  The Commissioner may revoke any license for multiple violations of 830 CMR 64C.14.1.



830 CMR 64C.14.1
	At 830 CMR 64C.14.1(4) a process is established for licensees wishing to sell at prices below the "presumptive" minimum to obtain the Commissioner's prior written approval, as is "required." The licensee is entitled to a "prior approval" hearing "limited to a presentation of evidence by the licensee that the actual cost of selling cigarettes is lower than the applicable presumptive cost of selling cigarettes." 830 CMR 64C.14.1(4)(d). The licensee bears the burden of proof at the "prior approval" hearing, and must submit extensive, transaction-by-transaction documentation of his purchase and sale of cigarettes. The regulation describes the evidence the Commissioner may rely upon to make his determination, but gives a licensee with proof of a cost below the presumptive minimums no clear entitlement to "prior approval" to sell for less. The approval to sell for less than the presumptive minimum prices is good for a year. 830 CMR 64C.14.1(4)(i). There are exceptions to the requirement of "prior approval" of cigarette pricing, none of which is relevant here.
	At 830 CMR 64C.14.1(4)(j), the regulation specifies the "effect of failure to obtain prior approval" to sell at prices below the presumptive minimums:
If any licensee advertises, offers to sell, or sells cigarettes at a price that is less than the applicable presumptive cost without the Commissioner's prior written approval, the Commissioner will, after notice and an opportunity for a hearing as provided for in 830 CMR 64C.14.1(5), suspend the licensee's license for a period of five business days.
	
The regulation allows for a pre-suspension hearing within the Department of Revenue, upon request, for licensees deemed not to be in compliance with the presumptive pricing guidelines. The hearing is limited in scope, however. To avoid a five-day suspension of a license to sell cigarettes, the licensee must show that prior approval was given for sub-minimum pricing. Alternatively, the licensee must "demonstrate[] that no advertisements, offers to sell, or sales were made at prices below the applicable presumptive cost." 830 CMR 64C.14.1(4)(h). The regulation imposes extensive record-keeping requirements, and all records the regulation requires to be maintained must be available for purposes of the hearing on license suspension. The licensee must produce "for each transaction in question … written statements containing the name and address of both the seller and the purchaser, dates of delivery, quantities of cigarettes, trade names or brands thereof, and prices paid for each brand of cigarettes purchased." 830 CMR 64C.14.1(4)(i). It appears that a licensee must prove that each and every sale of cigarettes it made was for a price not below the presumptive minimum price.
	Written notification of the Commissioner's decision on whether to suspend the license will follow within five days after the suspension hearing. 830 CMR 64C.14.1(4)(k). The licensee has ten days after written notice of the Commissioner's decision to file an appeal with the Appellate Tax Board.
	Giving a draconian disincentive for sub-minimum pricing, the regulation provides that the "Commissioner may summarily revoke any license if the licensee is found to be in violation of the provisions of 830 CMR 64C.14.1(4) and subject to suspension under 830 CMR 64C.14.1(5) more than twice in any twelve consecutive month period." 830 CMR 64C.14.1(6). That is, the Commissioner may revoke the license to sell cigarettes altogether, without providing an additional hearing, if he has found that a licensee committed pricing violations more than twice in a calendar year. The license will be reinstated only if the Commissioner has satisfied himself that the licensee will comply with the provisions of the cigarette excise tax statute, including the "fair pricing" regulations. 830 CMR 64C.14.1(9).
	The regulation establishes no process or timetable by which the Commissioner is to set "presumptive minimum" prices applicable to retailers and wholesalers of cigarettes. There is no provision for conducting a survey or any other fact-finding before "presumptive minimum" prices are determined. There are no provisions governing the delegation of the Commissioner's authority to determine "presumptive minimum" prices for cigarettes. 
The regulation makes no provision for the dissemination of the Commissioner's pricing dictates to licensees or the general public. Only after enforcement activity began in the instant matter did the appellant learn of the Commissioner's cigarette pricing requirements. There is no indication that any other licensees have been informed of "presumptive minimum" prices. There is no indication of any mechanism by which interested licensees can ascertain currently prescribed minimum pricing levels. A widespread lack of compliance with the price-fixing scheme in the New Bedford area suggests that licensees are largely unaware of their purported obligations under 830 CMR 64C.14.1.
On the basis of the foregoing, the Board finds that the appellant did offer cigarettes for sale for prices not previously authorized by DOR. In so doing, he was acting in good faith to meet the prices charged by his competitors in the New Bedford area. There is no basis for a finding that the appellant failed to comply with his statutory obligations respecting the payment of the cigarette excise tax, and the display of the appropriate tax stamps on cigarettes offered for sale. Indeed, from the record it appears that Mr. Duarte took care to act in conformity with G.L. c. 64C.
Cigarettes were widely available in the New Bedford area for prices under the 830 CMR 64C.14.1 mandated minimum levels during the time frame of the enforcement action against Mr. Duarte. DOR did not make effective efforts, as far as it appears from this record, to bring New Bedford area retailers into compliance with its prescribed minimum price levels. Though it received "fair pricing" violation complaints against dozens of New Bedford area businesses, there is no indication that even a single business competitor of Mr. Duarte's was subject to inspection, warnings to raise prices, or enforcement action. The reasons that Mr. Duarte appears to have been singled out for enforcement activity are not clear on the record, though an explanation is certainly warranted. The Board thus draws the inference that enforcement of 830 CMR 64C.14.1 in the New Bedford area has been arbitrary, to the appellant's great detriment.
Equity and good conscience require that the Board consider the validity of 830 CMR 64C.14.1 given the arbitrary pattern of enforcement, the hardship imposed on one small retailer, and obvious reasons to doubt the consistency of the regulation with law. As a result of the commencement of enforcement proceedings against him and with the risk of license revocation for "multiple violations", Mr. Duarte was forced to raise his cigarette prices to correspond to the DOR prescribed minimum levels, even though his pricing put him at a competitive disadvantage to other cigarette retailers in the New Bedford area. His pricing caused him to lose substantial revenue from the sale of cigarettes, and threatened the survival of his two small convenience stores.
830 CMR 64C.14.1 had the effect of fixing prices for cigarettes, without statutory authorization. Nor was the price-fixing effect of the regulation ameliorated by the procedure for obtaining prior approval of sub-minimum pricing. For a small businessperson like Mr. Duarte, the process of securing "prior approval" under 830 CMR 64C.14.1(4) represented a significant administrative burden and was impractical. The application required to be filed, document production obligations, the provision for an evidentiary hearing on the question of "prior approval," the brief one-year duration of any "prior approval" determination, and the lack of any entitlement to a "prior approval" determination even upon proof of an actual cost of cigarettes beneath the "presumptive minimum" all contributed to making the "prior approval" process unduly cumbersome and unproductive to be viable for small retail businesses like Mr. Duarte's.
The license suspension procedure ordained by 830 CMR 64C.14.1(5) was not reasonably calculated to effectuate the rules against anti-competitive pricing applicable to the sales of cigarettes under G.L. c. 64C, §§ 13-21. By limiting the scope of the license suspension hearing to exclude the question of whether a retailer had sold cigarettes at prices below his actual cost, and requiring the licensee to prove the negative, that no sales of cigarettes occurred beneath the DOR mandated price-levels, the Commissioner's regulation entailed a high likelihood that a licensee would face suspension of his license without his ever having violated the standards set by G.L. c. 64C, §§ 13-21. 
Moreover, given the small scale of Mr. Duarte's business operations, and his dependence on the revenue from the sales of cigarettes for profitability, the Board deduces that he never priced cigarettes at levels below his actual cost. He lacked the size, resources, or market position to carry out a scheme of anti-competitive "predatory pricing." Nor had he any discernible intent to engage in anti-competitive "predatory pricing" to the injury of other cigarette retailers. No state interest grounded in G.L. c. 64C was adversely affected by his cigarette retailing activities, given appellant's compliance with his obligations as to payment of cigarette excise taxes. 
The Board ruled that 830 CMR 64C.14.1 is invalid on the grounds that it conflicts with the provisions of G.L. c. 64C, and because its provisions violate guarantees of procedural due process under the federal and state constitutions. The invalidity of 830 CMR 64C.14.1 vitiated the proposed order: there was no basis under G.L. c. 62C, § 68 for the suspension of appellant's license to sell cigarettes at retail. The Commissioner of Revenue's order of suspension was vacated, and this matter was decided for the appellant.

OPINION
The instant case arises on an appeal from the appellee Commissioner of Revenue's order that the license of the appellant cigarette retailer be suspended for five days, because he sold cigarettes out of compliance with the pricing scheme of 830 CMR 64C.14.1. There was no dispute that during calendar year 2003, the appellant Mr. Duarte sold, offered for sale, and advertised cigarettes at prices below the "presumptive minimum" prices the Commissioner had prescribed. Moreover, appellant did not have the prior approval of the Commissioner for his cigarette prices. On the other hand, there has never been any suggestion that appellant sold cigarettes for prices below his actual cost.
The Commissioner's theory of the case would confine the scope of this appeal to questions not in dispute. At pages 8-11 of the "Commissioner of Revenue's Trial Brief," it is contended that the Board's review of the proposed suspension order is limited to the issues specified at 830 CMR 64C.14.1(5)(h): 1)whether the licensee has requested and obtained the prior written approval of the Commissioner as set forth in 830 CMR 64C.14.1(4) to sell below the applicable presumptive cost; and 2)whether the licensee has demonstrated that no advertisements, offers to sell, or sales were made at prices below the applicable presumptive cost. In sum, the Commissioner would have the Board limit its inquiry to whether the regulatory criteria were correctly applied, without conducting a broader review of the legality of his proposed suspension order. Appellant would be forced to prove the negative-that he never sold cigarettes below authorized price levels. 
The appellant convincingly showed at trial that other cigarette retailers in the New Bedford area, which directly compete with his businesses for cigarette sales, are pricing their inventory below DOR's prescribed minimums. Moreover, the appellant demonstrated that widespread pricing violations have been brought to DOR's attention by the filing of complaints, as is provided for at 830 CMR 64C.14.1(11). Despite abundant evidence that DOR's regulatory scheme is doing little more than putting the appellant at a competitive disadvantage, neither the Commissioner's counsel nor his witnesses offered any explanation of why Mr. Duarte's case uniquely warranted such energetic enforcement activity. From the record before the Board, it appears that the decision to target Mr. Duarte was arbitrary.
Appellant did not frame the issue of the facial validity of the regulation mandating "fair pricing of cigarettes," though this argument was inherent in his contention that G.L. c. 64C, § 16 precluded license suspension where prices were justified by a good faith need to maintain business competitiveness. Nevertheless, the Board, in the course of reviewing this matter for decision, perceived an incongruity between the Commissioner's price-fixing regulation and the statutory provisions upon which it is supposedly based. While G.L. c. 64C, § 14(a) prohibits the sale of cigarettes at prices below actual cost in the interest of preventing unfair competition, 830 CMR 64C.14.1 is simply preventing a single licensee from pricing his cigarette inventory as the exigencies of fair competition warrant. 
G.L. c. 58A, § 7 gives the Board discretion to consider "any issue of fact or contention of law not specifically set out in the petition upon appeal or raised in the answer", but only if "equity and good conscience so require…." The Appeals Court has held that "[t]he board's determination of what constitutes in various circumstances the demands of equity and good conscience will ordinarily be given considerable deference on appeal, so long as the rationale for that determination is made clear and it is based on substantial evidence." Deveau v. Commissioner of Revenue, 51 Mass. App. Ct. 420, 427 (2001).
The instant case presents compelling circumstances justifying consideration of the issue of the general validity of 830 CMR 64C.14.1.  The Board is moved by the hardship to one small retailer who has been arbitrarily targeted for selling cigarettes at competitive prices. The substantial injury being done to Mr. Duarte's livelihood brings urgency to the question of whether the Commissioner of Revenue is acting in accordance with law in forcing him to price cigarettes above levels which would enable him to compete in the New Bedford cigarette retail market.
Moreover, the Commissioner's limitation on the scope of issues that may be considered at a license suspension hearing pursuant to 830 CMR 64C.14.1(5) raises concerns that Mr. Duarte was not given a full and fair hearing at the administrative stage. See Yeradi's Moody Street Restaurant & Lounge, Inc. v. Board of Selectmen of Randolph, 19 Mass. App. Ct. 296, 303 (1985) ("In this Commonwealth the right to a hearing where government exerts power upon an individual in a matter of consequence has been related, on occasion, not strictly to the Constitution, but to an ethic that pervades our legal system."). Particularly is this so where questions about the consistency of 830 CMR 64C.14.1 with G.L. c. 64C and G.L. c. 62C, § 68 are so apparent.  The Board's doubts as to the reliability of the 830 CMR 64C.14.1(5) hearing process, given its narrow scope under subsection (h), justify a plenary review of the legality of the order of suspension pending against Mr. Duarte. 
Accordingly, the Board holds that, where the Department of Revenue is arbitrarily subjecting Mr. Duarte to hardship under a standard and process of dubious legality, the requirements of equity and good conscience demand plenary consideration of whether 830 CMR 64C.14.1 is valid.
Two distinct infirmities, one statutory, the other constitutional, appear as the Board weighs the validity of 830 CMR 64C.14.1. First, there is a question of the consistency of the regulation with G.L. c. 64C. It is well-settled that valid regulations cannot be "inconsistent with law". See G.L. c. 62C, § 3. As the Supreme Judicial Court has held, "'an administrative board or officer has no authority to promulgate rules and regulations which are in conflict with the statutes or exceed the authority conferred by the statutes by which such board or office was created.'" Telles v. Commissioner of Insurance, 410 Mass. 560, 564 (1991)(Cite omitted.) Accord Greater Boston Real Estate Board v. Department of Telecommunications and Energy, 438 Mass. 197, 204 (2002).
Of course, "review of the validity of a regulation promulgated by a State agency is guided by the established principle that '[r]egulations are not to be declared void unless their provisions cannot by any reasonable construction be interpreted in harmony with the legislative mandate.'" Smith v. Commissioner of Transitional Assistance, 431 Mass. 638, 646 (2000)(Cite omitted.) Nevertheless, the Supreme Judicial Court has emphasized that "principles of deference … are not principles of abdication." Nuclear Metals, Inc. v. Low-Level Radioactive Waste Management Board, 421 Mass. 196, 211 (1995). "An incorrect interpretation of a statute by an administrative agency is not entitled to deference." Kszepka's Case, 408 Mass. 843, 848 (1990). In the taxation context, it is well-settled that a regulation which purports to tax beyond the bounds marked out by statute is invalid. See Lowell Sun Publishing Co. v. Commissioner of Revenue, 397 Mass. 650, 655-56 (1986).  Accord Chatham Bars Inn, Inc. v. Commissioner of Revenue, ATB Findings of Fact and Reports 1998-443, 451.
There is no difficulty in discerning conflict between 830 CMR 64C.14.1 and the statute upon which it is supposedly based, G.L. c. 64C. It appears that the Commissioner is traveling a road he has been down before in attempting to fix prices for cigarettes. In the case of Commissioner of Corporations and Taxation v. Ryan, 323 Mass. 154, 155 (1948), the Supreme Judicial Court considered the authority of the Commissioner to suspend a cigarette retailer's license under a then-existing provision which permitted license revocation "'for failure of the licensee to comply with any provision of said chapter [64C] … or for other good cause.'" In Ryan the Supreme Judicial Court considered two possible grounds asserted to justify the suspension of the retailer's license. First, the Appellate Tax Board found that the Commissioner had issued a letter directive that "the so called 'popular brands' of cigarettes should be [priced] not less than twenty cents a package or $1.98 a carton." Id. at 156. The Court continued:
The board found as follows: "The commissioner, in open hearing, stated and we find that the suspension of the license was based on the fact that the Ryan Drug Company did not comply with the provisions of the February 18, 1947 letter."… If that was the sole ground for the suspension of the license, that suspension was invalid, for nowhere in G.L. c. 64C is authority given to the commissioner to fix prices for cigarettes. The cost, below which cigarettes may not be sold, is the actual cost to the particular retailer, and not the usual cost in the trade or the cost as determined by any survey or by any public officer. G.L. c. 64C, §§ 13, 14.

323 Mass. at 157.
	The Court went on to "assume in favor of the commissioner … that he acted upon his finding which he expressed on May 21, 1947, that at the time of the suspension the retailers 'sold cigarettes at less than cost as defined by' G.L. c. 64C." Id. at 157.  The Court proceeded to affirm the Board's conclusion that the retailers had not priced their cigarettes below their cost as determined on its view of the evidence. The Court ended its opinion by awarding costs against the commissioner given the "illegality of the suspension of the license to sell cigarettes at retail…." Id. at 159-160.
	The Ryan decision speaks directly to the price-fixing effect of 830 CMR 64C.14.1, and makes it abundantly clear that the Commissioner has no power to mandate what prices may be charged by licensed cigarette retailers, as he has attempted to do in the case of the appellant. The Ryan decision also emphasizes the Commissioner's lack of authority to use the club of license suspension as a means of controlling the business practices of cigarette retailers. If anything, the Commissioner's authority to suspend a cigarette vending license on grounds other than non-payment of taxes has diminished since the Ryan decision was handed down nearly 60 years ago. The former G.L. c. 64C, § 4, repealed by St. 1976, c. 415, § 107, permitted license suspension for any violation of c. 64C "or for other good cause". See Ryan, 323 Mass. at 157. Since G.L. c. 64C, § 4 was replaced with G.L. c. 62C, § 68, the Commissioner retains authority to "suspend or revoke any license or registration issued pursuant to section sixty-seven" almost exclusively in the event of some default in respect of the licensee's tax compliance obligations.  See G.L. c. 62C, § 68. The only statutory basis potentially applicable to the order of suspension under review, G.L. c. 62C, § 68(5), requires a finding that "[t]he licensee or registrant has otherwise willfully failed to comply with any provision of the tax laws of the commonwealth or regulations thereunder…" See also Take Five Vending, Ltd. v. Provincetown, 415 Mass. 741, 745 (1993) ("The commissioner may only deny a license in limited circumstances, when the [licensee] has violated a tax provision or failed to pay taxes.") 
Throughout the lengthy course of the enforcement activity targeting the appellant, there has never been any indication that Mr. Duarte failed to comply with the cigarette taxing provisions of G.L. c. 64C. Indeed, the Department of Revenue's records show that the appellant displayed the appropriate stamps so as to reflect payment of the cigarette excise (with a minor exception). The Commissioner would thus appear to lack even a colorable basis in law for a license suspension based on purported "presumptive minimum" pricing violations.  See Take Five Vending, 415 Mass. at 744-45 ("General Laws c. 64C is substantively a taxation statue that describes how the Commonwealth administers its cigarette excise tax to ensure accurate collection.") 
The Commissioner cannot justify the regulation as an attempt to enforce the provisions of G.L. c. 64C prohibiting the predatory pricing of cigarettes. See G.L. c. 64C, §§ 13-21.  Regardless of whether there has been prior approval of cigarettes prices, retailers are statutorily free to offer their product at any price the market will bear, provided they do not sell for less than their actual cost as defined. See G.L. c. 64C, § 13(a). See also Ryan, 323 Mass. at 157. If cigarette pricing does not in fact fall below the retailer's cost, the Commissioner has no authority under the statute to act. He can hardly regulate prophylactically so as to bypass the requirement that there be a finding of pricing below actual cost to trigger the effect of G.L. c. 64C, § 14. 
A final observation about G.L. c. 64C further underscores our conclusion that 830 CMR 64C.14.1 is inconsistent with statute. The cigarette excise tax was adopted in 1945. Some 44 years later, in 1989, the Commissioner purported to introduce his scheme for the "fair pricing" of cigarettes, despite the lack of any clear statutory basis.  14 years later still, in 2003, the Commissioner initiated the only license suspension action for "fair pricing" violations ever to be tried before this Board, in the instant case.  Accordingly, "this case does not involve a contemporaneous and consistent administrative interpretation of the statute." Simon v. State Examiners of Electricians, 395 Mass. 238, 245 (1985). "[U]ndue weight is not to be given to administrative interpretations of statutes that are not ambiguous on their own, especially if the interpretation was not issued contemporaneously with the enactment of the statute." RCN-BecoCom, LLC v. Commissioner of Revenue, 443 Mass. 198, 206-07 (2005). Accord Wellington v. Commissioner of Corporations and Taxation, 359 Mass. 448, 452 (1971).  Moreover, the Supreme Judicial Court has refused to accord "substantial weight" to "administrative interpretation[s]" in the G.L. c. 64C context specifically. See Harvey Payne, Inc. v. Slate Co., 345 Mass. 488, 492-93 (1963) (Rejecting State Tax Commission's interpretation of the statutory term "invoice cost.")  We accordingly conclude that 830 CMR 64C.14.1 is not entitled to deference as an authoritative construction of the cigarette excise tax statute.
In sum, 830 CMR 64C.14.1 is invalid because it conflicts with G.L. c. 64C, as construed by the Supreme Judicial Court in Ryan and subsequent cases. We next turn to the consistency of 830 CMR 64C.14.1 with constitutional requirements of procedural due process. At the threshold, it is clear that any suspension of appellant's cigarette retailing license affects a property interest which is entitled to due process protection. As the Supreme Judicial Court held in the context of a possible revocation of an occupational license, "[t]here is no question that Goldstein's due process rights were implicated in an adjudicatory proceeding in which his license could be revoked." Goldstein v. Board of Registration of Chiropractors, 426 Mass. 606, 613 (1998). Accord Lindsay v. Department of Social Services, 439 Mass. 789, 803 n.12 (2003) (revocation or suspension of license to provide child care services); Konstantopoulos v. Whatley, 384 Mass. 123, 131-132 (1981) (revocation of entertainment license); Milligan v. Board of Registration in Pharmacy, 348 Mass. 491, 499 (1965) (application for permit to operate a retail pharmacy.) 
Given the applicability of constitutional guarantees of procedural due process, we must determine whether the license suspension and revocation procedures of 830 CMR 64C.14.1 are adequate. "The fundamental requirement of due process is notice and the opportunity to be heard 'at a meaningful time and in a meaningful manner.'" In re Angela, 445 Mass. 55, 62 (2005) (Cite omitted.) However, due process requirements do not lend themselves to hard and fast rules. "Minimum due process varies with context." Spence v. Gormley, 387 Mass. 258, 274 (1982). As the Supreme Judicial Court explained in Haverhill Manor, Inc. v. Commissioner of Public Welfare, 368 Mass. 15, 24 (1975), "[d]ue process is a protean concept which imports different procedures in different situations or circumstances." 
The courts have employed a balancing test to analyze the sufficiency of procedures to be employed where protected interests are at stake. "[I]n determining whether a [regulation] affecting protected 'property' interests constitutes a violation of procedural due process, we usually employ the test first enunciated in Matthews v. Eldridge, 424 U.S. 319, 335 (1976), which requires that 'the individual interest at stake must be balanced against the nature of the governmental interest and the risk of erroneous deprivation of liberty or property.'" Commonwealth v. Brown, 426 Mass. 475, 482 (1998). See also Spence, 387 Mass. at 274.
Applying the Matthews v. Eldridge test, the Board first ruled that the individual interest at stake is weighty, as we have seen. Cigarette sales are a major source of revenue for the appellant's businesses. There appears to be brisk competition for the patronage of cigarette purchasers in the New Bedford area, so that appellant is exposed to loss of business if his prices are higher than those of other retailers. Yet for attempting to price his product in line with what his competitors are charging, he faces a proposed interruption of five days in his ability to sell cigarettes, due to the Commissioner's uneven enforcement of 830 CMR 64C.14.1 and the high level of the "presumptive minimum" prices the Commissioner has set. More seriously, unless he maintains pricing levels in compliance with the Commissioner's above-market dictates, he stands to lose his cigarette retailer's license altogether. See 830 CMR 64C.14.1(6). Given the threat to appellant's livelihood posed by the regulatory scheme in question, his individual interest in the matter must be reckoned to be very significant.
The governmental interest served by 830 CMR 64C.14.1 is more elusive. While the Commissioner's regulation is supposed to promote the "fair pricing" of cigarettes, there is no indication any such concern enters into the legislative framework set up for collection of the cigarette excise tax. Indeed, pronouncements from the Supreme Judicial Court undermine the notion that G.L. c. 64C envisions standardized pricing levels for cigarettes. First, "[i]t is clear that G.L. c. 64C is exclusively a taxing statute." Take Five Vending, 415 Mass. at 745 (emphasis added.) Such a purpose leaves little room for any legislative interest in regulating cigarette prices (which are not below actual cost), the Commissioner's notions of "fair pricing" notwithstanding. This conclusion is underscored by the Court's forceful statement in Ryan: "nowhere in G.L. is c. 64C authority given to the commissioner to fix prices for cigarettes." Only if cigarette pricing becomes predatory does the legislature evince any interest in imposing regulation. See G.L. c. 64C, § 14.  Thus, 830 CMR 64C.14.1 fails to advance any governmental objective with a basis in law.
Finally, the risk of an erroneous deprivation of appellant's property interest in his license under the regulatory scheme at issue would appear to be high. The sanction of license suspension or revocation is appropriate only where "[t]he licensee … has … willfully failed to comply with any provision of the tax laws of the commonwealth or the regulations thereunder…" G.L. c. 62C, 68(5). Even if we assume that the sale of cigarettes at prices below actual cost would warrant license suspension, the procedures set up by 830 CMR 64C.14.1(5) pose a substantial danger of erroneous action. The narrow scope of the issues allowable in the suspension hearing under 830 CMR 64C.14.1(5)(h) would preclude the factual circumstance the Ryan case requires for a valid suspension from even being considered. A retailer who priced his inventory above his actual cost, but failed to obtain the Commissioner's prior approval for his lawful pricing, is mandated to receive license suspension or revocation under the regulation. 
Indeed, it can be inferred that the procedures set at 830 CMR 64C.14.1(5) produced an erroneous result under the Ryan standard in the instant case. While appellant appears to have been pricing cigarettes so as to make a profit (i.e., above his cost), his failure to obtain prior approval made the suspension hearing under 830 CMR 64C.14.1 an a fortiori matter. Regardless of the relationship between his cigarette prices and actual cost, the regulation would make the sanction of license suspension or revocation all but automatic. Thus, the risk of an erroneous result from the application of the procedures is extremely high because the process bypasses the inquiry the Ryan Court says is prerequisite to license suspension under the statute. 
In sum, the 830 CMR 64C.14.1(5) hearing process implicates a weighty individual interest but no governmental interest anchored in law. Moreover, the regulatory scheme truncates the issues allowable for consideration at the hearing in a way that makes an erroneous outcome not merely possible, but likely in cases like the appellant's. Therefore, the Board holds that the regulatory hearing process is constitutionally inadequate, and will not warrant a license suspension in the circumstances it addresses.
   For the reason that the regulation the appellant is charged with violating is both inconsistent with the statute and constitutionally deficient, the Board held that appellant's license to sell cigarettes was not subject to suspension. 830 CMR 64C.14.1 is invalid and of no legal effect. The order of suspension was vacated, and the decision given in favor of the appellant.   
   
                  		THE APPELLATE TAX BOARD


By:	______________________________________
Frank J. Scharaffa, Commissioner


______________________________________
Donald E. Gorton, III, Commissioner


     ______________________________________
Nancy T. Egan, Commissioner


______________________________________
James D. Rose, Commissioner 





A true copy,

Attest:_____________________________
  	      Assistant Clerk of the Board

 The statutory and regulatory scheme applicable to the pricing of cigarettes is discussed in greater detail below.
 Mr. Duarte's attorney stipulated that his businesses had sold cigarettes for prices not in keeping with DOR's prescribed minimum levels. Moreover, appellant did not obtain prior approval for his cigarette prices.
  BJ's Wholesale Club is the only cigarette vendor identified as having sought and received the prior approval of the Commissioner to charge prices beneath the "presumptive minimums" prescribed by DOR.
 G.L. c. 64C, § 16 provides that "Any retailer or wholesaler may advertise, offer to sell or sell cigarettes at a price made in good faith to meet the prices of a competitor who is selling the same article at cost to him as a wholesaler or retailer."
 DOR did not offer in evidence at trial any cigarette price lists dated later than October 9, 2003.
 The Commissioner of Revenue refused to provide information about any other retail businesses subject to enforcement activity in the New Bedford area, citing G.L. c. 62C, § 21. Nevertheless, the wide availability of cigarettes for purchase in New Bedford at prices less than DOR's prescribed minimum levels permits an inference that enforcement activity was spotty at best. From the record DOR's targeting of Mr. Duarte appears arbitrary, though we make no finding that Mr. Duarte was the victim of constitutionally impermissible selective enforcement activity.
 G.L. c. 64C, §§ 17-21 also address the pricing of cigarettes, but are not relevant to this appeal.
 However, there is no indication that DOR acted out of any invidious or similarly impermissible motive in targeting the appellant.

 This likelihood is heightened by the lack of any mechanism to keep licensees abreast of the "presumptive minimum" prices. A licensee might first find out about the state-mandated minimum prices in the context of an enforcement visit, as happened here.
 Prior to issuing its decision the Board gave the parties an opportunity to address the validity of the regulation by reopening the hearing. Counsel for the parties appeared and presented oral arguments about the validity of the regulation on November 15, 2005.
 G.L. c. 62C, § 68(4) provides for license revocation where a licensee "has been convicted of a crime provided for by this chapter." It would appear to be an open question whether license suspension or revocation authority arises where a licensee has been found guilty of engaging in unfair competition in violation of G.L. c. 64C, § 14.

ATB 2006-490