Big Jay Tavern v. Dept Taxes

7ermont Superior Court
Filed 08/1 24
Franklin

VERMONT SUPERIOR COURT CIVIL DIVISION
Franklin Unit Case No. 23-CV-01612
17 Church Street
St. Albans VT 05478
802-524-7993
www.vermontjudiciary.org

Big Jay Tavern Inc. v. Vermont Department of Taxes

DECISION ON TAXPAYER APPEAL
This is a Rule 74 appeal of a determination by the Vermont Commissioner of Taxes. In that
determination, the Commissioner affirmed an assessment that followed an audit of the meal and
alcohol sales tax liability of Appellant Big Jay Tavern, Inc. ("Big Jay''). The court affirms that
determination.

BACKGROUND
Big Jay Tavern was a bar and restaurant operating in Montgomery, Vermont. This case
revolves around the details of two audits of Big Jay's meal and alcohol tax liability. The first was a
2016 audit of tax year 2014 ("2016 audit"), and the second was a 2019 audit of tax years 2016 2018

("2019 audit''). This appeal attacks the Commissioner's determination on the 2019 audit. The issues
flagged in that audit grew out of the 2016 audit, so this narrative begins there.
In 2016, the Vermont Department of Taxes audited Big Jay's meals and alcohol tax liability.

That audit found that Big Jay's point-of-sale system ("POS") was not capturing all meal and alcohol
sales. As a result, Big Jay had been underreporting its taxable sales, and so underpaying its taxes. The

2016 audit resulted in an assessment of over $24,000, including penalty and interest. Big Jay's
accountant confirmed that the POS was not properly capturing sales and confirmed the audit finding.

Big Jay did not appeal the assessment.
As a result of the 2016 audit, the Department concluded that Big Jay's POS likely failed to
capture sales properly in the years following 2014. It asked Big Jay to amend its tax returns for 2015
and 2016. Big Jay fixed its POS and began calculating and reporting tax liability properly. Big Jay

requested that the Department show leniency by reducing the amount of the 2016 audit assessment.
The Department requested that Big Jay first complete the amendment of its 2015 and 2016 tax returns.
The Department's agent, Erin Hill, advised Big Jay that once it completed its amendments, the

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23-CV-01612 Big Jay Tavern Inc. v. Vermont Department of Taxes
7ermont Superior Court
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Franklin

Department would recalculate Big Jay's total tax liability and determine whether it could grant an
abatement.

In January 2017, Big Jay amended its 2015 and 2016 tax returns. As it turns out, however, it

did so incorrectly. Instead of reporting the total amount of sales for each month, Big Jay reported only
the amount by which its original returns had underreported those sales. As a result, the amended

returns showed sales (and, correspondingly, tax liability) lower than the original returns. This led the

Department to adjust Big Jay's tax liability downward and grant Big Jay a credit for the difference
between the amount paid on the original returns and the amount calculated from the amended returns.

The net effect of the adjustment was to give Big Jay a large credit to which it was not entitled.
On February 7, 2017, Big Jay received a statement of its account showing an unexplained
credit to its tax account in excess of $17,000. It showed a remaining balance of only about $10,000.
The following day, on February 8, 2017, Big Jay received a letter offering an abatement of the

outstanding amount, reducing the total by $2,100 if Big Jay paid the within 20 days. Big Jay timely
paid and so received the abatement. Big Jay now asserts that it understood the abatement to resolve its
entire outstanding tax liability, including both the $2,100 noted in the settlement letter and the credit to

its account of over $17,000, which resulted from its incorrect amendments. As a result, Big Jay did not

pay most of the taxes it owed from the 2016 audit.
Two years later, in 2019, the Department received information from the IRS that prompted it to
audit Big Jay for the years of 2016, 2017, and 2018. In doing so, it discovered the error in the amended

2015 and 2016 returns. Upon making this discovery, the Department corrected the error, recalculated

Big Jay's taxes, and assessed the correct amount. This resulted in an assessment of over $27,000. Big
Jay appealed that assessment to the Tax Commissioner, who held a hearing on October 5, 2022. The
hearing officer took documentary and testimonial evidence from Big Jay, Big Jay's accountant, the
Department, and the Department's field tax auditor. The field tax auditor described her calculations in
detail and Big Jay's accountant agreed with the calculations. Big Jay argued that the Department's

settlement letter was the final resolution of the matter and prohibited the Department from pursuing the

tax assessment at a later date. The Commissioner decided in favor of the Department, prompting this

appeal.
DISCUSSION
On appeal, Big Jay does not articulate a coherent legal theory. Reading its briefing with the

leniency generally afforded to pro se litigants, two arguments emerge. First, Big Jay argues that the

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23-CV-01612 Big Jay Tavern Inc. v. Vermont Department of Taxes
7ermont Superior Court
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Franklin

Department's 2017 settlement letter was the final resolution of its liability for the tax years in question.
Second, it contests the Commissioner's findings of fact. Neither of these arguments succeeds.

Big Jay's first argument is cognizable, if at all, as a claim of estoppel. While Big Jay eschews
this theory and takes issue with the Commissioner's characterization of the argument as one for

estoppel, it does not articulate any other competent theory. The court notes in this regard that in its

Principal Brief, Big Jay states, "Based on my conversation with the Compliance Officer that [sic] the
2014 audit and the amendments for 2015 and 2016 had been settled with this agreement." In its Reply

Brief, Big Jay states, "Isn't Erin Hill a representative of the states tax department, and if a settlement
letter is issued by her it is an official letter from the state." At the Tax Commissioner's October 5, 2022

Hearing, the Hearing Officer asked whether it was Big Jay's position that "the '16 [audit] was already
settled so the Department can't come back and assess it" and Big Jay answered "Yes." These facts are

sufficient to support the Commissioner's interpretation of the appeal as a claim for estoppel. Thus,
instead of rejecting Big Jay's argument altogether on the basis of its failure to articulate a cogent

theory, the court treats it as an assertion of estoppel. See Quazzo v. Department of Taxes, 2014 VT 81,

q 22, 197 Vt. 278 (applying the elements of estoppel where taxpayer eschewed an estoppel argument,
but the "contentions amount[ed] to, in effect, an estoppel argument").

"The doctrine of equitable estoppel precludes another party from asserting rights which
otherwise may have existed as against another party who has in good faith changed his position in
reliance upon earlier representations." My Sister 's Place v. City of Burlington, 139 Vt. 602, 609

(1981). The elements of estoppel are:
(1) the party to be estopped must know the facts;
(2) he must intend that his conduct shall be acted on or must so act that the party
asserting the estoppel has a right to believe it is so intended;
(3) the latter must be ignorant of the true facts; and
(4) he must rely on the former's conduct to his injury.

Id. The Commissioner concluded that the elements of estoppel cannot be satisfied in this case. The

Commissioner addressed the fourth element, citing the U.S. Court of Federal Claims for the

proposition that "[h]aving to pay taxes which are legally assessed does not constitute the type of
detrimental reliance necessary to invoke estoppel." Bunce v. United States, 28 Fed. Cl. 500, 506

(1993), aff'd, 26 F.3d 138 (Fed. Cir. 1994). This conclusion is supported by the Commissioner's
findings of fact, which are themselves supported by the record. While evidence in the record may be
sufficient to establish the second element, it is not sufficient to establish the first, third, or fourth
elements. As the Commissioner indicated, Big Jay has not shown that the Department knew the facts

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23-CV-01612 Big Jay Tavern Inc. v. Vermont Department of Taxes
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Franklin

or that Big Jay was ignorant of the true facts. The record shows that Big Jay knew that it owed over

$20,000 in taxes from the 2016 audit and that the amount of the abatement was only $2,100. Nor is
there any evidence that Big Jay suffered any injury from any reliance on the settlement letter. In short,

the Commissioner did not err in concluding that there was insufficient evidence to support an estoppel

claim.

Moreover, even had Big Jay satisfied all elements of estoppel, the doctrine cannot apply here.

"Estoppels against the government are rare and are to be invoked only in extraordinary circumstances."
In re McDonald's Corp., 146 Vt. 380, 383 (1985). The Department's "overlooking of an error in a

return upon audit" cannot create estoppel. Quazzo, 2014 VT 81,J 22 (holding that "tax authorities are

not estopped by virtue of their prior treatment of a taxpayer's claims"). Here, there is no showing of

extraordinary circumstances. Rather, it was Big Jay's own error that caused the Department's error.
While there is no suggestion that Big Jay's error was deliberate, it would violate basic notions of

equity to reward that error by applying estoppel in Big Jay's favor. Cf Garbitelli v. Town of
Brookfield, 2011 VT 122, q 15, 191 Vt. 76 ("[T]ax abatement is an equitable remedy, and thus the
maxim that a party seeking an equitable remedy must come to court with clean hands is fully

applicable'').
Big Jay's second argument fares no better. Here, Big Jay argues that: (1) it was the
Department's error, not its own error, that caused the overpayment issue, (2) the Department's agent,
Erin Hill, incorrectly advised it that the amount stated in the settlement letter constituted its total then-
current tax liability, and (3) the Department should have given him clearer instructions about how to

file its amended tax returns. The record fully supports the Commissioner's determination on each of
these issues.

It bears emphasis at the outset that Big Jay raised these issues before the Commissioner, who

made findings on each issue. Those findings are entitled to deference. See Close v. Superior

Excavating Co., 166 Vt. 318, 321 (1997) ("We presume that decisions made within an administrative
agency's area of expertise are correct, valid, and reasonable, absent a clear showing to the contrary.").
"TJjudicial review of agency findings is ordinarily limited to whether, on the record developed before
the agency, there is any reasonable basis for the finding." Tri-State Indus. Laundries, Inc., 138 Vt. 292,

294. Put another way, "the Commissioner's . . findings should not be set aside unless clearly
erroneous." Morton Bldgs. Inc. v. Department of Taxes, 167 Vt. 371, 374 (1997). Thus, the court's

review is limited to determining whether the Commissioner's findings are supported by credible
evidence. See Coates v. Coates, 171 Vt. 519, 520 (2000).

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23-CV-01612 Big Jay Tavern Inc. v. Vermont Department of Taxes
7ermont Superior Court
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Franklin

On Big Jay's first assertion, the Department argues that it was Big Jay's error that caused the

overpayment issue. The Commissioner found for the Department on this issue. The incorrectly
amended tax returns were part of the record; they demonstrate that instead of entering its total tax due

in the field marked "Total Meals and Room Tax Due," Big Jay entered the difference between the

incorrect amount of its first tax return and the correct total amount due. Thus, there is credible
evidence in the record to support the Commissioner's finding, and so it must stand.
The Commissioner found that there was no evidence to support Big Jay's contention that Ms.
Hill gave incorrect advice. This finding is supported by the record. The evidence includes Ms. Hill
contemporaneous notes from her call with Big Jay. The notes do not support the allegation that she

expressly informed Big Jay that the abatement of $2,100 would discharge its entire tax liability. Nor
does Big Jay cite to any other evidence that supports this assertion. Moreover, even if the

Commissioner had found that the Department's agent had given incorrect advice, "[i]n the absence of

grounds for estoppel, the advice or opinion given by a government agency, though incorrect, does not
bar later correction, even if there had been reliance on the government agent's statement." Vermont

Structural Steel v. State Dep't of Taxes, 153 Vt. 67, 74 (1989). In short, even were the Commissioner's

finding not supported, that would not warrant reversal.
On Big Jay's third assertion, Big Jay did not point to any evidence to support its claim that the

Department should have given him clearer instructions for amending its tax returns. In its hearing
before the Commissioner, Big Jay testified that it "amended it the way she told me to do it," without

describing in any further detail how she led him astray. In his brief, he states, "I amended the returns
exactly as instructed by the States Tax Compliance Officer." The Department's internal notes included
a note from Ms. Hill from the day Big Jay spoke to her about amending his tax returns. That note

states, [Appellant] called in and I helped him through the payment process. Will follow up and abate
the remaining penalty after payment hits." The Commissioner found in favor of the Department,

relying on the written record of their calls from Ms. Hill's contemporaneous notes. Cf Vermont
Structural Steel, 153 Vt. at 75 (holding that where there is a written record and also parol accounts of
what occurred, "it is best to rely on those statements and understandings reduced to a writing in settling
tax disputes between taxing authorities and taxpayers"). And again, even if the Commissioner's

finding in this regard were erroneous, that would be of no moment; again, [ijn the absence of grounds
for estoppel, the advice or opinion given by a government agency, though incorrect, does not bar later

correction, even if there had been reliance on the government agent's statement." /d. at 74.

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7ermont Superior Court
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Finally, Big Jay also appears to make several other evidentiary challenges, citing accounting
discrepancies that amount to a claim that the calculation of its taxes was incorrect. That calculation,
however, is not at issue here. Big Jay did not contest the calculation below, and as noted above, it
conceded that the Department's audit was correct. In its decision, the Commissioner found that "Ms.
Roxanne Hurlburt, Taxpayer's accountant, confirmed the Department's audit finding," and that

"Taxpayer did not appeal the 2014 assessment." Big Jay does not make clear how its observations
regarding these discrepancies show an error below, or what that error may be. "Although pro se
litigants receive some leeway from the courts, they are still bound by the ordinary rules of civil
procedure." Fox v. Fox, 2022 VT 27, J 39, 216 Vt. 460 (2022) (internal citations omitted). The Court
has consistently held that it will not decide issues on appeal that have not been adequately briefed.

Persons v. Lehoe, 150 Vt. 582, 587 (1988); Cf. U.S. v. Dunkel, 927 F.2d 955, 956 (7" Cir.

1991) ("Judges are not like pigs, hunting for truffles buried in briefs."). Thus, Big Jay's evidentiary

challenges do not undermine the Commissioner's decision.

Electronically signed pursuant to V.R.E.F. 9(d): 8/5/2024 1:30 PM

muel oar, Jr.

Sup Court Judge

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23-CV-01612 Big Jay Tavern Inc. v. Vermont Department of Taxes