Xieu Ha and Truong Nguyen v. Christopher Graham, In His Official Capacity as the Commissioner of the Mississippi Department of Revenue

IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI

NO. 2024-CA-00239-COA

XIEU HA AND TRUONG NGUYEN APPELLANTS

v.

CHRISTOPHER GRAHAM, IN HIS OFFICIAL APPELLEE
CAPACITY AS THE COMMISSIONER OF THE
MISSISSIPPI DEPARTMENT OF REVENUE

DATE OF JUDGMENT: 01/24/2024
TRIAL JUDGE: HON. TIFFANY PIAZZA GROVE
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT,
FIRST JUDICIAL DISTRICT
ATTORNEY FOR APPELLANTS: JAMES GARY McGEE JR.
ATTORNEYS FOR APPELLEE: WILLIAM JAMES DUKES
NATOSHA ELAINE MYERS
NICHOLAS ALEXANDER LOMELI
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED - 08/19/2025
MOTION FOR REHEARING FILED:

BEFORE WILSON, P.J., WESTBROOKS AND LASSITTER ST. PÉ, JJ.

WESTBROOKS, J., FOR THE COURT:

¶1. The Mississippi Department of Revenue (MDOR) audited Gulf Fresh Seafood1 and

its owners (the Taxpayers) after they failed to file Mississippi tax returns over a series of

years. Because the business lacked adequate records of its sales transactions, MDOR

calculated the amount of taxes owed based on the results of an observational sales audit. The

MDOR Board of Review affirmed the assessments. The Board of Tax Appeals (BTA)

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Gulf Fresh Seafood is a sole proprietorship owned by Troung Nguyen. Xieu Ha and
Nguyen are married.
affirmed the assessment of $54,679 on the business but reduced the individual assessment

from $92,200 to $23,898. The chancery court, after conducting de novo proceedings,

affirmed the BTA’s determinations. Finding no error, we affirm.

FACTS AND PROCEEDINGS BELOW

¶2. MDOR initiated a sales tax audit of Gulf Fresh Seafood for the period of July 2016

to December 2019. MDOR also audited Ha and Nguyen individually for the period of

January 1, 2011, through December 31, 2018. The Taxpayers consistently had failed to file

Mississippi income tax returns for 2011 through 2016 and for 2018. As part of the audit

process, MDOR asked the Taxpayers to produce financial documents to facilitate a cash flow

analysis of the business, including a determination of gross sales proceeds.

¶3. The Taxpayers provided incomplete documentation, including some bank statements,

some z-tapes2 with monthly net sales totals, some unfiled state tax returns, and purchase

invoices for 2017. When the bank deposits for 2017 were compared with the purchase

invoices, MDOR determined that some cash had been used to purchase inventory. However,

no cash was deposited into the business’s bank account for 2017. The majority of the

business purchase invoices were missing, and the Taxpayers acknowledged that they did not

reconcile cash and could not provide a record of where cash was spent. The Taxpayers’

reported sales amounted to a markup of 60%, an amount characterized by MDOR as

“unreasonably low.” Additionally, the cash paid out for expenses differed from the business’s

2
The United States Tax Court has explained the “‘Z’ tape is a tape produced by a
cash register which reflects the amount of all sales transactions entered into the machine.”
Edgmon v. Comm’r, 66 T.C.M. (CCH) 1093 (T.C. 1993).

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daily sales journals.

¶4. Given the lack of adequate records, MDOR conducted an observational audit of Gulf

Fresh Seafood, consisting of five separate on-site observations between November 2019 and

February 2020. Looking at approximately 200 transactions, MDOR calculated an average

cash-to-credit-card percentage ratio of 42% to 58%. The Taxpayers’ available z-tapes

indicated a cash-to-card ratio of closer to 20% to 80%. This discrepancy between the

available taxpayer records and the observational audit led MDOR to conclude “that not all

cash sales were recorded or rung up in the cash register by the Taxpayers during the audit

period, nor were the total sales properly reported and taxes remitted to the Department.”

Using the observational audit data, MDOR determined that the Taxpayers had $654,951 in

unreported cash sales during the audit period.

¶5. MDOR levied an assessment of $54,679 on Gulf Fresh Seafood3 and an individual

assessment of $92,200 on Ha and Nguyen as joint filers. Ha and Nguyen appealed to the

MDOR Board of Review, which affirmed the assessments. They then appealed to the BTA,

which upheld the assessment on the business but reduced the individual income tax

assessment to $23,898. The BTA found that the individual assessment should be calculated

based on Ha’s and Nguyen’s federal tax returns for the relevant years instead of by

retroactively applying the error rate for the years of the sales tax audit.

¶6. The Taxpayers appealed to the chancery court for de novo proceedings.4 Following

3
See Miss. Code Ann. section 27-65-43 (Rev. 2024) (applying a 7% sales tax to gross
proceeds of business sales).
4
See Miss. Code Ann. § 27-77-7(5) (Rev. 2024) (“The chancery court shall try the

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discovery and a hearing on competing motions for summary judgment, the chancellor granted

partial summary judgment to MDOR, affirming the $54,679 tax assessment on the business

proceeds and the $23,898 assessment on Ha and Nguyen individually.5 The chancellor’s final

judgment noted that the facts are “uncontroverted that Taxpayers did not maintain a complete

set of records sufficient for MDOR to determine the correct amount of tax due.” This

included a lack of complete purchase invoices, inventory records, bank statements, and sales

transaction receipts or register tapes. The chancellor noted that the “Taxpayers were unable

to reconcile cash and explain where cash received for sales was spent or used.” Additionally,

they “were unable to provide documentation as to the ratio of cash sales to credit card sales.”

They also could not state whether they received more than $100,000 in cash sales in the years

2016–2019.6

¶7. The chancellor’s order further states that “[d]espite this Court’s reservations regarding

the observation method, the relevant statutes clearly establish that assessments made by the

MDOR in cases of inadequate records may be based upon ‘any information available’ and

are prima facie correct.” The Taxpayers now appeal.

case de novo and conduct a full evidentiary judicial hearing on all factual and legal issues
raised by the taxpayer. . . .”).
5
The chancellor dismissed MDOR’s challenge to the BTA’s reduction of the
individual income assessment, agreeing with the BTA that the “retroactive application of
results from an observation sales audit some six to eight years after the relevant individual
income tax period cannot be the ‘best information available’ to the commissioner.” MDOR
does not challenge this holding on appeal.
6
On this point, the Taxpayers argue on appeal that for 2017, at least, “it later became
apparent that cash sales could easily be determined by subtracting the annual credit card
sales amounts from the annual total sales amounts reflected in the Taxpayers’ z-tapes.”

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STANDARD OF REVIEW

¶8. A de novo standard of review applies to appellate review of a chancery court’s grant

of summary judgment. Miss. Dep’t of Revenue v. Hotel and Restaurant Supply, 192 So. 3d

942, 945 (¶5) (Miss. 2016). “Issues related to tax appeals are questions of law, which are

reviewed . . . de novo.” Miss. Dep’t of Revenue v. Comcast of Georgia/Virginia Inc., 300 So.

3d 532, 535 (¶12) (Miss. 2020); see also Toolpushers Supply Co. v. Miss. Dep’t of Revenue,

379 So. 3d 333, 336 (¶9) (Miss. 2024).

DISCUSSION

¶9. The Taxpayers’ argument on appeal centers on their assertion that the z-tapes provided

to MDOR constituted a comprehensive and accurate record of the business’s cash sales

transactions. They argue that observational audits are unreliable and that MDOR instead

should have relied on the cash-to-card ratios indicated by the register z-tapes to calculate the

proper assessment. MDOR responds that, given the lack of adequate records accounting for

cash transactions, and given the significant discrepancy of results between the available

records and the observational audit, the Taxpayers have failed to rebut the statutory

presumption of correctness of the assessment.

¶10. The Taxpayers did not file tax returns for 2011 through 2016 and for 2018.

Mississippi Code Annotated section 27-7-53 (Rev. 2024) provides:

If no return is made by a taxpayer required by this chapter to make a return, the
commissioner shall determine the taxpayer’s liability from the best information
available, which determination shall be prima facie correct for the purpose of
this article . . . .

Concerning mandatory record keeping, a taxpayer is required by section 27-65-43 to

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keep and preserve for a period of three (3) years adequate records of the gross
income, gross receipts or gross proceeds of sales of the business, including all
invoices of merchandise purchased, all bank statements and cancelled checks,
and all other books or accounts as may be necessary to determine the amount
of tax for which he is liable.

Additionally, these “records may be sampled for audit purposes[,] . . . and any assessment

rendered as a result of same shall be considered prima facie correct.” Id. Moreover,

If adequate records of the gross income or gross proceeds of sales are not
maintained or invoices preserved as provided herein, or if an audit of the
records of a taxpayer, or any return filed by him, or any other information
discloses that taxes are due and unpaid, the commissioner shall make
assessments of taxes, damages, and interest from any information available,
which shall be prima facie correct.

Miss. Code Ann. § 27-65-37 (Rev. 2024) (emphasis added); see also Jackson Land Food

Mart. Inc. v. Frierson, 314 So. 3d 146, 151 (¶26) (Miss. Ct. App. 2021); United Roofing &

Constr. of MS Inc. v. Miss. Dep’t of Revenue, 319 So. 3d 1164, 1172 (¶25) (Miss. Ct. App.

2020).

¶11. “Any information available” does not necessarily mean “from the best information

available.” Rawan Hayaf LLP v. Frierson, 323 So. 3d 555, 564 (¶21) (Miss. Ct. App. 2021).

“[T]he party against whom a presumption is directed has the burden of producing evidence

to rebut the presumption.” United Roofing, 319 So. 3d at 1173 (¶25). A “taxpayer’s

uncorroborated testimony that the assessments were excessive does not fulfill the taxpayer’s

burden of proof.” Marx v. Bounds, 528 So. 2d 822, 827 (Miss. 1988). Such uncorroborated

testimony, “coupled with a failure to maintain adequate records reflecting true sales, does not

overcome the Commission’s prima facie correct assessment, and, without other proof, does

not suffice.” Id.

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¶12. The Taxpayers argue that observational audits are highly unreliable. MDOR observed

200 transactions during a five-month period, which they allege represents only a small

portion of the transactions during that period. Additionally, the Taxpayers strenuously dispute

MDOR’s conclusion that not all cash sales were rung up at the register. The Taxpayers

further argue that since the register z-tapes are a comprehensive and accurate measure of

gross sales, it is irrelevant how cash was spent. Therefore, they argue that the lack of invoices

and other records is irrelevant to a calculation of the assessment.7

¶13. However, the Taxpayers produced no evidence before the chancellor to rebut

MDOR’s assessment, only asserting that MDOR should have relied on the gross sales as

recorded in the z-tapes.8 Ultimately, we agree with the chancellor that the Taxpayers failed

to rebut the presumption of correctness given to the assessment. The z-tape data (as available

in the audit worksheets) were insufficient to base the assessment on in light of the inadequacy

of the financial records as a whole. The observational audit resulted in a significant

discrepancy between the observed cash sales and the register z-tape cash sales. The

Taxpayers were unable to account for how they reconciled cash and could not produce

complete records, including purchase invoices. Regardless of whether observational sales

audits are an ideal method for estimating gross sales, MDOR was entitled to rely on “any

7
The Taxpayers note that “MDOR observed the Taxpayers’ retail operations on five
different occasions and did not mention any incidents where cash sales were not rung up at
the register.”
8
The Taxpayers did not submit the business’s z-tapes into evidence before the
chancellor. The evidence before the chancellor did include MDOR’s audit worksheets,
though, which incorporated data from some of the z-tapes provided by the Taxpayers to
MDOR during the audit process.

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information” and not necessarily the “best” information.

¶14. The Taxpayers argue that the chancellor failed to address the disputed penalty and

interest amounts, arguing that the penalty and interest should be abated in full. The

chancellor upheld the BTA’s assessments, which included a 10% penalty under Mississippi

Code Annotated section 27-65-39 (Rev. 2024). This provision provides for a 10% penalty

for “negligence or failure to comply with the provisions of this chapter . . . without intent to

defraud.” Id.; see also Rawan Hayaf LLP, 323 So. 3d at 564 (¶20). Statutory penalty and

interest were also applied to the individual income tax assessment for failure to file and

timely pay. See Miss. Code Ann. § 27-7-53-75 (Rev. 2024). The chancellor addressed the

penalties and fees by upholding the determination of the BTA. This argument is without

merit.

CONCLUSION

¶15. The chancellor correctly determined that MDOR was entitled to judgment as a matter

of law. The Taxpayers did not present evidence to overcome the statutory presumption of

correctness of MDOR’s assessment. We therefore affirm the chancery court’s order.

¶16. AFFIRMED.

BARNES, C.J., CARLTON AND WILSON, P.JJ., McDONALD, LAWRENCE,
McCARTY, EMFINGER, WEDDLE AND LASSITTER ST. PÉ, JJ., CONCUR.

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