Section 96 Estoppel

• Library: Tax Law 2009

Whether there is an estoppel depends on dealings between the taxpayer and MoDOR (including the letter ruling process described in §11.35 above). It does not, nor does any analogous principle, absolve a taxpayer of liability when MoDOR has audited some of the taxpayer’s competitors and did not require them to pay tax on similar transactions. Medic House, Inc. v. Dir. of Revenue, 799 S.W.2d 80, 81–82 (Mo. banc 1990); Schroeder Bros. Sod Farm v. Dir. of Revenue, No. 90-001214RS, 1991 WL 155500 (Mo. Admin. Hearing Comm’n, July 10. 1991).

It is common for taxpayers to rely on instructions of MoDOR representatives concerning their reporting, collection, and payment of sales or use taxes. Sometimes these instructions are given by the examiner or in the treatment of an issue in an audit or a series of audits over an extended period of time. See, e.g., Fostaire Harbor, Inc. v. Mo. Dir. of Revenue, 679 S.W.2d 272 (Mo. banc 1984); Teepak v. Dir. of Revenue, Nos. RS-86-0123; RZ-86-1430, 1988 WL 152896 (Mo. Admin. Hearing Comm’n, May 13, 1988). In other instances, the taxpayer’s reliance arises in response to oral instructions sought by the taxpayer from MoDOR’s local office or its headquarters in Jefferson City. J.E. Williams Constr. Co. v. Spradling, 555 S.W.2d 16 (Mo. banc 1977) (city and a general contractor contact MoDOR to determine how purchases for a city construction project could be structured so as to be exempt from sales and use taxes; contractor later challenges the assessment of sales tax on an equitable estoppel theory). In another instance, the taxpayer may claim that its reliance arises when and based on how an item is originally treated during an audit. Gammaitoni v. Dir. of Revenue, 786 S.W.2d 126 (Mo. banc 1990). In some instances, instructions are requested in writing, and MoDOR’s response may be either written or oral. In still other instances, a taxpayer may “suspect” an auditor to be on the lookout for possible refund-generating transactions during an audit to offset against deficiencies the auditor locates elsewhere.

At a later time, the taxpayer’s method of reporting, collecting, and paying taxes may be challenged by the same or a different representative of MoDOR or the taxpayer or its advisors may locate nontaxable transactions that the auditor should have allowed during a prior audit. The taxpayer’s automatic response is “your people told me to do it this way.” This presents the issue of whether statements or correspondence or other actions taken by MoDOR personnel limit or foreclose it from assessing or collecting sales or use taxes based on an interpretation of the law or facts that are inconsistent with the prior action. In legal parlance, this is a question of whether “estoppel” applies.

Estoppel typically means that a party is prevented by the party’s own acts from claiming a right to the detriment of another party who was entitled to rely on such conduct and has acted accordingly. The MoDOR’s position on estoppel is set forth in 12 C.S.R. § 10-3.579, which states that MoDOR representations, both oral and written, “are merely for informational purposes and cannot be relied upon to substantiate or defend a position in litigation before any...