state/ador v. House ( 2017 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
STATE OF ARIZONA DEPARTMENT OF REVENUE, Plaintiff/Appellee,
v.
MICHAEL HOUSE, et al., Defendants/Appellants.
Nos. 1 CA-TX 16-0010
1 CA-TX 16-0014
(Consolidated)
FILED 11-21-2017
Appeal from the Superior Court in Maricopa County
No. TX2014-000490
The Honorable Christopher T. Whitten, Judge
AFFIRMED
COUNSEL
Arizona Attorney General’s Office, Phoenix
By Penny Taylor Moore, Kathleen P. Sweeney
Counsel for Plaintiff/Appellee
Woolston & Tarter, P.C., Phoenix
By Kacie N. Dillon
Counsel for Defendants/Appellants
STATE/ADOR v. HOUSE, et al.
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Lawrence F. Winthrop delivered the decision of the Court,
in which Judge Diane M. Johnsen and Judge Maria Elena Cruz joined.
W I N T H R O P, Presiding Judge:
¶1 Michael and Samantha House appeal the tax court’s summary
judgment in favor of the Arizona Department of Revenue (“the
Department”). For the following reasons, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
¶2 Mr. House was the president and owner of FOIS Enterprises
(“FOIS”), a business that sold tobacco products. The Department audited
FOIS for the period from August 2003 through April 2004 and determined
that FOIS owed more than $600,000 in luxury tax. See Ariz. Rev. Stat.
(“A.R.S.”) §§ 42-1108, -3051, -3052.1 The Department sent a notice of
assessment to Mr. House’s attention, stating that the assessment would
“become FINAL FORTY-FIVE DAYS from the date of RECEIPT, UNLESS
AN APPEAL IS FILED in accordance with A.R.S. [§] 42-1251.” Mr. House
received the notice on October 7, 2004. Accordingly, the appeal deadline
was November 22, 2004.2
¶3 Mr. House signed a notice of protest, dated November 12,
2004, requesting a conference with the Department. The Department,
however, did not stamp the protest “received” until Wednesday, December
1 We cite the current version of the applicable statutes because no
revisions material to this decision have occurred since the relevant time of
the tax.
2 Adding forty-five days to October 7, 2004, results in a deadline of
November 21, 2004, which was a Sunday. Therefore, the deadline was
Monday, November 22, 2004. See A.A.C. R15-10-101(2) (“If the last day for
filing a document . . . falls on a Saturday, Sunday, or legal holiday, the
document is considered timely if filed on the following business day.”).
2
STATE/ADOR v. HOUSE, et al.
Decision of the Court
1, 2004. The parties agree the postmark on the envelope containing Mr.
House’s protest is not legible.
¶4 Thereafter, the Department sent Mr. House a letter, dated
December 10, 2004, stating his protest was untimely and providing him an
opportunity to contest the untimeliness determination. Mr. House did not
respond.
¶5 Approximately ten years later, the Department filed a
collection action in tax court against Mr. House (doing business as FOIS),
and his wife.3 After the Houses answered, the Department filed a motion
for summary judgment against Mr. House, asserting he waived his right to
challenge the assessment by failing to file a timely administrative appeal.
The tax court granted the Department’s motion and entered judgment
against Mr. House pursuant to Arizona Rule of Civil Procedure (“Rule”)
54(b). Mr. House timely appealed.
¶6 Meanwhile, the Department also moved for summary
judgment against Mrs. House to establish community-property liability
under A.R.S. § 25-215(B). The tax court granted the motion and entered
judgment against Mrs. House, who also timely appealed.
¶7 This court consolidated the two appeals. We have jurisdiction
pursuant to A.R.S. § 12-2101(A)(1).
ANALYSIS
¶8 We review de novo the tax court’s grant of summary judgment.
SolarCity Corp. v. Ariz. Dep’t of Revenue, 242 Ariz. 395, 402, ¶ 20 (App. 2017).
Summary judgment is appropriate “if the evidence presented by the party
opposing the motion contains so little probative value, given the required
burden of proof, that reasonable people could not agree with that party’s
conclusions.” United Dairymen of Ariz. v. Schugg, 212 Ariz. 133, 140, ¶ 26
(App. 2006) (citing Orme Sch. v. Reeves, 166 Ariz. 301, 309 (1990)).
I. Failure to Exhaust Administrative Remedies
¶9 The Houses argue the tax court improperly granted summary
judgment against Mr. House because “a factual dispute exists as to whether
an administrative protest was timely filed in accordance with A.R.S. § 42-
3 Mr. and Mrs. House married in 2013.
3
STATE/ADOR v. HOUSE, et al.
Decision of the Court
1251.” Our analysis begins with the language of § 42-1251, which
establishes the procedure for protesting a notice of proposed assessment.
¶10 Pursuant to A.R.S. § 42-1251(A), a taxpayer has forty-five days
from receipt of a notice to file a written petition with the Department
requesting a hearing, correction, or redetermination. Subsection (B) of § 42-
1251 explains the consequences of a taxpayer’s failure to timely appeal:
If the taxpayer does not file a petition for hearing,
correction or redetermination within the period provided by
this section, the amount determined to be due becomes final
at the expiration of the period. The taxpayer is deemed to
have waived and abandoned the right to question the amount
determined to be due, unless the taxpayer pays the total
deficiency assessment, including interest and penalties. The
taxpayer may then file a claim for refund pursuant to § 42-
1118 within six months of payment of the deficiency
assessment or within the time limits prescribed by § 42-1106,
whichever period expires later.[4]
¶11 The right to appeal from a notice of proposed assessment is
limited by the terms of § 42-1251. As this court has previously held, a
taxpayer must exhaust his or her administrative remedies as a prerequisite
to seeking judicial relief from an assessment. See Moulton v. Napolitano, 205
Ariz. 506, 512, ¶ 14 (App. 2003) (“[T]ax matters must be exhausted within
[the Department] before being brought in superior court.”); Hamilton v.
State, 186 Ariz. 590, 593 (App. 1996) (“A party’s failure to exhaust
administrative remedies deprives the superior court of authority to hear the
party’s claim.”). In Estate of Bohn v. Waddell, 174 Ariz. 239 (App. 1992), this
court applied former A.R.S. § 42-122, the direct predecessor of § 42-1251,
and explained that “if parties have statutory recourse to an administrative
agency that has authority to grant appropriate remedies, they must
scrupulously follow the statutory procedures.” Id. at 245.
¶12 Here, the Department filed a motion for summary judgment,
asserting that Mr. House waived his right to protest the assessment by
failing to file a timely petition with the Department pursuant to § 42-1251.
In support of its motion, the Department provided an affidavit from a
Department administrator and attached (1) a copy of Mr. House’s protest
stamped “received” on December 1, 2004, and (2) a copy of a letter sent by
4 A taxpayer also has a right to request “an extension of time to file a
petition.” A.A.C. R15-10-107(D).
4
STATE/ADOR v. HOUSE, et al.
Decision of the Court
the Department to Mr. House dated December 10, 2004, which stated his
protest was untimely and provided him an opportunity to challenge the
untimeliness determination. Although the postmark on the envelope
containing Mr. House’s protest is not legible, the record reflects the
Department did not stamp the protest “received” until nine calendar days
and six business days after the deadline.5
¶13 In responding to the Department’s motion, Mr. House argued
that “material questions of fact exist regarding whether the underlying
liability is correct and is owed.” He prepared an affidavit explaining that
although he authorized the use of his social security number to establish
FOIS, he “did not control or operate” the business. He further avowed that
(1) initially, he was “not aware or involved in the audit,” (2) he did not
prepare the protest, (3) he did not recall signing the protest, and (4) he did
not recall receiving the December 10, 2004 letter. Notably absent from Mr.
House’s response is any assertion or evidence that the protest was timely
mailed in accordance with § 42-1251.
¶14 At oral argument on the Department’s motion for summary
judgment, the tax court asked counsel for the Houses what evidence she
had to establish timeliness. Counsel responded by referencing (1) the date
on the protest form of November 12, 2004, and (2) the fact that Thanksgiving
fell between the appeal deadline and the date on which the Department
stamped the protest as “received.”6 See 31A C.J.S. Evidence § 237 (“The date
of a letter authorizes no inference or presumption that it has been mailed
on that day . . . .”); Marvin Lieblein, Inc. v. Shewry, 40 Cal. Rptr. 3rd 547, 554
(Cal. Ct. App. 2006) (“[T]here is no presumption that a letter is mailed on
the day it is dated.”); Madewell v. Salvation Army, 620 P.2d 953, 955 (Or. Ct.
App. 1980) (“[T]here is no presumption that a letter is mailed on the day it
is dated or on the day it was written.”).
¶15 To defeat a motion for summary judgment, “the non-moving
party must call the court’s attention to evidence overlooked or ignored by
the moving party or must explain why the motion should otherwise be
denied.” Nat’l Bank of Ariz. v. Thruston, 218 Ariz. 112, 119, ¶ 26 (App. 2008).
5 Under federal Treasury Regulations, “[i]f the postmark on the
envelope is made by the U.S. Postal Service but is not legible, the person
who is required to file the document . . . has the burden of proving the date
that the postmark was made.” 26 C.F.R. § 301.7502-1(c)(iii).
6 In 2004, Thanksgiving fell on November 25.
5
STATE/ADOR v. HOUSE, et al.
Decision of the Court
Before responding to the motion, the non-moving party has the opportunity
to request “a continuance for discovery under Rule 56(f)”7 in order to gather
evidence to oppose the motion.8 Id.¶16 Here, the Department produced evidence indicating Mr.
House’s protest was untimely. Although the Department’s motion
incorrectly argued the protest had been postmarked on December 1, the fact
that the Department marked the protest as received on December 1 is some
evidence the protest was not mailed until after the November 22 deadline.
In response, Mr. House did not produce competent evidence controverting
the Department’s showing of untimeliness; nor did he request a Rule 56(d)
continuance to allow him additional time to gather such evidence.9
Accordingly, the tax court properly entered summary judgment in favor of
the Department, concluding that Mr. House failed to exhaust the
administrative remedies set forth in § 42-1251.
II. The Houses’ Alternative Arguments in Favor of Jurisdiction
¶17 The Houses alternatively argue that “[e]ven if the Superior
Court is correct in finding Mr. House did not timely protest the audit
7 In 2013, subdivision (f) of Rule 56 was moved to subdivision (d), to
conform to the federal rule’s structure. See Ariz. R. Civ. P. 56 cmt.
8 For example, Mr. House could have obtained an affidavit from the
individuals he claims handled the audit for FOIS, providing an avowal as
to the date of mailing of the protest, or he could have deposed a Department
representative to explain the Department’s internal mail policies. He did
neither.
9 In Thruston, this court explained,
In Arizona, a summary judgment motion sets in play
shifting burdens. Initially, a party moving for summary
judgment has the burden of showing there are no genuine
issues of material fact and it is entitled to summary judgment
as a matter of law. Only if the moving party satisfies this
burden will the party opposing the motion be required to
come forward with evidence establishing the existence of a
genuine issue of material fact that must be resolved at trial.
218 Ariz. at 114–15, ¶ 12.
6
STATE/ADOR v. HOUSE, et al.
Decision of the Court
assessment, he is not precluded from later contesting the audit
assessment.”10 They suggest three alternative arguments for why the tax
court had jurisdiction to review the merits of the assessment.
A. The Language of § 42-1251
¶18 The Houses argue the use of the term “deemed” in § 42-
1251(B) “evidences the statute was not written to conclusively preclude a
taxpayer from later disputing an audit determination after assessment.”
When a taxpayer fails to file an administrative appeal from a deficiency
assessment, the assessment becomes final as a matter of law. See A.R.S.
§§ 42-1108(B), -1251(B). In Waddell, this court held that if parties “fail to
fully utilize all their administrative remedies, the superior court lacks
jurisdiction to consider their claim.” 174 Ariz. at 245-46 (citations omitted).
Contrary to the Houses’ argument, a taxpayer’s failure to comply with § 42-
1251 precludes the taxpayer from later challenging the assessment in tax
court.
B. Refund Claim
¶19 The Houses next argue Mr. House could have paid “the total
deficiency assessment, including interest and penalties,” and then filed a
refund claim “pursuant to § 42-1118 within six months of payment of the
deficiency assessment or within the time limits prescribed by § 42-1106,
whichever period expires later.” A.R.S. § 42-1251(B). However, Mr. House
has never paid the deficiency assessment. Therefore, no statutory right to
file a refund claim exists.
C. Contradictory Evidence
¶20 The Houses also argue they can present “contradictory
evidence” to prevent a judgment against them pursuant to A.R.S. § 42-1114.
Section 42-1114 authorizes the Department to bring an action to collect
unpaid taxes within ten years from a final assessment. See A.R.S. § 42-
1114(A), (C). This statute must be read in conjunction with § 42-1251. See
Pinal Vista Props., L.L.C. v. Turnbull, 208 Ariz. 188, 190, ¶ 10 (App. 2004)
(holding that statutes relating to the same subject or having the same
10 The Houses argue the tax court had “original jurisdiction” over the
case pursuant to Article 6, Section 14(2), of the Arizona Constitution. As we
explained in Waddell, this constitutional provision “neither expressly nor
impliedly prevents the legislature from conditioning the exercise of the
superior court’s jurisdiction on the taxpayers’ exhausting available
administrative remedies.” 174 Ariz. at 246 (citations omitted).
7
STATE/ADOR v. HOUSE, et al.
Decision of the Court
general purpose should be read together (citations omitted)). Reading these
two statutes together, we conclude that if a taxpayer fails to exhaust the
administrative remedies under § 42-1251, the taxpayer cannot later
challenge the merits of the assessment in a collection proceeding brought
under § 42-1114. To interpret § 42-1114 otherwise would render
meaningless the appeal procedure set forth in § 42-1251. See Estate of
Hernandez v. Ariz. Bd. of Regents, 177 Ariz. 244, 249 (1994) (explaining that
courts should interpret statutes “in a way that harmonizes them and gives
rational meaning to both”).11 Accordingly, the tax court properly entered
summary judgment against Mr. House, finding him liable for the tax
assessment because he failed to file a timely appeal as required by § 42-
1251.12
III. Community Liability
¶21 The Houses separately argue Mrs. House should not be
precluded from contesting the audit assessment. Relying on this court’s
decision in Flexmaster Aluminum Awning Co. v. Hirschberg, 173 Ariz. 83(App. 1992), they argue Mrs. House has the right to litigate both the
premarital debt and the value of Mr. House’s contribution to the
community that may be subject to the debt. Although we agree with this
statement, we conclude Mrs. House has had this opportunity.
¶22 The community property of a married couple is liable for
premarital debts “to the extent of the value of that [debtor] spouse’s
contribution to the community property which would have been such
[debtor] spouse’s separate property if single.” A.R.S. § 25-215(B). In
Flexmaster, this court held that a “wife is a necessary party to a suit to
establish limited liability of the community for the husband’s premarital
debt.” Id. at 85. The court reasoned that “the wife’s joint interest in the
community necessarily includes the right to litigate both the premarital
debt and the value of the husband’s contribution to the community that
may be subject to the premarital debt.” Id. at 87. In CBM of Arizona, Inc. v.
11 In their reply brief, the Houses argue the Department failed to
comply with A.R.S. § 42-1108. Because this issue was not raised before, we
decline to consider it. See United Bank of Ariz. v. Mesa N. O. Nelson Co., 121
Ariz. 438, 443 (1979) (refusing to consider an issue raised for the first time
in the appellant’s reply brief).
12 Our decision is based on Mr. House’s failure to exhaust
administrative remedies, not on the doctrines of res judicata or collateral
estoppel.
8
STATE/ADOR v. HOUSE, et al.
Decision of the Court
Sevier, 184 Ariz. 503 (App. 1996), we clarified that the right to litigate the
debt “includes the right to raise any defenses the debtor spouse may have
to payment.” Id. at 505.
¶23 Here, the Department properly joined Mrs. House to establish
the community’s limited liability for the tax assessment. Because she was a
party to the lawsuit, Mrs. House had the right to litigate the premarital debt.
She had the opportunity to controvert the Department’s contention that she
and her husband were barred from challenging the assessment by her
husband’s failure to exhaust his administrative remedies. Mrs. House,
however, did not offer evidence contradicting the Department’s showing
that Mr. House’s appeal was untimely.
¶24 In responding to the motion for summary judgment, Mrs.
House argued “the administrative determinations reached by the
[Department] with regard to Mr. House do not apply to Mrs. House because
she was not a party” to the administrative appeal process, and she was “an
unmarried minor at the time.” Although our holding in Flexmaster grants
Mrs. House the right to litigate the premarital debt incurred by her
husband, it does not permit her to escape the consequences of his failure to
exhaust administrative remedies or to circumvent the requirements of § 42-
1251. Accordingly, the tax court properly entered summary judgment
against Mrs. House as well.
IV. Due Process
¶25 Finally, the Houses argue that “[a] judgment here without
determining the correctness of the audit assessment violates Mr. and Mrs.
Houses’ constitutional right to due process of law.” (Emphasis omitted.)
We review de novo this constitutional issue. In re Estate of Snure, 234 Ariz.
203, 204, ¶ 5 (App. 2014).
¶26 “Due process requires notice and an opportunity to be heard
at a meaningful time and in a meaningful manner.” Huck v. Haralambie, 122
Ariz. 63, 65 (1979). If a party is given an opportunity to be heard but chooses
not to exercise that right, he or she “cannot later plead a denial of
procedural due process.” Watahomigie v. Ariz. Bd. of Water Quality Appeals,
181 Ariz. 20, 27 (App. 1994) (citations omitted).
¶27 Here, Mr. House had notice of the assessment and was given
an opportunity to file an appeal pursuant to § 42-1251. Thereafter, he was
given an opportunity to challenge the Department’s untimeliness
determination. The Houses were then permitted an opportunity in tax
court to respond to the Department’s motions for summary judgment by
9
STATE/ADOR v. HOUSE, et al.
Decision of the Court
offering competent evidence that the protest was timely. They did not avail
themselves of these opportunities. Accordingly, their due process rights
were not violated.
CONCLUSION
¶28 For the foregoing reasons, we affirm the judgment of the tax
court. We award the Department its costs on appeal subject to compliance
with Arizona Rule of Civil Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
10