Aline Bae Tanning v. Nebraska Dept. of Rev., JB & Assocs. v. Nebraska Dept. of Rev. , 293 Neb. 623 ( 2016 )


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  • Nebraska Supreme Court Online Library
    www.nebraska.gov/apps-courts-epub/
    05/20/2016 11:06 AM CDT
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    ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.
    Cite as 
    293 Neb. 623
    A line Bae Tanning, Inc., a Nebraska corporation, et al.,
    appellants and cross-appellees, v. Nebraska Department
    of R evenue, an agency of the State of Nebraska,
    and K imberly K. Conroy, Tax Commissioner,
    appellees and cross-appellants.
    JB & Associates, Inc., doing business as Suntan City,
    a Nebraska corporation, appellant, v. Nebraska
    Department of R evenue, an agency of the State
    of Nebraska, and K imberly K. Conroy,
    Tax Commissioner, appellee.
    ___ N.W.2d ___
    Filed May 20, 2016.     Nos. S-15-643, S-15-644.
    1.	 Administrative Law: Judgments: Appeal and Error. A judgment or
    final order rendered by a district court in a judicial review pursuant to
    the Administrative Procedure Act may be reversed, vacated, or modified
    by an appellate court for errors appearing on the record. When review-
    ing an order of a district court under the Administrative Procedure Act
    for errors appearing on the record, the inquiry is whether the decision
    conforms to the law, is supported by competent evidence, and is not
    arbitrary, capricious, or unreasonable.
    2.	 Administrative Law: Statutes: Appeal and Error. On review, an
    appellate court determines the meaning of a statute independently of the
    determination made by an administrative agency.
    3.	 Administrative Law: Parties: Standing: Appeal and Error. Under the
    Administrative Procedure Act, only an aggrieved party may seek judicial
    review of an agency action; an appellate court addresses the aggrieved
    party in terms of standing.
    4.	 Parties: Standing: Jurisdiction. A party must have standing before a
    court can exercise jurisdiction, and either a party or the court can raise a
    question of standing at any time during the proceeding.
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    ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.
    Cite as 
    293 Neb. 623
    5.	 Standing: Words and Phrases. Standing involves a real interest in the
    cause of action, meaning some legal or equitable right, title, or interest
    in the subject matter of the controversy.
    6.	 Taxation: Standing. The consumer is the taxpayer of an admissions tax,
    and thus, only the consumer has standing to claim a refund.
    7.	 Taxation: Proof. The legal incidence of a tax depends upon who the
    law declares has the ultimate burden of the tax.
    Appeals from the District Court for Lancaster County:
    A ndrew R. Jacobsen, Judge. Affirmed.
    Steve Grasz and Henry L. Wiedrich, of Husch Blackwell,
    L.L.P., for appellants.
    Douglas J. Peterson, Attorney General, and L. Jay Bartel for
    appellees.
    Heavican, C.J., Wright, Connolly, Miller-Lerman, Cassel,
    and K elch, JJ., and Irwin, Judge.
    Heavican, C.J.
    NATURE OF CASE
    Several indoor tanning salon businesses appeal from the
    district court’s decision affirming the denial of tax refund
    claims by the Tax Commissioner (Commissioner). The salons
    assert that the Nebraska Department of Revenue (Department)
    improperly collected more than $1.7 million in admissions
    taxes from the salons. The Commissioner reasoned that the
    salons were not the taxpayers and, therefore, found that the
    salons lacked standing to claim refunds. The district court
    affirmed the Commissioner’s decision. The salons appealed,
    and we granted their petition to bypass. The Department
    and Commissioner cross-appeal, claiming the district court
    lacked subject matter jurisdiction over some of the claims.
    We affirm.
    BACKGROUND
    In May 2013, Aline Bae Tanning, Inc.; Ashley Lynn’s, Inc.;
    Maple 110 Tanning, L.L.C.; RSB LLC; Tanning Horizons,
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    ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.
    Cite as 
    293 Neb. 623
    L.L.C.; and Wilson-Bonn, L.L.C. (collectively Ashley Lynn’s)
    filed a total of 15 claims for tax refunds with the Department.
    The Ashley Lynn’s salons claimed refunds of admissions taxes
    on gross receipts totaling more than $1 million. In December
    2013, JB & Associates, Inc., doing business as Suntan City
    (JB), filed a claim with the Department for a refund of over
    $600,000 in admissions tax.
    Though not entirely clear, it appears that in November 2012,
    the Attorney General’s office had issued an opinion that Neb.
    Rev. Stat. § 77-2703(1) (Reissue 2009) did not authorize sub-
    jecting tanning salons to admissions taxes. The Department has
    since repealed the regulation listing tanning salons among the
    businesses subject to the tax1 and has ceased collecting the tax.
    The Ashley Lynn’s and JB salons (collectively salons) argue
    that as the Attorney General had opined, they are not subject
    to the admissions tax and, as such, are entitled to a refund of
    the tax paid.
    The Commissioner disallowed the Ashley Lynn’s salons’
    claims on October 7, 2013, and disallowed JB’s claims on
    December 31. The Commissioner sent all of the salons nearly
    identical letters separately denying each claim. The letters
    explained that “[a] refund of a tax improperly or erroneously
    collected can only be issued by the State directly to the pur-
    chaser who paid the tax.” (Emphasis in original.)
    The salons sought judicial review in both cases, naming
    both the Department and the Commissioner as defendants. In
    November 2013, the Ashley Lynn’s salons filed one petition
    for all 15 of the Commissioner’s disallowances. Each of the
    15 disallowance notice letters were attached to the petition.
    JB filed a petition for judicial review in January 2014. The
    district court consolidated the two cases and heard arguments
    in January 2015.
    1
    See 316 Neb. Admin. Code, ch. 1, § 044.06 (2013).
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    ALINE BAE TANNING v. NEBRASKA DEPT. OF REV.
    Cite as 
    293 Neb. 623
    Neb. Rev. Stat. § 77-2708(2)(b) (Reissue 2009) permits
    “the person who made the overpayment” to file a claim for a
    refund of erroneously or illegally collected taxes. The district
    court below held that under § 77-2708 and our opinions in
    Governors of Ak-Sar-Ben v. Department of Rev. (Ak-Sar-Ben)2
    and Anthony, Inc. v. City of Omaha,3 the salons were not the
    “person[s]” who made the overpayments and thus lacked stand-
    ing to claim refunds.
    The salons jointly appealed and petitioned for bypass, which
    this court granted. The Department and Commissioner cross-
    appealed. We affirm because the salons lack standing.
    ASSIGNMENTS OF ERROR
    The salons assign, restated, that the district court erred by
    (1) finding the salons had no standing to claim refunds and (2)
    failing to reach the merits and find that the salons were entitled
    to refunds.
    The Department and Commissioner cross-appeal, assign-
    ing that the district court erred in finding it had subject matter
    jurisdiction over the claims by the Ashley Lynn’s salons.
    STANDARD OF REVIEW
    [1] A judgment or final order rendered by a district court in
    a judicial review pursuant to the Administrative Procedure Act
    (APA) may be reversed, vacated, or modified by an appellate
    court for errors appearing on the record. When reviewing an
    order of a district court under the APA for errors appearing on
    the record, the inquiry is whether the decision conforms to the
    law, is supported by competent evidence, and is not arbitrary,
    capricious, or unreasonable.4
    2
    Governors of Ak-Sar-Ben v. Department of Rev., 
    217 Neb. 518
    , 
    349 N.W.2d 385
    (1984).
    3
    Anthony, Inc. v. City of Omaha, 
    283 Neb. 868
    , 
    813 N.W.2d 467
    (2012).
    4
    Liddell-Toney v. Department of Health & Human Servs., 
    281 Neb. 532
    ,
    
    797 N.W.2d 28
    (2011).
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    [2] On review, an appellate court determines the meaning
    of a statute independently of the determination made by an
    administrative agency.5
    ANALYSIS
    Standing.
    In the salons’ first assignment of error, they argue that
    the district court erred by affirming the Commissioner’s
    conclusion that the salons lacked standing to claim refunds.
    Both the Commissioner and the district court found that the
    salons’ customers, and not the salons themselves, were the
    proper parties to bring claims for refunds. We affirm the
    district court’s determination, because the salons were not
    the taxpayers.
    [3-5] Under the APA, only an “aggrieved party” may seek
    judicial review of an agency action.6 We have addressed the
    “aggrieved party” in terms of standing.7 A party must have
    standing before a court can exercise jurisdiction, and either a
    party or the court can raise a question of standing at any time
    during the proceeding.8 Standing involves a real interest in the
    cause of action, meaning some legal or equitable right, title,
    or interest in the subject matter of the controversy.9 Section
    77-2708(2)(b) permits “the person who made the overpay-
    ment” to claim a refund of erroneously or illegally collected
    sales or use tax. Thus, only the person who made the over-
    payment has a real interest in the controversy of a sales tax
    refund claim.
    5
    CenTra, Inc. v. Chandler Ins. Co., 
    248 Neb. 844
    , 
    540 N.W.2d 318
    (1995).
    6
    Neb. Rev. Stat. § 84-917(1) (Reissue 2014).
    7
    See Central Neb. Pub. Power v. North Platte NRD, 
    280 Neb. 533
    , 
    788 N.W.2d 252
    (2010).
    8
    Frenchman-Cambridge Irr. Dist. v. Dept. of Nat. Res., 
    281 Neb. 992
    , 
    801 N.W.2d 253
    (2011).
    9
    In re Interest of Enyce J. & Eternity M., 
    291 Neb. 965
    , 
    870 N.W.2d 413
          (2015).
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    [6] We have previously addressed whether businesses that
    remit admissions taxes to the Department have standing to
    claim refunds. In Ak-Sar-Ben, we held that operators of a
    horseracing track did not have standing to claim refunds of
    admissions taxes.10 Instead, we determined that the consumer
    is the taxpayer and that thus, only the consumer has standing
    to claim a refund of admissions tax.
    As we explained in Ak-Sar-Ben, § 77-2703 requires pur-
    chasers to pay the admissions tax to the seller, and then
    requires the seller to remit the tax to the Department. The tax
    constitutes both a debt of the purchaser to the seller, and of
    the seller to the State. The statute prohibits businesses from
    absorbing the cost of admissions taxes. Under the terms of
    § 77-2703, the tax revenue is merely held in trust by the seller
    for the State, and the State reimburses the seller for expenses
    associated with collection.
    The salons argue that Ak-Sar-Ben is either inapplicable or
    incorrect. They assert that the legal incidence of the admis-
    sions tax falls upon the salons and that therefore, they are the
    persons who made the overpayments and who have standing.
    [7] In Anthony, Inc., we used the legal incidence test to
    determine whether a municipal tax on restaurants in Omaha,
    Nebraska, was a sales tax or an occupation tax.11 As a munici-
    pality, Omaha was without the authority to impose a sales tax,
    but could establish an occupation tax. The primary difference
    between a sales tax and an occupation tax, we held, is who
    bears the legal incidence, or “who the law declares has the
    ultimate burden of the tax.”12 The legal incidence of a true
    sales tax falls upon the purchaser, whereas the legal incidence
    of an occupation tax is on the seller for the privilege of operat-
    ing a particular type of business. Neither the name given to a
    10
    Ak-Sar-Ben, supra note 2.
    11
    Anthony, Inc., supra note 3.
    12
    
    Id. at 877,
    813 N.W.2d at 476.
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    tax, nor the fact that a tax is assessed from gross receipts, are
    dispositive of where the legal incidence falls.13
    In Anthony, Inc., we distinguished Ak-Sar-Ben, noting that
    § 77-2703 (at issue in both Ak-Sar-Ben and the present case)
    explicitly requires that the purchaser pay the cost of the admis-
    sions tax. The restaurant tax at issue in Anthony, Inc., how-
    ever, explicitly imposed the legal burden upon restaurants and
    merely gave restaurants the discretion to decide whether to
    pass along the cost (i.e., the economic incidence) to the pur-
    chaser. Therefore, we held that the restaurant tax was a valid
    exercise of municipal power to create occupation taxes.
    The salons argue that Ak-Sar-Ben is not binding in this case
    because it is inconsistent with the test set forth in Anthony, Inc.
    In Anthony, Inc., we stated:
    If the customer refuses to pay the occupation tax when
    itemized on his or her bill, action by the City will be
    taken against the restaurant, not against the consumer.
    Because the legal incidence of the tax falls on the busi-
    ness and not the customer, the Restaurant Tax is an occu-
    pation tax, not a sales tax.14
    The salons argue that this passage supports the contention
    that legal incidence falls upon them, because taxes under
    § 77-2703(1)(a) “constitute[] a debt owed by the retailer to
    this state” and the retailers are subject to penalties for failure
    to perform collection duties and remit the taxes to the State.15
    The salons do not challenge their statutory duty to collect the
    taxes, nor do they challenge any penalties imposed for a failure
    to fulfill that duty.
    Though the above language from Anthony, Inc. could
    appear to support the salons’ contention, when read in con-
    text, it does not. In Anthony, Inc., we clearly stated that the
    13
    
    Id. 14 Id.
    at 
    881-82, 813 N.W.2d at 479
    .
    15
    See Neb. Rev. Stat. §§ 77-2709 and 77-2713(1) (Reissue 2009).
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    legal incidence of a tax depends upon “who the law declares
    has the ultimate burden of the tax.”16 That a party acting as a
    tax collector is subject to penalties for failing to perform its
    statutory duties is irrelevant. Rather, as we did in Anthony,
    Inc. and Ak-Sar-Ben, we must look backward from the point
    at which the Department receives the revenue until we find the
    final person legally liable for payment under the statute.
    While § 77-2703(1)(a) calls the admissions tax a debt from
    the retailer to the State, the immediately preceding sentence
    specifically states that the tax “shall constitute a part of the
    purchase price and until collected shall be a debt from the con-
    sumer to the retailer and shall be recoverable at law in the same
    manner as other debts.” Clearly, while the retailer is legally
    responsible for passing the revenue on to the Department, the
    ultimate burden of the tax falls upon the consumer who is
    legally liable to the retailer. Thus, the fact that retailers may
    be subject to penalties for failing to perform collection duties
    has no bearing upon our analysis; even when such penalties
    are imposed, the consumer is still liable for the tax under
    § 77-2703(1)(a). As the salons themselves admit, the legal inci-
    dence of a tax is not placed upon a retailer simply because the
    retailer “‘is typically required to collect the tax . . . and remit
    it to the taxing authority.’”17
    The salons argue that by looking backward in this manner,
    we are confusing legal incidence with economic incidence.
    To prove this point, the salons cite an array of case law from
    other jurisdictions. We have reviewed these cases and find
    that they are distinguishable; none of the cases interpret a
    statute that imposes liability upon the consumer in the same
    16
    Anthony, Inc., supra note 3, 283 Neb. at 
    877, 813 N.W.2d at 476
    (emphasis
    supplied).
    17
    Brief for appellants at 25 (quoting Southern Pacific Transp. Co. v. State,
    
    202 Ariz. 326
    , 
    44 P.3d 1006
    (Ariz. App. 2002)).
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    manner as does § 77-2703.18 Instead, the salons cite only to
    tax schemes in which retailers are permitted, but not required,
    to pass along costs to consumers. In other words, these cases
    consider scenarios in which the businesses shifted the eco-
    nomic incidence of a tax, but the legal incidence remained
    upon the businesses. Therefore, the cases cited by the salons
    are distinguishable.
    The salons also allege due process violations. This argument
    fails because, as discussed above, the consumers are the tax-
    payers. As Neb. Rev. Stat. § 77-3905(6) (Reissue 2009) makes
    clear, taxes collected by retailers “as agent[s] for the State of
    Nebraska . . . shall constitute a trust fund in the hands of the
    . . . retailer . . . and shall be owned by the state.” Therefore,
    in this narrow context, the taxes collected never belonged to
    the salons and the salons have no property interest in the taxes
    sufficient to warrant due process rights.
    Finally, the salons assert that because § 77-2708(2)(c) pro-
    hibits refund claims of fewer than $2, none of their customers
    will be able to claim refunds and those customers’ due proc­
    ess rights will be violated. Therefore, they argue, we should
    find that the salons have standing and permit the customers
    to seek refunds from the salons. We note three reasons this
    argument fails. First, the record does not contain evidence
    that no customers would have refund claims of $2 or greater.
    The salons claim that none of their customers paid more than
    $2 in admissions tax, but have not provided records of all of
    their customers’ payments. Second, the salons do not have
    standing to challenge a statute’s constitutionality on the basis
    of third-parties’ due process rights; they have not shown that
    18
    See, e.g., Loeffler v. Target Corp., 
    58 Cal. 4th 1081
    , 
    324 P.3d 50
    , 171 Cal.
    Rptr. 3d 189 (2014); South Cent. Bell Telephone Co. v. Olsen, 
    669 S.W.2d 649
    (Tenn. 1984); Ferrara v. Director, Div. of Taxation, 
    127 N.J. Super. 240
    , 
    317 A.2d 80
    (1974); Martin Oil Ser. Inc. v. Dept. of Revenue, 
    49 Ill. 2d
    260, 
    273 N.E.2d 823
    (1971).
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    the $2 minimum in § 77-2708(2)(c) will cause a deprivation of
    their own protected rights.19 Third, to find that the salons have
    standing in this case could limit customers’ ability to later
    claim refunds.
    As discussed in Ak-Sar-Ben and above, the customers were
    the taxpayers of the admissions tax. We will not rewrite the
    law and completely overhaul the refund scheme put in place
    by the Legislature because of a hypothetical argument the
    salons attempt to make on their customers’ behalf.
    For these reasons, we find that the salons do not have stand-
    ing to claim a refund and their first assignment of error has
    no merit.
    Merits.
    Because we find that the salons did not have standing,
    we do not address whether the tanning salons’ gross receipts
    should have been subject to the admissions tax. Therefore, we
    do not reach the salons’ second assignment of error.
    Subject Matter Jurisdiction.
    On cross-appeal, the Department and Commissioner assign
    that the district court erred by finding it had subject matter
    jurisdiction over the 15 claims filed jointly by the Ashley
    Lynn’s salons. We have already held that the Ashley Lynn’s
    salons lacked standing; therefore, the district court lacked
    jurisdiction over the claims. Thus, we do not reach the assigned
    error on cross-appeal.
    CONCLUSION
    The decision of the district court is affirmed.
    A ffirmed.
    Irwin, Judge, not participating in the decision.
    Stacy, J., not participating.
    19
    See Bullock v. J.B., 
    272 Neb. 738
    , 
    725 N.W.2d 401
    (2006).