Cascade Enforcement Agency v. Dept. of Rev. ( 2019 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
CASCADE ENFORCEMENT AGENCY, )
INC., )
)
Plaintiff, ) TC-MD 180103R
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, ) ORDER GRANTING
) DEFENDANT’S MOTION
Defendant. ) FOR SUMMARY JUDGMENT
This matter is before the court on Defendant’s motion for summary judgment (Motion)
filed on August 17, 2018. Plaintiff filed its opposition to the Motion on September 7, 2018.
Defendant filed a reply on September 24, 2018. Neither party requested oral argument on the
Motion.
I. FACTS
The essential facts of the case are not in dispute. On May 6, 2015, Defendant mailed
Plaintiff a notice entitled “Request to file W2s through iWire.” (Def. Ex A.) The notice states in
pertinent part:
“We have not received your W-2 information for tax year 2014, which was due
March 31 of the following year. (ORS 314.385).
“We only accept electronically filed W-2s. Paper W-2s or other forms of media
are no longer accepted. * * *
“If you fail to submit W-2 information returns electronically within 30 days of the
date of this notice, you may be subject to penalties under ORS 316.202.”
Plaintiff did not file its 2014 W-2 information electronically within the 30 days of the
May 6, 2015 notice and consequently Defendant mailed Plaintiff a “Notice of Special Penalty
Assessment” imposing a penalty of $2,500. (Def. Ex B.) Defendant subsequently granted
Plaintiff’s request to waive the penalty on July 27, 2015. (Def. Ex C.)
ORDER GRANTING SUMMARY JUDGMENT TC-MD 180103R 1
On April 22, 2016, Defendant mailed Plaintiff a “Request to file W2s through iWire” for
the 2015 tax year. The notice contained the same language about the 30-day response time,
mandatory electronic filing, and penalty provisions as in the prior year’s notice. (Def. Ex E.)
Plaintiff again did not file its W-2 information electronically within the 30-day period.1 On June
21, 2016, Defendant mailed Plaintiff a “Notice of Special Penalty Assessment” imposing a
penalty of $23,500 for “knowingly failing to file” W-2s electronically as required. (Def’s Ex F.)
II. ANALYSIS
The issues to be decided are (1) whether Defendant is authorized by ORS 305.1002 to
promulgate a rule requiring businesses to file W-2 reports and provide substantiation to the
Department of Revenue electronically, and, if so, may the department impose a penalty for
failure to follow the rule; (2) whether a penalty imposed under ORS 316.202(5)(b) and OAR
150-316-0359 is mandatory or discretionary; and (3) whether the penalty imposed was properly
applied.
ORS 316.167 generally imposes an obligation on employers to withhold a specified
amount of tax from wages paid to employees and report those withholdings to the department as
described in ORS 316.168 to 316.202. Employers must file an annual return pursuant to ORS
316.202(3). ORS 316.202 provides in pertinent part:
“(1) With each payment made to the Department of Revenue, every employer
shall deliver to the department, on a form prescribed by the department showing
the total amount of withheld taxes in accordance with ORS 316.167 and316.172,
and supply such other information as the department may require. * * *
*****
“(3) The employer shall make an annual return to the department on forms
provided or approved by it, summarizing the total compensation paid and the
1
Plaintiff asserts that it timely filed paper copies for the 2015 tax year. (Ptf’s resp at 2.) No evidence was
presented in support of that assertion. However, the court does not deem this fact necessary to a determination of
the Motion.
2
Unless otherwise noted, the court’s references to the Oregon Revised Statutes (ORS) are to 2013.
ORDER GRANTING SUMMARY JUDGMENT TC-MD 180103R 2
taxes withheld for all employees during the calendar year and shall file the same
with the department on or before the due date of the corresponding federal return
for the year for which report is made. Failure to file the annual report without
reasonable excuse on or before the 30th day after notice has been given to the
employer of failure subjects the employer to a penalty of $100. The department
may by rule require additional information the department finds necessary to
substantiate the annual return, including but not limited to copies of federal form
W-2 for individual employees, and may prescribe circumstances under which the
filing requirement imposed by this subsection is waived.
*****
“(5) In addition to the penalty required under subsection (3) of this section and
any other penalty required by law:
(a) A person who fails to file a report required under this section, or who files an
incomplete or incorrect report, shall be subject to a penalty of $50 per report after
the date on which the report is due, up to a maximum penalty of $2,500.
(b) A person who knowingly fails to file a report required under this section, or who
knowingly files an incomplete, false or misleading report, shall be subject to a penalty of
$250 per report after the date on which the report is due, up to a maximum penalty of
$25,000.”
Defendant argues that the department has the authority to require additional information
from employers and did so by its rule making authority contained in ORS 305.100 by
promulgating OAR 150-316-0359.3 Plaintiff argues that the penalty contained in OAR 150-316-
0359 goes beyond the authority granted by statute and is actually contrary to the statute. Plaintiff
further argues that the department’s action is unwarranted because “the penalty is not related to
the manner of filing” but only for a failure to substantiate the information.
3
This 2013 version of this rule was numbered 150-316-202(3) and provided in pertinent part:
“The information in the withholding statement (Form W2) must be filed electronically with the department
as follows:
“(A) If the employer has 250 or more employees, electronic filing of W2s is required beginning with
calendar year 2009 information returns;
“(B) If the employer has less than 250 employees and uses a payroll service provider, electronic filing of
W2s is required beginning with calendar year 2009 information returns;
“(C) If the employer does not use a payroll service provider and has:
“(i) Less than 250 employees, electronic filing of W2s is required beginning with calendar year 2010
information returns.
“(ii) Less than 50 employees, electronic filing of W2s is required beginning with calendar year 2011
information returns.
“(e) Under ORS 314.385, the due date for electronic filing of W2s for Oregon purposes is the same as the
federal due date for electronically filed W2s; March 31 following the close of the calendar year.”
ORDER GRANTING SUMMARY JUDGMENT TC-MD 180103R 3
We start by considering the general grant of rule-making authority the legislature gave to
the department in ORS 305.100. The department is authorized to “[m]ake such rules and
regulations it deems proper to regulate its own procedure and to effectually carry out the
purposes for which it is constituted.” ORS 305.100(1). Pursuant to that statute, the department
promulgated a rule requiring employers to file periodic and annual withholding reports, the
forms required, the deadlines, and the manner by which they should be filed. “Rules [of an
administrative agency] must be appropriate, reasonable, within the limitations of the law for the
enforcement of which they are provided. They must be consistent with the law and of such a
nature as to tend to its enforcement. [Citations omitted.]” Byer v. Dept. of Rev., 7 OTR 172, 178
(1977) (citing, McCarthy v. Coos Timber Co., 208 Or 371, 390, 302 P2d 238, 247 (1956).)
The department’s rule requiring electronic filing of W-2 information appears well with
within its discretion. The statute requires employers to deliver to the department quarterly and
annual reports, but it does not describe where or how that report is to be filed. It is completely
within the department’s delegated authority to make rules on how and where reports are to be
filed. “An administrative agency is not required to adopt rules for every facet of its
responsibilities.” Swenson v. Dep't of Rev., 6 OTR 234, 237 (1975), aff’d, 276 Or 1, 553 P2d
351 (1976). Failure to file the report with the department is also a failure to provide
substantiation. Even if it were not, the department’s letters to Plaintiff were sufficient to
constitute a request for substantiation and Plaintiff did not comply by filing the required W-2
forms electronically. Defendant has the authority to impose a penalty against Plaintiff for failing
filing to file and substantiate its annual W-2 report pursuant to OAR 150-316-202(3).
The next issue is whether the penalty is mandatory or discretionary. Defendant argues
“these penalties are not eligible for waiver under the Department’s discretionary authorities in
ORDER GRANTING SUMMARY JUDGMENT TC-MD 180103R 4
ORS 305.145.” (Motion at 5.) Plaintiff argues the opposite. ORS 305.145(4) provides:
“The department may establish by rule instances in which the department may, in
its discretion, waive any part or all of penalties provided by the laws of the State
of Oregon that are collected by the department. Rules adopted under this
subsection are limited to the waiver or reduction of penalties in cases where:
“(a) Good and sufficient cause exists for the actions of a taxpayer that resulted in
the imposition of a penalty;
“(b) The actions of a taxpayer that resulted in the imposition of a penalty
constitute a first-time offense on the part of the taxpayer; or
“(c) The actions of the department enhance long-term effectiveness, efficiency or
administration of the tax system.”
The department did establish a rule, OAR 150-305-0062, pursuant to ORS 305.145(4).
That rule provides, in pertinent part, “[p]enalties assessed under ORS 314.360(4)(b) or
316.202(5)(b) are not eligible for waiver consideration.” OAR 150-305-0062(3) (emphasis
added.) Further, ORS 316.202(5)(b) uses the term “shall” in describing the imposition of a
penalty. The court agrees with Defendant that a penalty under ORS 316.202(5)(b) is mandatory.
The remaining issue is whether the penalty was properly applied. Defendant presented
evidence that Plaintiff was given notice to file its W-2 report electronically for the 2014 tax year
and it waived a penalty imposed at Plaintiff’s request. Defendant also presented evidence that
the next year Plaintiff again failed to file its W-2 report for the 2015 tax year after being given
notice to do so. Defendant has met its burden of persuasion that Plaintiff knowingly failed to file
and substantiate its report as required by ORS 316.202(3). Plaintiff did not present any contrary
evidence or even argue the issue. Based on the evidence presented, Defendant’s motion for
summary judgment should be granted. Now, therefore,
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ORDER GRANTING SUMMARY JUDGMENT TC-MD 180103R 5
IT IS ORDERED that Defendant’s motion for summary judgment is granted.
IT IS FURTHER ORDERED that the court will issue a Decision in this matter after
running of the time periods in Tax Court Rule-Magistrate Division TCR-MD 16.
Dated this day of March 2019.
RICHARD DAVIS
MAGISTRATE
This is an order disposing of all issues pursuant to Tax Court Rule – Magistrate
Division 16 C(1). The court will issue a decision after waiting 14 days to
determine whether there is a dispute about costs and disbursements. Errors in
this order may be challenged by appealing the court’s decision. See TCR-MD 19.
This document was signed by Magistrate Richard Davis and entered on March 8,
2019.
ORDER GRANTING SUMMARY JUDGMENT TC-MD 180103R 6