Montgomery Ward & Co. v. State, Department of Revenue
Docket: 82CA0761
Court: Colorado Court of Appeals; April 14, 1983; Colorado; State Appellate Court
Montgomery Ward Co. Inc. (Wards) appealed a judgment awarding interest to the Colorado Department of Revenue on a tax deficiency assessment and accrued judgment interest. The Department cross-appealed the denial of attorney fees. The court affirmed in part and reversed in part.
In 1964, Wards was allowed to pay sales tax on a cash receipt basis, but in 1975, the Department determined that Wards should remit tax on an accrual basis because it was selling its accounts receivable. A notice of deficiency was issued in April 1976 for the tax owed as of February 1976, leading to a hearing where the executive director upheld the assessment, requiring payment by March 2, 1977. An order in January 1977 revoked Wards' 1964 authorization, mandating tax payments on an accrual basis starting February 1977.
Wards filed a complaint and obtained a stay of the order while continuing to pay sales tax on a cash basis. It completed payments for the February 1976 assessment in July 1977. Following a trial in February 1978, the court upheld the tax assessment but disallowed unrelated penalties and interest.
An amendment to the credit sales tax statute in 1979 effectively revoked the director's earlier order, but Wards' remittance schedule meant payments for December 1979 sales were not due until May 1981. The Supreme Court affirmed the trial court's judgment in 1981, and the Department subsequently demanded payment of the judgment amount, including interest for underpayment and post-judgment interest.
Wards filed a motion for satisfaction of judgment on July 31, 1981, contending that a February 1978 judgment addressed only the specific amount stated in the notice of deficiency, without additional penalties or interest, and that the total had been fully paid by July 1977. On August 5, 1981, Wards notified the Department of their intent to terminate the previously agreed extension for assessments. The Department responded on August 12, 1981, with a motion under C.R.C.P. 65.1 to proceed against surety, asserting that the February 1978 judgment extended beyond the 1976 assessment to encompass all amounts in the deferred sales account. A non-evidentiary hearing was held on November 13, 1981, but the court postponed its ruling.
On January 28, 1982, the Department issued a jeopardy assessment demanding immediate payment of deferred tax, penalty, and interest. The court entered judgment for the Department on April 7, 1982, awarding interest on the tax due and unpaid, but denying the Department’s request for attorney fees. Wards then filed a C.R.C.P. 59(e) motion claiming they were not given adequate time to contest the figures submitted by the Department, but this motion was denied.
The appeal focuses on whether the Department can recover interest under specific statutes for the tax due based on the director's January 1977 order and whether the 1978 judgment was a liquidated claim allowing for recovery of judgment interest. The court concluded that it erred in awarding interest under the cited statute for the period from the director's determination to the court's judgment in February 1978. The court disagreed with the Department's assertion that the director's order constituted an ongoing assessment of Wards' deferred account balance and clarified that proper procedures for recovering sales taxes were outlined in the relevant statutes, which require written notice of estimated taxes, penalties, and interest for delinquencies.
Section 39-21-109(1), C.R.S. 1973, permits the director to assess interest on unpaid taxes, contingent upon proper notice, demand, and assessment as outlined in 39-21-109(2). Similarly, penalties for intentional non-payment under 39-26-115 require prior notice and demand. Interest, being statutory, must adhere to these prescribed procedures. The Department’s failure to follow these procedures in assessing interest on the tax liability constituted an error. The Supreme Court, in Department of Revenue v. District Court, ruled that an administrative ruling, not an assessment of tax, was at issue, clarifying that the revocation of sales tax remittance permission did not equate to a notice of deficiency or tax assessment, absolving Wards from interest liability under 39-21-109.
Interest on judgments from the entry date until satisfaction is allowed by 5-12-102(4). Wards contested the 1978 judgment's status as unliquidated for interest calculation; however, the court found the judgment to be valid. The uncertainty surrounding the tax due does not prevent interest from being liquidated. The court affirmed Wards' entitlement to interest from February 6, 1978, until the judgment is satisfied, extending beyond the initially limited period. The case is remanded for the trial court to make specific findings regarding interest computation.
Additionally, the trial court's decision to deny attorney fees to the State was upheld as it was deemed discretionary. The judgment is affirmed concerning Wards' obligation to pay interest from the judgment date until satisfaction but reversed regarding the improper awarding of interest under 39-21-109(1) and additional interest on unpaid amounts. The court mandates a recalculation of interest based on the difference between the tax amounts Wards should have paid and what was actually paid from February 1978 to December 31, 1979.
