                   IN THE SUPREME COURT OF MISSISSIPPI

                               NO. 2014-CA-01685-SCT

MISSISSIPPI DEPARTMENT OF REVENUE

v.

HOTEL AND RESTAURANT SUPPLY


DATE OF JUDGMENT:                        11/05/2014
TRIAL JUDGE:                             HON. WILLIAM H. SINGLETARY
COURT FROM WHICH APPEALED:               HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT:                 BRIDGETTE TRENETTE THOMAS
                                         DAVID J. CALDWELL
                                         LAURA HUDDLESTON CARTER
                                         ABIGAIL MARSHALL MARBURY
ATTORNEYS FOR APPELLEE:                  TAYLOR BRANTLEY McNEEL
                                         LEONARD D. VAN SLYKE, JR.
NATURE OF THE CASE:                      CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION:                             AFFIRMED - 03/10/2016
MOTION FOR REHEARING FILED:
MANDATE ISSUED:



      BEFORE WALLER, C.J., KITCHENS AND COLEMAN, JJ.

      COLEMAN, JUSTICE, FOR THE COURT:

¶1.   The Mississippi Department of Revenue (MDOR) audited Hotel and Restaurant

Supply (Hotel) and concluded that Hotel owed hundreds of thousands of dollars in underpaid

sales tax. Hotel appealed the assessment to MDOR’s Board of Review, which upheld the

assessment but reduced the amount owed. Hotel appealed to the Mississippi Board of Tax

Appeals (MBTA), and MBTA abated the assessment in full. MDOR appealed MBTA’s

decision to the Hinds County Chancery Court. Both parties filed motions for summary
judgment, and the chancery court granted Hotel’s motion. MDOR appealed the chancery

court’s decision to grant Hotel’s motion for summary judgment. We hold that MDOR’s

interpretation of the statutes at issue in the present case was not the best reading of the

statutes; therefore, we affirm the chancery court’s grant of Hotel’s motion for summary

judgment.

                        FACTS AND PROCEDURAL HISTORY

¶2.    Hotel and Restaurant Supply sells commercial kitchen equipment and related supplies

to contractors for use in businesses. State statute allows for a contractor’s sales tax of 3.5%

as opposed to the standard 7% sales tax, provided that the sale is made under a materials

purchase certificate and the items become a component part of the structure the contractor

is building. See Miss. Code Ann. § 27-65-21 (Rev. 2016). MDOR audited Hotel and

determined that Hotel should have charged a 7% sales tax on certain sales that, in MDOR’s

opinion, were not for items that became a component part as required by statute. According

to the audit, Hotel owed $294,169. Following the audit, MDOR found additional invoices

and raised the total owed to $422,651. Hotel appealed the assessment to MDOR’s Board of

Review, which upheld the assessment but reduced the amount owed to $408,740.

¶3.    Next, Hotel appealed to MBTA, which absolved Hotel from the assessment in full.

MDOR, as the aggrieved party, then appealed to the Hinds County Chancery Court pursuant

to Mississippi Code Section 27-77-7. Hotel filed a motion for summary judgment, or in the

alternative, a motion for a declaratory judgment, to which MDOR responded and filed its

own motion for summary judgment or declaratory judgment. On June 13, 2014, the chancery



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court heard the parties’ motions for summary judgment. In granting summary judgment in

favor of Hotel, the chancery court explained that it would not defer to either the Board of

Review or MBTA because both are administrative agencies entitled to deference; therefore,

the chancery court found it was impossible to give deference to one when the decisions are

in conflict. The chancery court stated: “[A]ppellate courts cannot simultaneously defer to

two (2) conflicting decisions.” The chancery court went on to analyze whether MDOR had

proven that MBTA’s decision was unsupported by substantial evidence, was arbitrary and

capricious, was beyond its power to make, or violated MDOR’s constitutional or statutory

rights. See Equifax, Inc. v. Miss. Dep’t of Revenue, 125 So. 3d 36, 41 (¶10) (Miss. 2013).

The chancery court found that MDOR had provided no evidence that MBTA’s decision was

unsupported by substantial evidence and that MDOR never had challenged MBTA’s decision

utilizing the other avenues– i.e., that it was arbitrary and capricious, beyond its power to

make, or a violation of a constitutional or statutory right. Based on its analysis, the chancery

court found in favor of Hotel, and MDOR filed the present appeal.

¶4.    On appeal, MDOR argues that the chancery court applied an incorrect standard of

review to appeals under Mississippi Code Section 27-77-7, and that application of the proper

standard of review entitles MDOR to summary judgment relief.

                                         ANALYSIS

¶5.    Mississippi Code Section 27-77-7(5) provides the process and standard of review for

chancery court review of MDOR and MBTA decisions, and issues related to such are

questions of law. See Equifax, 125 So. 3d at 41 (¶7). As customary, questions of law are



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reviewed de novo. Id. (citation omitted). Further,“[a] de novo standard is applied when the

Court reviews a chancery court’s grant or denial of summary judgment.” Miss. Dep’t of

Revenue v. Isle of Capri Casinos, Inc., 131 So. 3d 1192, 1194 (¶5) (Miss. 2014) (citing In

re Guardianship of Duckett, 991 So. 2d 1165, 1173 (¶15) (Miss. 2008)).

¶6.    MDOR’s appeal is based on the chancery court’s interpretation of Section 27-77-7,

which provides the judicial-review procedure for tax appeals. The Legislature amended

Section 27-77-7 in 2014, and MDOR argues that the prior version is the version applicable

to the present case; whereas Hotel claims that the amended statute should be taken into

consideration. Prior to the amendment, Section 27-77-7(5) read, in pertinent part: “[T]he

chancery court shall give deference to the decision and interpretation of law and regulations

by the Department of Revenue as it does with the decisions and interpretation of any

administrative agency, but it shall try the case de novo and conduct a full evidentiary hearing

on the issues raised.” The amendment, effective January 1, 2015, changed the language as

follows:

       [T]he chancery court shall give no deference to the decision of the Board of
       Tax Appeals, the Board of Review[,] or the Department of Revenue, but shall
       give deference to the department’s interpretation and application of the statutes
       as reflected in duly enacted regulations and other officially adopted
       publications. The chancery court shall try the case de novo and conduct a full
       evidentiary judicial hearing on all factual and legal issues raised by the
       taxpayer which address the substantive or procedural propriety of the actions
       of the Department of Revenue being appealed.

Miss. Code Ann. § 27-77-7(5) (Supp. 2015).1

       1
        But see Diamond Grove Ctr., LLC v. Mississippi Dep’t of Health, 98 So. 3d 1068,
1072 (¶9) (Miss. 2012) (quoting Queen City Nursing Center, Inc. v. Mississippi State Dep’t
of Health, 80 So. 3d 73, 84 (¶28) (Miss. 2011)) (“This does not mean that we ‘yield

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¶7.    MDOR argues that the prior version of the statute should control; therefore, the

chancery court should have deferred to MDOR’s decision and interpretation of the statute.

Hotel argues that, since MBTA also is an administrative agency, its decision should also be

afforded deference; however, even if MBTA is not entitled to deference, Hotel argues that,

in light of the 2014 amendment, MDOR’s decision also is not entitled to deference. The

parties presented the chancery court similar arguments, and the chancery court concluded

that, since both MDOR and MBTA are administrative agencies, decisions of both are

afforded deference. However, the chancery court explained that deferring to both posed a

serious issue when MDOR and MBTA presented conflicting decisions, since it would be

impossible to defer to two conflicting decisions. Then, considering the 2014 amendment,2

the chancery court said it would not defer to MDOR’s or MBTA’s decisions.

¶8.    We conclude that the issue of deference in the present case is of no moment because

MDOR’s interpretation of the underlying statutes still is reviewed de novo, as it is a matter

of law. See Buffington v. Miss. State Tax Comm’n, 43 So. 3d 450, 453-4 (¶12) (Miss.

2010) (quoting Miss. Methodist Hosp. and Rehab. Ctr., Inc. v. Miss. Div. of Medicaid, 21

So. 3d 600, 606 (¶15) (Miss. 2009)).

       An agency’s interpretation of a rule or statute governing the agency’s
       operation is a matter of law that is reviewed de novo, but with great deference


judgment or opinion’ to an agency’s statutory interpretation; indeed, ‘[t]he ultimate authority
and responsibility to interpret the law, including statutes, rests with this Court.’”)
       2
        The chancery court relied on USPCI of Mississippi, Inc v. State ex rel. McGowan,
688 So. 2d 783, 787 (Miss. 1997) (quoting Bell v. Mitchell, 592 So. 2d 528, 532 (Miss.
1991)) for the premise that, even though the 2014 amendment was not in effect at the time,
“[w]hen cases are in the bosom of this Court, we take that modification into consideration.”

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       to the agency’s interpretation. . . . However, if an agency’s interpretation is
       contrary to the unambiguous terms or best reading of a statute, no deference
       is due. An agency’s interpretation will not be upheld if it is so plainly
       erroneous or so inconsistent with either the underlying regulation or statute
       as to be arbitrary, capricious, an abuse of discretion, or otherwise not in
       accordance with the law.

Id. MDOR’s interpretation of the statute “is contrary to the unambiguous terms or best

reading of a statute[;]” therefore, such interpretation is not entitled to deference anyway. Id.

Additionally, “[i]t is well established that revenue laws are to be strictly construed against

the taxing power and that all ambiguities or doubts should be resolved in favor of the

taxpayer.” State Tax Comm’n v. Edmondson, 196 So. 2d 873, 875 (Miss. 1967) (citation

omitted).

¶9.    There are actually four statutes at play in the present case. First, Section 27-65-

17(1)(a) provides that a 7% tax “of the gross proceeds of the retail sales of the business” shall

be collected from all persons engaging in the business of selling tangible personal property.

Miss. Code Ann. § 27-65-17(1)(a) (Supp. 2015). Then, Section 27-65-31 provides that

“[a]ny person liable for a privilege tax levied and assessed by this chapter except the taxes

levied by Section[] . . . 27-65-21 . . . shall add the amount of such tax due by him to the sales

price or gross income and, in addition thereto, shall collect, insofar as practicable, the amount

of tax due by him from the purchaser at the time the sales price or gross income is collected.”

Miss. Code Ann. § 27-65-31 (Supp. 2015). MDOR relies upon the two statutes to show that

Hotel should have collected 7% sales tax regardless of whether a contractor presented a

material purchase certificate. However, the next statute is Section 27-65-21, which deals

with what is known as the contractors’ tax. According to Section 27-65-21(1)(a)(i), a

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contractor is assessed a 3.5% tax “of the total contract price or compensation received. . . .

The tax imposed in this section is levied upon the prime contractor and shall be paid by him.”

Miss. Code Ann. § 25-65-21(1)(a)(i) (Supp. 2015). Further, if the prime contractor sublets

any work, “each subcontractor performing any part of said work shall be liable for the

amount of the tax which accrues on the account of the work performed by such person when

the tax . . . imposed has not been paid upon the whole contract by the prime contractor.”

Miss. Code Ann. § 27-65-21(3) (Supp. 2015). Importantly, the statute explains that any

person entering a contract of more than $75,000 shall pay the contractors’ tax in advance or

file a bond with MDOR, and payment of either the tax in advance or the bond is a

prerequisite to beginning work on the contract. Id. Lastly and significantly, the statute

provides: “Any person liable for a tax under this section may apply for and obtain a material

purchase certificate from the commissioner which may entitle the holder to purchase

materials and services that are to become a component part of the structure to be erected or

repaired with no tax due.” Id. (emphasis added). The final statute is Section 27-65-3(m),

which tracks Section 27-65-21 by explaining that when a material purchase certificate is

issued by the commissioner, the holder is entitled to purchase the materials and services that

become components of the structure “with no tax due.” Miss. Code Ann. § 25-65-3(m)

(Supp. 2015). Section 27-65-3(m) further explains that if a contractor with a material

purchase certificate “at any time pays sales tax on these purchases [the contractor] may . . .

take a credit against his sales taxes for the sales tax paid on these purchases if proper




                                              7
documentation exists to substantiate the payment of the sales tax on the purchase of

component materials and services.”

¶10.   Reviewing the statutes in conjunction with one another, the only reasonable reading

is as follows: In general, Sections 27-65-17 and 27-65-31 require a business owner to charge

and collect 7% sales tax on tangible personal property sold. Section 27-65-31– which

requires, “insofar as practicable,” the seller to collect the amount of sales tax from the

purchaser at the time of the sale– explicitly excludes taxes assessed under Section 27-65-21,

which are the taxes at issue in the present case. Therefore, Section 27-65-21 trumps Hotel’s

duty under Section 27-65-31 to collect the taxes at the time of sale. In fact, it appears Section

27-65-21 obviates Hotel’s responsibility of charging any sales tax at the time of the sale if

the contractor provides a valid material purchase certificate. No language in any of the

discussed statutes or any MDOR rule or regulation requires Hotel to inquire about whether

certain items should or should not be purchased under a material purchase certificate, i.e.,

whether a material purchase certificate is being misused by a contractor. The onus of

complying with the statutes is placed clearly on the contractor who obtains the material

purchase certificate. MDOR’s real issue should be with the contractor who misuses the

material purchase certificate to purchase items that are not or do not become components of

the structure as required by statute. MDOR can audit the contractor– the person with the best

knowledge about how purchases were used– and have the contractor pay the correct amount.

MBTA’s decision provides a similar conclusion:

       The [MDOR]’s regulation provides that the contractor may make tax-free
       purchases of material that will become a component part of the structure

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         covered by that [material purchase certificate] number. Thus the contractor,
         not [Hotel], is the party which makes the determination as to whether a
         particular item purchased . . . will become a component part of the structure.
         . . . Furthermore, the [MBTA] believes that it is a wide-spread practice for
         [material purchase certificate] holders to purchase numerous items for projects
         under the applicable [material purchase certificate] and to self-report those
         items which do not become component materials of the job.

¶11.     In conclusion, though the bulk of the parties’ briefs focus on the initial deference

issue, the deference issue is not dispositive, since MDOR’s interpretation of the statutes

involved is not the best reading of the statute, and such interpretation is not entitled to

deference anyway. See Jones Cty. Sch. Dist. v. Dep’t of Revenue, 111 So. 3d 588, 597-8

(¶33) (Miss. 2013) ( “[E]ven though an ‘agency’s interpretation is an important factor that

usually warrants strong consideration,’ the Court does not defer to an agency’s interpretation

in the sense that it yields judgment or opinion. . . . Further, no deference is due if the

‘agency’s interpretation is contrary to the unambiguous terms or best reading of a statute.’”).

For the reasons discussed above, we hold that MDOR’s reading of the statute is not the best

reading of the statute.

                                       CONCLUSION

¶12.     Therefore, we affirm the chancery court’s grant of summary judgment in favor of

Hotel.

¶13.     AFFIRMED.

    WALLER, C.J., DICKINSON AND RANDOLPH, P.JJ., LAMAR, KITCHENS,
KING, MAXWELL AND BEAM, JJ., CONCUR.




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