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C. A. MARX, CHAIRMAN AND COMMISSIONER OF REVENUE, MISSISSIPPI STATE TAX COMMISSION v. LEON BOUNDS

JULY 06, 1988

C. A. MARX, CHAIRMAN AND COMMISSIONER OF REVENUE, MISSISSIPPI STATE TAX COMMISSION
v.
LEON BOUNDS, D/B/A LEON'S PLACE AND LEON BOUNDS, D/B/A BOUNDS OIL COMPANY AND LEON BOUNDS, D/B/A HANDY STOP



BEFORE DAN LEE, P.J., PRATHER AND SULLIVAN, JJ.

PRATHER, JUSTICE, FOR THE COURT:

At issue in this appeal is the quantum and quality of evidence needed by a taxpayer to overcome the State Tax Commission's deficiency assessment, which assessment is presumed to be prima facie correct under the Mississippi statute. This appeal arises from an order of the Chancery Court of Newton County requiring the State Tax Commission to refund $5,577.45 plus interest, representing part of the assessment of additional sales taxes on businesses owned by Leon Bounds. On appeal, the State Tax Commission assigns the following as error:

(1) The chancery court erred by ruling that sales taxes should be refunded by the Commission to the taxpayer, Mr. Leon Bounds, where Mr. Bounds failed to meet the burden of proof necessary to overcome the Tax Commission's assessments which, pursuant to Miss. Code Ann. 27-65-37, are deemed prima facie correct.

 (2) The chancery court erred in allowing the introduction of Plaintiff's Exhibit No. 1 to the testimony of his accountant since the document was not produced in pretrial discovery as required by Rules 33, 34 and 26(f) of the Mississippi Rules of Civil Procedure and Miss. Code Ann. 13-1-226(e).

 Bounds assigns the following as error on cross-appeal:

 (1) The chancery court was manifestly in error in only ordering the appellant to reimburse appellee a portion of the sales taxes improperly assessed by appellant against appellee's businesses known as Leon's Place and Handy Stop.

 I.

 Leon Bounds owned three businesses during the audit period: Bounds Oil Company, a wholesale gasoline and diesel business, and Leon's Place and Handy Stop, both convenience stores.

 In October, 1984, James Weeks, a field auditor of the State Tax Commission, conducted an audit of Bounds' three businesses for an audit period of January, 1982 through September, 1984. However, Leon's Place did not commence operation until January 8, 1983.

 Weeks found that Bounds determined the amount of sales taxes due by utilizing bank statements of each business. Bounds computed total sales by adding total monthly deposits, estimated cash payouts to employees and vendors, and estimated owner cash withdrawals. Weeks concluded that Bounds had underreported gross sales from all his businesses and made a deficiency assessment of $14,513.73 for Bounds Oil Company, $5,127.22 for Leon's Place, and $5,212.15 for Handy Stop. The Mississippi State Commission's Board of Review upheld Weeks' conclusions, except that the sales tax liability on Leon's Place was reduced by one-half from $5,127.22 to $2,563.61.

 Bounds paid his assessment and filed his original complaint in the Chancery Court of Newton County on August 23, 1985, for the recovery of allegedly improperly assessed sales taxes on the three businesses.

 The case was tried on May 1 and May 5, 1986, and on June 9, 1986, the chancery court ordered the Commission to repay Bounds $3,474.77 in sales taxes improperly assessed on Handy Stop and $2,102.68 sales taxes improperly assessed on Leon's Place, for a total of $5,577.45. The chancery court affirmed in full the assessment on Bounds Oil Company, and that part of the cross-appeal regarding Bounds Oil Company has been abandoned by Bounds as to that one business. The State Tax Commission appeals the reduction of the assessment on the two convenience stores, and Bounds cross-appeals the failure to refund totally all deficiency assessments on both convenience

 stores.

 II.

 WAS THE CHANCERY COURT IN ERROR IN ITS DETERMINATION OF SALES TAXES ON HANDY STOP AND LEON'S PLACE?

 At the Handy Stop and Leon's Place businesses, the only records kept by Bounds were purchase invoices and bank records. There were no records reflecting actual sales by Handy Stop or Leon's Place, no sales invoices, no record of cash withdrawals, and no record of actual markups on the store's inventories. Bounds testified that he had kept records showing gross receipts, but that by reason of their inadequacy, he had not produced them for the Commission. He also refused to state that his method of determining the tax was more accurate than the Commission's.

 To support his method of determining total sales, Bounds relies upon the auditor's admission that," [i]f you took [Bounds'] daily deposits, considering he deposited every money he takes in and that only, in his business bank account, and add to that the cash payouts plus the credit card sales . . ., [that would] be his daily sales for that particular day. "Bounds seeks further support in Weeks' statement that all the Commission requires a taxpayer to do is to keep up with his true daily sales record.

 A.

 HANDY STOP

 Weeks, the auditor, determined that taxes on Handy Stop were due and unpaid. Weeks found that the business expenses plus estimated cash payouts to vendors, employees, and Bounds, including purchase invoices, exceeded total reported sales, and he thus concluded that total receipts had been under-reported. Weeks concluded that minimum unreported sales were $52,689.30, as follows:

 Reported Reported Minimum Sales ...


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