Deferrence In Mississippi Tax Appeals – What Does "Official" Really Mean?

DOR "Fact Sheet" Was Not An "Other Officially Adopted Publication" And Was Not Owed Any Deference in Mississippi Tax Appeals

In an administrative tax appeal, Mississippi law requires the Board of Tax Appeals (the "BTA") "give deference to the department's interpretation and application of the statutes as reflected in duly enacted regulations and other officially adopted publications." Miss. Code Ann. Section 27-77-5(6)(b). The BTA and Hinds County Chancery Court recently ruled that a "Fact Sheet" purporting to set forth official but questionable tax policy did not meet this standard, and the BTA was not required to defer to the Mississippi Department of Revenue's legal interpretation reflected in that publication.¹

To the extent they purport to set forth official Department policy, this ruling potentially applies to numerous other types of non-regulatory guidance the Department has issued over the years, including Technical Bulletins, Notices, Memoranda and other guidance currently found on their website. While those types of publications may be helpful to taxpayers, the BTA may not automatically defer to that substantive guidance as they would with a formal regulation if challenged on appeal.

The Tennessee Gas Pipeline Case

This issue arose in the context of Mississippi's audit of Tennessee Gas Pipeline Company, LLC where they Department assessed use tax on separate shipping and freight charges that the company paid to third parties. These freight charges were not paid to the vendor or otherwise included in the vendors' sales price as they were separate closed transactions with the freight company, and the taxpayer contested the Department's position that those charges were taxable.

In October 2017, which was well into the audit period at issue and well after the company had filed many of its returns for the audit period, the Department uploaded a "Fact Sheet" to its website addressing taxation of delivery charges.² That Fact Sheet set forth the Department's position – ultimately rejected by the BTA, trial court and Supreme Court – that "fees paid for delivery of the property to the point of storage or use in Mississippi are included in the taxable purchase price or taxable value of the property regardless of whether the fees were paid to the seller of the property or paid directly to a third party common carrier."

Tennessee Gas challenged the Department's substantive tax position and ultimately prevailed on the merits at the BTA and again in court, but also challenged the claim that this Fact Sheet was owed any deference by the BTA.

Administrative Deference and What Constitutes an Officially Adopted Publication

At the BTA level and again before the Chancery Court, the Department argued that the BTA was required statutorily to defer to the Department's legal position on the basis that the Fact Sheet constituted an "other officially adopted publication." Both the BTA and Chancery Court rejected this position. On appeal the Mississippi Supreme Court did not revisit the issue because it was moot following the Court's de novo ruling on the substantive issue that the use tax did not apply to third-party shipping or freight charges. Because the Supreme Court did not have to address the issue in its de novo ruling on the merits, the lower court decision may not be considered official precedent in later appeals, but it certainly suggests that both the BTA and courts believe limits exist to that agency-level deference requirement.

By way of background, the Department's administrative regulations fail to recognize the existence of this type of informal guidance. Those regulations authorize only four types of "official" guidance – broadly applicable official rules and regulations enacted in accordance with the Administrative Procedures Act; taxpayer-specific decisions resulting from administrative hearings and appeals; confidential official letter rulings requested by and applicable to a specific taxpayer; and official declaratory opinions which also must be requested by the public and which are confidential to the requestor. See, Miss. Admin. Code 35.I.01. The Department has never enacted any rule authorizing or setting any objective procedures for the issuance of "fact sheets" that purport to have the authority of an official regulation or ruling, meaning they may not qualify as "official" under any objective argument or analysis of the Department's own governing documents.

The BTA examined the circumstances surrounding the Fact Sheet, concluded that the guidance did not constitute an officially adopted publication, and declined to give it any deference:

The Department appealed the BTA's Order to the Hinds County Chancery Court, but that court was similarly skeptical and ultimately granted the taxpayer summary judgment on both the deference and substantive tax questions. On the deference issue, the taxpayer argued that the Fact Sheet reflected none of the characteristics of the aforementioned official forms of publications referenced in the Department's administrative regulations. It was not enacted in accordance with the Administrative Procedures Act, it was not publicized, and the public was not offered any opportunity to review or comment on it prior to adoption. It was not requested by any particular taxpayer or the public, nor was it the result of an administrative hearing. In fact, no evidence existed that the Department followed any objective or tangible process whatsoever when it "adopted" that guidance.

When pressed by the Court in the summary judgment hearing, the Department could not "make clear or prove to the Court the process that this fact sheet potentially underwent to become an adopted publication." Ultimately, the Court declined to deem the Fact Sheet an officially adopted publication, and further held that its conclusions were contrary to the law in any regard.

Note Different Rule for Judicial Appeals

Although the judicial tax appeal statutes also contain the same deference requirement applicable to the BTA, the Mississippi courts no longer give any deference to the Department in judicial appeals. The Mississippi Supreme Court recently invalidated that provision on separation of powers grounds and formally abandoned any concept of deference to the Department's regulations or other guidance at the judicial level. See, HWCC-Tunica, Inc. v. Mississippi Department of Revenue and Mississippi Gaming Commission, No. 2019-CA-00336-SCT (Miss. 2020).

Implications on Future Administrative Appeals

Going forward, any taxpayers challenging a substantive departmental tax policy before the BTA should consider the source of the Department's position and whether it is contained in a formal regulation or in one of the classes of guidance specifically recognized in the Department's administrative regulations. While our experience is that the BTA does generally defer to official regulations unless they are clearly incorrect as a matter of law, one should not assume that deference is owed to the Department's policies merely because they are embodied within one of these "unofficially" adopted publications such as fact sheets and technical bulletins.

Footnotes

1 Mississippi Department of Revenue v. Tennessee Gas Pipeline Company, LLC, Order Granting Cross Motion for Summary Judgment, Case No. 2022-799, Hinds County Chancery Court (Aug. 30, 2023).

2 One could reasonably question whether the Department adopted the Fact Sheet knowing the substantive issue was coming up in audits, with an objective of tipping the scales in their favor on appeal based on the deference language in the statutes. As demonstrated in this case, adopting this type of informal guidance is far easier than going through the publication and public comment processes required by the Administrative Procedures Act.

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