IN THE MATTER OF THE APPEAL OF HIRT, TERRY/GOOD TIMES RESTAURANT & SPORTS CLUB, I FROM AN ORDER OF THE DIVISION OF TAXATION ON ASSESSMENT LIQUOR EXCISE, RETAILERS' SALES AND WITHHOLDINGS TAX
JOELENE R. ELLEN, SECRETARY
Now the above-captioned matter comes on for consideration and decision by the Court of Tax Appeals of the State of Kansas. The Court conducted an evidentiary hearing in this matter on March 6, 2008. The taxpayer appeared by his counsel of record, Benjamin J. Neill of Neill, Terrill & Embree. The Kansas Department of Revenue, Division of Taxation (the "Department") appeared by its counsel of record, Jay D. Befort.
The Court has jurisdiction of the subject matter and the parties, as an appeal has been properly and timely filed pursuant to K.S.A. 2008 Supp. 74-2438.
This appeal is from a personal liability assessment of liquor excise, retailers' sales and withholding tax. The material facts of this case are as follows. In Spring 1999, taxpayer Terry Hirt established a relationship with Anthony and Linda Walters. In August or September 1999, Mr. Walters told Mr. Hirt that he and his wife were in financial trouble and asked Mr. Hirt if he would be willing to back them financially in operating a bar/restaurant business in Baldwin, Kansas. The Walters informed Mr. Hirt that they were unable to get financing themselves. Mr. Hirt also was advised that the Walters were unable to get the required liquor and business licenses. In order to finance the undertaking, Mr. Hirt co-signed a loan for $10, 000 and pledged his pickup truck as collateral.
In September 1999, Mr. Hirt executed various documents on behalf of Good Times Restaurant and Sports Club, Inc. On September 16, 1999, he signed three documents as "owner": a Kansas Business Tax Application, a Retail Liquor Excise Surety Tax Bond, and an Escrow Agreement for Guarantee of Kansas Retail Liquor Excise Tax Liability. On September 22, 1999, Mr. Hirt filed Articles of Incorporation with the Kansas Secretary of State to formally establish the corporate entity. Mr. Hirt was not involved in the operations of the restaurant/bar. In the nine months the business was open he was in the business location approximately eight times. On a few of those occasions he acted as doorman.
In March 2000, the bank notified Mr. Hirt that the loan he had co-signed was in default. Good Times Restaurant and Sports Club closed a month later. The Walters declared bankruptcy. Mr. Hirt first learned about the tax delinquencies in 2002, approximately two years after the restaurant had closed.
In September 2002, the Department assessed personal liability to Mr. Hirt for liquor excise, retailers' sales, and withholding taxes pursuant to K.S.A. 79-2971, K.S.A. 79-3643, and K.S.A. 79-32, 107. After exhausting his administrative remedies with the Department, Mr. Hirt appealed to this Court.
The first issue presented is whether the Court should sustain the Department's objection to Mr. Hirt's attempt to admit certain documents not exchanged or disclosed in accordance with K.A.R. 94-2-13. (See Trans, p. 49: lines 13-25; p. 50: lines 1-2). The Court's regulations establish clear deadlines for exchange of documents and disclosure of witnesses. The potential consequence for failing to meet these deadlines is exclusion of the documents or witnesses not exchanged or disclosed. See K.A.R. 94-2-13(e). We find exclusion of the evidence to be appropriate here. The Department's objection is sustained.
The next issue presented is whether there is a rational basis for the Department's personal liability assessment against Mr. Hirt in view of the evidence and under the applicable legal authorities.
Actions of administrative agencies carry a rebuttable presumption of validity. Country Club Home, Inc. v. Harder, 620 P.2d 1140, 1147 (Kan. 1980). The burden to overcome this presumption rests squarely on the party challenging the agency's actions. Id. The Kansas Supreme Court recently stated as follows:
Interpretation of a statute is a question of law. Special rules apply, however, when considering whether an administrative agency erroneously interpreted or applied the law: The interpretation of a statute by an administrative agency charged with the responsibility of enforcing that statute is entitled to judicial deference. This deference is sometimes called the doctrine of operative construction .... [I]f there is a rational basis for the agency's interpretation, it should be upheld on judicial review . . . [However, ] the determination of an administrative body as to questions of law is not conclusive and, while persuasive, is not binding on the courts. Deference to an agency's ...