RAINFOREST CAFE, INC. v. CONNECTICUT DEPARTMENT OF REVENUE SERVICES, SC 18153
Judicial District of New Britain
Taxation; Whether, Standing Alone, a Violation of a Provision of the Sales and Use Tax Act Establishes a § 12-415 (f) Intent to Evade that Tolls the Statute of Limitations; Whether Plaintiff was Relieved of Liability for Use Tax Because it Made Payments to a § 12-411 "Retailer Engaged in Business in this State." The plaintiff hired PCL Construction Services, Inc., a Minnesota company, to build its restaurant in Westfarms Mall in Farmington. The plaintiff paid PCL the sales and use taxes arising from PCL's services with the understanding that PCL would remit the taxes to the department of revenue services. While the plaintiff received a receipt for the payments to PCL, the payments were never made to the department. PCL substantially completed the work in early 2000, and the restaurant opened for business in February of that year. In April, 2003, the department assessed a sales and use tax deficiency against the plaintiff in connection with the restaurant for the period July 1, 1999 to December 31, 2000. The plaintiff brought this action to challenge the deficiency assessment, claiming that it was relieved of liability for the use taxes by General Statutes § 12-411 (2), which provides that "a receipt [for use tax] from a retailer engaged in business in this state . . . relieve[s] the purchaser from further liability for the tax to which the receipt refers." The plaintiff argued that PCL owed the taxes. The plaintiff also argued that the deficiency assessment was time barred by General Statutes § 12-415 (f), which provides that, absent taxpayer fraud or intent to evade the Sales and Use Tax Act, a deficiency assessment must be mailed within three years of the assessment period. The trial court rendered summary judgment for the department. The court ruled that § 12-411 (2) was inapplicable here because PCL was a "nonresident contractor," defined by § 12-430 (7) (A) (i) as a contractor who does not maintain a regular place of business in this state, and that, as a nonresident contractor, PCL was not "engaged in business in this state" as contemplated by § 12-411 (2). The court also rejected the plaintiff's statute of limitations claim, finding that the plaintiff had not complied with § 12-430's provisions regarding deducting and withholding payments to nonresident contractors and that such failure evinced an "intent to evade" the tax provisions that tolled § 12-415 (f)'s three year limitation period. The plaintiff appeals, claiming the trial court misinterpreted Leonard v. Commissioner of Revenue Services, 264 Conn. 286 (2003), as supporting its holding that, as a matter of law, a violation of a provision of the Sales and Use Tax Act establishes a § 12-415 intent to evade. The plaintiff also argues that the court wrongly determined that a § 12-430 "nonresident contractor" cannot also be a § 12-411 "retailer engaged in business in this state." The plaintiff contends that the court's reading of those statutes unnecessarily placed them in conflict and that the only plausible and cohesive reading of the statutory scheme is that liability for failure to withhold under § 12-430 attaches unless payment is made and a receipt obtained pursuant to § 12-411.