You Wanna Pizza Me?

Depot Square Pizzeria, LLC v. Department of Taxes
Mmmmm.... pizza

I took this case because I love pizza. No matter how you slice it, pizza is delicious. Sorry, that was cheesy. Cheesus Crust, Amy, just get to the case. What a weirdough.  OK, OK, I’m done. I also took this case because I hate taxes. No puns there, just sheer rage. Skip to the end for a nice rant.


Depot Square Pizzeria is a limited liability company in Northfield, Vermont, my hometown. They make some damn good pizza, so naturally they set up a food truck at Norwich University hockey and football games from March 2011 to January 2014, where all of the college students could get in on the deliciousness. The food truck did not collect meals tax from customers, and it did not remit meals tax to the Department of Taxes. In April 2014, an auditor determined that Depot owed $27,810 in meals tax, interest, and penalties. Depot responded that the food and beverages were not “taxable meals” until a neat law that says taxable meals does not include food and drinks served on school premises.

The Department of Taxes and Commissioner concluded the items were taxable. The Commissioner affirmed the assessment on reconsideration. Depot appealed to the trial court. The Department moved to dismiss the appeal on the grounds that it was reviewing the meals tax and exemption, and therefore abated the issue. Depot said, fine the court can dismiss, but you should pay our lawyer.  

The trial court denied the request for attorneys fees for three grounds: (1) sovereign immunity usually protects the State of Vermont against attorneys fees unless the State waives this right (and why would you ever waive that?) or if the legislature waives it by statute; (2) the ‘Murican Rule (no really it’s the American way) is that each side pays for their own lawyers unless the statute provides otherwise; and (3) the court could not invoke its powers of equity to award the fees because Depot could not establish that the Department acted in bad faith or vexatiously in its litigation.

Depot concedes that the trial court was correct on the third point, but appeals the first two. The SCOV conducts a nondeferential and plenary review of the court’s holdings because attorneys fees are a question of law.
In straddling the fine line between being thorough and being wordy, the SCOV summarizes the principles of sovereign immunity and the American Rule of attorney fees. Since I am straddling the fine line of wanting to finish this summary and wanting to watch my cats watch bird videos on YouTube, I’m going to refer you to my summary above and not repeat myself here.
Depot argues that 32 V.S.A. § 9275 allows for attorney fees in this circumstance and therefore circumvents both sovereign immunity and the American Rule. In the alternative, the principles of equity require attorney’s fees to Depot, even though the Department did not act in bad faith.

To the first argument, the SCOV notes that waivers must be expressed. The general request of “any relief as may be equitable” is not enough to establish an exception. Also, the statute expressly disallows “costs” against the state. The SCOV concludes that costs include attorney’s fees as well. The SCOV goes on to say that because the Legislature did not expressly include a potential award for attorneys fees, the Legislature did not intend to waive sovereign immunity.

As to the equity argument, both parties agree that attorney’s fees may be a form of equitable relief. However, the Court has condoned awarding attorney’s fees as a form of equitable relief in many cases. The cases that would qualify would be ones where the litigants acted in bad faith, vexatiously, or where the litigant’s conduct is unreasonable obstinate. That circumstance does not exist here, as acknowledged by Depot. This case is not exceptional, and therefore, Depot must pay their own attorney.

At the risk of being audited, I want to go on a bit of a tax rant here on behalf of all small businesses, so please indulge me. This is a case where a small town pizzeria opens a food truck to make some money off some college students. The Department of Taxes inserts its nose into the operation after the fact and makes a demand for nearly $30K. An everyday business owner (and apparently their lawyer too) read the statute to mean there was an exception there. As far as I can tell, Depot paid all of their taxes from the restaurant-based sales. So Depot has to pay a lawyer (and we ain’t cheap) or cough up $30K (which I guarantee they don’t have squirrelled away, and is probably cheaper than the lawyer) to defend against a bureaucracy that has lawyers just hanging around waiting to defend this stuff. Because we’ve made the State immune to collecting attorney fees, the State can be like, eh our bad, and stick the taxpayer with the bill. I don’t want to go full blown Libertarian on this, but this system does not sit well with me. So if this bothers you too, contact your State reps and urge them to include a waiver in this statute.

Comments

  1. Amy,

    Thanks for an entertaining review! I agree with you and maybe more. Does the whole idea of sovereign immunity make sense in modern times? I have my doubts. The State is not the King, and we live in a democracy. Perhaps there are few exceptions, but apart from the fact that the State makes the law and has the power to grant itself immunity, what's the modern justification for a system that allows State government to make the rules but not be held accountable for following them?
    I understand that taxpayers don't want to have to carry the loss if government gets out of control I don't see
    That said, even it sovereign immunity disappeared this case would probably come out a looser for the citizen.
    Rich Cassidy

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