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JURISDICTION: OKLAHOMA TAX COMMISSION CITE: 2016-08-16-27 / NON-PRECEDENTIAL ID: P-15-016-K DATE: AUGUST 16, 2016 DISPOSITION: DENIED TAX TYPE: SALES APPEAL: NONE TAKEN

ORDER The above matter comes on for entry of a final order of disposition by the Oklahoma Tax Commission. Having reviewed the files and records herein, the Commission hereby adopts the Findings of Fact, Conclusions of Law and Recommendation made and entered by the Administrative Law Judge on the 8th day of July, 2016, appended hereto, together herewith shall constitute the Order of the Commission. SO ORDERED

FINDINGS OF FACT, CONCLUSIONS OF LAW AND RECOMMENDATION

NOW on this 8th day of July 2016, the above-styled and numbered cause comes on for

consideration pursuant to assignment regularly made by the Oklahoma Tax Commission to ALJ,

Administrative Law Judge. LLC (“LLC”), and MEMBER (“Sole Member”), as a Member, and

as an Individual (“Protestants”) appear through ATTORNEY, FIRM. The Compliance Division

(“Division”) of the Oklahoma Tax Commission appears through OTC ATTORNEY 1, First

Deputy General Counsel, Office of General Counsel, Oklahoma Tax Commission.

PROCEDURAL HISTORY

On February 18, 2015, the protest file was received by the Office of Administrative Law

Judges for further proceedings consistent with the Uniform Tax Procedure Code1 and the Rules

of Practice and Procedure Before the Office of Administrative Law Judges.2 On February 18,

1 OKLA. STAT. ANN. tit. 68, § 201 et seq. (West 2014).

2 OKLA. ADMIN. CODE §§ 710:1-5-20 through 710:1-5-47.

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2015, the Court Clerk (“Clerk”)3 mailed the Introductory Letter to the Protestants that ALJ,

Administrative Law Judge (“ALJ”) had been assigned to this matter, and docketed as Case

Number P-15-016-H. The letter also advised the Protestants that a Prehearing Teleconference

Notice would be sent by mail and enclosed a copy of the Rules of Practice and Procedure Before

the Office of Administrative Law Judges.4 On February 20, 2015, OTC ATTORNEY 2,

Assistant General Counsel filed an Entry of Appearance as Division’s Counsel. On February 20,

2015, the Clerk mailed the Prehearing Teleconference Notice to the last-known address of the

Protestants, setting the Prehearing Teleconference for April 16, 2015, at 9:30 a.m.5

On April 16, 2015 at 9:30 a.m., the ALJ held the Prehearing Teleconference, as

scheduled. All parties appeared via telephone. The Protestants advised the ALJ of their intent to

hire Counsel in this matter. The ALJ informed the Protestants that Counsel should file an Entry

of Appearance and the parties communicate how they wished to proceed on or before Monday,

May 18, 2015.

On May 15, 2015, ATTORNEY filed an Entry of Appearance as Protestants’ Counsel,

and an Application for Enlargement of Time by Protestants (“Application”) to file a status report

advising how the Protestants wished to proceed. On May 19, 2015, the ALJ issued an Order

Granting Application to file a status report on or before June 17, 2015.

On June 17, 2015, the Division filed the Status Report advising that the parties were

conducting discovery. On June 17, 2015, the ALJ advised the parties to file a status report on or

3 OKLA. ADMIN. CODE § 710:1-5-10(c)(2) (August 27, 2015). 4 Id. Unless otherwise noted herein, the ALJ notified the parties by letter.

5 OKLA. STAT. ANN. tit. 68, § 208 (West 2014). The Clerk mailed the notice to the Protestants at

ADDRESS.

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before July 17, 2015. On June 23, 2015, OTC ATTORNEY 1 filed a Notice of Substitution of

Attorney and Entry of Appearance as Division’s Counsel.

On July 6, 2015, OTC ATTORNEY 1 filed an Amended Certificate of Service to Notice

of Substitution of Attorney and Entry of Appearance. On July 17, 2015, the Protestants filed an

Application for Enlargement of Time by Protestants (“Application”), based upon receiving work

papers from the Division on July 8, 2015. On July 20, 2015, the ALJ issued the Order Granting

Application by Protestants to file a status report on or before August 17, 2015 advising how they

wished to proceed.

The ALJ has omitted the Procedural History from July 21, 2015 through November 1,

2015. On November 2, 2015, the parties filed a Joint Proposed Scheduling Order. On

November 5, 2015, the ALJ issued the Scheduling Order setting this matter for hearing on

February 11, 2016, at 10:30 a.m. (or immediately following the hearing on Case No. P-15-015-

H). On November 30, 2015, the Division filed its Preliminary Witness and Exhibit List. The

Protestants did not file a Preliminary Witness and Exhibit List.

On January 16, 2016, the Division filed its Statement of Issue, as follows, to-wit:

Whether additional sales tax is due on (1) Protestants’ per child charge for play in a roomful of inflatables and (2) Protestants’ charges for party packages which allow a specific number of children to play in a roomful of inflatables.

On January 28, 2016, the Division filed its Final Witness and Exhibit List. On January 29, 2016,

the Protestants filed a Final Witness and Exhibit List, and Protestants’ Statement of Issues.6

On February 4, 2016, the Division filed its Position Letter. The Protestants did

not file a Position Letter and/or Memorandum Brief. On February 11, 2015, at

6 See Note 67, infra.

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approximately 12:03 p.m. the ALJ convened an open hearing.7 The parties, through

Counsel, stipulated that the ALJ would take judicial notice of the testimony in P-15-015-

H, in lieu of a full evidentiary hearing in this matter.8 The parties, through Counsel,

stipulated to Protestants’ Exhibits P-1, P-2, P-3, P-4, P-5, P-6, P-7, and Division’s

Exhibits B-1, B-2, D, F-1, and F-2, which the ALJ admitted into evidence.9 The ALJ

agreed to take judicial notice of Tax Commission Rule 710:65-1-11(g).10 During the

Division’s Cross-Examination of Member 1 in Case No. P-15-015-H, the following

exchange occurred,11 to-wit:

Q [OTC ATTORNEY 1] Did you, while you were a member, remit sales tax on I think you called it open play, the 7.50 per child? ATTORNEY: Judge, we will stipulate that we did not. The only issue that we have is the fact of the private party rentals occur when the facility was closed. THE COURT: I’m not sure, is there a separate part of the assessment that goes to – OTC ATTORNEY: No, your Honor. No, your Honor. THE COURT: Okay.

The ALJ closed the record and this case submitted for decision on February 11, 2016.

7 Tr. at 3-4. The Protestants, through ATTORNEY, waived confidentiality. See OKLA. STAT. ANN.

tit. 68, § 205 (West Supp. 2016).

8 All references to a Transcript herein are to the Transcript of the hearing held in P-15-015-H on February 11, 2016 at approximately 9:30 a.m. P-15-015-H is a companion case. The parties did not request that the ALJ consolidate the two (2) cases, but the parties stipulated that the ALJ would take judicial notice of the testimony in the companion case, since the testimony about the business practices was going to be the same in both cases. See Note 17, infra.

9 Tr. at 7-8.

10 Tr. at 74. See Note 50, supra. 11 See Tr. at 28. The ALJ will address the effect of this Stipulation hereafter. See also Tr. at 47.

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On April 7, 2016, the ALJ advised the parties as follows, to-wit:

The ALJ had intended to issue Findings of Fact, Conclusions of Law and Recommendations (“FCRS”) in the captioned matter, and in the companion case P-15-016-H on April 11, 2016. However, these matters are cases of first impression on the Administrative Level, which is unfortunate, because the Protestants’ Counsel failed to file a Position Letter and/or Memorandum Brief. From my review of the record in the captioned matter, it has become clear that it is necessary to request a transcript of Hearing held on February 11, 2016. The ALJ is pulling these matters from submission for decision, and reopening the record for the sole purpose of requesting a transcript of the hearing. Since, the ALJ is requesting the transcript; the cost is on the court, not the parties. Upon receipt of the transcript, the ALJ will provide a copy of the transcript to the parties before closing the record and resubmitting these matters for decision. On May 11, 2016, the ALJ advised the parties, “On May 9, 2016, the Clerk received the

Transcript of the hearing held in P-15-015-H on February 11, 2016. The Clerk provided copies

to the parties. The ALJ closed the record and submitted this matter for decision as of May 9,

2016.

STIPULATION

The Protestants, through Counsel, stipulated that the Protestants should have charged and

remitted sales tax on admissions (“Admissions”) ($7.50 per child) during Open Play on the

Inflatables.12

FINDINGS OF FACT

Upon review of the file and records, including the record of the proceedings, the exhibits

received into evidence, the Division’s Position Letter, and the Transcript (P-15-015-H), the

undersigned finds:

12 Id.

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I. PROCEDURAL FACTS

1. The Division conducted a Field Audit on LLC covering the period June 30, 2012

through July 31, 2014 (“Audit Period”).13

2. On August 11, 2014, the LLC, by and through Sole Member, executed an Assessment

and Refund Statute of Limitation Waiver Agreement for the Audit Period until July 31, 2015.14

3. On October 8, 2014, the Division issued proposed sales tax assessments for the Audit

Period against the Protestants for $172,559.46 in additional taxable sales,15 as follows, to-wit:

Tax Due: $15,055.90 Interest @15% through October 31, 2014: $ 2,433.29 Tax and Interest due within 30 days: $17,489.19 30 Day Delinquent Penalty @ 10% $ 1,505.62 Tax, Interest & Penalty if paid after 30 days: $18,994.81

4. On November 25, 2014, the Protestants filed a timely protest to the proposed sales tax

assessments.16

II. LLC’S OPERATION

5. On April 17, 2012, the Sole Member formed the LLC.17 LLC is primarily in the

business of providing entertainment using large indoor inflatable bounces houses, slides, and

13 Field Auditor Supervisor Testimony. Tr. at 56-74. The ALJ is taking judicial notice of the Field

Audit Write Up contained in the court file to complete the factual details and background of this audit. See Note 17, infra.

14 Id. Tr. at 45 and 65.

15 Id. See Protestants’ Exhibits P-1 and P-2. See also Division’s Exhibits B-1, D, F-1, and F-2. 16 Protestants’ Exhibit F-2. See Division’s Exhibit D. The protests are post-marked November 25,

2014. See also Note 18, infra. 17 The ALJ is taking judicial notice of the Oklahoma Secretary of State’s website at

https://www.sos.ok.gov to complete the factual details and background of this audit. OKLA. ADMIN. CODE § 710:1-5-36 (July 11, 2013).

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other inflatable devices and games (“Inflatables”).18 LLC’s building is approximately 10,000

square feet, with 9,000 square feet used for entertainment and 1,000 square feet is administrative,

snack bar, and a merchandise showroom.19 Sole Member was member of LLC from inception to

present.20

6. LLC’s hours of open play (“Open Play”) to the general public on the Inflatables

during the Audit Period were as follows,21 to-wit:

Monday 10:00 a.m. to 3:00 p.m. Tuesday 10:00 a.m. to 1:00 p.m. and 4:00 p.m. to 8:00 p.m. Wednesday 10:00 a.m. to 3:00 p.m., and Friday 10:00 a.m. to 3:00 p.m.

7. During Open Play sessions on the Inflatables, LLC charged admission ($7.50 per

child) for Admission, allowing for five (5) sessions on Monday, Wednesday, and Friday.22

8. On Tuesdays, LLC has two (2) separate Open Play sessions on the Inflatables, one (1)

session for three (3) hours, and a second (2nd) session for four (4) hours. LLC charged

Admission at $7.50 per child.23

9. LLC offers private parties (“Private Parties”) on Thursdays, Fridays after 3:00 p.m.

and on Saturdays and Sundays.24 During the Audit Period, LLC offered party packages in its

facility for two (2) hour periods, when LLC did not offer Open Play on the Inflatables.25

18 Id. The court file contains an audit packet, which the Division forwarded as part of the protest

file on this matter. The ALJ is taking judicial notice of the Field Audit Write-Up contained in the court file to complete the factual details and background of this audit.

19 Id.

20 Id. Member Testimony. Tr. at 39. The ALJ is taking judicial notice of the Oklahoma Secretary of State’s website at https://sos.ok.gov to complete the factual details and background of this audit. See Note 17, supra.

21 Id. Tr. at 33-34, and 40. 22 Id. 23 Id. 24 Id.

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LLC charged $225.00 for Private Parties, which included Admission to the Inflatables for up to twenty-five (25) children, plus the birthday child (additional guests were $10.00 per child), a private party room, room setup and cleanup, decoration, a private party attendant for the two (2) hour party, including approximately one hour and fifteen minutes (1 ¼) of play in the Inflatables play area.26 LLC invoiced its customers for a Private Party, in pertinent parts,27 as follows, to-wit:

INVOICE ONE (1)

Order No.: 01

Order Date: July 28, 2012 Written by: [blank]

Start Date & Time: Aug 18, 2012 12:00 pm End Date & Time: Aug 18, 2012 2:00 pm

Additional Notes: Birthday Child: [NAME] Invites: no AMB Date Payment Type Amount Details 7/28/2012 VISA $50.00 045810

25 Id. 26 Id. Tr. at 16. 27 Protestants’ Exhibits P-4 and P-7. Member 1 testified that during Private Parties, the children

had access to the Inflatables for one (1) hour to one (1) hour and fifteen (15) minutes. Tr. at 17.

InvNo Name Qty Total

PR1 Party Room 1 1 $ 0.00

WEEKEND Weekend Rate 1 $225.00

CAPRI_EA Capri Sun-Each Variety

26 $ 13.00

WTRPITCH Water Pitcher 1 $ 1.00

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[LLC] Party Policies

WE DO NOT ALLOW ANY OUTSIDE FOOD OR DRINKS. YOU CAN BRING IN YOUR OWN CAKE, COOKIES, CUPCAKES, THEME WARE, FRUIT OR VEGGIE TRAYS.

We supply at additional cost to the customer drinks, ice cream, hot dogs, pizza and much more. NO SHOWS WILL BE CHARGED FULL AMOUNT

INVOICE TWO (2)

Invoice #: 0524 Created On: Jan 03, 2014

Event Start Date: Feb 08, 2014 Event End Date: Feb 08, 2014

Bill To:

Order subtotal $239.00 Discount 0.00% $ 0.00 Taxable Amount $ 14.00 Sales Tax 8.38% $ 1.17 Delivery $ 0.00 Total $240.17 Amount Paid $240.17 Balance Due $ 0.00

DESCRIPTION QUANTITY OF ITEMS PRICE PER ITEM TOTAL PRICE

Party Room 2 1 $0.00 $ 0.00

Weekend Rate 1 $225.00 $225.00

Water Pitcher 2 $1.00 $ 2.00

Subtotal $227.00 Discount $ 0.00 Delivery $ 0.00 8.38% Tax $ 0.17 Total Price $ 0.00 Amount Paid $227.17 Balance Due $ 0.00

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10. During the Audit Period, LLC provided handwritten ledger pages showing receipts in

three (3) columns: (1) SVC (Service), which included Open Play and Private Party receipts, (2)

SALES, which included receipts from sales of balloons, socks, etc., (3) SB (Snack Bar), which

included receipts from sales at the snack bar. LLC collected, reported, and remitted sales tax on

receipts listed as SALES and SB. LLC reported all SVC receipts as exempt from sales tax.28

11. The Protestants stipulated that Admissions ($7.50 per child) during Open Play on the

Inflatables are sales taxable, with that portion of sales reported as exempt, assessed at

$34,824.46.29 The Protestants are protesting the portion of the sales assessed, attributable to

Private Parties, including Admissions to the Inflatables Area for $137,735.00.30

CONCLUSIONS OF LAW

1. The Legislature vested the Oklahoma Tax Commission with jurisdiction over the

parties and subject matter of this proceeding.31

2. The collection and remittance of sales tax is governed by the Oklahoma Sales Tax

Code (“Sales Tax Code”).32 The Sales Tax Code levies “upon all sales,33 not otherwise

exempted . . . an excise tax of four and one-half percent (4.5%) of the gross receipts34 or gross

28 Id. Audit Supervisor Testimony. See Notes 6 and 12, supra. See also Tr. at 31-33, and 47-48. 29 Id. 30 Id. See also Protestants’ Exhibit P-3 and Division’s Exhibits B-1 and D. 31 OKLA. STAT. ANN. tit. 68, § 221(C) (West 2014).

32 See OKLA. STAT. ANN. tit. 68, § 1350 et seq. (West 2014).

33 OKLA. STAT. tit. 68, § 1352(22)(a) (West 2014). See OKLA. ADMIN. CODE § 710:65-1-2 (July 11, 2010).

34 OKLA. STAT. tit. 68, § 1352(12)(a) (West 2014):

(a) “Gross receipts”, “gross proceeds” or “sales price” means the total amount of consideration, including cash, credit, property and services, for which personal property or services are sold, leased or rented, valued in money,

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proceeds of each sale of . . . tangible personal property35 . . . .” Oklahoma Statutes authorize

incorporated cities, towns, and counties to levy taxes as the Legislature may levy and collect

taxes for purposes of state government.36

3. “Vendor” means, any person making sales of tangible personal property or services in

this state, the gross receipts or gross proceeds from which are taxed by the Sales Tax Code.37

4. The Sales Tax Code38 levies an excise tax upon the gross receipts or gross proceeds

of all sales, not otherwise exempted, of the following:

13. Tickets for admission to or voluntary contributions made to places of amusement, sports, entertainment, exhibition, display, or other recreational events or activities, including free or complimentary admissions which have a value equivalent to the charge that would have otherwise been made;

14. Charges made for the privilege of entering or engaging in any kind of activity, such as tennis, racquetball, or handball, when spectators are charged no admission fee;

whether received in money or otherwise, without any deduction for the following:

(1) the seller’s cost of the property sold, (2) the cost of materials used, labor or service cost, (3) interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller, (4) charges by the seller for any services necessary to complete the sale, other than delivery and installation charges, (5) delivery charges and installation charges, unless separately stated on the invoice, billing or similar document given to the purchaser, and (6) credit for any trade-in.

35 OKLA. STAT. ANN. tit. 68, § 1354(A)(1) and (A)(13)-(15) (West 2014).

36 OKLA. STAT. ANN. tit. 68, § 1370 et seq. (West 2014) and OKLA. STAT. ANN. tit. 68, § 2701 (West

2013). 37 OKLA. STAT. tit. 68, § 1352(28)(a) (West 2014). See OKLA. STAT. tit. 68, § 1363(1) (West 2001). 38 See Note 32, supra. See also Conclusions of Law #2.

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15. Charges made for the privilege of using items for amusement, sports, entertainment, or recreational activity, such as trampolines or golf carts

5. The Tax Commission has promulgated rules as provided by law for the purpose of

compliance with the Oklahoma Administrative Procedures Act39 and to facilitate the

administration, enforcement, and collection of taxes under the Sales Tax Code.40

6. The rules promulgated pursuant to the Administrative Procedures Act are presumed

to be valid and binding on the persons they affect and have the force of law.41

7. The rules and regulations of an administrative agency which implement the

provisions of a statute are valid unless they are beyond the scope of the statute, are in conflict

with the statute, or are unreasonable.42 Generally, it is presumed that administrative rules and

regulations are fair and reasonable and that the complaining party has the burden of proving the

contrary by competent and convincing evidence.43

8. “Consumer” or “User” means a person to whom a taxable sale of tangible personal

property is made or for whom a taxable service is performed.44

9. If any business purchases tangible personal property for resale, manufacturing or

further processing and that business withdraws tangible personal property, either from its

inventory or after such inventory has been manufactured or processed for its own use or

consumption, that business has made a taxable sale and the value of the property withdrawn is

39 OKLA. STAT. ANN. tit. 75, § 250 et seq. (West 2002). 40 See Note 32, supra. 41 See Note 39, supra. See Toxic Waste Impact Group, Inc. v. Leavitt, 1988 OK 20, 755 P.2d 626.

42 See Boydston v. State, 1954 OK 327, 277 P.2d 138.

43 See Note 39, supra. See also State ex rel. Hart v. Parham, 1966 OK 9, 412 P.2d 142. (Citations omitted.)

44 OKLA. ADMIN. CODE § 710:65-1-7 (May 11, 2012).

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taxable at its “sales value”, as defined in OAC 710:65-1-2.45 The business withdrawing tangible

personal property from inventory should include the “sales value” of such property in gross

receipts or gross proceeds on its sales tax report for the month the property was withdrawn.46

(“Emphasis original.)

10. The gross receipts or gross proceeds derived from the rental or lease of tangible

personal property are subject to sales tax.47 “Lease” or “rental” shall have the same meaning as

set out in 710:65-1-2.48 The business withdrawing tangible personal property from inventory

should include the “sales value” of such property in gross receipts or gross proceeds on its sales

tax report for the month the property was withdrawn.49 (“Emphasis original.)

11. “Lease or rental” does not include providing tangible personal property along with an

operator for a fixed or indeterminate period of time. A condition of this exclusion is that the

operator is necessary for the equipment to perform as designed. For the purpose of this unit, an

operator must do more than maintain, inspect, or set-up the tangible personal property.50

12. The furnishing for a charge of equipment with an operator shall be considered a

service and not subject to sales tax. Persons purchasing equipment for the purpose of furnishing

said equipment with an operator must pay sales or use tax at the time the equipment is

purchased.51

45 OKLA. ADMIN. CODE § 710:65-1-11(h) (June 11, 2005). 46 OKLA. ADMIN. CODE § 710:65-1-7(2) (May 11, 2012). 47 OKLA. ADMIN. CODE § 710:65-1-11(a) (June 11, 2005). 48 OKLA. ADMIN. CODE § 710:65-1-11(b) (June 11, 2005). 49 OKLA. ADMIN. CODE § 710:65-1-7(2) (May 11, 2012). 50 OKLA. ADMIN. CODE § 710:65-1-2(A)(iii) (July 11, 2010). 51 OKLA. ADMIN. CODE § 710:65-1-11(g) (June 11, 2005). Protestants’ Counsel requested the ALJ

to take judicial notice of this rule. Tr. at 67-68. See Note 17, supra.

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13. Purchases by a vendor of tangible personal property for purposes of renting or leasing

same are exempt from sales tax. If such equipment purchased exempt from taxation is rented

with an operator or the vendor uses such equipment to perform a service, but the equipment

remains in the rental inventory, the vendor should pay sales tax on the “sales value,” pursuant to

OAC 710:65-1-2.52

14. The total receipts accruing from sales of tickets for admission to or voluntary

contributions made to places of amusement, sports, entertainment, exhibition, display or other

recreational events or activities, and free or complimentary admissions not included in (c) of this

Section, which have a value equivalent to the charge that would have otherwise been made, are

subject to sales tax. Places of amusement, sports, entertainment, exhibition, display or recreation

include, but are not limited to, theaters, motion picture shows, auditoriums where lectures and

concerts are given, amusement parks, fairgrounds, race tracks, baseball parks, football stadiums,

swimming pools, street fairs, dance halls, cabarets, nightclubs, golf courses, skating rinks, art

exhibits, and gymnasiums. Places of amusement or entertainment also include all places where

the public is charged a fee for admission to see any kind of display or hear any kind of a

program.53

15. When the Tax Commission issues a proposed assessment against a limited liability

company for unpaid sales taxes, the Tax Commission shall file such proposed assessments

against the managers or members personally liable for the tax. 54 Sole Member was a member

52 See Note 45, supra. 53 OKLA. ADMIN. CODE § 710:65-19-6 (July 1, 2008). 54 OKLA. STAT. tit. 68, § 253 (West Supp. 2011).

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of the LLC for the entire Audit Period, and responsible for the collection and remittance of sales

tax.55

16. The goal of any inquiry into the meaning of a legislative act is to ascertain and give

effect to the intent of the legislature. The law-making body is presumed to have expressed its

intent in a statute’s language and to have intended what the text expresses. Hence, where a

statute is plain and unambiguous, it will not be subject to judicial construction, but will be given

the effect its language dictates. Only where the intent cannot be ascertained from a statute’s text,

as occurs when ambiguity or conflict (with other statutes) is shown to exist, may rules of

statutory construction be employed.56

17. The legislature will not be presumed to have intended a vain or absurd result.57

18. Tax statutes are penal in nature. Where there is reasonable doubt about the taxing

act’s meaning, all ambiguity must be resolved in favor of the taxpayer. Legislative intention

ascertained from a general consideration of the entire act must be given effect. Nonetheless,

courts cannot enlarge the taxing act’s ambit to make its provision’s applicable to cases not

clearly within the Legislature’s contemplation or to fill lacunae in the revenue law in a manner

that would distort the enactment’s plain language.58

19. An exemption statute is strictly construed against the person asserting an

exemption.59

55 See Note 20, supra. 56 Blitz U.S.A., Inc. v. Oklahoma Tax Com’n, 2003 OK 50, 75 P.3d 883. (Citations omitted). 57 Strelecki v. Oklahoma Tax Com’n, 1993 OK 122, 872 P.2d 910. (Citations omitted.) 58 Globe Life and Acc. Ins. Co. v. Oklahoma Tax Commission, 1996 OK 39, ¶¶ 11-14, 913 P.2d

1322. (Citations omitted). 59 Magnolia Petroleum Co. v. Oklahoma Tax Com’n, 1958 OK 124, 326 P.2d 821.

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20. Tax exemptions, deductions, and credits depend entirely on legislative grace and are

strictly construed against the exemption, deduction, or credit.60

21. Words used in any statute are to be understood in their ordinary sense, except when a

contrary intention plainly appears, and except also that the words hereinafter explained are to be

understood as thus explained.61

22. Whenever the meaning of a word or phrase is defined in any statute, such definition is

applicable to the same word or phrase wherever it occurs, except where a contrary intention

plainly appears.62

23. In the absence of a contrary definition, regulatory words are to have the same

meaning as that attributed to them in ordinary and usual parlance.63

24. In sales tax matters, “[t]he burden of proving a sale was not a taxable sale shall be

upon the person who made the sale.64

25. In all proceedings before the Tax Commission, the taxpayer has the burden of

proof.65 A proposed assessment is presumed correct and the taxpayer bears the burden of

showing that it is incorrect and in what respects.66

60 TPQ Inv. Corp. v. State ex rel. Oklahoma Tax Com’n, 1998 OK 13, ¶8, 954 P.2d 139. 61 OKLA. STAT. ANN. tit. 25, § 1 (West 2008). 62 OKLA. STAT. ANN. tit. 25, § 2 (West 2008). 63 Matter of Income Tax Protest of Ashland Exploration, Inc., 1988 OK 23, 751 P.2d 1070. 64 OKLA. STAT. ANN. tit. 68, § 1365(F) (West 2008).

65 OKLA. ADMIN. CODE § 710:1-5-47 (June 25, 1999): In all administrative proceedings, unless otherwise provided by law, the burden of proof shall be upon the protestant to show in what respect the action or proposed action of the Tax Commission is incorrect. If, upon hearing, the protestant fails to prove a prima facie case, the Administrative Law Judge may recommend that the Commission deny the protest solely upon the grounds of failure to prove sufficient facts which would entitle the protestant to the requested relief.

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DISCUSSION

This matter is a case of first impression on the Administrative Level, which is

unfortunate, because the Protestants’ Counsel failed to file a Position Letter and/or Memorandum

Brief. Instead, Protestants’ Counsel filed a Statement of Issues,67 as follows, to-wit:

1. Is revenue received for rental of Protestants facility, at the time the facility is closed, subject to sales tax?

2. Does an ineffective waiver require adjustment of a former member[’s] proposed assessment?

3. Is revenue received for rental of a private party room subject to sales tax?

4. Are revenues received for setup, decoration, serving of food, party attendant[,] and cleanup subject to sales tax?

5. Were [P]rotestants required to provide operators for the inflatables pursuant to the rules

and regulations of the Oklahoma Department of Labor?

6. Is the provision of a ride operator during a private party, at the time the facility was closed to the general [public], subject to sales tax?

7. Is the fact that Protestants treated all revenues received from rental at the facility on its invoice, as a service, controlling?

8. If the Oklahoma Department of Labor mandates a ride operator, are Protestants within

OAC 710:65-1-11(g)?

9. Has the OTC overstated income subject to sales tax in its Audit?

10. By how much did the OTC overstate income subject to sales tax, interest[,] and penalty?

11. Did the OTC include revenue not subject to sales tax equaling or exceeding $139,715.00 {sic} in its calculation?

OKLA. ADMIN. CODE § 710:1-5-77(b) (June 25, 1999), provides in pertinent part:

“preponderance of the evidence” means the evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; evidence which as a whole shows that the fact sought to be proved is more probable than not.

66 See Enterprise Management Consultants, Inc. v. State ex rel Oklahoma Tax Com’n, 1988 OK 91, 768 P.2d 359.

67 See Note 6, supra.

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During Opening Statements, Protestants’ Counsel expressed the first issue, as “…whether

or not the furnishing of the equipment with an operator is subject to sales tax, even though OAC

710:65-1-1[1][g] provides that it is not subject to sales tax and it’s treated as a service. And that

being said whether, in fact, the Oklahoma Tax Commission has exceeded its authority by taxing

private party rentals in the amount of $[172,559.46].”68

Counsel’s questioning of Member 1, Member 2 (Sole Member), and Field Audit

Supervisor centered on the Amusement Ride Safety Act,69 the Rules of the Department of Labor

promulgated to implement the provisions of the Amusement Ride Safety Act,70 Sales Tax

Code,71 Tax Commission Rules,72 and in particular Tax Commission Rule § 710:65-1-11(g),73

which provides as follows, to-wit:

The furnishing for a charge of equipment with an operator shall be considered a service and not subject to sales tax. Persons purchasing equipment for the purpose of furnishing said equipment with an operator must pay sales or use tax at the time the equipment is purchased. However, during the hearing, Counsel stipulated that the Protestants should have

collected and remitted sales tax on Admissions ($7.50 per child) during Open Play on the

Inflatables.74 Counsel has in essence, stipulated the Protestants’ case away.

From a review of the record, there is no argument or legal authority, which would

differentiate sales tax being due on Admissions during Open Play on the Inflatables from the use

68 Tr. at 5. 69 OKLA. STAT. ANN. tit. 40, § 460 et seq. (West 2014). 70 Id. See Protestants’ Exhibits P-5 and P-6. 71 See Note 32, supra. 72 Id. See Notes 47-49, supra. 73 Id. 74 See Notes 11, 12, and 29, supra.

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of the same Inflatables during a Private Party in the Sales Tax Code,75 Tax Commission Rules,76

the Amusement Ride Safety Act,77 or the Rules of the Department of Labor promulgated to

implement the provisions of the Amusement Ride Safety Act.78

“When the failure of advocacy occurs, its presence distorts the adversarial positions of

the parties. There is here only a request for relief without supporting argumentation or legal

authority material. This absence alters the nature of the appellate process by imposing upon the

court the burden of researching and testing unsupported legal propositions sought to be pressed

for victory. Appellate courts cannot be forced to become an active advocate for the party whose

failure to brief or argue has produced a total intellectual vacuum for that party’s asserted

position.”79 To do so violates a basic common-law tenet that judges must always cast themselves

into the role of neutral and detached decision makers rather than turning themselves into

combatants in a forensic battle.80

The Sales Tax Code defines “Gross Receipts,” as follows,81 to-wit:

“Gross receipts”, “gross proceeds” or “sales price” means the total amount of consideration, including cash, credit, property and services, for which personal property or services are sold, leased or rented, valued in money, whether received in money or otherwise, without any deduction for the following:

75 See Note 32, supra. 76 See Note 72, supra. 77 See Note 69, supra. 78 Id. See Protestants’ Exhibits P-3 and P-5. 79 Fent v. Contingency Review Bd., 2007 OK 27, 163 P.3d 512. “Neither counsel nor pro se

litigants have a right to place upon this court the researching burden and consume its time in a search for authorities that would support their argument. …; Peoria Corp. v. Lemay, 1994 OK 106, 895 P.2d 1340 (pro se litigants are charged with the responsibility of complying with the rules of pleadings, evidence and appellate practice);” Funnell v. Jones, 1985 OK 73, ¶ 4, 737 P.2d 105, 107.

80 Id.

81 See Note 34, supra.

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(1) the seller’s cost of the property sold, (2) the cost of materials used, labor or service cost, (3) interest, losses, all costs of transportation to the seller, all taxes

imposed on the seller, and any other expense of the seller, (4) charges by the seller for any services necessary to complete the

sale, other than delivery and installation charges, (5) delivery charges and installation charges, unless separately

stated on the invoice, billing or similar document given to the purchaser, and

(6) credit for any trade-in.

The Invoices provided by the Protestants reflects the LLC charged $225.00 for Private

Parties.82 The charge of $225.00, includes Admission of up to twenty-five (25) children, plus the

birthday child to the Inflatables Area for approximately an hour and fifteen minutes (1.25) and

approximately forty-five minutes (.75) for a two (2.0) hour birthday party in a private room,

which includes room set-up, decorations, services of a party attendant, and clean-up. The LLC

may provide the decorations, plates, cups, napkins, etc., which is included in the $225.00. The

LLC allows the customer to bring in their own cake, cookies, cupcakes, theme ware, fruit, or

veggie trays, but the customer must purchase all drinks, ice cream, hot dogs, pizza, etc. from the

LLC.83 The LLC does not separately state charges on its invoices for Admissions, tangible

personal property, such as decorations, cups, napkins, etc., or Labor. The failure to separate the

charges on the invoices results in the $225.00 or the total gross receipts being sales taxable.84

82 See Notes 26-27, supra. 83 Id. 84 See Note 34, supra.

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CONCLUSION

The Protestants have failed to prove, by preponderance of the evidence, that the

Division’s proposed sales tax assessments are incorrect, and in what respects.

RECOMMENDATIONS

The ALJ recommends denial of the protests to the proposed sales tax assessments against

the Protestants, as more fully set forth herein.

OKLAHOMA TAX COMMISSION

CAVEAT: This decision was NOT deemed precedential by the Commission. This means that the legal conclusions are generally applicable or are limited in time and/or effect. Non-precedential decisions are not considered binding upon the Commission. Thus, similar issues may be determined on a case-by-case basis. NOTE: The distinction between a Commission Order designated as “Precedential” or “Non-Precedential” has been blurred because all OTC Orders resulting from cases heard by the Office of Administrative Law Judges are now published, not just “Precedential” Orders. See OKLA. STAT. ANN. tit.68, § 221(G) (West 2014) and OKLA. STAT. ANN. tit. 75, § 302 (West 2002).