| IN RE: NAO ENTERPRISES | ) | DOCKET NO. 89 1832 |
| ) | ||
| FIRM NO. 547,114-00-9 | ) | DECISION AND ORDER |
| ) |
- APPEARANCES
- Employer, NAO Enterprises, Inc., by
- William T. Smith, President, Pro Se
- Department of Labor and Industries, by
- The Attorney General, per
- Ron LaVigne, Assistant and Shawn Ruth, Paralegal
This is an appeal filed by the firm, NAO Enterprises, on May 1, 1989 from a Notice and Order of Assessment of the Department of Labor and Industries dated March 30, 1989, which was received by the firm on April 13, 1989. The Notice and Order of Assessment affirmed Notice and Order of Assessment of Industrial Insurance Taxes No. 66878 dated December 21, 1988 which assessed taxes due and owing the state fund in the amount of $35,892.36 for the period July 1, 1986 through June 30, 1988. Reversed and remanded.
DECISION
Pursuant to RCW 51.52.104 and RCW 51.52.106, this matter is before the Board for review and decision on a timely Petition for Review filed by the employer to a Proposed Decision and Order issued on January 25, 1990 in which the Notice and Order of Assessment dated March 30, 1989 was affirmed.
The Board has reviewed the evidentiary rulings in the record of proceedings and finds that no prejudicial error was committed and said [2] rulings are hereby affirmed.
The Proposed Decision and Order affirmed the Notice of Assessment on the basis of RCW 51.48.030 and .040. RCW 51.48.030 provides:
Any employer who fails to keep and preserve the records adequate to determine taxes due shall be forever barred from questioning, in an appeal before the board of industrial insurance appeals or the courts, the correctness of any assessment by the department based on any period for which such records have not been kept and preserved.
RCW 51.48.040 provides:
The books, records and payrolls of the employer pertinent to the administration of this title shall always be open to inspection by the department or its traveling auditor, agent or assistant, for the purpose of ascertaining the correctness of the payroll, the persons employed, and such other information as may be necessary for the department and its management under this title.
. . . Any employer who fails to allow adequate inspection in accordance with the requirements of this section ... is forever barred from questioning in any proceeding in front of the board of industrial insurance appeals or any court, the correctness of any assessment by the department based on any period for which such records have not been produced for inspection.
Relying on these statutory provisions, and on RCW 51.16.155, the Department's auditor estimated that the corporation owed $35,892.36 in premiums. Our Industrial Appeals Judge determined that William Smith, the president of the corporation, was precluded from challenging the amount of the assessment.
We find it hard to imagine that the legislature intended RCW 51.48.030 and .040 to apply to a case such as this. Essentially what we have here is little more than a paper corporation which Mr. Smith formed [3] in 1984, with the hope that he would receive state grants to build daycare centers and other commercial property. However, during most of its existence, NAO Enterprises engaged in no activities which would cause it to be responsible for industrial insurance premiums.
During the period of July 1, 1986 through December 31, 1987, the first six quarters of the audit period, NAO Enterprises had no employees. Certainly, if the corporation was not an employer during that period, it would have no obligation under RCW 51.48.030 to keep records and would have no obligation under RCW 51.48.040 to allow inspection of non-existent records by the Department. We cannot believe that the legislature intended, by enacting the above-referenced provisions, to require corporations with no employees to maintain records of employment. Thus, Mr. Smith, as president of NAO Enterprises, was clearly entitled to challenge the assessment of premiums for the period July 1, 1986 through December 31, 1987, as his testimony establishes the corporation had no employees during that period.
The first business activities of any sort engaged in by NAO Enterprises occurred during the period of January 1, 1988 through June 30, 1988. During that period, Mr. Smith: " ... sided two or three houses, and one of those houses when I first started out I had an employee for about a week and he got mad and left." 10/5/89 Tr. at 11. Accordingly, for that period, Mr. Smith was under an obligation to keep records and provide those records on demand for inspection by the Department of Labor and Industries. Although Mr. Smith did not provide for inspection, or, in fact, keep the kind of records normally required [4] of a business enterprise, he did offer to show the Department's auditor his girlfriend's checkbooks which were the only records that he had. In view of the quite minimal business activities of NAO Enterprises, the proffered checkbooks must be said to have constituted reasonable business records. The offer to allow the auditor to review the girlfriend's checkbooks constituted compliance with the provisions of RCW 51.48.030 and RCW 51.48.040 and entitles Mr. Smith to challenge the correctness of the Department's assessment for premiums for the period beginning in January of 1988.
Testimony of the Department's auditor, Kimberly Wade, reveals that the Department's assessment of premiums was based upon an estimated audit payroll report. Based upon the fact that NAO Enterprises was a nonprofit corporation with four corporate officers, the Department assumed that four people were engaged full-time in the building business during the entire two-year period covered by the audit. There is no reasonable basis for this assumption. The corporate records reveal that the officers in 1986 were St. Nicholas, Allen O'Dare, Bill Smith II, Bill Smith I and Bill Smith III. Subsequently, St. Nicholas and Allen O'Dare were dropped as officers, and Roberta Peterson and Robert Hill were added. While we are not familiar with Allen O'Dare, we are acquainted with St. Nicholas, and we also know from the record that the Bill Smiths referred to are father, grandfather, and son. At least for the initial period of the audit, it would appear that part of the hours used in estimating premiums were based upon the supposed labor of an officer who was at most nine years old.
Any assessment of premiums based upon an estimate under the [5] provisions of RCW 51.16.155 must, of course, be based upon a reasonable estimate that has some basis in fact. It is quite clear that the only reasonable conclusion to be drawn from the record before us is that work was performed for the corporation by William T. Smith, aided briefly by one employee. This work consisted of siding two or three houses during the period of January through June of 1988. The employee, Rod Chandler, worked on only one of these jobs and at most for the period of six days. Any estimate of the hours worked and the premiums due, in order to be reasonable, must be based upon the actual business activities engaged in by the corporation.
As there were no business activities engaged in by the corporation prior to January 1, 1988, there is no basis on which to assess any premiums for the period of July 1, 1986 through December 31, 1987. For the last portion of the audit period, January 1, 1988 through June 30, 1988, there is a basis for assessing premiums as NAO Enterprises engaged in business activities during that period and had an employee for a brief period of time. Any premiums assessed for that period must be based upon a reasonable estimate of the hours worked by that employee and Mr. Smith.
After consideration of the Proposed Decision and Order, the Petition for Review filed thereto, and a careful review of the entire record before us, we have determined that the Department's Notice and Order of Assessment dated March 30, 1989 is incorrect, and must be reversed. The matter will be remanded to the Department with directions to remove any premiums assessed for the period of July 1, 1986 through December 31, 1987 and for a redetermination of the assessment for the [6] period of January 1, 1988 through June 30, 1988.
Proposed Finding of Fact No. 1 and proposed Conclusion of Law No. 1 are hereby adopted as this Board's final Finding and Conclusion. In addition, the Board enters the following Findings and Conclusions:
FINDING OF FACT
2. During the period July 1, 1986 through December 31, 1987, NAO Enterprises engaged in no business activities, had no employees, and was not an employer. Therefore, for that period, NAO Enterprises was under no obligation to keep and preserve records to determine taxes due to the Department of Labor and Industries.
3. During the period January 1, 1988 through June 30, 1988, NAO Enterprises performed certain business activities consisting of siding two or three houses, which work was performed by the president of the corporation, William T. Smith, and by one employee, Rod Chandler, who worked for five or six days on one of the jobs.
4. The only officer of NAO Enterprises to ever perform any work or any business function for the corporation was William T. Smith, and these activities were only performed during the period January 1, 1988 through June 30, 1988.
5. For the period January 1, 1988 through June 30, 1988, NAO Enterprises maintained and preserved records sufficient to determine premiums due under the Industrial Insurance Act in the form of checkbook registers for the account of Roberta S. Peterson, an officer of the corporation.
6. On June 8, 1988, the Department auditor, Kimberly Wade, had an opportunity to inspect the records of NAO Enterprises consisting of the checkbook registers of Roberta Peterson, when she went to the home of William T. Smith to perform an audit.
CONCLUSIONS OF LAW
2. NAO Enterprises has complied with the provisions of RCW 51.48.030 and .040 in keeping adequate records and offering those records for [7] inspection by the Department of Labor and Industries' auditor.
3. During the period of July 1, 1986 through December 31, 1987, NAO Enterprises had no employees and engaged in no business activities which would subject the corporation to the provisions of the Industrial Insurance Act.
4. During the period of January 1, 1988 through June 30, 1988, NAO Enterprises engaged in business activities and Mr. Smith and Mr. Chandler performed work which subjected the corporation to the provisions of the Industrial Insurance Act for the payment of premiums.
5. The Notice and Order of Assessment of Industrial Insurance Taxes dated March 30, 1989 which affirmed a Notice and Order of Assessment No. 66878 dated December 21, 1988 and assessed taxes against NAO Enterprises in the amount of $35,892.36 which accrued for the period July 1, 1986 through June 30, 1988, is incorrect, and is reversed and this matter remanded to the Department with directions to remove any premiums assessed for the period of July 1, 1986 through December 31, 1987 and to reassess premiums for the period of January 1, 1988 through June 30, 1988, based upon the hours of work performed by Mr. Smith and Mr. Chandler for NAO Enterprises during that period.
It is so ORDERED.
Dated this 26th day of July, 1990.
BOARD OF INDUSTRIAL INSURANCE APPEALS
/s/
SARA T. HARMONChairperson
/s/
FRANK E. FENNERTY, JR.Member
/s/
PHILLIP T. BORKMember