Enterprise Management Consultants, Inc. v. State Ex Rel. Oklahoma Tax Commission

OPALA, Justice.

Enterprise Management Consultants, Inc., and its officers and directors [collectively referred to as EMCI] bring this appeal from an Oklahoma Tax Commission [OTC or Commission] order that denied their protest of a sales tax on the revenues from bingo games and food concession sales. EMCI conducted these games pursuant to its contracts with the Citizen Band Potawatomi Tribe of Oklahoma [Tribe] on land held in trust by the United States for the Tribe’s benefit.1 Three issues are presented for our decision: [1] Is EMCI the Tribe’s agent and hence immune from liability for the collection and remittance of sales tax on revenues from the bingo and concession activities? [2] Is the imposition of a sales tax on such revenues an unconstitutional infringement upon tribal self-government? and [3] Is a tax on bingo activities on tribal land preempted by federal law? We answer the first question in the negative because EMCI has failed to prove that it was the Tribe’s agent in regard to the bingo operation and we deem such question dispositive of this appeal. We, thus, have determined it is unnecessary for us to decide the second and third issues presented and we decline to do so.

FACTS

EMCI is a non-Indian corporation that conducted bingo games and food concession sales on tribal lands. This operation was governed by three business agreements between the Tribe and EMCI — a management agreement,2 a lease and a sublease. These .agreements state that *361EMCI was responsible for the construction and maintenance of the bingo facilities and for the operation of the bingo games. The management agreement referred to the Tribe as “principal” and EMCI as “agent.” It guaranteed the Tribe a minimum payment each month, plus a small percentage of the gross profits from the games and food concession revenues.3 “Gross profits” were to be computed as “less and subtracting taxes.”4 EMCI was responsible for the operating expenses but not the taxes.5 Taxes defined in this contract were to include state sales tax.6

Following OTC’s audit of EMCI’s records, state and city sales taxes were assessed on unreported sales. EMCI’s timely protest was denied initially by an administrative law judge and then by the OTC en banc. The OTC determined that EMCI’s bingo operation and food concession sales on the tribal land constituted a “sale”7 and that EMCI was a “vendor”8 within the meaning of the Oklahoma Sales Tax Code [Code].9 The Commission based this conclusion upon its findings that EMCI was not the Tribe’s agent because the Tribe lacked control over EMCI; EMCI held itself out as operator of the bingo games; and the Tribe received only a small portion of the profits. The OTC also ruled that its assessment on the bingo revenues was a tax imposed on the consumer which is to be collected by the vendor, EMCI.

*362PRINCIPAL/AGENT STATUS

EMCI asserts that it is not liable for the tax because under the terms of the management agreement it is the Tribe’s agent in the operation of the bingo games and food concessions. It directs us to various provisions in these agreements to support its theory of agency status. The Commission argues to the contrary that these documents fail to establish EMCI’s claimed legal position vis-a-vis the Tribe.

The law does not presume an agency status is present. The burden of proving the existence, nature and extent of the agency relationship rests ordinarily upon the party who asserts it.10 EMCI must not only meet this burden, but, as a protesting taxpayer, it also must sustain the burden of proving the tax assessment was erroneous.11 Neither of these responsibilities was met here.

A written contract which leaves the parties’ true status in doubt may not be accepted as conclusive of agency status. Status is determined from the facts and the interaction of the parties — one vis-a-vis the other.12 If the facts show control by the principal, then agency can be established regardless of the labels attached by the contract.13 EMCI had an opportunity at the Commission hearings to establish its agency status dehors the written arrangements with the tribe but it failed to do so. No testimony was presented at the hearings relating to the parties’ conduct. The evidence focused mainly on the three contractual agreements between EMCI and the Tribe.14 These documents do not establish that the essential characteristics of an agency relationship were present — i.e. that EMCI owed a fiduciary duty to the Tribe and had agreed to be subject to its con*363trol.15

In short, the taxpayer/EMCI must bear here a double burden — to establish agency and to demonstrate the tax was erroneous. EMCI did not sustain its onus when it showed merely the contractual arrangements with the Tribe. The writings by themselves fail to establish agency; they leave the precise legal status in a clouded or inconclusive state. The contractual arrangements reveal no more than amorphous notions compatible both with franchisor-franchisee or an independent contractor relation. EMCI needed to go one step further and show that the factual interaction revealed an agency relation. This could have been done by demonstrating the Tribe’s control in two important areas— control over the finances of the bingo operation and the Tribe’s exclusive control of the revenue collected from the bingo and concession sales. Because there is no evidence in this record dehors the inconclusive written arrangements to prove EMCI’s status as the Tribe’s agent, we must hold that EMCI has failed to show that it was the Tribe’s agent in the operation of the bingo games and concession sales.16

*364EMCI also disclaims any liability for the payment of the sales tax because its written agreement with the Tribe releases it from that responsibility. This argument is without merit. The incidence of the tax on revenue from bingo activities cannot be governed by private arrangement; rather, it is exacted by law. People who take funds that are subject to tax are responsible to the government for its payment regardless of any private arrangement to the contrary.17 The agreements under review do not indicate who is responsible for the payment of taxes; there is merely a provision which attempts to immunize EMCI from that liability.18 The tax was assessed against EMCI because it was a “vendor” rather than “agent” in the conduct of the bingo games in question and collected the revenues from that activity. There is nothing in the record to indicate that the Tribe had exclusive control of these revenues. In short, because EMCI failed to establish its agency status vis-a-vis the Tribe, it cannot be exonerated by its written agreement with the Tribe from the incidence of the tax which falls as a matter of law. We hence conclude that EMCI has not met its burden of proving that the assessment was erroneously made.

Affirmed.

DOOLIN, C.J., and LAVENDER, SIMMS, KAUGER and SUMMERS, JJ., concur. HODGES, J., dissents. HARGRAVE, V.C.J., disqualified.

. The land was conveyed to the Tribe by Pub.L. 86-701, 74 Stat. 903 [I960]. It was reconveyed to the United States in trust for the Tribe to allow the Tribe to qualify for funding under the Economic Development Act. S.Rep. No. 93-877, 93d Cong., 2d Sess. [1974].

. The management agreement’s pertinent provisions include the following text:

“This AGREEMENT ... by and between the Citizen Band Potawatomi Tribe of Oklahoma ... (hereinafter referred to as PRINCIPAL) ... and Enterprise Management Consultants, Inc. ... (hereinafter referred to as AGENT)
1. Definitions.
******
B. 'Gross Profit from Game Sales’, as used herein, means all revenues derived from the sale of bingo cards, as well as all revenue derived from any other game or games of chance, less and subtracting therefrom payouts, taxes and bank.
C. ‘Gross Profit from Food Concession Sales ’, as used herein, means all revenue derived from the sale of food items, beverages, souvenirs or of any other merchandise, less and subtracting taxes.
D. ‘Payoutd, as used herein, means the money value of the prize of the game given, at the conclusion of each game played, to the winning player or players, whether paid in cash or the actual sum paid for merchandise.
E. 'Bank', as used herein, means a sum of money advanced by AGENT for the sole purpose of making change to accommodate customers.
F. ‘Taxes’, as used herein, means any tax imposed on game or food concession sales or both, including without limitation license fees, permit fees, sales tax, excise tax or any other tax imposed on said operation or the realty by the government of the United States of America, the State of Oklahoma, the City of Shawnee or Pottawatomie County; but, specifically excluding income taxes.
******
8. Operating expenses. AGENT shall be responsible for the payment of all operating expenses incurred with the construction and management of said Bingo and Food Concession Operation, as well as the cost to maintain said building improvements and the contents therein contained, except as to the payment of taxes as hereinabove defined.
******
11. Profit to Principal PRINCIPAL shall be entitled to thirty-five percent (35%) of Gross Profits from Game Sales and fifteen percent (15%) of Gross Profits from Food Concession Sales.
12. Guarantee to PRINCIPAL In consideration of such appointment, AGENT guarantees to PRINCIPAL $120,000.00 per annum for the first year of operation which sum is to be paid *361in advance in monthly installments of $10,-000.00 each on or before the first day of each month as an accumulative credit against PRINCIPAL’S Gross Profit from Game Sales, whereby in those months that said AGENT’S guarantee exceeds PRINCIPAL’S Gross Profit from Game Sales, such excess will be credited on behalf of AGENT against those months when said PRINCIPAL’S Gross Profit from Game Sales exceeds said AGENT'S monthly guarantee. Said adjustment, if any, shall be accomplished at the end of the first year, and shall not exceed $10,000.00. Further and in the event PRINCIPAL’S monthly Gross Profit from Game Sales for any given month exceeds said AGENT’S guarantee, then, AGENT shall disburse to PRINCIPAL such excess on or before the 15th day of the following month. During the second year and thereafter, said guarantee shall be $10,000.00 per month, payable in advance on the first day of the month, or PRINCIPAL’S Gross Profit participation, as set forth in paragraph 11 hereof, whichever is greater. Further, should PRINCIPAL’S Gross Profit participation be greater, then such excess above the monthly guarantee shall be disbursed to PRINCIPAL on or before the 15th day of the following month. In addition, said AGENTS first monthly guaranteed payment shall be paid on or before the Commencement Date....
A A * * * A
18. License Fee. In addition other sums due hereunder, AGENT shall purchase from PRINCIPAL an Annual License, at a cost not to exceed $100.00, which permits AGENT to conduct said Bingo and Food Concession Operation, according to the proposed Regulations of PRINCIPAL.
19. Counting of Gross Receipts. Counting of Gross Receipts resulting from said Bingo and Food Concession Operation shall be jointly done on a daily basis at the close of business by representatives of both PRINCIPAL and AGENT. Said counting agents of both PRINCIPAL and AGENT shall agree, in writing, prior to their employment, to submit to a polygraph test as required by PRINCIPAL AND AGENT, the cost of which shall be shared by the parties hereto on an equal basis.
20.Accounting Records. AGENT shall maintain accounting records of said Bingo and Food Concession Operation in accordance with accepted accounting methods. Said accounting records shall be kept at AGENT’S principal office, and PRINCIPAL shall have, upon five (5) days advance written notice, the right to inspect and examine said accounting records during normal business hours. Such right may be exercised through an agent, employee or independent certified public accountant designated by PRINCIPAL, all at PRINCIPAL'S sole cost. * * * ’’

. See paragraphs 11 and 12 of the Management Agreement, supra note 2.

. See paragraphs 1(B) and (C) of the Management Agreement, supra note 2.

. See paragraph 8 of the Management Agreement, supra note 2.

. See paragraph 1(F) of the Management Agreement, supra note 2.

. 68 O.S.Supp.1985 §§ 1352(L) and 1354. The 1987 amendment of these sections (Okl.Sess.L. 1987, Ch. 213, § 1 pgs". 1282 and 1289 and Ch. 113, § 16, pg. 438) did not change the pertinent provisions under review in this case.

. 68 O.S.Supp.1985 §§ 1352(R) and 1361. See footnote 17 infra for the pertinent text of §§ 1352(R) and 1361. Section 1352’s amendment in 1987 (Okl.Sess.L.1987, Ch. 213, § 1, pgs. 1282 and 1289) did not change the pertinent provisions under review in this case.

. 68 O.S.1981 §§ 1350 et seq.

. Coe v. Esau, Okl., 377 P.2d 815, 818 [1963]. In resolving the issue whether a gas station operator is the agent of his lessor, the court held that the law makes no presumption of agency. The burden of proving the existence, nature and extent of the agency relationship rests on the party alleging it. See also, Sturm v. Green, Okl., 398 P.2d 799, 804 [1965].

. Bert Smith Road Mach. Co. v. Okl. Tax Commission, Okl., 563 P.2d 641, 643 [1977] (the taxpayer who appealed from the sales tax assessment had the burden of proving the property sold came within a statutory exemption from the tax); Continental Oil Co. v. Okl. State Bd. Etc., Okl., 570 P.2d 315, 317 [1977] (the taxpayer had the burden to provide the Board of Equalization with sufficient evidence to determine whether it was entitled to a tax adjustment). See also Appeal of Billings Community Elevator, Inc., Okl., 510 P.2d 953, 956 [1973] (in a district court trial de novo on appeal from a county equalization board’s decision, the burden of proof is on the taxpayer who is seeking affirmative relief).

. The labels used in the contracts do not alone determine whether parties litigant stand vis-a-vis one another in a principal-agent relation. The parties’ status is revealed by considering the intent and effect of the contractual language in conjunction with the parties' actual conduct. See Hinson v. Cameron, Okl., 742 P.2d 549, 557 n. 32 [1987] (a principal/agent relationship is determined by the parties’ status which is found from surrounding facts and is not dictated by the contract; in the event of a discrepancy, facts control over contrary contractual language); Brewer v. Bama Pie, Inc., Okl., 390 P.2d 500, 502 [1964] (the status of one who seeks to establish himself as an employee against the contention that he was an independent contractor is not determined from the written contract alone but from all the facts and circumstances presented by the evidence) and Brown v. Burkett, Okl., 755 P.2d 650, [1988] (involuntary employer status will not be imputed absent substantive proof that the master-servant relationship exists).

.A central factor in determining the existence of an agency relationship is a right of control vested in the principal. See Smith v. St. Francis Hosp., Inc., Okl.App., 676 P.2d 279, 281 [1983]. In deciding whether an emergency room doctor was an employee/agent of the hospital the appellate court looked to the Restatement (Second) of Agency § 1 to define the principal-agent status as;

"a fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.” [Emphasis added.]

Smith, supra, at 281. See Appleby v. Kewanee Oil Company, 279 F.2d 334, 336 [10th Cir.1960]. The essence of an agency relation is the right of the principal to give directions that the agent is under a duty to obey as long as he remains the agent. The agent should act in the principal’s interest and at his control.

.The evidence presented by EMCI was limited to the management agreement, the lease and sublease, two advertising fliers and the Tribe’s Constitution.

. See discussion in footnote 13 supra.

The management agreement between EMCI and the Tribe resembles a franchise agreement in some respects, e.g. a minimum profit is guaranteed to the Tribe and a license is issued by the Tribe to EMCI, but the contract lacks the detailed assertion of control which may make a franchise agreement the source of an agency relationship. Compare Drexel v. Union Prescription Centers, Inc., 582 F.2d 781, 789 [3d Cir. 1978] (the franchisor retained broad discretionary power to impose upon its franchisee virtually any regulation it desired which raised a potential agency relationship); Taylor v. Checkrite, Ltd., 627 F.Supp. 415, 417 [S.D.Ohio 1986] (the franchisor retained the right to exercise complete control over its franchisee’s business operations which created an agency status); Singleton v. International Dairy Queen, Inc., 332 A.2d 160, 163 [Del.Super.Ct.1975] (the franchisor’s control over virtually every aspect of its franchisee’s business gave rise to possibility of an agency relationship) with Oberlin v. Marlin American Corp., 596 F.2d 1322, 1326-27 [7th Cir. 1979] (there was no agency relationship because control was not constant or detailed but limited to a discrete area); Broock v. Nutri/System, Inc., 654 F.Supp. 7, 9 [S.D.Ohio 1986] (agency status was not present where the franchisor had only a one-time veto power over its franchisee rather than a continuing right to control and franchisor’s directions were advisory, not mandatory); Thiokol Chemical Corporation v. Peterson, 15 Utah 2d 355, 393 P.2d 391, 394 [1964] (agency status is not present where the contract’s intent is to require the party to pursue its own course of operation to achieve the end result desired by the second party).

. This controversy is distinguishable from a recent federal court case in which the Indian Tribe and the corporate/manager of the tribe’s bingo enterprise sought declaratory and injunc-tive relief against the State of Oklahoma to prevent enforcement of state bingo regulations and remittance' of state sales taxes on bingo activity sales. See Indian Country, U.S.A. v. Oklahoma Tax Com’n, 829 F.2d 967 [10th Cir. 1987]. In Indian Country, U.S.A. both the Creek Nation and its manager (a non-Indian corporate entity) were parties to the suit. The court found ample evidence in the record to support the conclusion that the bingo operation was a tribal enterprise: (1) the bingo enterprise was "owned, governed and controlled" by the Creek Nation; (2) it was established by the Creek National Council and controlled and supervised by the Muscogee (Creek) Public Gaming Commissioner; (3) the Creek Nation retained ultimate control over the bingo activities; (4) the Creek Nation developed the bingo enterprise for the benefit of the tribe; and (5) there was testimony that the Tribe benefitted in the form of employment. The cotut concluded that the tribal enterprise was immune from state regulation and that this immunity extended to the non-Indian corporate manager. The court therefore did not need to deal with the issue of whether the non-Indian manager had established an agency relationship vis-a-vis the Tribe. In the present case, we do not have any evidence as to the degree or extent of the Tribe’s involvement in the bingo operation. There are only contract provisions and advertising flyers which, at most, indicate the bingo games are to be conducted in the Tribe’s name. The contracts do not identify the bingo operation as a tribal enterprise. Furthermore, assuming Justice Kauger is correct in her concurring opinion that the focus on the status of principal-agent is not the controlling factor, but that the focus is on whether the existence of a tribal enterprise is established, and that a tribal enterprise would be exempt from the sales tax assessment in this case under the analysis found in Indian Country, U.S.A. or under the recent decision of the United States Supreme Court in California v. Cabazon Band of Mission Indians, 480 U.S. 202, 107 S.Ct. 1083, 94 L.Ed.2d 244 (1986) we believe, as with the question of agency, that EMCI failed to prove the operation was a tribal enterprise for the reasons disclosed in that part of Justice Kauger’s concurring opinion, which begins with the first full paragraph at page 368, column 1, and ends at the conclusion of the first paragraph in column 2 of that page. Of course, we note that California v. Cabazon, etc. would not be directly applicable *364here in regard to its analysis or discussion of the applicability of P.L. 280 primarily for the reason OTC does not rely on that federal statute as its basis for the propriety of taxation here. See Justice Kauger’s concurring opinion for a discussion of the history of P.L. 280.

. Section 1361 infra of the Oklahoma Sales Tax Code specifically provides that the vendor has the duty to collect and remit the sales tax. This duty cannot be avoided by contrary contract provisions. See United States v. United States Cartridge Co., 198 F.2d 456, 464 [8th Cir.1952]. The pertinent terms of 68 O.S.Supp.1986 § 1361 provide:

"(A) The tax levied by this article shall be paid by the consumer or user to the vendor as trustee for and on account of this state. Each and every vendor in this state shall collect from the consumer or user the full amount of the tax levied. Every person required to collect any tax imposed by this article, and in the case of a corporation, each principal officer thereof, shall be personally liable for said tax. * * *” [Emphasis added.]

The definition of "vendor" is found in 68 O.S. Supp.1987 § 1352(R). Its pertinent terms provide:

‘“Vendor’ shall mean and include:
(1) Any person making sales of tangible personal property or services in this state, the gross receipts or gross proceeds from which are taxed by this article; * * *.” [Emphasis added.]

. See paragraph 8 of the Management Agreement, supra note 2.