Justia Tax Law Opinion Summaries

This case concerns the State Water Resources Control Board's intervention in the Tulare Lake groundwater subbasin pursuant to California’s Sustainable Groundwater Management Act (the Act). After local agencies in the subbasin submitted a groundwater sustainability plan that the Department of Water Resources twice determined to be inadequate, the State Board designated the basin as probationary in April 2024. This designation triggered state-imposed monitoring, reporting, and fee obligations on certain groundwater extractors. In response, the Kings County Farm Bureau and others filed a petition for writ of mandate and complaint, asserting that the State Board exceeded its authority and challenging the validity of the designation and associated fees on several grounds.The Superior Court of Kings County addressed both a demurrer filed by the State Board and a request from the Farm Bureau for a preliminary injunction. The trial court dismissed the equal protection claim with leave to amend, but overruled the demurrer as to claims that (1) the State Board used improper “underground regulations” not adopted under the Administrative Procedure Act (APA), (2) the imposed extraction fee constituted an unlawful tax, and (3) general declaratory relief was appropriate. The trial court also granted a preliminary injunction, temporarily halting the State Board’s enforcement activities.The California Court of Appeal, Fifth Appellate District, reviewed the trial court’s order overruling the demurrer. The appellate court held that all actions by the State Board taken under sections 10735.2 and 10735.8 of the Act—including the designation of a probationary basin—are exempt from the APA unless the State Board voluntarily opts to adopt regulations using APA procedures. Therefore, the claim for improper “underground regulations” could not proceed. The court also held that a challenge to the extraction fee as an unlawful tax was barred by the constitutional “pay first” rule, as no exception applied. Lastly, the court determined that declaratory relief was unavailable because the Legislature provided for review of State Board actions exclusively by writ of mandate. The appellate court ordered the trial court to grant the demurrer without leave to amend as to these three claims. View "State Water Resources Control Bd. v. Superior Court" on Justia Law

A nonprofit religious organization based in Queens purchased a 73-acre parcel in the Town of Callicoon, Sullivan County, in 2018. Although the organization originally intended to use the property as a retreat center, testimony established that its actual use involved farming vegetables on about one cleared acre for charitable distribution to low-income residents in Queens. Occasional overnight stays involved religious activities, but there was no evidence of regular organized religious services or use as a retreat center. The Town Supervisor, who lived nearby and farmed part of the property without a formal agreement, confirmed the farming use but did not observe overnight retreats.After the Town Assessor denied a religious use tax exemption for the property for the 2021 tax year, the organization filed a grievance complaint, which was denied by the Town’s Board of Assessment Review. The organization then initiated an RPTL article 7 proceeding in Supreme Court, challenging the denial. A similar process occurred for the 2022 tax year, and both proceedings were joined. Supreme Court held a nonjury trial, found all witnesses credible, credited the organization’s testimony about actual use, and granted the petitions for both tax years, concluding the property was exempt. The Appellate Division affirmed this decision, with one Justice dissenting.The New York Court of Appeals reviewed the case. It held that the lower courts applied the correct legal standards: the burden to prove entitlement to exemption rests with the party seeking it, while the burden to prove a zoning violation rests with the municipality. The Court of Appeals found record support for Supreme Court’s factual findings and concluded that the Town failed to prove a zoning violation sufficient to defeat the exemption for both years. The order of the Appellate Division was affirmed, with costs. View "Matter of First United Methodist Church in Flushing v Assessor, Town of Callicoon" on Justia Law

Four individuals established two illegal gambling businesses in northern Ohio, operating gaming rooms that paid out winnings in cash. To avoid detection, the true owners concealed their involvement by using nominal owners and destroyed financial records. The businesses operated almost entirely in cash, allowing the owners to hide profits and evade taxes. One of the defendants, an accountant, played a central role in managing finances and preparing false tax returns for the group. The scheme also involved efforts to launder money and shield assets from IRS collection, including the use of shell companies and deceptive real estate transactions.After law enforcement executed multiple search warrants in 2018, a grand jury indicted several participants on conspiracy, illegal gambling, tax evasion, and related charges. The United States District Court for the Northern District of Ohio denied motions to dismiss and to sever the trials. At trial, a jury convicted two defendants on nearly all counts. At sentencing, the court calculated tax losses exceeding $3.5 million for each defendant, resulting in lengthy prison terms and substantial restitution orders. Both defendants challenged the loss calculations, the denial of severance, jury instructions, and other procedural aspects.The United States Court of Appeals for the Sixth Circuit reviewed the case. It held that the district court did not abuse its discretion in denying severance, as no compelling prejudice was shown. The court found no error in the denial of the motion to dismiss the tax evasion count, concluding that affirmative acts of evasion within the limitations period were sufficiently alleged. The appellate court also upheld the district court’s tax loss calculations, the application of the sophisticated means enhancement, and the handling of jury instructions. The sentences were affirmed, but the case was remanded for the limited purpose of correcting a clerical error in the judgment regarding restitution interest. View "United States v. DiPietro" on Justia Law

The dispute centers on a Delaware law, House Bill 242 (HB242), which permits New Castle County school districts to set different property tax rates for residential and non-residential properties for the 2025-2026 school year. This legislation was enacted after a county-wide property reassessment revealed a significant shift in the tax base, resulting in higher taxes for residential properties. In response to public concern, HB242 allowed school districts to implement a split-rate system, reducing residential rates and increasing non-residential rates, with the stipulation that non-residential rates could not exceed twice the residential rate and that total projected revenue could not surpass the amount projected under the original tax warrant. Subsequent corrections to property classifications led to a net increase in projected tax revenue.The plaintiffs, four property-related associations, challenged HB242 in the Court of Chancery, arguing that it violated the Uniformity Clause of the Delaware Constitution and a “revenue neutrality” requirement in the statute. The Court of Chancery rejected these claims, finding that the General Assembly has the authority to create reasonable property classifications for tax purposes and that the statute’s use of “projected” rather than “actual” revenue allowed for adjustments due to classification corrections.On appeal, the Supreme Court of Delaware reviewed the constitutionality of HB242 and the statutory interpretation issues de novo. The Court held that the Uniformity Clause does not prohibit reasonable legislative classifications of property for taxation, provided tax rates are uniform within each class. The Court also determined that HB242’s revenue limitation applies to projected, not actual, revenue, and that corrections to property classifications do not violate the statute. The Supreme Court of Delaware affirmed the judgment of the Court of Chancery. View "Newark Property Association v. State" on Justia Law

A corporation owned by a federally recognized Indian tribe, along with several tribal officials, was alleged by the State of California to have violated state cigarette tax laws and regulations. The corporation manufactured and distributed cigarettes in California, including to non-tribal consumers, without collecting or remitting required state excise taxes or payments under the Master Settlement Agreement. California claimed that the corporation and its officials distributed contraband cigarettes not listed on the state’s approved directory and failed to comply with shipping, recordkeeping, and tax collection requirements under the federal Prevent All Cigarette Trafficking Act (PACT Act). Despite warnings and being placed on a federal non-compliance list, the corporation continued its operations.The United States District Court for the Eastern District of California considered the defendants’ motion to dismiss. The court found that the corporation, as an arm of the tribe, was shielded by tribal sovereign immunity and dismissed claims against it. However, the court allowed claims for injunctive relief against the individual tribal officials in their official capacities to proceed, holding that the Ex parte Young doctrine permitted such relief under the PACT Act. The court also denied the officials’ claims of qualified immunity for personal capacity claims, reasoning that qualified immunity did not apply to enforcement actions brought by a state under a federal statute.On interlocutory appeal, the United States Court of Appeals for the Ninth Circuit affirmed the district court’s rulings. The Ninth Circuit held that the PACT Act does not preclude Ex parte Young actions for prospective injunctive relief against tribal officials, as the Act does not limit who may be sued or the types of relief available, nor does it contain a sufficiently detailed remedial scheme to displace Ex parte Young. The court also held that qualified immunity does not shield tribal officials from California’s claims for civil penalties and money damages under the PACT Act. View "STATE OF CALIFORNIA V. DEL ROSA" on Justia Law

The dispute centers on the taxable valuation of two apartment complex parcels owned by the taxpayers in Sarpy County, Nebraska. For tax years 2020 and 2021, the Sarpy County Assessor set the values at $8,953,000 and $5,263,000, which the taxpayers believed were excessive. They protested these assessments to the Sarpy County Board of Equalization, providing evidence of actual rental income that was lower than market estimates. A referee for the Board recommended adopting the taxpayers’ lower valuations, and the Board accepted these recommendations, setting the values at $7,450,829 and $3,559,566.The Assessor appealed the Board’s decision to the Nebraska Tax Equalization and Review Commission (TERC). At the TERC hearing, both parties agreed on using the income approach for valuation but disagreed on whether to use actual or market-typical income figures. The Assessor relied on market data, while the Board’s referee used actual income figures verified against an online database. TERC found that the Board’s methodology was not a professionally accepted mass appraisal method and that the actual income figures were not shown to be consistent with market rates. TERC vacated and reversed the Board’s valuations, reinstating the Assessor’s original higher values.On appeal, the Nebraska Supreme Court reviewed TERC’s decision for errors on the record. The court held that TERC erred in finding the Board’s valuations unreasonable or arbitrary, as the Board’s referee had provided a reasonable basis for using actual income figures, verified against market data. The Supreme Court reversed TERC’s decision and remanded the case with directions to affirm the Board’s lower valuations for both parcels for the relevant tax years. View "Pinnacle Enters. v. Sarpy Cty. Bd. of Equal." on Justia Law

A partnership purchased a historic eleven-story building in downtown Cleveland for $6 million in 2015 and later redeveloped it into residential apartments, utilizing state and federal historic preservation tax credits. In 2016, the partnership donated a conservation easement on the building’s façade and development rights to a local charity, claiming a $22 million charitable deduction—substantially more than the purchase price. The Internal Revenue Service (IRS) disallowed the deduction, citing that it was claimed in the wrong tax year, was grossly overvalued, and lacked proper documentation for related expenses. The IRS also imposed significant penalties for negligence and overvaluation.The partnership and its tax matters partner challenged the IRS’s determinations in the United States Tax Court. After a trial, the Tax Court found that the deduction was improperly claimed by the partnership for a period when it was not a taxable entity, as it had only one partner at the time of the donation. The court also concluded that the easement’s valuation was speculative and unsupported, rejecting the $22 million figure in favor of the IRS’s much lower estimate. Additionally, the Tax Court determined that the partnership failed to adequately document its claimed expenses and upheld the IRS’s penalties.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the Tax Court’s decision. The Sixth Circuit held that the partnership could not claim the deduction for a period when it was not a taxable partnership, that the valuation of the easement was grossly overstated and speculative, and that the partnership failed to substantiate its claimed expenses. The court also upheld the imposition of negligence and gross valuation misstatement penalties, finding no clear error in the Tax Court’s factual determinations. View "Corning Place Ohio, LLC v. Commissioner of Internal Revenue" on Justia Law

The case concerns a dispute over the tax characterization of a $191 million payment made in 2002 to the Charles G. Berwind Trust (DB Trust) following a complex series of corporate transactions and litigation. The Berwind Corporation, a closely held coal mining business, was owned through family trusts. In 1999, a short-form merger under Pennsylvania law resulted in the DB Trust’s shares in Berwind Pharmaceutical Services, Inc. (BPSI) being extinguished, with the DB Trust entitled to payment for its shares. The DB Trust challenged the validity of the merger and the valuation of its shares through federal and state litigation, ultimately leading to a settlement in 2002, where BPSI paid the DB Trust $191 million.After the settlement, a tax dispute arose regarding whether a portion of the settlement payment should be treated as interest (taxed as ordinary income) or as capital gains. The Internal Revenue Service (IRS) determined that part of the payment represented unstated interest under Section 483 of the Internal Revenue Code, which applies to deferred payments under contracts for the sale of property. The DB Trust petitioned the United States Tax Court for redetermination, arguing that the payment was made under the 2002 Settlement Agreement, not the 1999 Merger Agreement, and thus should be taxed entirely as capital gains.The United States Tax Court found that the sale of the DB Trust’s shares occurred in 1999 under the Merger Agreement, which constituted a contract for the sale of property. The court held that the 2002 payment was made “under” the 1999 Merger Agreement, triggering Section 483 and requiring a portion of the payment to be treated as interest. The DB Trust appealed.The United States Court of Appeals for the Third Circuit affirmed the Tax Court’s decision. The Third Circuit held that Section 483 applied because the payment was made under a contract for the sale of property, and the Merger Agreement served as the basis for the payment obligation. Thus, the interest portion of the payment is taxable as ordinary income. View "Charles G. Berwind Trust v. Commissioner of Internal Revenue" on Justia Law

The dispute centers on groundwater management in the Tulare Lake groundwater subbasin, a high-priority basin under California’s Sustainable Groundwater Management Act (the Act). Local groundwater agencies developed and submitted a sustainability plan for the subbasin, but the Department of Water Resources twice found the plan inadequate. Following these determinations, the State Water Resources Control Board designated the Tulare subbasin as probationary, triggering state intervention and new monitoring, reporting, and fee requirements. In response, Kings County Farm Bureau and other parties filed a writ of mandate and complaint, challenging the State Board’s authority and actions, including the probationary designation and associated fees.The Superior Court of Kings County reviewed the Farm Bureau’s claims. It granted a preliminary injunction halting the State Board’s implementation of the probationary designation and denied in part the State Board’s demurrer to the complaint. Specifically, the trial court dismissed the equal protection claim with leave to amend but allowed the Farm Bureau to proceed on claims alleging improper underground regulations, unconstitutional fees, and general declaratory relief. The State Board then sought appellate review of the trial court’s order overruling its demurrer.The California Court of Appeal, Fifth Appellate District, reviewed the trial court’s decision de novo. It held that the Act exempts the State Board’s actions under the relevant statutory sections from the Administrative Procedures Act, precluding claims based on alleged underground regulations. The court further found that challenges to the extraction fees as unlawful taxes are barred by the “pay first” rule, requiring payment before judicial review. Finally, the court determined that declaratory relief is unavailable where the Legislature has provided a writ of mandate as the exclusive remedy. The appellate court issued a writ of mandate directing the trial court to vacate its order overruling the demurrer and to grant the demurrer without leave to amend as to the sixth, seventh, and ninth causes of action. View "State Water Resources Control Bd. v. Super. Ct." on Justia Law

The City of Los Angeles implemented the recycLA program in 2017, establishing exclusive franchise agreements with private waste haulers to provide waste collection services for commercial and multi-unit residential properties. Under these agreements, haulers paid the City a percentage of their gross receipts as a franchise fee. Several property owners and tenants who paid for waste hauling services under this system filed a consolidated class action against the City, alleging that the franchise fees were actually an unlawful tax imposed without voter approval, in violation of Proposition 218 and related constitutional provisions. The plaintiffs sought refunds of the alleged illegal taxes and declaratory relief regarding the validity of the fees.The Superior Court of Los Angeles County considered the plaintiffs’ motion for class certification. While the court found the proposed class sufficiently numerous and ascertainable, and agreed that the question of whether the franchise fees constituted an illegal tax was subject to common proof, it identified a fundamental problem: not all proposed class members suffered an economic loss, as some landlords and property owners may have passed the cost of the fees on to tenants. The court concluded that entitlement to refunds was not susceptible to common proof and that individual issues predominated over common ones. It also found that a class action was not the superior method for resolving the dispute, due to the risk of unjust enrichment and the complexity of determining who actually bore the cost of the fees. The court denied class certification.On appeal, the California Court of Appeal, Second Appellate District, Division Four, reviewed the trial court’s order under the substantial evidence standard. The appellate court affirmed the denial of class certification, holding that the trial court did not err in finding that individual issues predominated and that class treatment was not superior. The order denying class certification was affirmed. View "Leeds v. City of L.A." on Justia Law