Justia Tax Law Opinion Summaries

VVF Intervest, L.L.C., a contract manufacturer based in Kansas, produced bar soap for High Ridge Brands (HRB), the brand owner. HRB, an "asset light" entity, directed VVF to ship the soap from Kansas to a third-party distribution center in Columbus, Ohio. Subsequently, HRB resold most of the product to national retailers, and the soap was shipped out of Ohio to various locations. Between 2010 and 2014, VVF paid Ohio’s commercial-activity tax (CAT) on its gross receipts from these sales to HRB.After making these payments, VVF sought a refund from the Ohio tax commissioner, arguing that its gross receipts should not be sitused to Ohio since the products left the state soon after arrival. The tax commissioner denied the refund, emphasizing that the relevant sale for tax purposes was VVF’s sale to HRB, not HRB’s subsequent sales to retailers. VVF appealed to the Ohio Board of Tax Appeals, which held that the Columbus distribution center was merely an interim stop and that the gross receipts should not be sitused to Ohio. The board also found that VVF had not adequately preserved an alternative statutory argument regarding services and declined to rule on constitutional claims.The Supreme Court of Ohio reviewed the appeal and reversed the Board of Tax Appeals’ decision. The court held that under R.C. 5751.033(E), VVF’s gross receipts from sales to HRB are properly sitused to Ohio because HRB, as the purchaser, received the goods in Ohio. The court dismissed VVF’s alternative statutory argument for lack of jurisdiction and rejected VVF’s constitutional challenges under the Due Process, Commerce, and Equal Protection Clauses. Thus, VVF is not entitled to a refund of the CAT paid on these transactions. View "VVF Intervest, L.L.C. v. Harris" on Justia Law

Several Utah-based companies and individuals, including Standard Insurances and related entities, challenged actions taken by the Internal Revenue Service (IRS) following an audit. Standard Insurances, a micro-captive insurance company, had provided insurance to its affiliated companies, seeking certain federal tax benefits under 26 U.S.C. § 831(b). After an audit initiated in 2022, the IRS determined that Standard was not a legitimate micro-captive insurance company, issued deficiency notices, and adjusted the tax liabilities of Standard and its insureds. The IRS concluded that Standard’s transactions lacked economic substance and were not genuine insurance transactions, resulting in increased taxable income for Standard and decreased deductions for the insured entities.Following the issuance of deficiency notices, Standard petitioned the United States Tax Court for redetermination of its tax liabilities and made advance payments. While those proceedings remained pending, Standard filed suit in the United States District Court for the District of Utah, seeking declaratory and injunctive relief. The district court dismissed the case for lack of jurisdiction, finding that the claims were barred by the Declaratory Judgment Act (DJA) and the Tax Anti-Injunction Act (AIA), which prohibit suits in federal court that restrain the assessment or collection of federal taxes.On appeal, the United States Court of Appeals for the Tenth Circuit affirmed the district court’s dismissal. The Tenth Circuit held that Standard’s claims sought relief that would restrain the IRS’s assessment and collection of taxes, and thus were barred by the DJA and AIA. The court found that none of the judicially created exceptions to these statutes applied, as Standard had an available remedy in tax court and could pursue further review if necessary. The court rejected Standard’s arguments that its claims were not subject to the statutory bars and concluded that federal court jurisdiction was precluded in this instance. View "Standard Insurances v. IRS" on Justia Law

Kevin Clay and his associate founded a pharmaceutical sales company that marketed compounded prescriptions directly to patients, promising them a share of the insurance reimbursements for each prescription filled. The company partnered with a pharmacy willing to pay a portion of the insurance proceeds and recruited employees from a local business whose health plan covered these prescriptions. Patients were directed to a doctor who readily prescribed the creams, resulting in millions of dollars in reimbursements over two years. Clay established a public charity to reduce his tax burden but used its funds for personal expenses and failed to comply with nonprofit requirements.The United States District Court for the Northern District of Ohio oversaw Clay’s trial. A jury convicted him of conspiracy to commit healthcare fraud, healthcare fraud, and making a false statement to the IRS, but acquitted him of a separate tax charge. The court sentenced Clay to 51 months’ imprisonment and ordered restitution totaling nearly $7 million to both Fiat Chrysler and the IRS. Clay appealed his convictions, sentence, and restitution orders.The United States Court of Appeals for the Sixth Circuit reviewed the case. The court affirmed Clay’s convictions and rejected his challenges to the jury instructions and evidentiary rulings. However, it found error in the district court’s restitution orders and the application of a sentencing enhancement. Specifically, the Sixth Circuit held that restitution should not include payments for medically necessary prescriptions and that the apportionment of restitution must consider each defendant’s contribution and economic circumstances. The court also determined the restitution order to the IRS was not properly substantiated and included acquitted conduct. Finally, the case was remanded for further proceedings on restitution and for clarification or reconsideration of the leadership sentencing enhancement. View "United States v. Clay" on Justia Law

After serving more than a decade in the Illinois state legislature, the defendant established a lobbying and consulting firm and also sold life insurance for a private company. For several years, she correctly filed her tax returns and reported her income. However, beginning in 2014, she significantly underreported her income on her personal tax returns or failed to file altogether, despite substantial earnings from her business and insurance work. She was later terminated from her insurance position for fraudulent activity. The IRS discovered unreported income and issued a notice of tax liability, prompting her to amend one return and enter a payment plan, which she later abandoned.A grand jury indicted her on six counts, including making false statements on tax returns and willfully failing to file returns for herself and her company. The United States District Court for the Northern District of Illinois, Eastern Division, made several evidentiary rulings before and during trial, including excluding evidence of her amended tax return and payment plan, and limiting her expert’s testimony. The jury convicted her on four counts. The court denied her motion for judgment of acquittal and later sentenced her to one year of imprisonment and supervised release. She subsequently filed a motion to modify her sentence to make her eligible for good-time credits, which the district court denied.The United States Court of Appeals for the Seventh Circuit reviewed her convictions and the district court’s evidentiary rulings de novo and for abuse of discretion, respectively. The appellate court held that there was sufficient evidence for a rational jury to find willfulness, affirmed the exclusion of post-offense remedial evidence as within the district court’s discretion, found her challenge to the impeachment ruling waived since she did not testify, upheld the limitation on her expert’s testimony, and agreed that her motion to correct the sentence was untimely and properly denied. The Seventh Circuit affirmed the judgment. View "United States v. Collins" on Justia Law

A taxpayer in the City of Findlay filed a mandamus action against the city and various municipal officials, alleging that the city failed to comply with municipal income-tax statutes and initiated fraudulent tax collection efforts against him and other delinquent taxpayers. He sought to enjoin the city from engaging in these tax collection activities and to compel compliance with local tax ordinances. In his filings, the taxpayer did not claim that any tax complaint was currently pending against him or allege a specific, individualized injury. Instead, he asserted standing as a taxpayer and attempted to bring his action on behalf of all taxpayers, invoking the public right doctrine.Previously, this dispute had resulted in several adverse judgments against the taxpayer in both the Third District Court of Appeals and the Supreme Court of Ohio, all relating to similar underlying facts concerning Findlay’s efforts to collect unpaid municipal taxes. In the present matter, the Third District Court of Appeals granted the city’s motion to dismiss the mandamus action under Civil Rule 12(B)(6). The appellate court found that the taxpayer lacked standing because he failed to allege a specific injury distinct from the general public and that his claims were not cognizable in mandamus. The court also denied his request for leave to file a third amended complaint, concluding that he had not demonstrated good cause to do so.On review, the Supreme Court of Ohio affirmed the judgment of the Third District Court of Appeals. The Supreme Court held that the taxpayer lacked standing to pursue the mandamus action because he did not allege an actual injury personal to him that was fairly traceable to the city’s conduct, as required for individual standing. The Supreme Court also rejected reliance on the public right doctrine, reaffirming its prior decision that this doctrine had been overruled, and denied both the motion to supplement the record and the request for oral argument. View "State ex rel. Martens v. Findlay" on Justia Law

Disney Platform Distribution, BAMTech, and Hulu, subsidiaries of the Walt Disney Company, provide video streaming services to subscribers in the City of Santa Barbara. In 2022, the City’s Tax Administrator notified these companies that they had failed to collect and remit video users’ taxes under Ordinance 5471 for the period January 1, 2018, through December 31, 2020, resulting in substantial assessments. The companies appealed to the City Administrator, and a retired Associate Justice served as hearing officer, ultimately upholding the Tax Administrator’s decision.Following the administrative appeal, the companies sought judicial review by filing a petition for a writ of administrative mandate in the Superior Court of Santa Barbara County. The trial court denied their petition, finding that the Ordinance does apply to video streaming services and rejecting arguments that the Ordinance violated the Internet Tax Freedom Act, the First Amendment, and Article XIII C of the California Constitution. The trial court also found there was no violation of Public Utilities Code section 799’s notice requirements, as the City’s actions did not constitute a change in the tax base or adoption of a new tax.On appeal, the California Court of Appeal, Second Appellate District, Division Six, affirmed the trial court’s judgment. The court held that the Ordinance applies to video streaming services, interpreting the term “channel” in its ordinary, non-technical sense and finding that the voters intended technological neutrality. The court further held that the Ordinance does not violate the Internet Tax Freedom Act because video streaming subscriptions and DVD sales/rentals are not “similar” under the Act. Additionally, the court concluded the tax is not a content-based regulation of speech under the First Amendment, and that delayed enforcement did not constitute a tax increase requiring additional voter approval or notice under the California Constitution or Public Utilities Code section 799. View "Disney Platform Distribution v. City of Santa Barbara" on Justia Law

A retailer in North Carolina sold a product called “Replenishments” for a wireless provider. During the period audited by state tax authorities, the way Replenishments could be used changed. In the first part of the audit period, customers could only redeem Replenishments for prepaid wireless service. In the second part, they could redeem them for wireless service or for a broader range of products and services from the wireless provider. The state tax agency audited the retailer and determined that sales tax should have been collected and remitted on all Replenishment sales at the point of sale, assessing a significant tax liability.The retailer challenged the assessment in the Office of Administrative Hearings (OAH), which divided the audit period into two: Period I (pre-September 2017) and Period II (post-September 2017). The administrative law judge found the retailer responsible for tax collection during Period I, since Replenishments were only for wireless service, but not responsible during Period II, when Replenishments functioned as stored-value cards (like gift cards) usable for various products, making the wireless provider responsible for collecting tax at redemption. The North Carolina Business Court reviewed the case and disagreed with OAH about Period II, holding the retailer responsible for collecting sales tax on all Replenishment sales across both periods.The Supreme Court of North Carolina conducted a detailed statutory analysis, affirmed the Business Court’s ruling for Period I, and reversed as to Period II. The Supreme Court held that in Period I, Replenishments were prepaid wireless calling services taxable at the point of sale, making the retailer responsible for tax collection and remittance. For Period II, the Court held Replenishments were stored-value cards, taxable only when redeemed, with the wireless provider responsible for tax. The Court remanded the case for recalculation of the retailer’s tax liability consistent with this holding. View "N.C. Dep't of Revenue v. Wireless Ctr. of N.C., Inc" on Justia Law

A special agent with Homeland Security Investigations was discovered to have stolen money from criminal targets, embezzled agency funds, and entered into a cash-for-protection arrangement with a confidential source. The agent’s conduct came to light after the confidential source was arrested by the DEA, and text messages between the two were uncovered. Investigators found that the agent deleted incriminating messages, misappropriated cash from drug dealers and agency sources, manipulated controlled buys for personal gain, and protected his source from law enforcement scrutiny. The agent was also shown to have structured cash deposits to evade bank reporting requirements and failed to report significant taxable income.The United States District Court for the Northern District of Illinois, Eastern Division, conducted a thirteen-day jury trial in 2023. The jury found the agent guilty on all counts, including filing false tax returns, structuring cash transactions, and concealing material facts from the government. The district court denied the agent’s post-trial motions for acquittal and a new trial, then imposed sentence. The agent appealed, contesting the sufficiency of the evidence supporting his conviction.The United States Court of Appeals for the Seventh Circuit reviewed the case. Applying the appropriate standards of review, the court held that there was sufficient evidence for a rational jury to convict on all counts. The evidence included direct and indirect proof of unreported income, clear indications of structuring to evade reporting requirements, and material omissions on government forms. The court found no grounds to disturb the jury’s credibility determinations or the district court’s denial of post-trial motions. Accordingly, the Seventh Circuit affirmed the judgment of the district court. View "USA v Sabaini" on Justia Law

The petitioner was convicted following a jury trial for filing a fraudulent tax return and theft of government funds, after he submitted a tax form claiming a large refund based on a mistaken belief about a government “trust” linked to Social Security. He received and spent the refund, then requested another, which was denied. The IRS investigated, and he later filed a document stating he was deceased. His defense at trial centered on his claim that he misunderstood tax law due to information from an online forum and advice from an IRS agent.The United States District Court for the Northern District of Indiana oversaw the criminal trial, where the petitioner was represented by attorney John Davis. During trial, Davis pursued motions under Brady v. Maryland, seeking exculpatory evidence, but the motions were denied. After conviction, Davis was removed from the Seventh Circuit Bar for misconduct in an unrelated case. The petitioner then moved for a new trial and, later, for relief under 28 U.S.C. § 2255, arguing ineffective assistance of counsel based on Davis’s disciplinary history and alleged trial errors. The district court denied both motions, finding Davis’s performance did not prejudice the petitioner’s defense and that his disciplinary issues in other cases did not establish ineffectiveness in the present case.On appeal, the United States Court of Appeals for the Seventh Circuit reviewed the district court’s denial of collateral relief de novo for legal issues and for clear error regarding factual findings. The court held that there is no per se rule that concurrent or subsequent attorney discipline renders counsel ineffective; instead, a petitioner must show specific deficient performance and resulting prejudice under Strickland v. Washington. The petitioner failed to demonstrate that counsel’s alleged errors affected the outcome of the trial. The Seventh Circuit affirmed the district court’s denial of the § 2255 motion. View "Blake v USA" on Justia Law

A company engaged in oil and gas production in Wyoming purchased electricity to operate equipment—primarily electronic submersible pumps and pumpjacks—that lifted fluids from underground, moved them to surface facilities for separation, and ultimately delivered the separated crude oil to custody transfer units (LACTs). The company sought a refund of sales tax paid on a portion of this electricity, arguing that the power was used for “transportation” and therefore exempt from sales tax under a statutory provision for those “engaged in the transportation business.” Utility studies commissioned by the company attempted to quantify what percentage of electricity was used for surface movement of fluids.A prior audit by the Wyoming Department of Revenue covering different years led to a similar refund dispute, but the Department conceded that the company was “engaged in the transportation business,” and the Wyoming State Board of Equalization ruled in the company’s favor. However, for the tax years at issue here, the Department denied the refund, asserting the company was not engaged in the transportation business as required by statute. The Board, after a contested hearing, again ruled for the company, finding it met the exemption, but the Department appealed, and the District Court certified the case to the Supreme Court of Wyoming.The Supreme Court of Wyoming held that collateral estoppel did not bar the Department’s appeal because the issue of whether the company was engaged in the transportation business was not actually litigated in the prior proceeding, but stipulated. On the merits, the Court reversed the Board’s decision. It found that the company’s activities—moving crude oil from the wellhead to the LACT and separating water—were part of the production process, not transportation. The company was not engaged in the transportation business as contemplated by the statute and the electricity was used for production, not actual transportation purposes. Thus, the company was not entitled to a sales tax exemption or refund. View "Department of Revenue v. PacifiCorp" on Justia Law