by
Rice formed a trust for the benefit of his children in his home state, New York, and appointed a New York resident as the trustee. The trustee has “absolute discretion” to distribute the trust’s assets to the beneficiaries. In 1997, Rice’s daughter, Kaestner, moved to North Carolina. The trustee later divided Rice’s initial trust into three subtrusts. North Carolina assessed a tax of $1.3 million for tax years 2005-2008 on the Kaestner Trust under a law authorizing the state to tax any trust income that “is for the benefit of” a state resident. During that period, Kaestner had no right to and did not receive, any distributions. Nor did the Trust have a physical presence, make any direct investments, or hold any real property in North Carolina. The trustee paid the tax under protest and then sued, citing the Due Process Clause. A unanimous Supreme Court affirmed state court decisions in favor of the trustee. The presence of in-state beneficiaries alone does not empower a state to tax trust income that has not been distributed to the beneficiaries where the beneficiaries have no right to demand that income and are uncertain to receive it. The Due Process Clause limits the states to imposing only taxes that “bea[r] fiscal relation to protection, opportunities and benefits given by the state.” When a state seeks to base its tax on the in-state residence of a trust beneficiary, due process demands a pragmatic inquiry into what the beneficiary controls or possesses and how that interest relates to the object of the tax. The residence of the beneficiaries in North Carolina alone does not supply the minimum connection necessary to sustain the tax. View "North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust" on Justia Law

by
The Supreme Court held that the City and County of San Francisco (San Francisco) can lawfully apply a tax collection requirement, which requires parking lot operators to collect a tax from drivers who park their cars in paid parking lots and remit the proceeds to the city, to state universities that operate paid parking lots in the city, holding that the collection requirement is not unconstitutional. San Francisco, a consolidated city and county that has adopted a charter for its own governance, requires that state universities collect the parking tax at issue with whatever parking fees they charge and remit the proceeds to the city. The trial court concluded that the universities were exempt from compliance with the parking tax ordinance. The court of appeal affirmed, concluding that the constitutional principles articulated and applied in In re Means, 14 Cal.2d 254 (1939), and Hall v. City of Taft, 47 Cal.2d 177 (1956), exempts state agencies from collecting and remitting the parking tax. The Supreme Court reversed, holding that charter cities may require state agencies to assist in the collection and remittance of municipal taxes and that San Francisco's collection requirement is a valid exercise of its power from which state universities are not immune. View "City & County of San Francisco v. Regents of the University of California" on Justia Law

by
Plaintiff’s class action complaint alleged that Walgreens violated the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, by unlawfully collecting a municipal tax imposed by Chicago on purchases of bottled water that were exempt from taxation under the ordinance. The circuit court dismissed the action, citing the voluntary payment doctrine, which provides that money voluntarily paid with full knowledge of the facts cannot be recovered on the ground that the claim for payment was illegal. The appellate court reversed, reasoning that the complaint pleaded that the unlawful collection of the bottled water tax was a deceptive act under the Consumer Fraud Act. The Illinois Supreme Court reinstated the dismissal, first holding that claims under the Consumer Fraud Act are not categorically exempt from the voluntary payment doctrine. The court rejected an argument that the receipt issued by Walgreens constituted a representation that the tax was required by the ordinance. Misrepresentations or mistakes of law cannot form the basis of a claim for fraud. View "McIntosh v. Walgreens Boots Alliance, Inc." on Justia Law

by
The Eleventh Circuit reversed the district court's grant of summary judgment for the government in an action brought by plaintiff, seeking to recover taxes she previously paid to the government. The court held that, viewed in the light most favorable to plaintiff, the evidence supported the conclusion that she satisfied all the elements of 26 U.S.C. 1341, which allows a taxpayer who paid taxes on what she erroneously believed to be her income to recoup those unnecessary tax payments. Under section 1341, plaintiff had just as much of a right to recover the taxes she previously paid on the $300,000 she received and then gave back as did her ex-husband to recover the taxes he paid on his $300,000 that he returned. Accordingly, the court remanded for further proceedings. On remand, the district court should determine whether any genuine dispute as to any factual issues necessary to resolve the inquiry on each of the section 1341 factors exists and, if so, any dispute should proceed to trial. If there is no such factual dispute, the district court should enter judgment in favor of plaintiff. View "Mihelick v. United States" on Justia Law

by
The Supreme Court affirmed the decision of the court of appeals affirming the decision of an unemployment law judge upholding the determination of the Minnesota Department of Employment and Economic Development that the wages Appellant paid to workers who hold H-2A and J-1 visas are subject to unemployment insurance taxation, holding that the court of appeals did not err in concluding that Appellant owed the taxes. Appellant, a corporation that grows and sells fruits and vegetables, began hiring H-2A and J-1 nonimmigrant visa holders in 2010. In 2016, the Department of Employment and Economic Development determined that Appellant owed $154,726 in unpaid unemployment insurance taxes, mostly on the wages of the H-2A and J-1 visa workers. An unemployment judge upheld the determination, concluding that the visa workers' wages were subject to unemployment insurance taxation under Minnesota law. The court of appeals affirmed. The Supreme Court affirmed, holding that Appellant must pay unemployment insurance taxes on these workers' wages. View "Svihel Vegetable Farm, Inc. v. Department of Employment & Economic Development" on Justia Law

by
The Second Circuit affirmed the district court's dismissal of plaintiff's second amended complaint (SAC) for failure to state a claim. The SAC alleged that Costco charged its customers sales tax on the full price of items subject to a manufacturer's discount in situations where New York law provided that Costco, rather than the customer, was liable for the tax. The court held that these claims must be brought in a New York administrative proceeding under New York Tax Law 1139, which provided the exclusive remedy for claims that a tax, penalty, or interest was erroneously, illegally or unconstitutionally collected. Likewise, the district court properly dismissed plaintiff's unjust enrichment claims and his claim under New York General Business Law 349. View "Guterman v. Costco Wholesale Corp." on Justia Law

by
The Eleventh Circuit affirmed the tax court's judgment in favor of the IRS in an action challenging the IRS's notice of deficiency. The court held that taxpayers waived their argument that the fraud exception was triggered only when the taxpayer intends to evade tax, not when the return preparer intends to evade tax. The court declined to exercise its discretion by not enforcing the waiver doctrine. Finally, the court held that the tax court did not abuse its discretion by admitting the return preparer's out-of-court statements. Accordingly, the court affirmed the judgment of the tax court. View "Finnegan v. Commissioner" on Justia Law

by
Under the Internal Revenue Code's general rule, the geographic origin of the redemption income would be sourced according to the residence of the taxpayer. However, that general rule is subject to an exception known as the U.S. office rule, where income from any sale of personal property attributable to a nonresident's U.S. office is sourced in the United States (I.R.C. 865(e)(2)). The DC Circuit affirmed the tax court's holding that the U.S. office rule is not satisfied in this case, reasoning that the proper focus in the circumstances is where the redemption itself occurred, as opposed to where the activities causing appreciation of the redeemed partnership interest occurred. Here, the tax court held that the redemption itself should not be attributed to Grecian's U.S. office, and the income should be treated as a foreign source. View "Grecian Magnesite Mining, Industrial, & Shipping Co. v. Commissioner" on Justia Law

by
Anthony, his brother Christopher, their sister Sharon, and Sharon’s husband, Durand, sought tax refunds for 21 separate fictitious trusts that they created. They were successful in obtaining refund checks based upon many of these returns, receiving over $360,000. They were convicted of mail fraud, conspiracy to commit mail fraud, aggravated identity theft, conspiracy to commit identity theft, and illegal monetary transactions. The Seventh Circuit affirmed, rejecting arguments that insufficient evidence supported Sharon’s convictions; that insufficient evidence supported the finding that Anthony and Sharon knew that they were using the names and personal identifying information of real people; that Anthony and Christopher were deprived of the effective assistance of counsel because their state-bar grievances against their attorneys created conflicts of interest; that the indictment was duplicitous regarding the aggravated-identify-theft charges and the district court failed to cure this defect by issuing a specific unanimity jury instruction; that the court’s aiding-and-abetting jury instruction was legally incorrect, and that insufficient evidence supported the court’s aiding-and-abetting jury instruction. View "United States v. Gandy" on Justia Law

by
At issue was the validity of the Treasury regulations implementing 26 U.S.C. 482, which provides for the allocation of income and deductions among related entities. The Ninth Circuit reversed the tax court's decision that 26 C.F.R. 1.482-7A(d)(2) was invalid under the Administrative Procedure Act (APA). The panel held that the Commissioner did not exceed the authority delegated to him by Congress under section 482. In this case, section 482 did not speak directly to whether the Commissioner may require parties to qualified cost-sharing arrangements (QCSA) to share employee stock compensation costs in order to receive the tax benefits associated with entering into a QCSA, and the Treasury reasonably interpreted section 482 as an authorization to require internal allocation methods in the QCSA context and concluded that the regulations are a reasonable method for achieving the results required by the statute. Therefore, the panel held that the regulations were entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The panel also held that the regulations at issue were not arbitrary and capricious under the APA. View "Altera Corp. v. Commissioner" on Justia Law