Justia Tax Law Opinion Summaries

Fifth Generation, Inc., a Texas-based liquor manufacturer and subchapter S corporation known for producing Tito’s Vodka, supplied increasing quantities of vodka to Maine between 2011 and 2017 without filing Maine pass-through-entity withholding or income tax returns. The company did not own real estate or hold itself out as doing business in Maine but shipped its products to a Maine state-operated bailment warehouse, as required by state law. Fifth Generation retained title to the goods in the warehouse until they were sold to the Maine Bureau of Alcoholic Beverage and Lottery Operations, and its out-of-state employees and broker occasionally accessed the warehouse.Maine Revenue Services conducted an audit and assessed over $748,000 in withholding, interest, and penalties against Fifth Generation. The company appealed to the Maine Board of Tax Appeals, which found no income tax nexus and canceled the assessment. The State Tax Assessor then sought de novo review in the Maine Superior Court (Kennebec County), which granted summary judgment for the Assessor, reinstating the assessment. Fifth Generation subsequently appealed to the Maine Supreme Judicial Court.The Maine Supreme Judicial Court held that Fifth Generation was not exempt from state income tax during the audit period. The Court found that, under Maine law, Fifth Generation had a sufficient nexus with Maine because it owned tangible property in the state and sold it there. The Court also concluded that neither federal law (15 U.S.C. § 381(a)), the Commerce Clause, nor any constitutional provision barred the tax, as Maine’s regulatory scheme served a legitimate state purpose and was applied equally to in-state and out-of-state businesses. The Court further held that Fifth Generation did not have “substantial authority” to justify waiving penalties. The Superior Court’s judgment was affirmed. View "State Tax Assessor v. Fifth Generation, Inc." on Justia Law

Two brothers operated an energy-conservation contracting business and, beginning in 2013, engaged in a bribery scheme involving the Mass Save program, a state-mandated initiative to promote energy efficiency. One brother owned CAP Electric, Inc., and recruited the other to establish Air Tight Solutions, LLC as a Mass Save contractor with the assistance of a CLEAResult employee, who was responsible for selecting and overseeing contractors. The brothers paid this employee, and later another, regular bribes in cash and gifts to secure contracts, favorable treatment, and advance warning of audits. Air Tight performed little or no work directly, subcontracted projects, and disguised employees and payments to conceal the scheme. Over several years, their companies received multi-million dollar payments from the program.The United States District Court for the District of Massachusetts accepted their guilty pleas to conspiracy, honest-services wire fraud, making false statements, and (for one brother) aiding and assisting false tax returns. The district judge sentenced both to 27 months in prison (above-guidelines for one), and ordered forfeiture of $13.2 million and $3.6 million respectively. The brothers challenged the sentences and forfeitures on several grounds, including alleged errors in calculating tax loss, application of sentencing enhancements, and the process and proportionality of the forfeiture orders.The United States Court of Appeals for the First Circuit reviewed the case. It held that the district court did not err in calculating tax loss or applying sentencing enhancements for sophisticated means, obstruction of justice, and aggravating role. The appellate court also held that the district court correctly found a sufficient connection between the criminal conduct and the forfeited proceeds, and that any procedural errors in the forfeiture process were harmless. Finally, the court determined that the forfeiture orders were not unconstitutionally excessive. The First Circuit affirmed the sentences and forfeiture orders. View "United States v. Ponzo" on Justia Law

Paul Daugerdas was convicted in federal court for orchestrating a fraudulent tax shelter scheme that defrauded the U.S. Treasury of significant tax revenue. A jury found him guilty of conspiracy to defraud the IRS, mail fraud, client tax evasion, and obstructing the internal revenue laws. The federal district court sentenced him to 15 years in prison, ordered forfeiture of $164.7 million, and imposed $371 million in restitution, to be paid jointly and severally with co-conspirators. The criminal restitution order set a payment schedule of 10% of Daugerdas’s gross monthly income following his release from prison.After the United States Court of Appeals for the Second Circuit affirmed the convictions and sentence, the Internal Revenue Service, relying on 26 U.S.C. § 6201(a)(4)(A), assessed the same $371 million restitution as a civil tax liability, making the entire amount immediately due. The IRS also filed a notice of federal tax lien against Daugerdas’s property in Illinois. Daugerdas challenged the IRS’s authority to impose and collect restitution in this manner, particularly objecting to the acceleration of the payment schedule. The United States Tax Court upheld the IRS’s actions, ruling that the statutory provision authorized the IRS to assess and collect restitution for tax-related offenses, even when the underlying criminal conviction was under Title 18 rather than Title 26.On appeal, the United States Court of Appeals for the Seventh Circuit reviewed the Tax Court’s judgment de novo. The court held that 26 U.S.C. § 6201(a)(4)(A) empowers the IRS to assess and collect restitution ordered under 18 U.S.C. § 3556 for tax-related crimes, including those prosecuted under Title 18, and that the IRS is not bound by the payment schedule set by the criminal court. The Seventh Circuit affirmed the Tax Court’s judgment for the Commissioner. View "Daugerdas v CIR" on Justia Law

The taxpayers filed a joint Rhode Island personal income tax return for the 2017 tax year, claiming an overpayment and seeking a refund. The return was filed in July 2020, and the Rhode Island Division of Taxation processed it but denied the refund request. The Division cited Rhode Island General Laws § 44-30-87, stating the claim was not filed within the allowable time period and/or no tax was paid within the allowable period. The taxpayers requested an administrative hearing, after which the hearing officer concluded they were not entitled to the refund, and the tax administrator adopted this decision.Following the administrative denial, the taxpayers appealed to the Rhode Island District Court. The hearing judge considered cross-motions for summary judgment and ruled in favor of the taxpayers. The judge found the statutory language ambiguous and interpreted the three-year limitation period for refunds as referring to taxes paid during the three years immediately preceding the refund request, rather than the three years following the filing of the return. Judgment was entered for the taxpayers, and the case was remanded to the Division of Taxation for further proceedings. The Division then petitioned the Rhode Island Supreme Court for a writ of certiorari.The Supreme Court of Rhode Island reviewed the case de novo, focusing solely on the statutory interpretation of § 44-30-87(a). The Court held that the three-year refund period refers to the three years following the filing of the tax return, and that any refund is limited to the portion of tax paid within those three years. The Court quashed the District Court’s judgment, finding that the lower court erred in its interpretation of the statute, and returned the record to the District Court with its decision. View "Schmidt v. Rhode Island Division of Taxation" on Justia Law

Amazon Services, LLC operated the online marketplace Amazon.com, which allowed third-party merchants to sell products to South Carolina residents. In 2016, although Amazon Services collected and remitted sales tax for products it and its affiliates sold, it did not do so for sales made by third-party merchants. After an audit, the South Carolina Department of Revenue assessed Amazon Services for $12,490,502.15 in unpaid sales taxes, penalties, and interest, claiming that Amazon Services was legally required to collect and remit sales taxes on third-party merchant sales due to the company's significant involvement in those transactions.Amazon Services contested the assessment before the South Carolina Administrative Law Court, which upheld the Department of Revenue’s determination, finding Amazon Services was “engaged in the business of selling” under the South Carolina Sales and Use Tax Act and thus responsible for remitting the tax. Amazon Services appealed, and the South Carolina Court of Appeals affirmed the Administrative Law Court’s ruling, agreeing with the interpretation that Amazon Services’ role in third-party sales triggered the statutory obligation to collect and remit sales tax.The Supreme Court of South Carolina granted certiorari and affirmed the decision of the Court of Appeals. The Supreme Court held that, under the plain language of subsection 12-36-910(A) of the South Carolina Sales and Use Tax Act, Amazon Services was “engaged in the business of selling” due to its comprehensive control and involvement in third-party transactions and was therefore required to remit sales tax on those sales. The Court also held that this application did not violate due process, as the relevant statutory provisions were in effect prior to the challenged assessment, and clarified that its holding was not based on interpreting tax statutes broadly but on ordinary statutory interpretation principles. View "Amazon Services v. SCDOR" on Justia Law

A Texas-based company sold bunker fuel to primarily foreign-registered vessels at Texas ports, transferring possession and control of the fuel in Texas. The company initially paid franchise taxes on these sales, but later sought a refund, arguing that these transactions should not be attributed to Texas for franchise-tax purposes because the fuel was not used, sold, or consumed in Texas. The company contended that, under the relevant statute, sales should be sourced to the buyer’s ultimate destination or place of use, not merely the location where possession was transferred.After the Texas Comptroller denied the refund, the company exhausted administrative remedies and filed suit, also challenging the validity of regulations that sourced sales to Texas based on the point of delivery to the buyer. Both parties filed motions for summary judgment, focusing on whether the statutory phrase “delivered or shipped to a buyer in this state” refers to the place where the buyer takes delivery or to the location where the buyer uses or consumes the goods. The trial court ruled in favor of the Comptroller, upholding the regulations. On interlocutory appeal, the Court of Appeals for the Third District of Texas affirmed, finding the statute unambiguously sources sales based on where the buyer receives the property.The Supreme Court of Texas reviewed the case to resolve the statutory interpretation. The Court held that the statute sources receipts from sales of tangible personal property to Texas if the seller transfers possession and control to the buyer at a location in Texas, regardless of where the buyer ultimately uses or consumes the goods. The Court found that the Comptroller’s rules were consistent with this interpretation and thus valid. The judgment of the court of appeals was affirmed and the case remanded for further proceedings. View "NUSTAR ENERGY, L.P. v. HANCOCK" on Justia Law

The taxpayer owned a residential property in Hennepin County, Minnesota, and disputed the county's valuation assessments for the property covering years 2018 through 2023. The taxpayer alleged that county officials overvalued his property by failing to consider environmental factors, misclassifying its location, and improperly using computer algorithms. He claimed the valuation process was discriminatory due to his disability and asserted violations of both federal and state law. His complaint, filed in Hennepin County District Court, sought monetary damages, injunctive relief, and a public apology.Respondents moved to dismiss or transfer the case to the Minnesota Tax Court. The district court determined that all claims related to the property’s valuation or the assessment process fell under Minnesota’s tax laws and chapter 278, and transferred the case, including pending motions, to the tax court. The tax court dismissed four enumerated counts in the complaint (unjust enrichment, malfeasance, disability discrimination, and constitutional rights violations), ruling they were property tax assessment claims subject to the exclusive remedy of chapter 278. Claims for valuation years 2018–2021 were time-barred, and the 2023 claim was dismissed without prejudice, leaving only the 2022 valuation claim for trial.The Minnesota Supreme Court reviewed the case, considering whether the tax court had subject matter jurisdiction, whether dismissal of the four counts was proper, and whether the trial dismissal of the 2022 valuation claim was correct. The court held that the tax court had jurisdiction because the district court properly transferred the case and all claims arose under tax law. It affirmed that chapter 278 provides the exclusive remedy for property tax assessment claims and that the taxpayer failed to present substantial evidence to overcome the statutory presumption of the county’s assessed value. The Supreme Court affirmed the tax court’s decision. View "Lockhart vs. Hennepin County" on Justia Law

A city-owned zoo in Alameda County is managed through a contract with a nonprofit corporation. In 2022, local voters approved an initiative, Measure Y, which imposed a parcel tax to fund zoo operations. The measure specified that tax revenue would be placed in a city fund and distributed to the “Zoo Operator” for certain uses. Measure Y identified the Conservation Society of California, the current nonprofit operator, by name and assigned it specific duties and powers related to the new tax revenue. The measure stated it would take effect if approved by a simple majority of voters and received 63.1% support.Following the election, the Alameda County Taxpayers’ Association and an individual filed a reverse validation action in the Superior Court of Alameda County, seeking to invalidate Measure Y. They argued that the measure violated article II, section 12 of the California Constitution by naming a private corporation to perform functions or have duties, and that the measure required a two-thirds supermajority to pass. The trial court sustained demurrers to the supermajority claims, finding only a simple majority was needed, and granted judgment on the pleadings as to the constitutional claims. The court concluded that any reference to the Conservation Society was either not a violation or, if so, was severable, leaving the rest of the measure valid. Judgment was entered for the city and the Conservation Society.On appeal, the California Court of Appeal, First Appellate District, Division Four, found that Measure Y’s references to the Conservation Society as the “Zoo Operator” violated article II, section 12 because they assigned specific functions and duties to a named private corporation. However, the court held these references could be severed without affecting the remainder of the measure, which would remain valid. The court further held that only a simple majority vote was required for passage. The trial court’s judgment was affirmed as modified to reflect severance. View "Alameda County Taxpayers' Assn., Inc. v. City of Oakland" on Justia Law

Esplanade Properties Corporation, a subsidiary of R.H. Macy & Co., owned the Macy’s Parcel in Kenner, Louisiana. In 1992, while Esplanade Properties was under bankruptcy protection and subject to an automatic stay, Jefferson Parish assessed ad valorem taxes for that year. In 1993, the Sheriff conducted a tax sale for nonpayment of those taxes, but the sale was later nullified because it occurred during the bankruptcy stay. For nearly two decades, the Parish took no action to collect the 1992 taxes. After subsequent transfers, the property was acquired by Esplanade Mall Realty Holding, LLC, which in 2018 received notice of a large sum due for past taxes, including the 1992 taxes, interest, and costs. The company disputed the collectibility of the old taxes, citing a statutory three-year limitation on tax sales.The 24th Judicial District Court initially dismissed the suit on procedural grounds, and the Louisiana Fifth Circuit Court of Appeal affirmed. The Louisiana Supreme Court reversed and remanded. While proceedings continued, the property was sold to Pacifica Kenner, LLC, which was substituted as plaintiff. The trial court ultimately ruled that La. R.S. 47:2131—which prohibits tax sales for taxes more than three years overdue—was unconstitutional because it conflicted with Louisiana constitutional provisions regarding tax collection and prescription. The trial court denied declaratory relief to the plaintiff.The Supreme Court of Louisiana reviewed the case and chose to avoid the constitutional issue, finding it unnecessary to resolve the dispute. Interpreting the relevant statutes, the court concluded that the Sheriff was required to include all statutory impositions, including the 1992 taxes, interest, and costs, in the 2020 tax sale price. The court held that the redemption price for the property must likewise include these amounts. The judgment was reversed, rendered, and remanded to the trial court to calculate the redemption price consistent with this interpretation. View "ESPLANADE MALL REALTY HOLDINGS, LLC VS. LOPINTO" on Justia Law

A company operating an industrial healthcare textile laundry facility in Arizona rents reusable healthcare textiles such as bedsheets, gowns, and scrubs to medical institutions. The facility processes approximately 30 million pounds of textiles annually, which must be laundered and disinfected to remove contaminants before they can be used or reused in healthcare settings. The laundering process involves specialized machinery and chemicals under regulatory oversight. Between 2014 and 2018, the company purchased equipment and chemicals for its operation, paid state and city use taxes, and later sought a refund under a statutory exemption for machinery or equipment used in “processing operations.”The Arizona Department of Revenue partially denied the refund claim. The company appealed to the Arizona Tax Court, arguing that its laundry process qualified as a “processing operation” for the use tax exemption. The Tax Court ruled against the company, finding that its business as a whole did not meet the statutory definition. On further appeal, the Arizona Court of Appeals affirmed, concluding that the company’s operations did not constitute “processing” because the business primarily rented and reprocessed textiles, rather than preparing raw materials for market.The Supreme Court of the State of Arizona reviewed the case. It held that the statutory “processing operation” exemption applies to machinery or equipment used to change the marketability of a product, not limited to operations involving raw materials or defined by the business’s downstream transactions, such as sales versus rentals. The court concluded that the company’s textile laundering and disinfecting process qualifies as a “processing operation” since it transforms the textiles into a marketable form. The Supreme Court vacated the Court of Appeals’ decision, reversed the Tax Court’s summary judgment, and remanded the matter for further proceedings. View "9W HALO v ADOR" on Justia Law