Justia Tax Law Opinion Summaries

Rent-A-Center West, Inc. leases and sells a variety of consumer goods. Customers may opt to participate in a liability waiver program for an extra fee. Rent-A-Center charges sales tax on rental payments but not on the liability waiver fee. In 2010, the Utah State Tax Commission issued a statutory notice to Rent-A-Center imposing taxes and interest on the amounts Rent-A-Center charged for the liability waiver fee. In a formal hearing, the Commission found the waiver fee taxable. The Supreme Court reversed, holding that the liability waiver fee is not subject to sales and use tax under the plain text of the Utah Tax Code. View "Rent-A-Center v. Tax Comm’n" on Justia Law

Utah’s pay-TV sales tax scheme provides a sales tax credit for an amount equal to fifty percent of the franchise fees paid by pay-TV providers to local municipalities for use of their public rights-of-way. Satellite providers, however, use a different business model that does not trigger franchise fees. The satellite providers brought this lawsuit asserting that Utah’s tax scheme favors local economic interests at the expense of interstate commerce in violation of the Commerce Clause and the Uniform Operation of Laws Clause. The State Tax Commission moved for judgment on the pleadings. The district court granted the motion. The Supreme Court affirmed, holding (1) Utah’s pay-TV tax credit survives dormant commerce scrutiny; and (2) the tax credit survives rational basis scrutiny under the Uniform Operation of Laws Clause. View "DIRECTV v. Utah State Tax Comm’n" on Justia Law

In 2010, Plaintiff was negotiating the sale of three limited liability companies of which he was the sole shareholder. The companies were S Corporations. Plaintiff retained an Accounting Firm to advise him on his tax liability from the contemplated sale. Altaview Concrete, one of the companies, was named as the client. Jeffrey Bickel, a partner at the Accounting Firm, advised Plaintiff that he could restructure the deal to reduce his tax liability to $663,000. The buyer agreed to the restructuring proposals, and the sale closed. Later Bickel and the Accounting Firm (collectively, Defendants) discovered they had greatly underestimated Plaintiff's tax liability. Plaintiff filed a professional negligence claim in district court. The district court granted Defendants' motion for summary judgment, finding that Plaintiff's claim failed to satisfy the writing requirement of Utah Code 58-26-602, which provides that accountants are not liable to third parties unless the accountant identified in writing to the client that the professional services were intended to be relief upon by the third party. The Supreme Court reversed, holding that Defendants were liable to Plaintiff as a third party under section 602 because Defendants identified in writing that the professional services were intended to be relied upon by Plaintiff. View "Reynolds v. Bickel" on Justia Law

In 1990, Chin Lee established a defined-benefit plan, which he converted in 1996 into a profit-sharing plan, both of which were qualified plans. Chin's sole proprietorship contributed funds to the Plan from 1990 to 1995. These funds were invested entirely in U.S. government obligations, the interest on which was tax-exempt. In their 2005 and 2006 tax filings, Chin and Yvonne Lee reported Plan distributions and claimed deductions for federal obligation interest that the Plan earned in those and in earlier years. The Utah State Tax Commission disallowed these deductions, concluding that the Lees' distributions from the Plan were not exempt from state taxation even though the Plan assets were invested solely in U.S. government obligations. The Supreme Court affirmed, holding that no portion of the Plan distributions was tax-exempt, as (1) the distributions from the Plan qualified for a tax exemption only if the Plan acted as a conduit, allowing the funds to retain their tax-exempt character after distribution; and (2) the Lees' qualified profit-sharing plan was a non-conduit entity, and thus, the funds did not retain their character as interest on U.S. obligations upon distribution to the Lees. Therefore, the distributions were fully taxable by Utah. View "Lee v. Utah State Tax Comm'n " on Justia Law

This case required the Supreme Court to determine when a well "started" under Utah Code 59-5-102. Although that statute imposes a severance tax on oil or gas produced from a well, section 59-5-102(5)(c) permits an exemption for "the first six months of production for development wells started after January 1, 1990." Summit Operating, LLC argued that a well starts when it begins commercial production. Under this interpretation, Summit asserted that it was entitled to a six-month tax exemption for its well, which started commercial production in 2008. The Utah State Tax Commission asserted that a well starts on the date that drilling begins, and thus, Summit was not entitled to the tax exemption because drilling for Summit's well began in 1983. The Supreme Court affirmed the Commission's order granting summary judgment to the Auditing Division of the Commission, holding that under the Tax Exemption Statute, a well "starts" when drilling begins. View "Summit Operating v. State Tax Comm'n" on Justia Law

At issue in this appeal was the Privilege Tax Statute, which provides that an entity may be taxed on the privilege of beneficially using or possessing property in connection with a for-profit business when the owner of that property is exempt from taxation. But the tax may not be imposed unless the entity using or possessing the exempt property has "exclusive possession" of that property. Alliant Techsystems (ATK) challenged the imposition of a privilege tax on its use of government property. The district court granted summary judgment against ATK, concluding that ATK had "exclusive possession" of federal government property because there was no evidence that anyone other than the government, the landowner, had any possession, use, management or control of the property. The Supreme Court reversed, holding (1) under the Statute, "exclusive possession" means exclusive as to all parties, including the property owner, and thus, exclusive possession exists when an entity has the present right to occupy and control property akin to that of an owner or lessee; and (2) because the record indicated disputed material facts regarding ATK's authority to control the government property, summary judgment was inappropriate in this case.

Utah's exemption statute provides that a retirement plan "that is described in" I.R.C. 401(a) is exempt from a debtor's bankruptcy estate. Upon filing for bankruptcy, Douglas Reinhart claimed that the funds in his Keogh retirement plan were exempt from bankruptcy proceedings. The bankruptcy court determined that the Keogh plan was not technically tax qualified under I.R.C. 401(a) due to certain operational defects. Although the Keogh plan was operationally in default, the bankruptcy court found the plan was described in section 401(a), and thus, the funds in the plan were exempt under the exemption statute. The bankruptcy court entered an exemption order, and the trustee of Reinhart's bankruptcy estate appealed. The U.S. district court affirmed. The Supreme Court accepted certification to answer the question of whether a retirement plan can be "described in" section 401(a) when it fails to fulfill that section's requirements for tax qualification. The Court held that a retirement plan is "described in" section 401(a) if it substantially complies with that section.

Ivory Homes purchased various concrete products from a company that, when it delivered the products, provided an invoice that charged a single sales price without indicating separate delivery charges. Ivory Homes then discovered if it structured its transactions with the company differently and bargained for separate and independent delivery charges, the charges would not be taxable. Subsequently, Ivory Homes filed a refund request with the Utah Taxpayer Services Division for sales tax it paid for several years on expenses associated with the concrete products. The Division denied the refund. The Utah State Tax Commission also denied the refund request. The Supreme Court affirmed the Tax Commission's decision that it did not erroneously receive any tax and that Ivory Homes was not entitled to a tax refund where (1) under a substantial evidence standard of review, the Commission correctly made findings of fact that the parties did not intend delivery charges in their original transactions; and (2) alternatively, a plain language interpretation of the Refund Statute requires that the Tax Commission commit some error in its receipt of taxes before a taxpayer is entitled to a refund.

Summit Water was a mutual water company providing culinary grade water to residential and commercial shareholders. After the Utah State Tax Commission audited Summit Water's annual property tax affidavit and concluded that the value of the distribution facilities was substantially higher than Summit Water reported that year, Summit County assessed Summit Water for the back taxes owed for the previous four years. In all, Summit County assessed Summit Water $204,020 in additional taxes. The Summit County Board of Equalization determined that Summit Water failed to establish that the taxation of the property was incorrect or illegal, concluding (1) Summit Water was not eligible for the constitutional tax exemption afforded to entities that own a water distribution system providing water for irrigating lands because the water used by Summit Water's shareholders was for nonagricultural purposes, and (2) there was no double taxation of Summit Water's property. The Commission affirmed. The district court reversed in part, holding that the constitutional exemption at issue includes any artificial watering of land, including nonagricultural properties. The Supreme Court affirmed, concluding that the constitutional exemption encompasses the nonagricultural watering of lands and that no double taxation occurred.

Several Utah counties appealed a tax court's valuation of T-Mobile's taxable Utah property, arguing the valuation did not give proper deference to the Commission's prior assessments, erroneously excluded the value of goodwill, and was based on inadmissible evidence. The Supreme Court affirmed, holding (1) the tax court correctly conducted a trial de novo under the standard of review; (2) the tax court properly excluded T-Mobile's accounting goodwill from its taxable Utah property because the Utah Constitution prohibits taxing goodwill as property; and (3) under the Utah rules of evidence, the tax court did not abuse its discretion when it determined T-Mobile's expert witness was a qualified expert and that his testimony was reliable.