Justia Tax Law Opinion Summaries

This matter involved the interpretation and application of the Uniform Local Sales Tax Code (ULSTC). Yesterdays of Lake Charles, Inc. (Yesterdays) and Cowboy’s Nightlife, Inc. (Cowboy’s) were cash-based bars or nightclubs located adjacent to each other in Calcasieu Parish. The clubs were audited in 2009, by the Calcasieu Parish School System Sales and Use Tax Department ("Collector) for years 2005 through 2008, on the basis that the clubs had violated their duties as tax collection agents for the Calcasieu Parish School System. The trial court found ambiguity in the language of the ULSTC requiring the plaintiff nightclubs to “keep and preserve suitable records” of all sales and expenditures. The trial court then found the tax collector had failed to show that the records actually kept by the clubs, in this case, bank statements and deposit slips, were not "suitable records" within the meaning of the ULSTC. The trial court further found the tax collector’s assessment was arbitrary and that the tax collector had failed to establish that its methodology for auditing the taxpayer was proper. Accordingly, the trial court: (1) ordered the tax collector to refund amounts paid under protest by the clubs; (2) determined that prescription had run on the sales taxes for the years 2005 and 2006 for one of the clubs, aside from those taxes admittedly withheld by the clubs; and (3) denied the tax collector’s motion for new trial and awarded attorney fees to the clubs. After its review, the Supreme Court reversed the trial court’s judgment ordering a refund of the taxes and interest paid under protest by the clubs. Furthermore, the Court reversed the trial court’s award of attorney fees. In all other respects, the judgment of the trial court was affirmed, and the matter was remanded to the trial court for further proceedings. View "Yesterdays of Lake Charles, Inc. v. Calcasieu Parish Sales & Use Tax Dept." on Justia Law

Property owners (Petitioners) appealed the Department of Revenue’s valuation of their residential lot for the tax year 2012. The Flathead County Tax Appeal Board (County Board) reduced the value of the land and the value of the improvements. Petitioners appealed, arguing that the appraised value was still too high. The State Tax Appeal Board (STAB) upheld the County Board’s determination of the value of the property. The district court reversed, concluding that the County Board property value upheld by STAB was clearly erroneous. The Supreme Court reversed the district court and reinstated the STAB decision, holding that the district court erred in reversing STAB’s order concerning the valuation of the property. View "Peretti v. State, Dep’t of Revenue" on Justia Law

The Adents filed joint federal income tax returns for 1998 and 2001, but did not pay. The IRS sent a demand. As of October 2012, they owed $90,681.26. Leonard also owed federal employment and unemployment taxes, totalling $65,637.17. The Adents jointly own their residence, Parcel A. Leonard and their son, Derek, jointly own mixed‐use condominium and commercial Parcel B. Joyce has office space for her business at Parcel B. Liens attached to Parcels A and B, 26 U.S.C. 6321. The government filed suit to foreclose the liens and obtain a sale of both Parcels. The Adents filed answers, but did not raise the statute of limitations. Leonard and Joyce stipulated that they owe the unpaid personal income taxes; Leonard stipulated that he owes the unpaid employment and unemployment taxes. The court entered judgment in favor of the government and found that, because there were no innocent party interests in Parcel A, it was required to order a sale. With regard to Parcel B, the court weighed the prejudice to the government of a partial sale and the prejudice to Derek of a total sale and found in favor of the government. The Seventh Circuit affirmed. The Adents waived their statute of limitations defense and presented no exceptional circumstances that overcome the severe prejudice to the government’s “paramount” interest. View "United States v. Adent" on Justia Law

After auditing the 2008-2010 returns filed by Integra, the IRS concluded that they owed more taxes. Integra hired Bastian, a lawyer and CPA. As the three-year limitations deadline, 26 U.S.C. 6501(a) for the 2008 tax year approached (February 15, 2012), Bastian signed a waiver. Negotiations failed. In November 2012 the IRS sent notices of deficiency, seeking nearly $800,000 for the three years, including a 20% penalty for filing substantially inaccurate returns. More negotiations ensued; the taxpayers did not contest revised calculations for 2009 and 2010, but contended that they owed nothing for 2008 because the notice was untimely. They argued that the waivers applied to the 2011 tax year, based on language that: “Federal Income tax due on any return(s) made by or for the above taxpayer(s) for the period(s) ended February 15, 2012 may be assessed at any time on or before December 31, 2012.” The IRS had typed the wrong year, overlooking that Integra’s 2008 tax “period ended” in November 2008. The Tax Court reformed the document to cure a mutual mistake, stating that Bastian is knowledgeable about tax law and had been dealing with the IRS about specific years. The Seventh Circuit affirmed. If the IRS believed that Bastian had tried to "hoodwink it," he might lose his credentials as a tax representative; everyone simply missed the error. View "Kunkel v. Comm'r of Internal Revenue" on Justia Law

Net Pay managed clients’ payrolls and handled their employment taxes pursuant to a “Payroll Services Agreement,” which required clients to provide their employee payroll information and gave clients the option of authorizing Net Pay to transfer funds from their bank accounts into Net Pay’s account and to remit those funds to the clients’ employees, the IRS, and other taxing authorities. The Agreement established an independent contractor relationship between Net Pay and its clients. About three months before it filed its Chapter 7 petition, Net Pay transferred $32,297 on behalf of Altus; $5,338 on behalf of HealthCare Systems; $1,143 on behalf of Project Services; $352.84 for an unknown client; and $281.13 for another unknown client. The next day, Net Pay informed its clients that it was ceasing operations. The trustee for Net Pay sought to recover the five payments, arguing that they were avoidable preferential transfers, 11 U.S.C. 547(b). The district court concluded that four of the transfers were not subject to recovery, being below the minimum amount established by law ($5,850), and that distinct transfers may be aggregated only if “‘transactionally related’ to the same debt.” Because the IRS applied the entire $32,297 toward Altus’s trust fund tax obligations, the court held that the payment was not avoidable. The Third Circuit affirmed. Net Pay lacked an equitable interest in the Altus funds by operation of 26 U.S.C. 7501(a). View "In Re: Net Pay Solutions Inc" on Justia Law

After plaintiffs challenged a substantial increase in the taxes on two properties they own, the Parish sent two tax assessors to inspect the property. Plaintiffs filed suit in state court alleging violations of their state and federal constitutional rights stemming from the inspection. After removal to federal court, the district court determined that inspector Lloyd Handorf was not entitled to qualified immunity because he had exceeded the scope of his consent and therefore violated plaintiffs’ Fourth Amendment rights. Specifically, the district court determined that while Handorf had consent to conduct a tax appraisal, he exceeded this consent by: (1) being on the curtilage; (2) peering into the windows; and (3) opening the pool house door. The court concluded that there is no guidance within this circuit regarding the actions a tax appraiser may take in an assessment. Further, other than conclusory allegations, plaintiffs have not identified the proper course of conduct for a tax appraiser. Therefore, the court reversed the judgment and concluded that Handorf is entitled to qualified immunity because plaintiffs' constitutional right was not clearly established at the time of the challenged conduct. View "King v. Louisiana Tax Commission" on Justia Law

Giant Eagle, a chain of supermarkets, pharmacies, gas stations, and convenience stores, uses the accrual method of accounting. Its customer-loyalty “fuelperks!” program links customers’ rewards at the pump to prior grocery purchases; “discounts expire on the last day of the month, 3 months after they are earned.” On its 2006 and 2007 corporate income tax returns, Giant Eagle claimed a deduction for the discounts its customers had accumulated but, at year’s end, had not yet applied to fuel purchases. Giant Eagle computed the deduction by ascertaining the face value of the discounts, multiplying that by the historical redemption rate of discounts in their expiring month, and multiplying that product by the average number of gallons purchased in a discounted fuel sale. The IRS disallowed the deductions, which totaled $3,358,226 and $313,490. The Tax Court upheld the denial. The Third Circuit reversed. Accrual method taxpayers are expressly permitted to deduct expenses before they are paid, if “all events have occurred which determine the fact of liability and the amount of such liability can be determined with reasonable accuracy.” In the realm of recurring expenses, an anticipated liability may be deemed “incurred” even if the predicate costs are not themselves incurred during the year a deduction is claimed. View "Giant Eagle Inc v. Internal Revenue Serv." on Justia Law

Petitioner applied for the partial ten-year exemption for certain improvements made to real property - known as the business investment exemption - in 2008. After the city assessor valued Petitioner’s property, Petitioner challenged the assessed value of the property and the amount of the exemption. Supreme Court granted summary judgment to Petitioner on the amount of the exemption and recalculated the exemption for years 2008 through 2014. Supreme Court ordered the Schenectady City School District to issue refunds of any excess taxes it collected during the 2009 through 2014 calendar years due to the prior incorrect calculation of Petitioner’s exemption. The Appellate Division modified by reversing the portion of the order directing the School District to issue refunds for the 2009 through 2011 assessment rolls, concluding that unless Petitioner filed annual challenges to the assessment while the initial 2008 petition was pending, Petitioner failed to preserve its challenge. The Court of Appeals reversed, holding that there is no requirement that a taxpayer who challenges the amount of the business investment exemption file annual petitions while the initial petition is pending in order to compel compliance with a resulting court order. View "Highbridge Broadway, LLC v. Assessor of the City of Schenectady" on Justia Law

Plaintiffs Rockwood Water People’s Utility District (Rockwood PUD), Northwest Natural Gas Company (NW Natural) and Portland General Electric Company (PGE) sought review of a Court of Appeals decision to uphold the validity of municipal enactments by respondent City of Gresham (the city) that increased the licensing fee that each utility was required to pay from five percent to seven percent of the utility’s gross revenues earned within the City. Plaintiffs sought a declaration that the enactments were void and unenforceable because they conflicted with the provisions of ORS 221.450. Alternatively, Rockwood PUD argued that it could not be taxed more than five percent by a city without explicit statutory authority. Trial court agreed with plaintiffs that the enactments violated ORS 221.450, and did not reach Rockwood PUD’s alternative argument. The Court of Appeals reversed, holding that the fee increase was not preempted by ORS 221.450 because the utilities were not operating “without a franchise” and that a city’s home-rule authority to impose taxes or fees on a utility is not affected by a utility’s municipal corporation status. The Supreme Court held that the license fee imposed by the City was a “privilege tax” and that the affected utilities were operating “without a franchise” within the meaning of ORS 221.450. The Court also held that the City was not preempted by ORS 221.450 from imposing the seven percent privilege tax on NW Natural and PGE, but that the City did not have express statutory authority to impose a tax in excess of five percent on Rockwood PUD under ORS 221.450. View "Northwest Natural Gas Co. v. City of Gresham" on Justia Law

Appellant, a nonresident taxpayer, filed a refund claim for an unpaid 2004 tax liability assessment. Appellant contested Ohio Rev. Code 5747.212’s imposition of income tax on a portion of the capital gain that he realized in 2004 when he sold his ownership interest in a limited liability company. The tax commissioner denied the refund claim. The Board of Tax Appeals (BTA) affirmed. Appellant appealed, arguing that applying section 5747.212 to him was unconstitutional and that he should be permitted to allocate the gain entirely outside Ohio. At issue before the Supreme Court was whether Ohio may levy income tax on Appellant’s capital gain as if it were income from the business itself. The Supreme Court reversed the decision of the BTA, holding that section 5747.212, as applied to Appellant, violates the Due Process Clause of the Fourteenth Amendment. Remanded to the tax commissioner to grant Appellant a refund. View "Corrigan v. Testa" on Justia Law