Justia Tax Law Opinion Summaries

The petitioners own a home on nearly four acres of land in a gated community in Crown Point, Indiana. For the 2019 tax year, the Lake County Assessor classified one acre of their property as a “homestead” and taxed it at one percent of its assessed value, while the remaining 2.981 acres were taxed as non-residential property at a higher rate. The owners did not dispute the total assessed value but argued that the statutory one-acre limit for the homestead tax cap was unconstitutional as applied to them, claiming that their entire parcel constituted “curtilage” under the Indiana Constitution and should be subject to the lower tax rate.After the Lake County Property Tax Assessment Board of Appeals rejected their claim, the Indiana Board of Tax Review affirmed, stating it lacked authority to declare a statute unconstitutional and was bound by the one-acre limit. The petitioners appealed to the Indiana Tax Court, which reversed the Board’s decision. The Tax Court held that the Constitution does not permit a fixed one-acre limitation for the homestead tax cap and remanded for further proceedings to determine whether the excess acreage was used as part of the principal place of residence.The Indiana Supreme Court reviewed the Tax Court’s decision de novo. It held that, even if the Constitution does not impose a size limit on curtilage, the petitioners failed to present sufficient evidence that their excess land was used as curtilage. Therefore, they did not meet their burden to prove the statute unconstitutional as applied to them. The Supreme Court reversed the Tax Court’s judgment and remanded with instructions to affirm the Board’s determination in favor of the Assessor. View "Sawlani v. Lake County Assessor" on Justia Law

The case concerns a challenge to the validity of Measure C, a citizens’ initiative placed on the ballot by the City of San Diego for the March 2020 election. Measure C proposed an increase in the city’s transient occupancy tax, with revenues earmarked for homelessness programs, street repairs, and convention center improvements. The measure also authorized the City to issue bonds repaid from the new tax revenues. Measure C received 65.24 percent of the vote, and the city council subsequently passed resolutions declaring the measure approved and authorizing the issuance of related bonds.After the election, Alliance San Diego and other plaintiffs filed actions challenging the City’s resolution declaring Measure C had passed, arguing it was invalid. The City responded with a validation complaint seeking judicial confirmation of the validity of Measure C and the related bond resolutions. California Taxpayers Action Network (CTAN) and other opponents answered, contending that Measure C required a two-thirds vote and was not a bona fide citizens’ initiative. The Superior Court of San Diego County initially granted a motion for judgment on the pleadings, finding that a two-thirds vote was required, and entered judgment against the City. On appeal, the California Court of Appeal, Fourth Appellate District, Division One, reversed and remanded for further proceedings to determine whether Measure C was a bona fide citizens’ initiative.On remand, the trial court conducted a bench trial and rejected CTAN’s arguments, finding that it had subject matter jurisdiction, the case was ripe, the special fund doctrine exempted the bonds from the two-thirds vote requirement, and Measure C was a bona fide citizens’ initiative requiring only a simple majority vote. The California Court of Appeal affirmed the trial court’s judgment, holding that Measure C and the related bond resolutions were valid, and that the trial court properly excluded certain hearsay evidence. View "Alliance San Diego v. California Taxpayers Action Network" on Justia Law

A U.S.-based multinational corporation filed a consolidated federal tax return for 2006, reporting royalty income received from its Brazilian subsidiary for the use of intellectual property. Brazilian law limited the amount the subsidiary could pay in royalties to its foreign parent, so the subsidiary paid and the parent reported only the amount permitted under Brazilian law. Years later, the Internal Revenue Service (IRS) issued a Notice of Deficiency, reallocating nearly $23.7 million in additional royalty income to the parent company, arguing that this reflected what an unrelated party would have paid for the intellectual property, notwithstanding the Brazilian legal restriction.The corporation challenged the IRS’s determination in the United States Tax Court. The Tax Court, in a closely divided decision, upheld the IRS’s position. A plurality of judges deferred to the IRS regulation that allowed such reallocation, finding the statute ambiguous and the regulation reasonable. Two concurring judges agreed with the result but believed the statute itself required the reallocation, regardless of the regulation. The dissenting judges argued that the statute unambiguously prohibited the IRS from reallocating income that the parent could not legally receive, and some also found the regulation procedurally invalid.On appeal, the United States Court of Appeals for the Eighth Circuit reviewed the case in light of recent Supreme Court precedent clarifying that courts must independently interpret statutes without deferring to agency interpretations. The Eighth Circuit held that the relevant statute does not permit the IRS to reallocate income that the taxpayer could not legally receive due to foreign law restrictions. The court concluded that the IRS’s authority to allocate income under the statute is limited to amounts over which the taxpayer has dominion or control. The Eighth Circuit reversed the Tax Court’s decision and remanded for redetermination of the taxes owed. View "3M Company v. Commissioner of Internal Revenue" on Justia Law

A group of related companies, including a pharmacy benefit manager (HPS), filed a combined Minnesota corporate franchise tax return for the 2016 tax year. HPS provided pharmacy benefit management services to a health insurance company (HIC), which is headquartered in Wisconsin but has plan members in multiple states, including Minnesota. Initially, the companies attributed receipts from HPS’s services to Minnesota based on the number of HIC plan members who filled prescriptions in the state. Several years later, they amended their return to attribute all such receipts to Wisconsin, arguing that the services were received by HIC at its headquarters, and sought a refund of over $800,000.The Minnesota Department of Revenue denied the refund claim, concluding that the original method—attributing receipts to the state where the plan members received services—was correct. The companies appealed, and the case was transferred to the Minnesota Tax Court. Both parties moved for summary judgment, stipulating that all receipts at issue should be sourced together, either to Minnesota or Wisconsin. The Tax Court granted summary judgment to the Commissioner, holding that the statutory term “received” was not limited to the direct customer (HIC), and that the services were received in Minnesota by HIC plan members.The Minnesota Supreme Court reviewed the case. It held that under Minnesota Statutes section 290.191, subdivision 5(j), the term “received” is not limited to the direct customer, but can include a customer’s customer. The Court found that HPS’s services were received both by HIC in Wisconsin and by HIC plan members in Minnesota. Because the taxpayer failed to prove that all services were received outside Minnesota, and the parties had stipulated to an all-or-nothing sourcing, the Tax Court did not err in granting summary judgment to the Commissioner. The Supreme Court affirmed the Tax Court’s decision. View "Humana MarketPoint, Inc. v. Commissioner of Revenue" on Justia Law

Several utility companies operating in California, including in Ventura County, challenged the property tax rates applied to their state-assessed utility property. They argued that the method used to calculate the debt service component of their property tax rate resulted in a higher rate than that applied to locally assessed, nonutility property (referred to as “common property”). The utilities claimed this disparity violated section 19 of article XIII of the California Constitution, which states that utility property “shall be subject to taxation to the same extent and in the same manner as other property.”The utilities filed suit in the Ventura County Superior Court against the County of Ventura and the California State Board of Equalization, seeking partial refunds for property taxes paid between 2018 and 2023. The County demurred, relying on recent appellate decisions that had rejected similar claims. The parties stipulated that the decision in County of Santa Clara v. Superior Court was binding for purposes of this case, and the trial court sustained the demurrer, entering judgment in favor of the County and the Board.On appeal, the California Court of Appeal, Second Appellate District, Division Six, reviewed the case de novo. The court affirmed the trial court’s judgment, holding that article XIII, section 19 does not require that utility property be taxed at the same or a comparable rate as nonutility property. Instead, the provision is an enabling clause that allows utility property to be subject to property taxation, but does not mandate rate equivalence. The court also found that the general uniformity requirement in article XIII, section 1 does not override the Legislature’s authority to implement reasonable distinctions in tax treatment for utility property. The judgment in favor of the County and the Board was affirmed. View "Pacific Bell Telephone Co. v. County of Ventura" on Justia Law

The City of Pittsburgh imposed a three percent tax, known as the Nonresident Sports Facility Usage Fee, on income earned by nonresidents performing at its publicly funded sports stadiums. Resident performers were subject instead to a one percent earned income tax by the City and a two percent school district tax, while nonresidents were exempt from the school district tax. The plaintiffs, consisting of professional athletes and their unions, challenged the facility fee, arguing that it violated the Uniformity Clause of the Pennsylvania Constitution by taxing nonresident performers at a higher rate than resident performers for similar activities.The Court of Common Pleas of Allegheny County granted summary judgment in favor of the plaintiffs, finding that the facility fee was unconstitutional. The court reasoned that the relevant comparison was between the City’s tax on residents and the facility fee on nonresidents, and that the school district tax paid by residents could not be used to justify the higher tax on nonresidents, since nonresidents were not subject to the school district tax by law. The Commonwealth Court affirmed, agreeing that the City failed to provide a legitimate justification for the disparate treatment and that the school district tax was not relevant to the uniformity analysis.The Supreme Court of Pennsylvania reviewed the case and affirmed the lower courts’ decisions. The Court held that the City’s facility fee violated the Uniformity Clause because it imposed a higher tax burden on nonresident athletes and entertainers without a concrete justification for treating them differently from residents. The Court rejected the City’s argument that the overall tax burden was equalized by including the school district tax, emphasizing that taxes imposed by separate entities for distinct purposes cannot be aggregated to manufacture uniformity. The facility fee was therefore found unconstitutional. View "National Hockey League Players Ass'n v. City of Pittsburgh" on Justia Law

Lano/Armada Harbourside, LLC sold five condominium units in Washington, D.C. to Allegiance 2900 K Street LLC in 2013 for $39 million. The sale was documented by a deed that purported to reserve to Lano/Armada a leasehold interest in the property, referencing a separate ground lease agreement between Allegiance (as landlord) and Lano/Armada (as tenant). The ground lease had a term exceeding thirty years, with options to extend up to 117 years, and specified substantial annual rent payments. The ground lease itself was not recorded at the time of the sale, and no taxes were paid on it. Only the deed was recorded, and taxes were paid based on the transfer of the fee simple interest.After a series of assignments and a foreclosure, Commonwealth Land Title Insurance Company, as subrogee of COMM 2013-CCRE12 K STREET NW, LLC, sought to record a deed of foreclosure in 2019. The Recorder of Deeds refused, noting that the ground lease had never been recorded or taxed. Commonwealth then recorded a memorandum of lease and paid the required taxes under protest. Commonwealth sought a refund from the Office of Tax Revenue, which was denied, and then petitioned the Superior Court of the District of Columbia for relief. The Superior Court granted summary judgment to the District, finding that the ground lease was a separate taxable transfer and that the statute of limitations had not run because no return for the ground lease had been filed until 2019.On appeal, the District of Columbia Court of Appeals affirmed. The court held that the ground lease was a separate transfer of a leasehold interest, not a mere retention, and was subject to recordation and taxation. The court further held that the statute of limitations for tax collection was not triggered by the earlier deed and tax return, as they did not provide sufficient information about the ground lease. Thus, the District’s collection of taxes on the ground lease was timely. View "Commonwealth Land Title Ins. Co. v. District of Columbia" on Justia Law

Several public utility companies challenged the property tax rates imposed by a California county, arguing that the “debt service component” of the county’s property tax rate for utility property was higher than the average rate for non-utility (common) property. The utilities claimed this violated article XIII, section 19 of the California Constitution, which states that utility property “shall be subject to taxation to the same extent and in the same manner as other property.” The utilities sought a partial refund of property taxes for several fiscal years, asserting that the constitutional provision required rate equality between utility and common property.The Superior Court of Riverside County allowed two local water districts to intervene, as they relied on property tax revenue for bond payments. The county demurred, relying on a recent decision from the California Court of Appeal, Sixth Appellate District, which had rejected a similar claim by utilities in another county. The utilities conceded that this precedent was binding on the trial court but preserved their arguments for appeal. The trial court sustained the demurrer without leave to amend and dismissed the case.The California Court of Appeal, Fourth Appellate District, Division Two, reviewed the case. It considered the text, structure, and legislative history of article XIII, section 19, as well as recent appellate decisions from other districts. The court held that the constitutional provision does not require that utility and common property be taxed at the same rates. Instead, it authorizes local ad valorem taxation of utility property, replacing the prior system of state-level in-lieu taxation, but does not impose a rate limitation. The court also found that prior California Supreme Court precedent did not mandate rate equality. The judgment dismissing the utilities’ lawsuit was affirmed. View "Pacific Bell Telephone Co. v. County of Riverside" on Justia Law

A company that sells jet fuel paid sales tax on all of its jet-fuel sales and later sought a refund, arguing that it should have been taxed on only 20 percent of those sales. The company’s position was based on a 1971 legislative amendment that partially exempted jet-fuel sales from local sales tax, and it contended that a 1991 legislative change eliminating this exemption was invalid because it was not approved by local voters as required by Proposition 62, which mandates voter approval for new or increased local taxes. The relevant counties had adopted ordinances in 1956 that imposed sales tax on all tangible personal property and included provisions automatically incorporating future amendments to the state’s sales tax laws, provided they were not inconsistent with the local ordinances.The Superior Court of Fresno County ruled in favor of the company, finding that the counties’ ordinances did not automatically incorporate the 1991 legislative change eliminating the jet-fuel exemption. The court concluded that the counties failed to pass new local ordinances implementing the change and that the full taxation of jet fuel without voter approval violated Proposition 62. The court ordered a refund and granted declaratory relief, allowing the company to pay tax only on 20 percent of future jet-fuel sales.The California Court of Appeal, Fifth Appellate District, reversed the trial court’s judgment. The appellate court held that the counties’ ordinances did automatically and lawfully incorporate the 1991 legislative elimination of the jet-fuel sales exemption. The court further held that Proposition 62 did not apply because the elimination of a tax exemption is not itself the imposition of a new tax; rather, it is a revision to an exemption within an existing, all-encompassing tax. Therefore, voter approval was not required for the change, and the company was not entitled to a refund. View "Southwest Jet Fuel Co. v. Dept. of Tax and Fee Administration" on Justia Law

Two police officers employed by a city were injured in separate incidents while on duty. After their injuries, both received payments from the city under section 1(b) of the Illinois Public Employee Disability Act, which provides that eligible employees unable to work due to a duty-related injury must continue to be paid “on the same basis” as before the injury, without deductions from sick leave, compensatory time, or vacation. The city continued to pay their salaries as before, including withholding federal and state income taxes, Social Security, and Medicare taxes. The officers filed suit, alleging that the city violated the Disability Act by withholding employment taxes and, for one officer, by deducting accrued leave time.The Circuit Court of Tazewell County granted summary judgment for the officers, finding that section 1(b) prohibited the withholding of employment taxes and required payment of “gross pay.” The court also found the city had improperly deducted leave time and held that the ten-year statute of limitations for breach of contract applied, awarding damages and fees to the plaintiffs. On appeal, the Illinois Appellate Court, Fourth District, reversed, holding that section 1(b) does not prohibit withholding employment taxes, and that the five-year statute of limitations applied. The appellate court also found a genuine issue of fact regarding whether leave time was improperly deducted and remanded for further proceedings.The Supreme Court of Illinois reviewed the case and affirmed the appellate court’s judgment. The court held that section 1(b) of the Disability Act does not prohibit a public employer from withholding employment taxes from payments made to an injured employee under that provision. The court reasoned that the statute’s language requires payment “on the same basis” as before the injury, which includes continued tax withholding, and expressly prohibits only certain deductions, not taxes. The case was remanded for further proceedings on the leave time deduction claim. View "Bitner v. City of Pekin" on Justia Law