Justia Tax Law Opinion Summaries

Fitzgerald Truck Parts & Sales, LLC built and sold highway tractors by installing old engines and transmissions from salvage yards into new tractor kits. The IRS assessed unpaid excise taxes, penalties, and interest totaling $268 million, arguing that Fitzgerald's sales were subject to a 12% excise tax under 26 U.S.C. §§ 4051(a)(1) and 4052(a)(1). Fitzgerald claimed an exemption under 26 U.S.C. § 4052(f)(1), which provides a safe harbor if the cost of repairs or modifications does not exceed 75% of the retail price of a comparable new tractor. Fitzgerald won before a jury, and the government appealed.The United States District Court for the Middle District of Tennessee ruled in favor of Fitzgerald, rejecting the government's arguments that Fitzgerald's operations did not qualify for the safe harbor and that the tractors were not taxable when new under 26 U.S.C. § 4052(f)(2). The government then appealed to the United States Court of Appeals for the Sixth Circuit.The Sixth Circuit agreed with Fitzgerald that § 4052(f)(1) poses a bright-line, 75% test without any further qualitative inquiry, meaning Fitzgerald's vehicles constructed with used engines and transmissions could qualify for the safe harbor. However, the court found that § 4052(f)(2) forecloses this exemption for tractors that never triggered the excise tax when they were new. The court noted that Fitzgerald had not met its burden of proving that the tractors were taxable when new, as evidence suggested that some vehicles were first sold in tax-exempt transactions to entities abroad or state or local governments.The Sixth Circuit reversed the district court's judgment and remanded the case for further proceedings to determine whether each refurbished tractor, when new, incurred the excise tax under § 4051. View "Fitzgerald Truck Parts & Sales LLC v. United States" on Justia Law

Praxis Packaging Solutions, operating a manufacturing facility, applied for a tax exemption for its manufacturing equipment under Michigan law. The Township of Byron's assessor denied the application, stating the equipment did not meet the statutory definition of eligible manufacturing personal property (EMPP). The denial notice informed Praxis of its right to appeal to the March Board of Review but did not provide specific deadlines or meeting dates. Praxis's agents contacted the assessor for appeal details but were not informed of the deadlines. Praxis submitted an appeal letter after the Board had adjourned, and the Board did not consider the appeal.The Michigan Tax Tribunal dismissed Praxis's petition for lack of jurisdiction, as Praxis had not first appealed to the Board. The Court of Appeals reversed, holding that the Township's notice did not meet statutory requirements and deprived Praxis of due process, thus vesting the Tribunal with jurisdiction.The Michigan Supreme Court reviewed the case and held that the Township's notice did not violate due process. The Court found that the notice, combined with the separate notice of assessment, provided sufficient information about the appeal process. The Court emphasized that due process requires notice reasonably calculated to inform the taxpayer and provide an opportunity to be heard. Since Praxis received actual notice of the Board's meeting dates and the appeal process, the Court concluded that there was no due process violation.The Supreme Court reversed the Court of Appeals judgment and reinstated the Tax Tribunal's dismissal of Praxis's petition for lack of jurisdiction, as Praxis failed to timely protest the exemption denial before the Board. View "Sixarp LLC v. Township Of Byron" on Justia Law

A Utah-based transportation business, All Resort Group, became insolvent in 2013 due to poor management and financial malfeasance. Two shareholders misappropriated $145,000 in company funds to pay their personal federal tax liabilities. In 2017, the company filed for bankruptcy, and the trustee sought to recover the misappropriated funds under §544(b) of the Bankruptcy Code, invoking Utah’s fraudulent-transfer statute as the applicable law.The Bankruptcy Court ruled in favor of the trustee, holding that §106(a) of the Bankruptcy Code waived the Government’s sovereign immunity for the state-law cause of action nested within the §544(b) claim. The District Court adopted this decision, and the Tenth Circuit affirmed, concluding that §106(a) abolished the Government’s sovereign immunity in an avoidance proceeding under §544(b)(1).The Supreme Court of the United States reviewed the case and reversed the Tenth Circuit’s decision. The Court held that §106(a)’s sovereign-immunity waiver applies only to the §544(b) claim itself and not to the state-law claims nested within that federal claim. The Court emphasized that waivers of sovereign immunity are jurisdictional and do not create new substantive rights or alter pre-existing ones. The Court concluded that §106(a) does not modify the substantive requirements of §544(b) and that the trustee must still identify an actual creditor who could have voided the transaction under applicable law outside of bankruptcy proceedings. View "United States v. Miller" on Justia Law

Two companies, Dine Brands Global, Inc. and The Walt Disney Company, filed separate lawsuits against the Michigan State Treasurer, Rachael Eubanks, seeking declaratory and injunctive relief under the Uniform Unclaimed Property Act (UUPA). The Treasurer had initiated multistate examinations of the companies' records to check compliance with the UUPA's reporting and remittance requirements. The examinations, conducted by Kelmar Associates, LLC, identified unclaimed property dating back to 2002. The companies disputed the findings and argued that the statute of limitations barred the Treasurer from collecting the identified property.The Oakland Circuit Court granted summary disposition in favor of the companies, ruling that the examinations were not "actions or proceedings" under the UUPA and did not toll the statute of limitations. The court enjoined the Treasurer from enforcing the collection of the disputed property. The Michigan Court of Appeals affirmed the circuit court's judgments, agreeing that the examinations did not toll the statute of limitations.The Michigan Supreme Court reviewed the case and held that the phrase "action or proceeding" in the UUPA includes both formal lawsuits and administrative procedures like examinations. However, the Court also held that the commencement of an examination does not toll the statute of limitations. The Court noted that the statute of limitations continues to run during an examination and that the Treasurer must initiate an examination within the applicable time frame.The Supreme Court reversed the Court of Appeals' decisions that excluded examinations from the definition of "action or proceeding." The Court remanded the cases to the Court of Appeals to determine whether a holder's duty to comply with the results of an examination is distinct from the annual duty to report and remit unclaimed property, which would affect the statute of limitations for post-examination enforcement actions. View "Dine Brands Global Inc v. Eubanks" on Justia Law

Actavis Laboratories FL, Inc. ("Actavis") filed Abbreviated New Drug Applications (ANDAs) with the FDA to market generic versions of branded drugs. The manufacturers of these branded drugs, who hold New Drug Applications (NDAs) and patents, sued Actavis for patent infringement under the Hatch-Waxman Act. This Act considers the submission of an ANDA with a Paragraph IV certification as an act of patent infringement if it seeks FDA approval before the expiration of the patents. Actavis incurred significant litigation expenses defending these suits and deducted these expenses as ordinary business expenses on its tax returns.The IRS disagreed, treating these expenses as capital expenditures related to the acquisition of an intangible asset (FDA approval) and issued Notices of Deficiency. Actavis paid the assessed taxes and sued in the Court of Federal Claims for a refund, arguing that the litigation expenses were deductible. The Court of Federal Claims ruled in favor of Actavis, holding that the litigation expenses were deductible as ordinary business expenses.The United States Court of Appeals for the Federal Circuit reviewed the case. The court considered whether the litigation expenses were ordinary business expenses or capital expenditures. Applying both the "origin of the claim" test and the IRS regulation under C.F.R. § 1.263, the court concluded that the expenses were deductible. The court found that the origin of the claim was the patent infringement suit, not the pursuit of FDA approval, and that the litigation did not facilitate the acquisition of the FDA-approved ANDA. Therefore, the court affirmed the decision of the Court of Federal Claims, allowing Actavis to deduct the litigation expenses as ordinary business expenses. View "ACTAVIS LABORATORIES FL, INC. v. US " on Justia Law

The Village of Arlington Heights filed a complaint against the City of Rolling Meadows in Cook County circuit court to recover misallocated sales tax revenue. Cooper’s Hawk Winery and Restaurants, located in Arlington Heights, was mistakenly coded in the Illinois Department of Revenue (IDOR) records as being in Rolling Meadows. As a result, sales taxes generated by Cooper’s Hawk from June 2011 to March 2020 were disbursed to Rolling Meadows. Arlington Heights discovered the error in March 2020 and notified IDOR, which reimbursed Arlington Heights for six months of tax revenues but advised them to seek an agreement with Rolling Meadows for the remaining funds. Unable to reach an agreement, Arlington Heights filed a complaint seeking the misallocated taxes.The trial court dismissed the complaint for lack of jurisdiction, citing the Illinois Supreme Court’s decision in City of Chicago v. City of Kankakee, which held that IDOR has exclusive jurisdiction over tax disputes. The Appellate Court, First District, reversed the trial court’s decision, finding that the trial court had jurisdiction over straightforward sales tax disputes that do not require agency expertise, relying on Village of Itasca v. Village of Lisle.The Illinois Supreme Court reviewed the case and determined that IDOR has exclusive jurisdiction over tax matters, including misallocation disputes, as established in City of Chicago v. City of Kankakee. The court found that the statutory framework grants IDOR the authority to handle tax disputes and that the trial court’s jurisdiction is limited to cases involving unlawful rebate agreements. The court concluded that the trial court correctly dismissed Arlington Heights’ complaint for lack of subject-matter jurisdiction and reversed the appellate court’s judgment. The trial court’s dismissal of the complaint was affirmed. View "Village of Arlington Heights v. City of Rolling Meadows" on Justia Law

In 2021, Contango Resources, LLC purchased oil and gas production and processing facilities in Fremont and Sweetwater Counties, Wyoming. In 2022, the Fremont County Assessor assessed the taxable value of the property located in Fremont County. Contango appealed the assessment to the Fremont County Board of Equalization, arguing that the County Assessor and her expert consultant failed to properly use the purchase price of the property in their valuations and used improper trending and depreciation factors. The County Board upheld the valuation.The State Board of Equalization and the district court both affirmed the County Board's decision. Contango then appealed to the Wyoming Supreme Court. The main issues on appeal were whether the County Board’s decision to uphold the County Assessor’s rejection of the property’s purchase price as a starting point for valuation was supported by substantial evidence and in accordance with law, and whether the County Board’s decision to uphold the County Assessor’s application of trending and depreciation factors in the valuation was in accordance with law.The Wyoming Supreme Court affirmed the lower court's decision. The Court held that the County Assessor was justified in rejecting the purchase price as a starting point for valuation due to the lack of detailed information and the complexity of the Purchase and Sale Agreement (PSA). The Court also found that the Assessor’s use of trending and depreciation factors outside those recommended by the Department of Revenue was permissible under the Department’s rules, as long as the sources were credible. The Court concluded that the County Board’s rulings were supported by substantial evidence and in accordance with law. View "Contango Resources, LLC v. Fremont County" on Justia Law

Lonnie Hubbard, a pharmacist, was convicted of operating an illegal "pill mill" and sentenced to 30 years in prison. The government confiscated his assets, including over $400,000 from his individual retirement account (IRA), as part of the criminal forfeiture. The IRS later claimed that this seizure constituted taxable income for Hubbard, resulting in a tax deficiency notice for over $180,000 in taxes and penalties.The United States Tax Court agreed with the IRS, ruling that the transfer of the IRA funds to the IRS was a taxable event for Hubbard. The court held that the funds qualified as Hubbard's income because they discharged an obligation he owed. Consequently, the court ordered Hubbard to pay the taxes and penalties.The United States Court of Appeals for the Sixth Circuit reviewed the case and reversed the Tax Court's decision. The Sixth Circuit held that the forfeiture order granted the IRS ownership of the IRA, meaning the IRS, not Hubbard, was the payee or distributee of the funds. The court concluded that the withdrawal of the IRA funds by the IRS did not constitute taxable income for Hubbard, as he no longer owned or controlled the IRA at the time of the withdrawal. The court emphasized that the tax code requires the payee or distributee of withdrawn IRA funds to pay the taxes, and in this case, the IRS was the payee or distributee. Therefore, Hubbard was not liable for the taxes on the forfeited IRA funds. The court reversed the Tax Court's decision and remanded the case for further proceedings consistent with its opinion. View "Hubbard v. Commissioner of Internal Revenue" on Justia Law

The case involves five public utilities operating in California, including Pacific Bell Telephone Company and AT&T Mobility LLC, which challenged the property tax rates imposed by Merced County for the fiscal years 2017-2018 and 2018-2019. The utilities argued that the tax rates applied to their properties exceeded the permissible rates under Section 19 of Article XIII of the California Constitution, which they interpreted as requiring utility property to be taxed at the same rate as non-utility property.In the Superior Court of Merced County, the utilities sought partial refunds of the property taxes paid, claiming that the tax rates levied on them were higher than the average tax rates in the county. The County demurred, relying on the precedent set by the Sixth District in County of Santa Clara v. Superior Court, which held that Section 19 does not mandate the same tax rate for utility property as for locally assessed property. The utilities conceded that Santa Clara was binding but sought to challenge its holding on appeal. The Superior Court dismissed the case, and the utilities filed a timely notice of appeal.The California Court of Appeal, Fifth Appellate District, reviewed the case de novo and affirmed the lower court's judgment. The court held that Section 19 of Article XIII of the California Constitution does not require utility property to be taxed at the same rate as non-utility property. Instead, the court interpreted the relevant language as an enabling clause, allowing utility property to be subject to taxation, rather than a limiting clause mandating equal tax rates. The court found that the historical context, language, and structure of Section 19 supported this interpretation, and thus, Merced County's application of the tax rates did not violate the constitutional provision. View "Pacific Bell Telephone Co. v. County of Merced" on Justia Law

A private, for-profit corporation, The GEO Group, Inc., which operates correctional facilities under contracts with federal and state government entities, was assessed a deficiency in sales and use taxes by the Texas Comptroller. GEO Group challenged the deficiency, arguing that the purchases made for operating the facilities were tax-exempt as they were made on behalf of government clients. The Comptroller denied the claim, and GEO Group paid the additional taxes and sued for a refund in district court.The trial court conducted a bench trial and ruled against GEO Group, finding that it failed to prove by clear and convincing evidence that it was an "agent" or "instrumentality" of the government, thus not qualifying for the tax exemption. The court of appeals affirmed the trial court's judgment, holding that GEO Group's relationship with its government clients was too attenuated to warrant a tax exemption and that the trial court did not err in applying a heightened standard of proof.The Supreme Court of Texas reviewed the case and concluded that the correct standard of proof for GEO Group to prove its entitlement to a tax exemption is by a preponderance of the evidence, not clear and convincing evidence. However, the court agreed with the lower courts that GEO Group is not an "agent" or "instrumentality" of the federal or state government under the relevant statutes and rules. Therefore, GEO Group is not entitled to a tax refund. The Supreme Court of Texas affirmed the judgment of the court of appeals. View "The GEO Group, Inc. v. Hegar" on Justia Law