Justia Tax Law Opinion Summaries

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

An electric utility company operating both within and outside Oregon was subject to central assessment for property tax purposes. For the 2020-21 tax year, the company and the Oregon Department of Revenue disagreed on the company’s overall value and the portion attributable to Oregon. The dispute centered on the methods used to determine real market value, specifically whether certain deductions and valuation models used by the company’s appraiser were consistent with the Department’s adopted standards. The Department relied on an administrative rule that incorporated the Western States Association of Tax Administrators (WSATA) Handbook, which prescribes valuation methods for centrally assessed properties.The Oregon Tax Court heard the case and considered expert testimony from both parties. The Department argued that the WSATA Handbook, as adopted by administrative rule, was binding and should control the valuation methods used. The company contended that the Tax Court, conducting a de novo review, was not bound by the Handbook. The Tax Court agreed with the company, holding that it was not required to defer to the Department’s rule and could determine real market value using other methods if it found them more accurate. The court ultimately adopted some of the company’s valuation approaches and set a value lower than the Department’s assessment.The Supreme Court of the State of Oregon reviewed the case on appeal. It held that, absent a finding that the Department’s rule is invalid on its face or as applied, the rule has the force of law and must be given legal effect by the Tax Court. The Supreme Court found that the Tax Court erred by not treating the Department’s rule as binding unless its application would conflict with constitutional or statutory definitions of real market value. The Supreme Court reversed the Tax Court’s judgment and remanded the case for further proceedings under the correct legal standard. View "PacifiCorp v. Dept. of Rev." on Justia Law

Three landowners in Roberts County, South Dakota, own agricultural properties encumbered by perpetual federal wetlands reserve easements, which severely restrict agricultural and other uses of the land. After the previous owner’s death, the properties were appraised at $897 per acre in 2017 but ultimately sold to the current landowners for about $128 per acre in 2019. In 2023, the county’s Director of Equalization assessed the properties using a statutory productivity-based method, resulting in values of $2,255.54 and $1,678.77 per acre, far exceeding the purchase price and prior appraisal. The landowners did not dispute the statutory method’s application but argued that the resulting assessments exceeded the properties’ actual value, violating the South Dakota Constitution.The landowners appealed the assessments through the local and county boards of equalization, both of which affirmed the Director’s valuations. They then appealed to the Office of Hearing Examiners (OHE), where an administrative law judge (ALJ) found the landowners’ witnesses—two real estate brokers—credible in their testimony that the easements significantly reduced the properties’ market value. However, the ALJ concluded she lacked authority to decide the constitutional issue and affirmed the assessments, finding the landowners had not rebutted the presumption of correct statutory procedure. The Circuit Court of the Fifth Judicial Circuit affirmed, holding that only a certified appraiser’s opinion could rebut the presumption of correctness and that the brokers’ opinions and the 2017 appraisal were insufficient.The Supreme Court of the State of South Dakota reversed and remanded. It held that neither the South Dakota Constitution nor state law requires a certified appraiser’s opinion to establish actual value for tax purposes; credible testimony from any qualified witness suffices. The Court further held that the landowners presented sufficient credible evidence that the assessments exceeded actual value. The case was remanded for a factual finding of actual value based on the existing record. View "Pallansch v. Roberts County" on Justia Law

A roofing and repair company was audited by the Mississippi Department of Revenue (MDOR) for sales tax compliance. The first audit, covering 2011 to 2014, resulted in a modest assessment, with insurance-related repair jobs treated as nontaxable. A second audit, covering 2014 to 2017, led to a much larger assessment, including taxes on insurance-related jobs and a special city tax. The company challenged the assessment, arguing that certain jobs were not taxable and that the city tax should not apply to work performed outside city limits.After the second audit, the company appealed to MDOR’s Board of Review, which reduced the assessment. The company then appealed to the Board of Tax Appeals (BTA), which further reduced the tax owed and found in the company’s favor on three key issues: the city tax did not apply to jobs outside the city, a previously audited period should not be included in the new audit, and the company was entitled to relief for insurance jobs based on the prior audit’s treatment. The company paid the reduced assessment. MDOR, dissatisfied with the BTA’s reductions, appealed to the Chancery Court of Hinds County on those three issues. The company did not appeal or cross-appeal any issues, including an unresolved question about the taxability of certain jobs.The Chancery Court granted summary judgment to the company on all issues appealed by MDOR. The company then sought reconsideration, asking the court to address the unappealed, ancillary tax question, but the court denied the request, citing lack of jurisdiction. The Supreme Court of Mississippi affirmed, holding that only issues properly appealed from the BTA could be considered and that courts do not issue advisory opinions on unraised questions. The chancellor’s denial of post-judgment relief was not an abuse of discretion. View "Watkins Construction, Inc. v. Mississippi Department of Revenue" on Justia Law

Medtronic, a medical device company, allocated profits from its class III devices and leads among its U.S. and Puerto Rico subsidiaries through intercompany licensing agreements. The dispute centers on the appropriate method for determining arm’s length royalty rates for intangible property transferred between Medtronic US and Medtronic Puerto Rico for the 2005 and 2006 tax years. The Internal Revenue Service (IRS) challenged Medtronic’s use of the comparable uncontrolled transaction (CUT) method and instead applied the comparable profits method, resulting in a tax deficiency. Medtronic contested the IRS’s adjustment, leading to litigation.The United States Tax Court initially rejected both parties’ proposed methods and conducted its own valuation, ultimately favoring a modified CUT method based on a patent-licensing agreement with Siemens Pacesetter, but with adjustments. The Tax Court’s decision was vacated by the United States Court of Appeals for the Eighth Circuit in Medtronic, Inc. & Consolidated Subsidiaries v. Commissioner, 900 F.3d 610 (8th Cir. 2018), which remanded for additional factual findings regarding the best transfer pricing method. On remand, the Tax Court abandoned the CUT method, rejected the Commissioner’s comparable profits method, and adopted a three-step unspecified method, resulting in a new profit allocation and tax deficiencies for Medtronic.The United States Court of Appeals for the Eighth Circuit reviewed the Tax Court’s decision, holding that the Tax Court erred in using the Pacesetter Agreement under both the CUT and unspecified methods because the intangible property involved did not have similar profit potential. The Eighth Circuit also found that the Tax Court applied incorrect legal standards and made insufficient factual findings regarding the comparable profits method, asset bases, functions, and product liability risks. The Eighth Circuit vacated the Tax Court’s order and remanded for further proceedings consistent with its opinion. View "Medtronic, Inc, etc. v. CIR" on Justia Law

Victor Kearney was indicted for filing a false tax return for 2011 and for conspiring to defraud the United States by impeding the Internal Revenue Service (IRS). The government alleged that Kearney, with the assistance of his tax attorney, Robert Fiser, failed to report taxable trust income on his tax returns from 2007 to 2011. Fiser, who was both an attorney and a certified public accountant, prepared Kearney’s returns during those years, reporting negative income despite Kearney’s receipt of trust income. At trial, Kearney argued that he relied in good faith on Fiser’s advice and was unaware of his personal tax obligations. The defense also challenged Fiser’s credibility, highlighting his ethical violations and criminal history.The United States District Court for the District of New Mexico conducted the trial. The jury convicted Kearney on both counts: filing a false tax return and conspiracy to defraud the United States. The district court sentenced him to 27 months in prison for each count, to run concurrently, and denied his motion for a new trial. Kearney appealed, challenging only his conspiracy conviction. He argued that the district court erred by misinstructing the jury on the elements of conspiracy to defraud and by failing to include the conspiracy charge in the advice-of-counsel instruction.The United States Court of Appeals for the Tenth Circuit reviewed the case and found two plain errors. First, the jury instruction for conspiracy did not require the government to prove that Kearney used deceitful or dishonest means, an essential element of conspiracy to defraud under 18 U.S.C. § 371. Second, the advice-of-counsel instruction was limited to the false return charge and did not inform the jury that this defense applied to the conspiracy charge as well. The court held that these errors prejudiced Kearney’s defense, vacated his conspiracy conviction, and remanded for further proceedings. View "United States v. Kearney" on Justia Law

A multinational science and technology company operated in approximately 90 countries, with a significant portion of its sales outside the United States. For the tax years 2013, 2014, and 2015, the company conducted some business in Minnesota, requiring its income to be apportioned for state tax purposes. The company used forward exchange contracts (FECs) as a hedging tool to manage foreign currency risk, generating substantial gross receipts from these transactions, though the net income from FECs was relatively small compared to overall gross receipts.After the company filed its Minnesota corporate franchise tax returns using the general apportionment method, which included gross receipts from FECs, the Minnesota Department of Revenue audited the returns. The Department determined that including gross receipts from FECs in the apportionment formula distorted the company’s Minnesota tax liability. The Commissioner of Revenue applied an alternative apportionment method under Minnesota Statutes section 290.20, which excluded gross receipts but included net income from FECs. The company appealed, and the Minnesota Tax Court upheld the Commissioner’s approach, finding that FEC transactions were qualitatively different from the company’s main business activities and that including their gross receipts caused a substantial quantitative distortion in the apportionment formula.The Supreme Court of Minnesota reviewed the case, applying a deferential standard to the tax court’s factual findings and de novo review to legal conclusions. The court held that the tax court did not err in finding that the Commissioner met his burden under section 290.20 to show that the general apportionment method did not fairly reflect the company’s Minnesota activities, and that the alternative formula—excluding gross receipts but including net income from FECs—fairly represented those activities. The Supreme Court affirmed the tax court’s decision. View "E. I. duPont de Nemours and Company & Subsidiaries v. Commissioner of Revenue" on Justia Law

Rowena Joyce Scott served as both the president of the board and general manager of Park Southern Neighborhood Corporation (PSNC), a nonprofit that owned a large apartment building in Washington, D.C. During her tenure, Scott exercised near-total control over PSNC’s finances and operations. She used corporate funds for personal expenses, including luxury items and services, and made significant cash withdrawals from PSNC’s accounts. After PSNC defaulted on a loan, the District of Columbia’s Department of Housing and Community Development intervened, replacing Scott and the board with a new property manager, Vesta Management Corporation, which took possession of PSNC’s records and computers. Subsequent investigation by the IRS led to Scott’s indictment for wire fraud, credit card fraud, and tax offenses.The United States District Court for the District of Columbia presided over Scott’s criminal trial. Scott filed pre-trial motions to suppress statements made to law enforcement and evidence obtained from PSNC’s computers, arguing violations of her Fifth and Fourth Amendment rights. The district court denied both motions. After trial, a jury convicted Scott on all counts, and the district court sentenced her to eighteen months’ imprisonment, supervised release, restitution, and a special assessment. Scott appealed her convictions, challenging the sufficiency of the evidence and the denial of her suppression motions.The United States Court of Appeals for the District of Columbia Circuit reviewed the case. The court held that Scott forfeited her statute of limitations defense by not raising it in the district court. It found the evidence sufficient to support all convictions, including wire fraud and tax offenses, and determined that Scott was not in Miranda custody during her interview with IRS agents. The court also concluded that the search warrant for PSNC’s computers was supported by probable cause, and that Vesta’s consent validated the search. The court affirmed the district court’s judgment in all respects. View "United States v. Scott" on Justia Law