Justia Tax Law Opinion Summaries

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

A hotel property owner challenged the Los Angeles County Assessor’s valuation of its property for tax purposes, arguing that two specific revenue streams should have been excluded from the income-based assessment. The first was a 14 percent nightly occupancy tax assigned by the City of Los Angeles to the original developer as an incentive to construct the hotel, and the second was a one-time “key money” payment made by Marriott International to the owner for the right to manage and brand the hotel for 50 years. The owner claimed these revenues derived from nontaxable intangible assets—contractual rights—and thus should not be included in the property’s taxable value.The Los Angeles County Assessment Appeals Board ruled in favor of the County, finding both the occupancy tax and key money payments were properly included as income from the property itself. The Board also found insufficient evidence to isolate the value of certain enterprise assets (customer goodwill, food and beverage operations, and workforce) from the real estate value. The Los Angeles County Superior Court affirmed the Board’s decision on the occupancy tax and key money, but remanded for further proceedings on the valuation of the enterprise assets. The California Court of Appeal reversed the trial court on the first two issues, holding that the occupancy tax and key money should be excluded, but affirmed the remand for valuation of the enterprise assets.The Supreme Court of California reviewed the case and held that the Assessor was permitted to include both the occupancy tax and key money payments in the hotel’s assessed value, as these revenues represent income from the use of the property itself rather than from enterprise activity. The Court affirmed the lower courts’ decision to remand for further proceedings regarding the valuation and deduction of the three identified enterprise assets. The judgment was reversed in part and affirmed in part. View "Olympic and Ga. Partners, LLC v. County of L.A." on Justia Law

Charles Sorensen, a retired airline pilot, engaged in a series of actions from 2016 to 2021 to evade federal income taxes for the years 2015 through 2019. His conduct included failing to file tax returns, submitting false returns, making fraudulent refund claims, concealing income and assets, and refusing to cooperate with the IRS. Sorensen used shell companies, such as LAWTAM and LAMP, to hide assets and income, transferred funds to avoid IRS levies, and ultimately converted assets into cryptocurrency to further shield them from collection. He also filed frivolous documents and lawsuits challenging the IRS’s authority. The total tax loss attributed to his actions was $1,861,722.A jury in the United States District Court for the District of Minnesota convicted Sorensen on seven counts, including filing false tax returns, tax evasion, failing to file tax returns, and making a false claim against the United States. The district court sentenced him to 41 months in prison. Sorensen appealed, arguing that the district court improperly admitted testimony from several witnesses who were not qualified as experts and erred in applying a sentencing enhancement for sophisticated means.The United States Court of Appeals for the Eighth Circuit reviewed the evidentiary rulings for abuse of discretion and the sentencing enhancement de novo. The appellate court held that the challenged witness testimony was properly admitted as lay testimony under Federal Rule of Evidence 701, as it was based on firsthand knowledge and personal experience, not specialized expertise. The court also found that the sophisticated means enhancement was appropriately applied, given Sorensen’s use of shell companies, cryptocurrency, and other complex methods to conceal his tax evasion. The Eighth Circuit affirmed the judgment of the district court. View "United States v. Sorensen" on Justia Law

Starbuzz International, Inc. and Starbuzz Tobacco, Inc. distributed shisha, a product containing less than 50 percent tobacco, in California between October 2012 and September 2015. During this period, they paid over $2.8 million in excise taxes under the state’s Tobacco Products Tax Law, which imposed taxes on “tobacco products” as defined by statute. Starbuzz later filed refund claims, arguing their shisha did not meet the statutory definition and was not taxable. The Office of Tax Appeals (OTA) agreed, finding the definition ambiguous and resolving it in Starbuzz’s favor, granting full refunds. After a rehearing, a second OTA panel reaffirmed this decision.Following these administrative victories, Starbuzz requested payment of the refunds from the California Department of Tax and Fee Administration. The Department, however, declined to issue the refunds immediately, citing a statutory requirement to review whether Starbuzz had collected the excise tax from its customers and, if so, whether those amounts had been returned to them. Starbuzz filed a petition for writ of mandate in the Superior Court of Sacramento County, arguing the Department had a ministerial duty to pay the refunds and was barred by res judicata from conducting further review. The trial court rejected Starbuzz’s arguments and denied the petition, entering judgment for the Department.The California Court of Appeal, Third Appellate District, reviewed the case and affirmed the trial court’s judgment. The court held that the Department’s obligation to review for excess tax reimbursement under section 30361.5 was distinct from the refund claim adjudicated by the OTA. The court found that res judicata did not apply because the primary right at issue in the OTA proceedings (freedom from improper taxation) was different from the right asserted in the current action (immediate refund without review for excess reimbursement). Thus, the Department could require a review before issuing refunds. View "Starbuzz International v. Department of Tax and Fee Administration" on Justia Law