Justia Tax Law Opinion Summaries

The dispute centers on how to calculate state tax credits for a municipal utility’s natural gas production. The Municipality of Anchorage owned a one-third interest in a Cook Inlet gas field and used most of its gas to generate electricity for its residents, selling only a small fraction to third parties. Alaska law taxes natural gas production but allows producers to claim tax credits based on production costs. A special statute for municipal producers required the Municipality to pay taxes only on the gas it sold to others, but also provided that it was eligible for tax credits “to the same extent as any other producer.” The Municipality sought tax credits by offsetting the costs of producing all its gas—including gas used for its own utility—against the relatively small amount of gas it actually paid taxes on, resulting in large credits.The Alaska Department of Revenue rejected this calculation, determining that tax credits should be based on the value of all gas produced, as defined by the general tax statutes, rather than only the gas actually taxed under the municipal exception. The Department awarded the Municipality much smaller tax credits. The Municipality challenged this decision. An administrative law judge and the Superior Court of the State of Alaska, Third Judicial District, affirmed the Department’s interpretation, finding it reasonable and not in conflict with applicable statutes or procedures.On appeal, the Supreme Court of the State of Alaska held that the legislature intended municipal gas producers’ tax credits to be calculated according to the value of all gas defined as taxable under the general statutes, not merely the gas actually taxed due to the municipal exception. The court also held that the Department was not required to adopt a formal regulation to implement this interpretation, as it was foreseeable and not a substantive change in policy. The superior court’s judgment was affirmed. View "Municipality of Anchorage, formerly v. State of Alaska" on Justia Law

US Beef Corporation, headquartered and commercially domiciled in Oklahoma, operated restaurant franchises in several states, including Arkansas. In 2018, US Beef sold all its assets—its Taco Bueno and Arby’s franchises, including both tangible and intangible property—after receiving unsolicited offers. This was a complete liquidation and ended the business’s operations. Prior to this sale, US Beef had never engaged in such a transaction. On its 2018 Arkansas corporate income tax return, US Beef treated the gains from the sales of intangible assets as “nonbusiness income,” allocating them to Oklahoma, its commercial domicile, and sought a refund for Arkansas estimated tax payments.The Arkansas Department of Finance and Administration (DFA) denied the refund, classifying the gain as “business income” apportionable to Arkansas. US Beef appealed administratively, but the Office of Hearings & Appeals upheld DFA’s position. US Beef then sought judicial review in Pulaski County Circuit Court, seeking a declaration that the gain was nonbusiness income under the pre-2026 version of Arkansas’s Uniform Division of Income for Tax Purposes Act (UDITPA). The parties agreed only the “functional test” for business income was at issue. The circuit court granted summary judgment to US Beef, holding the gain was nonbusiness income under the statute and thus not taxable in Arkansas.The Supreme Court of Arkansas reviewed the case de novo and affirmed the circuit court’s decision. The court held that under the applicable statute and precedent, the gain from the sale of US Beef’s intangible assets did not satisfy the functional test for business income because US Beef was not in the regular business of disposing of such assets—its regular business was operating franchises, not selling them. Therefore, the gain was nonbusiness income allocable to Oklahoma, and the judgment in favor of US Beef was affirmed. View "HUDSON v. UNITED STATES BEEF CORPORATION" on Justia Law

A property owner operating a shopping mall in Orange County, California, faced significant restrictions on access and operations due to government orders issued during the COVID-19 pandemic. These restrictions, which included closures and limited entry, led the owner to file applications with the county tax assessor seeking disaster-related property tax relief under Revenue and Taxation Code section 170, subdivision (a)(1), on the basis that the pandemic and resulting government responses had caused a loss in property value through restricted access.The Orange County tax assessor summarily denied the applications, stating there was no physical damage to the property. The owner appealed this decision to the Orange County Assessment Appeals Board No. 1. The Board found it had jurisdiction but determined that relief under section 170(a)(1) required evidence of physical damage to the property, either direct or indirect, and that neither the pandemic nor the associated government orders constituted such damage. The Board’s decision made further proceedings unnecessary. The property owner then sought review in the Superior Court of Orange County, which, after a court trial, agreed with the Board’s interpretation and ruled that the owner was not entitled to relief because there was no physical damage to the property as required by the California Constitution and relevant statutes.On appeal, the California Court of Appeal, Fourth Appellate District, Division Three, reviewed the case de novo. The court held that, to obtain reassessment under section 170(a)(1), physical damage to the property—either direct or indirect—remains a constitutional requirement. The court found that neither the presence of the virus nor government-imposed access restrictions amounted to physical damage. The judgment of the trial court was affirmed, and both parties’ requests for judicial notice were denied. View "The Retail Property Trust v. Orange County Assessment" on Justia Law

A married couple, Michael and Kimberley, became involved in a fraudulent scheme targeting Michael’s employer, National Air Cargo, a company seeking financial stability after bankruptcy. Michael, initially hired as a contractor and later promoted to CFO, began abusing his position by submitting false invoices, with the help of an internal accomplice, resulting in over $5 million in fraudulent payments. Kimberley, who suffered significant gambling and cryptocurrency losses, played an active role by motivating and coercing the accomplice and leveraging her relationship with Michael. The scheme was uncovered after creditors contacted National, leading to internal investigations and the eventual involvement of federal authorities.After the criminal conduct was exposed, the United States District Court for the District of Colorado became involved. Michael was initially arrested and entered into proffer agreements with the government, as did Kimberley. Both provided statements incriminating the other. The government indicted Michael, Kimberley, and their accomplice, Yioulos, on charges including conspiracy, wire fraud, money laundering, and tax fraud. The couple’s legal representation shifted multiple times, with periods of joint and separate counsel, and both filed motions seeking severance of their trials based on antagonistic defenses. The district court denied these motions, finding either no sufficient prejudice or that the motions were untimely.On appeal, the United States Court of Appeals for the Tenth Circuit reviewed whether the Apple cloud search warrant used to obtain Kimberley’s personal data was sufficiently particular and if the district court erred in denying severance. The court found the search warrant lacked sufficient particularity, but concluded the good faith exception applied, so suppression was not warranted. The court also held that neither defendant was entitled to severance, as their motions were untimely and the legal standards for severance were not met. The Tenth Circuit affirmed both convictions and sentences. View "United States v. Tew" on Justia Law

Fifth Generation, Inc., a Texas-based liquor manufacturer and subchapter S corporation known for producing Tito’s Vodka, supplied increasing quantities of vodka to Maine between 2011 and 2017 without filing Maine pass-through-entity withholding or income tax returns. The company did not own real estate or hold itself out as doing business in Maine but shipped its products to a Maine state-operated bailment warehouse, as required by state law. Fifth Generation retained title to the goods in the warehouse until they were sold to the Maine Bureau of Alcoholic Beverage and Lottery Operations, and its out-of-state employees and broker occasionally accessed the warehouse.Maine Revenue Services conducted an audit and assessed over $748,000 in withholding, interest, and penalties against Fifth Generation. The company appealed to the Maine Board of Tax Appeals, which found no income tax nexus and canceled the assessment. The State Tax Assessor then sought de novo review in the Maine Superior Court (Kennebec County), which granted summary judgment for the Assessor, reinstating the assessment. Fifth Generation subsequently appealed to the Maine Supreme Judicial Court.The Maine Supreme Judicial Court held that Fifth Generation was not exempt from state income tax during the audit period. The Court found that, under Maine law, Fifth Generation had a sufficient nexus with Maine because it owned tangible property in the state and sold it there. The Court also concluded that neither federal law (15 U.S.C. § 381(a)), the Commerce Clause, nor any constitutional provision barred the tax, as Maine’s regulatory scheme served a legitimate state purpose and was applied equally to in-state and out-of-state businesses. The Court further held that Fifth Generation did not have “substantial authority” to justify waiving penalties. The Superior Court’s judgment was affirmed. View "State Tax Assessor v. Fifth Generation, Inc." on Justia Law

Two brothers operated an energy-conservation contracting business and, beginning in 2013, engaged in a bribery scheme involving the Mass Save program, a state-mandated initiative to promote energy efficiency. One brother owned CAP Electric, Inc., and recruited the other to establish Air Tight Solutions, LLC as a Mass Save contractor with the assistance of a CLEAResult employee, who was responsible for selecting and overseeing contractors. The brothers paid this employee, and later another, regular bribes in cash and gifts to secure contracts, favorable treatment, and advance warning of audits. Air Tight performed little or no work directly, subcontracted projects, and disguised employees and payments to conceal the scheme. Over several years, their companies received multi-million dollar payments from the program.The United States District Court for the District of Massachusetts accepted their guilty pleas to conspiracy, honest-services wire fraud, making false statements, and (for one brother) aiding and assisting false tax returns. The district judge sentenced both to 27 months in prison (above-guidelines for one), and ordered forfeiture of $13.2 million and $3.6 million respectively. The brothers challenged the sentences and forfeitures on several grounds, including alleged errors in calculating tax loss, application of sentencing enhancements, and the process and proportionality of the forfeiture orders.The United States Court of Appeals for the First Circuit reviewed the case. It held that the district court did not err in calculating tax loss or applying sentencing enhancements for sophisticated means, obstruction of justice, and aggravating role. The appellate court also held that the district court correctly found a sufficient connection between the criminal conduct and the forfeited proceeds, and that any procedural errors in the forfeiture process were harmless. Finally, the court determined that the forfeiture orders were not unconstitutionally excessive. The First Circuit affirmed the sentences and forfeiture orders. View "United States v. Ponzo" on Justia Law

Paul Daugerdas was convicted in federal court for orchestrating a fraudulent tax shelter scheme that defrauded the U.S. Treasury of significant tax revenue. A jury found him guilty of conspiracy to defraud the IRS, mail fraud, client tax evasion, and obstructing the internal revenue laws. The federal district court sentenced him to 15 years in prison, ordered forfeiture of $164.7 million, and imposed $371 million in restitution, to be paid jointly and severally with co-conspirators. The criminal restitution order set a payment schedule of 10% of Daugerdas’s gross monthly income following his release from prison.After the United States Court of Appeals for the Second Circuit affirmed the convictions and sentence, the Internal Revenue Service, relying on 26 U.S.C. § 6201(a)(4)(A), assessed the same $371 million restitution as a civil tax liability, making the entire amount immediately due. The IRS also filed a notice of federal tax lien against Daugerdas’s property in Illinois. Daugerdas challenged the IRS’s authority to impose and collect restitution in this manner, particularly objecting to the acceleration of the payment schedule. The United States Tax Court upheld the IRS’s actions, ruling that the statutory provision authorized the IRS to assess and collect restitution for tax-related offenses, even when the underlying criminal conviction was under Title 18 rather than Title 26.On appeal, the United States Court of Appeals for the Seventh Circuit reviewed the Tax Court’s judgment de novo. The court held that 26 U.S.C. § 6201(a)(4)(A) empowers the IRS to assess and collect restitution ordered under 18 U.S.C. § 3556 for tax-related crimes, including those prosecuted under Title 18, and that the IRS is not bound by the payment schedule set by the criminal court. The Seventh Circuit affirmed the Tax Court’s judgment for the Commissioner. View "Daugerdas v CIR" on Justia Law

The taxpayers filed a joint Rhode Island personal income tax return for the 2017 tax year, claiming an overpayment and seeking a refund. The return was filed in July 2020, and the Rhode Island Division of Taxation processed it but denied the refund request. The Division cited Rhode Island General Laws § 44-30-87, stating the claim was not filed within the allowable time period and/or no tax was paid within the allowable period. The taxpayers requested an administrative hearing, after which the hearing officer concluded they were not entitled to the refund, and the tax administrator adopted this decision.Following the administrative denial, the taxpayers appealed to the Rhode Island District Court. The hearing judge considered cross-motions for summary judgment and ruled in favor of the taxpayers. The judge found the statutory language ambiguous and interpreted the three-year limitation period for refunds as referring to taxes paid during the three years immediately preceding the refund request, rather than the three years following the filing of the return. Judgment was entered for the taxpayers, and the case was remanded to the Division of Taxation for further proceedings. The Division then petitioned the Rhode Island Supreme Court for a writ of certiorari.The Supreme Court of Rhode Island reviewed the case de novo, focusing solely on the statutory interpretation of § 44-30-87(a). The Court held that the three-year refund period refers to the three years following the filing of the tax return, and that any refund is limited to the portion of tax paid within those three years. The Court quashed the District Court’s judgment, finding that the lower court erred in its interpretation of the statute, and returned the record to the District Court with its decision. View "Schmidt v. Rhode Island Division of Taxation" on Justia Law

Amazon Services, LLC operated the online marketplace Amazon.com, which allowed third-party merchants to sell products to South Carolina residents. In 2016, although Amazon Services collected and remitted sales tax for products it and its affiliates sold, it did not do so for sales made by third-party merchants. After an audit, the South Carolina Department of Revenue assessed Amazon Services for $12,490,502.15 in unpaid sales taxes, penalties, and interest, claiming that Amazon Services was legally required to collect and remit sales taxes on third-party merchant sales due to the company's significant involvement in those transactions.Amazon Services contested the assessment before the South Carolina Administrative Law Court, which upheld the Department of Revenue’s determination, finding Amazon Services was “engaged in the business of selling” under the South Carolina Sales and Use Tax Act and thus responsible for remitting the tax. Amazon Services appealed, and the South Carolina Court of Appeals affirmed the Administrative Law Court’s ruling, agreeing with the interpretation that Amazon Services’ role in third-party sales triggered the statutory obligation to collect and remit sales tax.The Supreme Court of South Carolina granted certiorari and affirmed the decision of the Court of Appeals. The Supreme Court held that, under the plain language of subsection 12-36-910(A) of the South Carolina Sales and Use Tax Act, Amazon Services was “engaged in the business of selling” due to its comprehensive control and involvement in third-party transactions and was therefore required to remit sales tax on those sales. The Court also held that this application did not violate due process, as the relevant statutory provisions were in effect prior to the challenged assessment, and clarified that its holding was not based on interpreting tax statutes broadly but on ordinary statutory interpretation principles. View "Amazon Services v. SCDOR" on Justia Law

A Texas-based company sold bunker fuel to primarily foreign-registered vessels at Texas ports, transferring possession and control of the fuel in Texas. The company initially paid franchise taxes on these sales, but later sought a refund, arguing that these transactions should not be attributed to Texas for franchise-tax purposes because the fuel was not used, sold, or consumed in Texas. The company contended that, under the relevant statute, sales should be sourced to the buyer’s ultimate destination or place of use, not merely the location where possession was transferred.After the Texas Comptroller denied the refund, the company exhausted administrative remedies and filed suit, also challenging the validity of regulations that sourced sales to Texas based on the point of delivery to the buyer. Both parties filed motions for summary judgment, focusing on whether the statutory phrase “delivered or shipped to a buyer in this state” refers to the place where the buyer takes delivery or to the location where the buyer uses or consumes the goods. The trial court ruled in favor of the Comptroller, upholding the regulations. On interlocutory appeal, the Court of Appeals for the Third District of Texas affirmed, finding the statute unambiguously sources sales based on where the buyer receives the property.The Supreme Court of Texas reviewed the case to resolve the statutory interpretation. The Court held that the statute sources receipts from sales of tangible personal property to Texas if the seller transfers possession and control to the buyer at a location in Texas, regardless of where the buyer ultimately uses or consumes the goods. The Court found that the Comptroller’s rules were consistent with this interpretation and thus valid. The judgment of the court of appeals was affirmed and the case remanded for further proceedings. View "NUSTAR ENERGY, L.P. v. HANCOCK" on Justia Law