BSW Tax Blog

Federal and Louisiana Taxes

Category Archives: Tax Refund

Tax Collector Without a Triable Issue of Fact Ordered to Pay Taxpayer’s Litigation Bill

gavel moneyIn Lucent Techs. Inc. v. State Bd. of Equalization, Cal. Super. Ct., No. BC402036, (4/21/14) the tax collector was ordered to reimburse AT&T, Inc. and Lucent Technologies for $2.6 million in attorney’s fees incurred pursuing a sales tax refund.  The refund claim involved sales taxes on Lucent software for AT&T switches, which was essentially declared exempt in another California case.  Although the tax collector asserted that it was not bound by court decisions in its interpretation of tax, the court stated it was without a triable issue of fact in defense of paying the refund.  Additionally, the court stated it would be poor policy to cause taxpayers to foot the litigation bill alone in the face of clear precedent against the tax collector’s position.  This decision tells the tax collector that s/he may suffer the taxpayer’s consequences if it wishes to further test the waters on a tax issue.

While Louisiana local sales tax laws have only recently included a taxpayer’s right for prevailing party fees, Louisiana taxpayers are already making recoveries from tax collector’s without a substantially justified position.

Filing A Sales Tax Refund Does Not Interrupt Prescription For Unpaid Taxes

The right to collect unpaid taxes prescribes on December 31, three years from the year the tax was due. La. Const. art. VII, sec. 16. Likewise a taxpayer’s right to claim a refund for taxes paid expires on December 31 three years from the year the taxes were remitted. R.S. 47:337.79. For example, both the right to collect, or obtain a refund of, 2009 sales taxes would prescribe December 31, 2012.

 

The filing of a refund claim before the December 31 prescriptive date, interrupts the running of prescription as to the refund. The Louisiana Third Circuit held the filing of the claim did not, however, interrupt or suspend prescription for the purposes of collecting unpaid taxes. Cajun Industries, LLC v. Vermilion Parish School Board, Court of Appeal of Louisiana, Third Circuit, No. 14-22, May 14, 2014.

 

In Cajun, the taxpayer filed a refund claim for sales taxes in December 2010 for the tax periods 2007, 2009 and 2010. It filed second refund claim in 2011 for the tax periods 2010 – 2011. The collector denied most of the refund claim and the taxpayer appealed the denial in district court in May 2013.

 

In response to the taxpayer’s suit, the collector asserted that it had the right to offset any unpaid taxes against the refund and asked that it be allowed to audit the taxpayer to see if, in fact, there were any unpaid taxes for the years 2007 – 2011. The Third Circuit affirmed the trial court’s ruling that the taxpayer’s refund claim did not interrupt the running of prescription as to the collector’s right to collect taxes. The filing of a suit did, however, interrupt the running of such prescription pursuant to R.S.47:337.67. Accordingly at the time the suit was filed May 2013, any right to collect unpaid taxes for the years 2007, 2008 and 2009 had already prescribed while the 2010 and 2011 tax periods were still open.

 

While this holding will affect taxpayers with pending refund claims, its effect may be short lived since there is a bill pending in the Legislature, which would amend the law such that the filing of a refund claim would suspend the running of prescription. See H.B. 863, pg. 11. H.B. 863 is scheduled for floor debate on May 21, 2014.

Sell a Business and Did Not Get La. Capital Gains Tax Exemption?

If you paid Louisiana individual income tax as a resident or nonresident on the capital gain on the sale of an equity interest in or substantially all of the assets of a pass-through entity (nonpublicly traded corporation, partnership, LLC, or other business entity type), you may qualify for a tax refund.

In 2009, in an effort to stimulate Louisiana business activities, the Louisiana Legislature passed Act 106, effective January 1, 2010, which granted an exemption from individual income tax for the net capital gain on sale of an equity interest or substantially all of the assets of a pass through entity. The exemption is limited to those business entities having a Louisiana commercial domicile. There are several factors considered in determining the commercial domicile, but it can be generally described as the location from which the business is directed or managed. For Louisiana income tax year 2012, $55,004,383 was claimed in tax savings under this exemption.

A similar exemption has been recently struck down in another state because it was found to violate the US Constitution and the court granted the exemption to those taxpayers previously excluded based on the location of commercial domicile.
The Louisiana exemption could also be unconstitutional such that anyone who was precluded from claiming the exemption because the business had a non-Louisiana commercial domicile would be entitled to a refund. Of course to get this refund the statute would have to be challenged in court, which has not yet been done to our knowledge. If you questions about this potential refund, please contact Nicole Gould, one of our attorneys in the Breazeale Sachse & Wilson LLP state and local tax controversy team.

Top Ten SALT Blunders

SALT

1)      Certified Mail Handling – No Protocol’s Whatsoever.  Why should our client’s be concerned?

a)      Notice of Assessment is to last address used by taxpayer on last report filed, or if no report ever filed, any address Collector can find by private entity free of charge. La. R.S. 47:1565 and 337.51.  (LDR 60 Day Letter” or “Local 30 Day Letter”).  b)      Jeopardy Assessment Notices must be sent within 2 days of assessment.  Note: distraint is allowed with the assessment. La. R.S. 47:337.53 and  1566.  c)      Ad valorem tax sale can occur 20 days after delinquency notice.  d)      Local refund request denial triggers the 30-day period to request internal appeal, 90-day period to appeal in district court.  La. R.S. 47:337.81.  e)      Notice of Tobacco Stamp liability begins tolling the 10-day deadline before Collector proceeds against Dealer’s bond.  La. R.S. 47:843.  f)       Notice of individual income tax refund seized for benefit another agency provides a 45-day contest period.  La. R.S. 47:299.9.  g)      Notice of property distrained (seized) by local sales tax collector guarantees only 15-day period to act before property is sold.  La.R.S. 47:337.58.

2)      Not Opening Your Mail From Your Friendly Tax Collector

a)      Audit Requests:  i)        Jeopardy Assessment – Collector can estimate tax and without notice begin distraint. La. 47.337.53 and 1566.  ii)      Collector can estimate by any means.  See certified mail handling protocol’s. La. 47:337.48 and 1562.

b)      Refund Request Denial by LDR– have 60 days from notice, or must wait for one year after filing refund request if LDR fails to respond, to appeal in BTA . La. R.S. 47:1625. But see TIN, Inc. v. Washington Parish Sheriff’s Office, 2012-0156 (La. App. 1st. Cir., 7/2/12).

c)      Notice of ad valorem tax sale and redemption period.  La. R.S. 47:2156.

3)      3. Allowing Assessment Finality

a)      Assessment is unreviewable.  b)      Officer’s Liability  La. 47:1561.1.  c)      Cease and Desist Order.  d)      The Lovely People of DCS.  e)      10% Attorney’s Fee for Court Proceeding.  f)       Criminal Liability for sales taxes per La. R.S. 47:337.82 and 83 for any person required to collect, account for, or pay over or for any person who willfully fails to file or files a fraudulent return.  g)      Suspended licenses for individual income taxes, excluding P&I and other charges, in excess of $500 (hunting and fishing) or if in excess of  $1,000 (driver’s).

4)      Not Minding Your P’s and Q’s…. And Your Calendar

a)      Jeopardy assessment is appealable for only 60 days from payment or posting bond.  La. 47:337.53 and  47:1566.  b)      Local collector internal hearing request regarding proposed assessment is allowed within 15 days, if no return was filed, within 30 days if a return was filed. La. 47.337.49 .  c)      LDR internal hearing request valid for 30 days from notice of proposed tax due.  La.R.S. 47:1563.  d)      Local collector’s notice of final assessment provides only 30 days to pay under protest and file suit in district court, request mandatory arbitration, or appeal to district court. La. 47.337.51.  e)      LDR notice of final assessment demarks 60-day deadline to appeal to the BTA or pay under protest and file suit in district court.  f)       December 31 marks another year prescribed from collection, arguably.  See Elevating Boats, Inc. v. St. Bernard Parish, 2000-3518 (La. 9/5/01), 795 So.2d 1153.  g)      Refund must be requested before December 31, 3 years from the year the tax was due or within 1 year from payment if later.  La. R.S. 47:1623.

5)      Never Getting a Checkup

a)      Reverse audits:  i)        Paying sales tax on exempt transactions.  ii)      Changes in law such as the CIFT apportionment percentages.

b)      Having business processes reviewed by a CPA or tax attorney.

c)      Multistate businesses should consult with a multistate tax planner.

6)      Being Too ______ During Audit

a)      Too Friendly:  i)        Having auditor among office operations.  ii)      Having the auditor hear all office discussions.  iii)    Permitting auditor too much access.  iv)    Gifts that are prohibited under state ethics laws.

b)      Too Antagonistic:  i)        Putting the auditor in cold storage with a folding table and chair without any bathrooms.  ii)      No heat/air conditioning.  iii)    Delay providing documents and reports until the last day of the audit.

c)      What to do:  i)        Locate auditor and documents at the lawyer’s or CPA’s office, or conference room away from office functions.  Office Pod?  ii)      If from out of town, provide auditor with a list of recommended restaurants and hotels.  iii)    Provide digital copies of documents requested so work can be done at his/her office.  iv)    Treat them like your mother-in-law.  Never disrespect, and give basic courtesies.

7)       Sourcing Transactions

a)      Sales Taxes, Volume of Business Factor and Sales Factor.  b)      Mileage factor allocation for interstate transportation taxpayers.  La. 47:337.20.1 and 306.1.  c)      Use tax relies upon the “taxable moment” which is generally described as where the property has come to rest, or where it was delivered.  Word of Life Christian Center v. West, 2004-1484 (La., 4/17/06),936 So.2d 1226.

8)      Making Sales Tax Collections a Business Loan

a)      Penalty for absorbing sales tax can become criminal misdemeanor punishable by not more than $2,000 fine or parish jail for up to 2 years. La. R.S. 47:337.18 and 1641.  b)      See consequences of allowing an assessment to become final.

9)      Lumping Fees on the Receipt

a)      Including nontaxable transactions with taxable transactions on one receipt item such as delivery, labor, and operator rentals.

10)  Not Trying to Fix the Problems

a)      Secretary’s discretion to abate final assessment if made upon mistake of fact.

b)      Installment plan.

c)      Request refund:  i)        Only 3 years unless prescription waivers.  ii)      Appeal refund denial with district court or BTA.

d)      Pay under protest and file suit.

e)      Appeal LDR assessment to BTA.

f)       Request mandatory arbitration with local collector.

g)      Appeal AVT assessments with La. Tax Commission.