BSW Tax Blog

Federal and Louisiana Taxes

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.

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Taxpayer’s Right to Claim Refund Held Open By Collector’s Suit

Ordinarily, claims for additional taxes or for a refund of taxes paid prescribe within 3 years from the year in which the taxes were due. It is not uncommon, however, for tax collectors and taxpayers to agree, during the course of an audit, to suspend the running of prescription as to potential claims by both parties in order to give them additional time within which to resolve their differences. In a matter handled by our State and Local Tax (SALT) group, the Louisiana Board of Tax Appeals was called upon to review an agreement to suspend prescription and has now rendered a decision which may be of benefit to any taxpayer currently litigating its tax liability.

The taxpayer was audited for corporate income taxes for numerous years. During the audit, the parties executed several of the Department’s stock agreement to suspend the running of prescription. The first agreement was executed in the year the first audit period would have prescribed. Subsequent agreements would include the years included in the prior agreements and any year about to prescribe.

Under the terms of the agreement prescription was suspended as to the claims of both parties until December 31 of the year after the year of execution. The last agreement extended the period of suspension until December 31, 2008. In December of 2008, the Department filed suit against the taxpayer for additional taxes.

While preparing for trial, the taxpayer discovered that its gain on the sale of an asset had been overstated. Under Louisiana law this overpayment could not be raised as a defense in the Department’s suit against the taxpayer. Rather, the only way the overpayment could be recovered was by filing a refund claim. After the trial court’s decision (which abated the assessment) but before it became final, the taxpayer filed its claim with the Department.

The Department failed to act on the claim within a year of its filing, so the taxpayer filed suit at the BTA asking that the Department be ordered to refund the amount claimed. The Department filed an exception of prescription. It was the Department’s position that, under the terms of the agreement, the taxpayer’s claim had to be filed no later than December 31st of 2008. Since the claim wasn’t filed until 2012 it was, according to the Department, untimely. The BTA disagreed.

Ordinarily, the filing of suit by the Department against a taxpayer does not extend the time within which a claim for refund must be filed., The BTA found, however, that under the agreement, the taxpayer agreed to never plead prescription if suit was filed prior to December 31, 2008 and the Department agreed that the period of prescription for claiming a refund was “extended in accordance with the terms of the agreement.” The BTA ruled that what was good for the goose was good for the gander and since the filing of the Department’s suit had interrupted prescription as to its right to seek additional taxes, so too did it interrupt prescription as to the taxpayer’s refund claim.

One can expect the Department to try and effectively overrule this decision by rewriting the agreement to make it more one sided in the goose’s favor. Until then, a taxpayer who is defending a suit filed by a tax collector may have an unexpected opportunity for a refund.

If you have questions please contact one of our attorneys in the Breazeale, Sachse & Wilson, L.L.P. state and local tax controversy team.

How To Preserve Your Flex Fuel Vehicle Income Tax Claim

A taxpayer who purchased a new FFV between 2010 and July 1, 2013, may claim the La. alternative fuel vehicle income tax credit (10% of the purchase price up to $3,000) through an amended Louisiana income tax return.   The right to claim a refund for income tax year 2010 will prescribe on December 31, 2014, 2011 in 2015, and so on.

When LDR denies the refund claim (or disallows the credit taken), the taxpayer should promptly file a petition for review with the Louisiana Board of Tax Appeals, as the right to do so prescribes in 60 days from the denial. The petition is very simple and should not have a filing fee. You can see the instructions for filing same at the Board’s website. Taxpayers may be represented at the BTA by a lawyer, a CPA or by themselves.  Because the FFV tax credit issue is still working its way through appeal, the newly filed BTA appeals should simply sit and wait.

If a taxpayer failed to appeal the LDR appeal timely, s/he may still file a claim against the state with the Board of Tax Appeals, which has the same prescriptive period as claiming the refund itself.  For example, a person making a 2012 claim for the FFV credit for a 2010 FFV purchase was more than likely denied in March 2013.  If it wasn’t appealed within 60 days, the taxpayer cannot appeal the denial now but must instead file a claim against the state for the credit.  The Board has provided instructions for this on it website as well.  The biggest difference between this action and one appealing a refund denial is that a refund will be promptly paid by LDR but a claim against the state must be paid by way of appropriation by the legislature.

If you have any questions, do not hesitate to call us.  While some taxpayers have the time and ability to handle such a matter on their own, we are presently representing a group of clients who prefer to have representation through the process.

Louisiana Flex Fuel Credit Allowed at Board of Tax Appeals

On May 14, 2014, the Board of Tax Appeals granted the first flex fuel credit in that matter Bolotte v. LDR, BTA #8007. The decision essentially states that because LDR interpreted La. R.S. 47:6035 as including flex fuel vehicles and that law did not change until July 2013, which was to specifically remove the flex fuel vehicle from qualifying, the credit must be allowed until the July 2013 amendement. One of the 3 board members dissented on the grounds that he does not think the flex fuel vehicle ever qualified for the credit and his opinion generally includes a concern about the overall cost of the credit to the state.

It is certain that the state will appeal.

Should the matter be fully resolved in favor of the taxpayers, those individuals with pending claims will be entitled to their refund.  For those persons that purchases a flex fuel vehicle from 2010 through July 2013, your right to amend your tax return to claim the credit is still available.  LDR will deny it and you would have to appeal within 60 days of the denial in order to preserve your rights.  If you have already claimed your credit and did not appeal the denial, you may file a claim against the state.  Louisiana income tax year 2010 will close on December 31, 2014.

 

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.

IRS SCAM ALERT

The latest trend in scams involves IRS collections at Newswire 2013-84

WASHINGTON — The Internal Revenue Service today warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country. We want to educate taxpayers so they can help protect themselves. Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.” Werfel noted that the first IRS contact with taxpayers on a tax issue is likely to occur via mail

Other characteristics of this scam include:
•Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
•Scammers may be able to recite the last four digits of a victim’s Social Security Number.
•Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
•Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
•Victims hear background noise of other calls being conducted to mimic a call site.
•After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:
•If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue – if there really is such an issue.
•If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
•If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure. The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

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.

Home Energy -Efficient Credit

IRS 2013-48

If you made your home more energy efficient last year, you may qualify for a tax credit on your 2012 federal income tax return. Here is some basic information about home energy credits that you should know.

Non-Business Energy Property Credit
•You may claim a credit of 10 percent of the cost of certain energy saving property that you added to your main home. This includes the cost of qualified insulation, windows, doors and roofs.

•In some cases, you may be able to claim the actual cost of certain qualified energy-efficient property. Each type of property has a different dollar limit. Examples include the cost of qualified water heaters and qualified heating and air conditioning systems.

•This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.

•Your main home must be located in the U.S. to qualify for the credit.

•Not all energy-efficient improvements qualify, so be sure you have the manufacturer’s credit certification statement. It is usually available on the manufacturer’s website or with the product’s packaging.

•The credit was to expire at the end of 2011. A recent law extended it for two years through the end of 2013.energy-efficient-house-medium

Residential Energy Efficient Property Credit
•This tax credit is 30 percent of the cost of alternative energy equipment that you installed on or in your home.

•Qualified equipment includes solar hot water heaters, solar electric equipment and wind turbines.

•There is no limit on the amount of credit available for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.

•You must install qualifying equipment in connection with your home located in the United States. It does not have to be your main home.

•The credit is available through 2016.

Use Form 5695, Residential Energy Credits, to claim these credits. You can get Form 5695 at IRS.gov or order it by calling 1-800-TAX-FORM (800-829-3676).

New York Rules on Amazon and Overstock – presence through resident websites

A nice commentary on the case can be found at this blog.

Louisiana Tax Reform Proposal – Sales Tax Exemptions to be Eliminated

 

 

Category

Name

Tax   Exemption Budget #

Advertising

Sales of telephone directories   by advertising companies

44

Catalogs distributed in La.

145

Aircraft

Rental or purchase of airplanes   or airplane equipment and parts b Louisiana-domiciled commuter airlines

18

Certain aircraft assembled in   La. With a capacity of 50 people or more

41

Antique airplanes held by   private collectors and not used for commercial purposes

166

Aircraft/   Automobiles

Trucks, automobiles, and new   aircraft removed from inventory for use as demonstrators

104

Art

Admissions to museums

60

Sales of admission tickets by   Little Theater organizations

111

Rentals of motion-picture film   to commercial theaters

114

Sales of original one-of-a-kind   works of art sold in certain locations

153

Automobiles   Rented/ Owned

Adaptive driving equipment and   motor vehicle modification

105

New vehicles furnished b a   dealer for driver-education programs

131

Education

Certain educational materials   and equipment and parts  by   Louisiana-domiciled commuter airlines

20

Purchases by regionally   accredited independent educational institutions

25

Purchases by a private   post-secondary academic degree-granting institution

50

General   Business

Purchases, services, and   rentals for construction of sewerage or wastewater treatment facility

3

Purchases of consumable by   paper and wood manufacturers and loggers

9

Purchases of school buses by   independent operators

38

Use tax on residue of   by-products consumed by the producer

83

Advertising services

84

Additional tax levy on   contracts entered into prior to and within 90 days of tax levy

116

Raw materials used in the   printing process

142

Sales of railroad ties to   railroads for use in other states

149

Purchase of certain water   conservation equipment for use in the Sparta Groundwater Conservation   District

156

Certain interchangeable   components; optional method to determine

167

Cash-basis sales tax reporting   and remitting for health and fitness club membership contracts

169

Collection from interstate and   foreign transportation dealers

171

General   Public

Installation charges on   tangible personal property

5

Annual La. sales tax holiday

152

Hurricane preparedness La.   sales tax holiday

154

Second Amendment sales tax   holiday

157

Homes

Purchases of storm shutter   devices

52

Used manufactured homes and 54%   of cost of new manufactured homes

71

Certain digital television and   digital radio conversion equipment

73

Cable television installation   and repair services

124

Extended time to register   mobile homes

172

Materials used in construction,   restoration, or renovation of housing in designated areas

178

Mardi   Gras

Specialty Mardi Gras items   sold  certain organizations

58

Specialty Mardi Gras items   purchased or sold by certain organizations

138

Non-Profit/   Religious

Sales and rentals to Boys State   of La., Inc. and Girls State of La., Inc.

21

Outside gate admissions and   parking fees at fairs, festivals, and expositions sponsored by nonprofit   organizations

126

Construction materials and   operating supplies for certain nonprofit retirement centers

133

Tickets to dance, drama, or   performing arts presentations b certain nonprofit organizations

140

Purchases b and sales by   certain nonprofit organizations dedicated to the conservation of fish and   migratory waterfowl

141

Sales of construction materials   to habitat for humanity

155

Purchases of construction   materials by Hands on New Orleans and Rebuilding Together New Orleans   Covenant partners

160

Purchases by the Fore!kids   Foundation

163

Purchases of construction   materials by the Make it Right Foundation

165

Sales tax collected by a qualified   charitable institutions

180

Room rentals at certain   homeless shelters

15

Qualifying events providing La.   heritage, culture, crafts, art, food and music sponsored by domestic   nonprofit organizations

55

Oil/   Gas

Lease or rental of certain   vessels in mineral production

127

Sales of gasohol

132

Installation of board roads to   oil-field operators

6

Property used in the   manufacture, production, or extraction of unblended diesel

23

Pollution control devices and   systems

40

Alternate substance used as a   fuel

47

Natural gas held, used, or   consumed  in providing natural gas   storage services or operating natural gas storage facilities

49

Sales of anthropogenic carbon   dioxide used in qualified tertiary recovery projects

54

Precious   Metals

Coin bullion with a value of   $1,000 or more

67

Racetracks/   Racehorses

Purchases by off-track wagering   facilities

1

Purchase b Pari-Mutuels   Racetracks

2

Racehorses claimed at races in   La.

92

Recreational   Vehicles/ Vessels

Boats, vessels, and other watercraft   as demonstrators

89

Purchase of off-road vehicles   by certain buyers domiciled in another state

90

Retail/   Sales

Purchases of certain custom   computer software

72

Receipts from coin-operated   washing and drying machines in commercial Laundromats

125

Purchases and sales b Ducks   Unlimited and Bass Life

139

Credit for costs to reprogram   cash registers

175

Sales through coin operated   vending machines

31

Seafood/   Fishing

Purchases of supplies, fuels,   and repair services for boats used by commercial fishermen

128

Telecommunications

Sales of cellular telephone and   electronic accessories

45

Interstate telecommunications   services purchased by defined call centers

64

Telecommunications services   through coin-operated telephones

65

Miscellaneous telecommunication   services

66