BSW Tax Blog

Federal and Louisiana Taxes

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.

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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

 

Louisiana Tax Reform Proposal – Sales Tax Exemptions Maintained

 

 

Category

Name

Tax   Exemption Budget #

Agriculture

Sales   of raw agricultural products

35

Pharmaceuticals   administered to livestock for agricultural purposes

70

Sales   farm products direct from the farm

91

Farm   products produced and used by the farmers

96

Sales   of fertilizers and containers to farmers

101

Sales   of seeds for planting crops

110

Sale   of polyroll tubing

158

Automobile Dealers

Manufacturers   rebates on new motor vehicles

7

Manufactures   rebates paid directly to a dealer

8

Credit   for use tax paid on automobiles imported by certain members of the armed   services

185

Use   of vehicles in La. by active military personnel

186

Automobiles   Rented/ Owned

Vehicle   rentals for re-rent to warranty customers

22

Sales   of motor vehicles to be leased or rented by qualified lessors

134

Construction/   Repairs

Repair   services performed in La. when the repaired property is exported.

62

Other   constructions permanently attached to the ground

76

Disabled

Sales   or purchases by blind persons operating small businesses

122

Purchases   by certain organizations that promote training for the blind

123

Purchase   of vehicles modified for use by an orthopedically disabled person

164

Fishing/Seafood

Materials   used in the production of harvesting of crawfish

94

Materials   used in the production or harvesting of catfish

95

Certain   seafood processing facilities

129

Fuel   Subject to Excise Tax

Sale   of gasoline, gasohol, and diesel

182

General Business

Work   product of certain professionals

69

Fees   paid by radio and television broadcasters for the rights to broadcast film,   video, and tapes

107

Vendor’s   compensation (Amended and Capped)

174

Sales   tax remitted on bad debts from credit sales

176

General Public

Sale   of newspapers

81

Purchase   of breastfeeding items

162

La.   Tax Free Shopping program

181

Purchases   made with WIC vouchers and food stamps

183

Credit   for sales and use taxes paid to other states on property imported into La.

184

Sale   of food for preparation and consumption in the home

187

Government

Sales   by state-owned domed stadiums

87

Sales   by certain publicly-owned by certain publicly-owned facilities

88

Governmental   Purchases

Purchases   of equipment by bona fide volunteer and public fire department

43

Purchases   by state and local governments

26

Sales   to the United States Government and its agencies

36

Manufacturing

Leases   or rentals of pallets used in packaging products produced by a manufacturer

24

Manufacturing Machinery and Equipment

Purchases   of manufacturing machinery and equipment.

11

Purchase   of certain machinery and equipment used to produce a new publication

12

First   $50,000 of new farm equipment used in poultry production

57

Purchases   by motor vehicle manufacturers

77

Purchases   by glass manufacturers

78

Purchases   of machinery and equipment by owners of certain radio stations

79

Purchases   of machinery and equipment by certain utilities

80

Medical

Purchases   and leases by free hospitals

19

Sales   of human-tissue transplants

34

Materials   used in collection of blood

74

Apheresis   kits and leuko reduction filters

75

Pharmaceutical   samples distributed in La.

144

Sickle   cell disease organization

151

Purchase,   lease or repair of certain capital equipment and computer software of   qualifying radiation therapy treatment centers

159

Medical/   Prescription Drugs

Purchases   and leases of durable medical equipment paid by or under provisions of   Medicare

179

Drugs   prescribed by physicians or dentists

191

Military

Sales   of TPP by the Louisiana Military Department

53

Sales   by thrift shops on military installations

119

Nonprofit/Education

Donations   to certain schools and food banks from resale inventory

82

Sales   of food by certain institutions

106

Admissions   to entertainment by domestic nonprofit charitable, educational, and religious   organizations

117

Sales   of TPP at or admission to events sponsored by certain nonprofit groups

118

Sales   of newspapers by religious organizations

120

Sales   to nonprofit literacy organizations

121

Room   rentals at camp and retreat facilities owned by IRC 501(c)(3) organizations

14

Certain   educational materials and equipment used for class room instruction

20

Purchases   by nonprofit entities that sell donated goods

29

Sales   of food items by youth organizations

37

TPP   sold to food banks

39

Purchases   of food items for school lunch or breakfast programs by nonprofit elementary   or secondary schools

51

Admission   to athletic or entertainment events by elementary and secondary education   institutions and membership dues to certain nonprofit, civic

59

Admissions   to places of amusement at camp or retreat facilities

61

Non-Profit/Religious

Donation   of toys

48

Tickets   to musical performance by nonprofit musical organizations, educational, and   religious organizations

112

Non-Residential Utilities

Purchase   of electric power and natural gas by paper or wood products manufacturing   facilities

13

Natural   gas used in the production of iron

32

Electricity   for clor-alkali manufacturing process

33

Pelletized   paper waste used in a permitted boiler

42

Purchases   by nonprofit electric cooperatives

85

Sales   of water- nonresidential

99

Sales   of electric power or energy – nonresidential

100

Sales   of natural gas – nonresidential

102

Materials   and energy sources used for boiler fuel

103

Utilities   used by steelworks and blast furnaces

150

Sales   of steam – nonresidential

98

Oil/Gas

Rental   of leases of certain oil-field property to be released or re-rented

16

Repairs,   renovations or conversions of drilling rigs

63

Certain   geophysical survey information and data analyses

68

Repairs   and materials used on drilling rigs and equipment

108

Helicopters   leased for use in the extraction, production, or exploration for oil, gas or   other minerals

168

Sales   or “cost price” of refinery gas

173

Racetracks/Racehorses

Feed   and feed additives for animals held for business purposes

93

Railroads

Leases   or rentals of railroad rolling stock and lease or rentals by railway   companies and railroad corporations

10

Piggyback   trailers or containers and rolling stock

143

Rail   rolling stock sold or leased in La.

148

Residential   Utilities

Purchases   of fuel or gas by residential consumers

46

Purchases   of certain fuels for private residential consumption

137

Sales   of electric power of energy to the consumer for residential use

188

Sales   of natural gas to the consumer for residential use

189

Sales   of water to the consumer for residential use

190

Tangible Personal Property

Purchase   of TTP for lease or rental

30

Articles   traded in on TPP

56

Property   purchased for exclusive use outside the state

115

Transportation/ Large Vessels & Trucks

Certain   trucks and trailers used 80% in interstate commerce

146

Certain   contract carrier buses used 80% in interstate commerce

147

Sales   of 50-ton vessels and new component parts and sales of certain materials and   services to vessels operating in interstate commerce

109

Isolated   occasional sales of tangible personal property

4