Department of Revenue Court Case Summaries
2017
Livingston Enterprises, Inc. v. Nebraska Department of Revenue (01/25/2017)
CI 16-2027, Lancaster Co. Dist. Ct.
Synopsis: The Lancaster County District Court held that Livingston lacked standing to claim a sales tax refund because the taxpayer did not actually pay the sales tax on the item.
Livingston Enterprises challenged the denial of a refund claim for agricultural machinery and equipment which they had made based on the purchase of some concrete hog slats used in the raising of hogs. Livingston argued that the hog slats were directly used in the raising and caring for pigs, but the Nebraska Department of Revenue (Department) argued that the hog slats were building materials that became annexed to real property. The court did not reach the merits of this case, holding instead that Livingston lacked standing to bring the claim because it had purchased the item from an Option 2 contractor. Option 2 contractors are considered the consumer of building materials and pay sales tax at the time of purchase. Additionally, the Option 2 contractor did not act as retailer because the hog slats were annexed to real property, thus losing their idetntity as tangible personal property. As a result, the Option 2 contractor was considered the purchaser and the taxpayer on the item, and as a result, the Option 2 contractor was the party who made the overpayment and could claim the refund.
2016
Stewart v. Nebraska Department of Revenue (10/14/2016)
294 Neb. 1010
Synopsis: The Nebraska Supreme Court held that the “economic substance” and “sham transaction” doctrines did not apply to the special capital gains election.
Petitioners made a special capital gains election in regards to the sale of stock they had held. The Nebraska Department of Revenue (Department) disallowed the election on the basis that the stock was not issued from a qualified corporation, finding that petitioners had made a transaction that lacked economic substance in order to have enough stockholder to made the election. Petitioners had sold one share of stock in their corporation to three separate people a few days before the main sale, in order to have enough stockholders to make the election, and paid capital gains on this sale. The court held that this single stock transaction was outside of the scope of the statute. The court also rejected the application of the economic substance doctrine to the capital gains election, finding that the plain meaning of Neb. Rev. Stat. §§ 77-2715.08 and 77-2715.09 were not ambiguous and did not include the doctrine, citing to earlier decisions which rejected attempts to read additional words into an unambiguous statute. The court also found that the legislative intent did not support applying the economic substance doctrine to the statute. Finally, the court held that in the absence of ambiguity or conflict between statutes, it would not invoke federal tax doctrines to construe a statute.
Aline Bae Tanning v. Nebraska Department of Revenue (05/20/2016)
293 Neb. 623
Synopsis: The Nebraska Supreme Court held that tanning salons lacked standing to claim refunds on sales tax charged to customers on admissions. Neb. Rev. Stat. § 77-2708(2)(b) permits "the person who made the overpayment” to claim a refund of erroneously or illegally collected sales or use tax. Thus, only the person who made the overpayment has a real interest in the controversy of a sales tax refund claim. In this case, the customers of the tanning salons are the only ones that would have standing to file for a refund of erroneously or illegally collected sales tax.
Neb. Rev. Stat. § 77-2703 requires purchasers to pay the sales tax to the seller, and then requires the seller to remit the tax to the Nebraska Department of Revenue (Department). The tax constitutes both a debt of the purchaser to the seller, and of the seller to the State. The statute prohibits businesses from absorbing the cost of taxes. Under the terms of Neb. Rev. Stat. § 77-2703, the tax revenue is merely held in trust by the seller for the State of Nebraska (State), and the State reimburses the seller for expenses associated with collection.
A refund of a tax improperly or erroneously collected can only be issued by the State directly to the purchaser who paid the tax. The retailer is legally responsible for passing the sales tax revenue on to the Department, the ultimate burden of the tax falls upon the consumer who is legally liable to the retailer.
Farmers Cooperative v. Nebraska Department of Revenue (02/22/2016)
CI 15-1238, Lancaster Co. Dist. Ct.
Synopsis: The Lancaster County District Court held that the Nebraska Department of Revenue (Department) used the correct definition of “depreciable repairs or parts” under Neb. Rev. Stat. § 77-2708.01 in determining the merit of the taxpayer’s refund. The court further found that the tank trailers at issue were not motor vehicles and as such, constituted exempt agricultural machinery and equipment.
Taxpayer filed two separate refund claims, one for purchases it alleged were for depreciable repairs or parts for terragators/ floaters and another for the purchase of tank trailers that were used to apply nutrients to the fields. The taxpayer asserted that any repairs or parts with a determinable life longer than one year applied to agricultural machinery and equipment are exempt. The Department argued that the term “depreciable repairs or parts” refers to repairs or parts which “will appreciably prolong the life of the property, arrest its deterioration, or increase its value or usefulness, and are ordinary capital expenditures for which a deduction is allowed only through the depreciation recovery allowance.” The court found that the Department’s definition of depreciable repairs or parts was in line with the purposes of the exemption statute and the federal definition. Further, the court found that the taxpayer failed to provide evidence that any of the items for which it sought a refund constituted depreciable repairs or parts under this definition, including failing to provide the depreciation schedules and personal property tax return requested by the Department. The court also found that since taxpayer had failed to request a hearing and had failed to produce any evidence showing an entitlement to the refund, the court had no choice but to affirm the Department’s denial of the claims. The Department conceded that they improperly categorized the tank trailers at issue as motor vehicles and that the Department’s denial of the refund for the purchase of the tank trailers was improper.
Frontier Cooperative Company v. Nebraska Department of Revenue (02/22/2016)
CI 15-1302, Lancaster Co. Dist. Ct.
Synopsis: The Lancaster County District Court held that the Nebraska Department of Revenue (Department)used the correct definition of “depreciable repairs or parts” under Neb. Rev. Stat. § 77-2708.01 in determining the merit of the taxpayer’s refund. The court further found that the tank trailers at issue were not motor vehicles and as such, constituted exempt agricultural machinery and equipment.
Taxpayer filed refund claims for purchases it alleged were for depreciable repairs or parts for tank trailers, terragators/ floaters and for the purchase of tank trailers that were used to apply nutrients to the fields. The taxpayer asserted that any repairs or parts with a determinable life longer than one year applied to agricultural machinery and equipment are exempt. The Department argued that the term “depreciable repairs or parts” refers to repairs or parts which “will appreciably prolong the life of the property, arrest its deterioration, or increase its value or usefulness, and are ordinary capital expenditures for which a deduction is allowed only through the depreciation recovery allowance.” The court found that the Department’s definition of depreciable repairs or parts was in line with the purposes of the exemption statute and the federal definition. Further, the court found that the taxpayer failed to provide evidence that any of the items for which it sought a refund constituted depreciable repairs or parts under this definition, including failing to provide the depreciation schedules and personal property tax return requested by the Department. The court also found that since taxpayer had failed to request a hearing and had failed to produce any evidence showing an entitlement to the refund, the court had no choice but to affirm the Department’s denial of the claims. The Department conceded that they improperly categorized the tank trailers at issue as motor vehicles and that the Department’s denial of the refund for the purchase of the tank trailers was improper.
