Department of Revenue Court Case Summaries
2019
LabCorp Nebraska, Inc. v. Nebraska Department of Revenue (04/29/2019)
CIs 18-3825, 18-3826, Lancaster Co. Dist. Ct.
Synopsis: The Lancaster County District Court held that diagnostic reagents used in diagnostic testing at medical laboratory facilities are not exempt from sales and use tax under Neb. Rev. Stat. § 77-2704.09(1), the exemption for prescription drugs sold for use by a patient; and 316 Neb. Admin. Code, ch. 1, § 1-051.02A, an exemption for purchases of drugs by a physician to be prescribed, dispensed, administered, or transferred to a patient.
The Nebraska Department of Revenue (DOR) denied the sales and use tax refund claims filed by LabCorp and Laboratory Corporation of America Holdings (Petitioners) for purchases of diagnostic reagents used at medical laboratory testing facilities. On appeal, the Petitioners contended that the diagnostic reagents were exempt under Neb. Rev. Stat. § 77- 2704.09(1) and Reg-1-051.02A.
The district court held the exemption in § 77-2704.09(1) applies to prescription drugs sold for a patient’s use. The exemption did not apply to the diagnostic reagents purchased for use by the Petitioners in testing patient samples. Next, the court held the diagnostic reagents were not exempt under the plain language of Reg-1-051.02A because the reagents were not prescribed for an “individual human patient” but rather ordered in bulk by the Petitioners for diagnostic tests. In addition, the court rejected the Petitioners’ argument that the regulation impermissibly altered § 77- 2704.09(1) because the court held, under the plain language of both the statute and regulation, the prescription drugs must be sold for patient use to be exempt.
2018
Woodmen of the World v. Nebraska Department of Revenue (02/16/2018)
299 Neb. 43
Synopsis: The Nebraska Supreme court held that fraternal benefit societies are not exempt from sales and use tax under Neb. Rev. Stat. §§ 44-1095 and 77-2704.12(1).
Woodmen, a fraternal benefit society, challenged the denial of a sales and use tax exemption and refund claim made under Neb. Rev. Stat. §§ 44- 1095 and 77-2704.12(1). The court reviewed the statutes according to the plain language and ordinary meaning. Because the review involved an exemption, the court strictly construed the provisions and declined to extend their operation by judicial construction. The burden of showing the exemption applied was on the claimant.
The court held Woodmen was not exempt from sales and use tax based on the plain language of the statutes. Looking at § 77-2704.12(1), the court stated there wasn’t anything in the language that supported Woodmen’s claim that the statute exempted fraternal benefit societies from sales and use taxes. In examining Woodman’s arguments regarding § 44-1095, first the court held the plain language of § 44-1095 only exempts taxes imposed on the funds of a fraternal benefit society and not the entity itself. Woodman alleged that § 44-1095 created a quasi-blanket exemption for fraternal benefit societies. However, the court found in favor of DOR that the specific language of § 77-2704.12(1) applied to the purchases of fraternal benefit societies and that the exemption for fraternal benefit society “funds” under § 44-1095 was not applicable under the Nebraska sales and use tax regime.
2017
Rent-a-Center West, Inc. v. Nebraska Department of Revenue (11/13/2017)
CI 17-1291, Lancaster Co. Dist. Ct.
Synopsis: The Lancaster County District Court held that optional liability waiver damage (LDW) fees and pay-by-phone fees are taxable as gross receipts of the sales price of the petitioner’s rental agreements. Neb. Rev. Stat. § 77-2703(1).
Petitioner contended that both LDW and pay-by-phone fees were not taxable because they were separate fees unrelated to the sale of tangible personal property (e.g. furniture, tables, etc.). Relying on prior precedent, the court held that the measure of Nebraska sales tax is determined by the definitions of “gross receipts” and “sales price.” The court noted Nebraska imposes tax on the gross receipts of sales or leases of tangible personal property, not only the property itself. Specifically, the tax is imposed on the gross receipts from all sales or leases of tangible personal property, meaning the total amount of the sales price, which is defined as the total amount of consideration for which the personal property is sold, leased, or rented. Neb. Rev. Stat. §§ 77-2701.16(1), 77-2701.35(1). The court determined both fees were gross receipts of the rental agreements because neither fee could exist without the rental of tangible personal property and the fees were linked to and inseparable from the rental agreement.
Farmers Cooperative v. Nebraska Department of Revenue (10/19/2017)
CI 16-3038, Lancaster Co. Dist. Ct.
Synopsis: The Lancaster County District Court held that the statute of limitations for a sales and use tax refund claim begins on the date when the tax is due, not the date when the overpayment was made.
Petitioner purchased equipment for a dry fertilizer plant in May 2013. On July 21, 2016, petitioner filed a refund claim for the use tax paid on payments made for the equipment between May 2013 and October 2013. The Tax Commissioner denied the claim as untimely. On appeal, petitioner argued the claim was not barred because the statute of limitations period begins when the overpayment was made, not when the tax was due. The district court rejected petitioner’s argument, holding the limitations period is established by the date the tax return and tax was due. For sales and use tax, the limitations period for refund claims is three years from the required filing date after the close of the period for which the overpayment was made. Neb. Rev. Stat. § 77-2708(1)(b). Monthly filers must file a return and pay the tax on the 20th day of the month after each monthly period. See § 77-2708(1)(a), (b)(i). The court also found the question of whether the claim was untimely depended on if the petitioner used an accrual or a cash basis accounting method. Because the record was unclear which accounting method petitioner adopted to use, the district court remanded the case back to the Nebraska Department of Revenue on this limited issue.
Farmers Cooperative v. Nebraska Department of Revenue (04/07/2017), (07/07/2017)
296 Neb. 347 modified on denial of reh'g 297 Neb.132
Synopsis: The Nebraska Supreme Court held that “depreciable repairs or parts” in Neb. Rev. Stat. § 77-2708.01 means “repairs or parts that 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.” In addition, the Court held that, like exemptions, the refund claimant must establish entitlement to the refund.
Farmers Cooperative and Frontier Cooperative Company (Cooperatives) challenged denials of refund claims for depreciable repairs or parts of agricultural machinery and equipment under Neb. Rev. Stat. § 77-2708.01. Neither refund claim included a property tax return or depreciable schedule to verify payment of personal property taxes on the repairs or parts. The Court first reviewed the plain meaning of the term "depreciable repair or parts," and held it was ambiguous. Looking to the legislative history, the Court determined that the legislature’s intent in creating the refund was to prevent double taxation, while ensuring a sales and use tax refund on purchases of depreciable repairs and parts for agricultural machinery and equipment that are subject to personal property tax. The Court also noted the legislature intended the term to be defined under the guidance of the IRS. The Court affirmed the district court’s holding that Cooperatives failed to establish an entitlement to the refunds because they did not show the repairs or parts were taxed as personal property.
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 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 stockholders to make 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. Per Neb. Rev Stat. § 77-2708(2)(b), only the person who made the overpayment of sales or use tax is permitted to claim a refund and in this case the tanning salons’ customers paid the 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 (DOR). The tax constitutes both a debt of the purchaser to the seller, and of the seller to the State of Nebraska (State). Under the terms of Neb. Rev. Stat. § 77-2703, the tax revenue is merely held in trust by the seller for the State. Thus, only the customers of the tanning salons have standing to file for a refund of erroneously or illegally collected sales tax.
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 DOR, the ultimate burden of the tax falls upon the consumer who is legally liable to the retailer.
