Department of Revenue Court Case Summaries History

View the Property Assessment Court Cases

2015

Ronald J. Samuelson and Clinta Laon Samuelson v. Nebraska Department of Revenue (06/16/2015)
CI 15-381, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that the Nebraska Department of Revenue’s (Department) deficiency notices were timely and that the IRS Form 4549 was a proper way to determine the deficiency.

Plaintiffs appealed from a ruling of the Tax Commissioner denying their redetermination petition. In October 1998, the plaintiffs filed joint individual income tax returns for 1996, 1997, and 1998. The Department issued refunds for each of those tax years in 1998. In 2001, the plaintiffs were notified that the IRS had disallowed the exclusion of certain amounts of income and assessed tax liabilities. Plaintiffs did not file amended state income tax returns for the tax years in question. In 2001, the Department issued notices of deficiency for tax years 1996, 1997, and 1998. The plaintiffs filed a timely Petition for Redetermination and request for hearing for each tax year. The dockets pended at the Department through September 2014 when an order denying the Petition for Redetermination was entered following a final hearing.

Plaintiffs argued that the time delay should prevent the Department from redetermining their taxes, and that the assessments were outside of the statute of limitations. They also argued that IRS Form 4549 was inadequate for assessing a tax deficiency. The court held first, that while the time delay was extremely long, there was no precedent that allowed this delay to deny the court jurisdiction and no evidence that plaintiffs had been prejudiced by the delay. Second, the court held that the Department’s assessments were timely, since the plaintiffs never filed an amended return which barred the application of a statute of limitations. On the third issue, the court held that in absence of other information, the Department was justified to use the Form 4549 to develop a deficiency assessment.

Archer Daniels Midland Company v. State of Nebraska (04/23/2015)
290 Neb. 780

Synopsis: The Nebraska Supreme Court held that Archer Daniels Midland Co. (“ADM”) was not entitled to a personal property tax exemption because it failed to timely file its claim.

ADM filed for a personal property tax exemption four days after the required filing deadline set by statute. The parties filed an “Amended and Restated Stipulation of Facts and Issue” listing as the only issue whether ADM was eligible for a 2010 personal property tax exemption. The Nebraska Department of Revenue denied the personal property tax exemption for tax year 2010 as being late filed. After the petition for reconsideration was denied by the Tax Commissioner, ADM appealed to the Tax Equalization Review Commission (TERC) which affirmed the decision of the Tax Commissioner. In its appeal, ADM argued that it “substantially complied” with the statute’s filing deadline. The court noted that the plain terms of the statute applied absent language to the contrary. The court further noted that in TERC cases, it had required strict compliance with statutory time requirements. Finding no conflicting statutory language, the Nebraska Supreme court found that ADM was not entitled to the exemption because it failed to adhere to the express filing requirements set forth in the statute. The court further found that because ADM was a party to the joint stipulation that ADM had waived the issue of its request for recusal of the hearing officer and refused to address the issue.

Valpak of Omaha, LLC v. Nebraska Department of Revenue (03/27/2015)
290 Neb. 497

Synopsis: The Nebraska Supreme Court held that Valpak was an advertising agency and was subject to use tax on purchases made from Direct Marketing of Florida.

Valpak (Petitioner) challenged The Nebraska Department of Revenue’s (Department) position that it was subject to use tax on payments made to Direct Marketing of Florida. Valpak argued both that it was not an advertising agency under 316 Neb. Admin. Code § 1-056 and that it was an agent of its clients. The court rejected both of these arguments. The court determined that Petitioner met the definition of advertising agency because it assisted clients in developing advertisements to be included in the envelopes mailed to individual residents in the Omaha metro area. Regarding the second argument, the court held that it was clear Petitioner was not designated as an agent for its clients and that tax had been imposed on labor or creative talent purchased from third parties for the development or production of the ideas or for work on advertising materials. The court determined that the entire amount of Petitioner’s payments to Direct Marketing of Florida was taxable, and that because Direct Marketing was located outside of Nebraska, use tax was properly assessed.

2014

Lyman-Richey Corporation v. Nebraska Department of Revenue (10/07/2014)
855 N.W.2d 814

Synopsis: On October 7, 2014, the Nebraska Court of Appeals held that the three-day mailbox rule in Neb. Ct. R. Pldg. § 6-1106(e) (Three-Day Rule) does not extend the 60-day period after service contained in Neb. Rev. Stat. § 77-2709(7) for filing a petition for redetermination in response to a notice of
deficiency determination.

In Lyman-Richey Corporation v. Department of Revenue, the Lyman-Richey Corporation (Lyman-Richey) filed a petition for redetermination which was denied by the Nebraska Department of Revenue as untimely. Lyman Richey appealed the denial based upon the Three-Day Rule, which adds an additional three days to the time allowed for a party to respond or appeal in a civil case. The court held that the plain language of Neb. Rev. Stat. § 77-7209(7) and the Nebraska Administrative Code clearly provided the deadlines applicable to a petition for redetermination, and that it was not appropriate to extend the deadline by applying the Three-Day Rule. A protest must be filed within 60 days after service of the notice. Service is complete at the time of mailing of the notice by the Department.

Meyer v. Nebraska Department of Revenue (09/26/2014)
CI 14-6843, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court dismissed the petitioner’s request for judicial review for failure to properly serve the defendant.

Under Neb. Rev. Stat. § 25-510.02, a petitioner must serve the Attorney General within 30 days of filing a petition. Petitioners failed to serve anyone at all, and their petition was dismissed.

Western Sugar Cooperative, Corporation v. Nebraska Department of Revenue (07/16/2014)
CI 13-4376 District Court of Lancaster County

Synopsis: On July 14, 2014, the Lancaster County District Court held that a taxpayer requesting a formal hearing must clearly and unequivocally request the formal hearing.

In Western Sugar Cooperative, Corp. v. Nebraska Department of Revenue, Western Sugar worked with the Nebraska Department of Revenue (Department) for nearly 24 months to resolve a dispute over a refund claim, after which the Tax Commissioner rendered an order partially approving the refund claim. Western Sugar filed a motion in Lancaster County District Court to remand the case back to the Department to conduct a formal hearing for the disapproved portions of the refund claim. The court denied Western Sugar's motion to remand the case back to the Department because Western Sugar did not request a formal hearing as required by regulation. The regulation does not require any specific statement for requesting a formal hearing; however, the request for a formal hearing must use explicit, unequivocal language. Further, the Department’s procedures satisfy the necessary due process requirements by affording taxpayers the ability to request a formal hearing. The case will be reviewed by the district court on its merits.

Kerford Limestone Co. v. Nebraska Department of Revenue (03/14/2014)
287 Neb. 653, N.W.2d

Synopsis: On March 14, 2014, the Nebraska Supreme Court held that the plain language of Neb. Rev. Stat. § 77‑2701.47 does not impose any minimum percentage of time in which equipment must be used in manufacturing to qualify for the sales and use tax exemption for purchases and uses of manufacturing machinery and equipment.

In Kerford Limestone Co. v. Nebraska Department of Revenue, Kerford Limestone Co. (Kerford) filed a petition for redetermination in response to a notice of deficiency determination issued by the Nebraska Department of Revenue (Department) for sales and use taxes related to the purchase of a motor grader. Kerford used the motor grader to maintain inventory stockpiles and haul rocks in and outside of Kerford’s limestone mine. The Department had previously issued guidance requiring that machinery or equipment be used in manufacturing more than 50% of the time to qualify for the sales and use tax exemption. The Court held that the plain language of § 77‑2701.47 did not impose any time-based restrictions for which equipment must be used in manufacturing to qualify for the sales and use tax exemption contained in Neb. Rev. Stat. § 77‑2704.22; rather, “any amount of use in manufacturing” is sufficient to exempt a manufacturer’s purchase, lease, or rental of machinery and equipment.

Farmers Cooperative v. Nebraska Department of Revenue (03/04/2014)
CI 13-2325 District Court of Lancaster County

Synopsis: On March 4, 2014, the Lancaster County District Court held that a person must be engaged in the business of manufacturing with the object of gain, benefit, or advantage to utilize the manufacturing machinery and equipment sales tax exemption; that tire disposal fees, when made in connection with the sale of tires, are included in gross receipts and subject to sales tax; and that the purchase of software certification and training services are taxable.

In Farmers Cooperative v. Nebraska Department of Revenue, Farmers Cooperative (Farmers) appealed the Department’s assessment of sales and use taxes regarding manufacturing machinery and equipment, tire disposal fees, and computer software certification expenses. The Department ruled that Farmers did not qualify for the manufacturing exemption because it did not derive more of its total annual revenues from manufacturing than from any other source. The court held that Farmers’ purchases did qualify for the manufacturing machinery and equipment exemption because Farmers was engaged in the business of manufacturing and did derive gain, benefit, or advantage from those activities.

The court also held that a tire disposal charge, when associated with the sale of taxable tangible personal property, is properly subject to sales and use taxes. The taxable sales price of an item includes the tangible personal property plus any service costs or expenses of the seller. Lastly, the court held that computer software training and certification services purchased by Farmers were subject to use tax. The court found these expenses were taxable whenever paid to the retailer of the software.

2013

Banks v. Heineman (08/02/2013)
286 Neb. 390, 837 N.W.2d 70

Synopsis: On August 2, 2013, the Nebraska Supreme Court held that Section 4, Article VIII of the Nebraska Constitution did not prohibit the commutation of an excise tax by granting a tax credit for previously paid property tax.

In Banks v. Heineman, Knox County challenged the constitutionality of a tax credit allowed for property taxes previously paid by Elkhorn Ridge Wind, LLC, which is a wind energy generation facility. Under LB 1048 (Laws 2010), an owner of a wind energy generation facility must annually pay a nameplate capacity tax on the total megawatt capacity of the facility. LB 1048 also allowed an owner of a wind energy generation facility to claim a tax credit for property taxes previously paid on the facility if the amount of tax previously paid on the facility exceeded the amount due under the newly-created nameplate capacity tax. The Nebraska Supreme Court held that the nameplate capacity tax credit does not violate the Nebraska Constitution because it is an excise tax imposed on the privilege of owning wind energy generation facilities and the constitutional prohibition against commutation of taxes does not apply to an excise tax. Additionally, the court held that the Nebraska Legislature had legitimate public policy purposes in allowing an owner of a wind energy generation facility to claim a tax credit for property taxes previously paid on the facility.

OEI, Inc. v. Nebraska Department of Revenue (07/25/2013)
CI 12-4225 District Court of Lancaster County

Note - LB 851 (2014) requires a claim for a refund of a refundable credit to be filed by the taxpayer within three yearsafter the due date of the return for the year in which the refundable credit was allowable.

Synopsis: On July 24, 2013, the Lancaster County District Court held that the statute of limitations for an overpayment of tax does not apply to refundable credits issued under the Nebraska Advantage Research and DevelopmentAct because the credit could not be considered an overpayment of tax.

In OEI, Inc. v. Department of Revenue, OEI, Inc. filed an amended return claiming a refundable credit under the Nebraska Advantage Research and Development Act. The Tax Commissioner determined that the refundable credit was considered an overpayment of tax and subject to the statute of limitations in Neb. Rev. Stat. § 77-2793. The Tax Commissioner denied the refund claim because it was filed after the statute of limitations expired. The court overturned the Tax Commissioner’s decision and held that the refund claim was not barred by the statute of limitations because it did not involve an overpayment of tax.

2012

McGee v. Ewald (11/30/2012)
CI 12‑9410 District Court of Douglas County

Synopsis: On December 3, 2012, the Douglas County District Court held that a party appealing a decision of a state agency must serve notice of the appeal on the Attorney General pursuant to the Administrative Procedures Act.

In McGee v. Ewald, McGee filed an appeal with the district court and served notice of the appeal to the Tax Commissioner by certified mail. The court held the service was improper in accordance with the Administrative Procedures Act, which requires service upon the Attorney General, not the agency.

Enterprise Rent‑A‑Car v. Nebraska Department of Revenue (11/05/2012)
CI 11‑3101 District Court of Lancaster County

Synopsis: On November 5, 2012, the Lancaster County District Court held that optional damage waiver fees and refueling charges associated with the lease of a motor vehicle were subject to sales tax.

In Enterprise Rent‑A‑Car Company v. Nebraska Department of Revenue, Enterprise Rent‑A‑Car Company (Enterprise) was assessed uncollected sales tax for damage waiver fees and refueling charges related to the lease of a motor vehicle. Enterprise appealed the assessment. The court held that the fees were part of the total consideration received by Enterprise, and thus part of the “gross receipts” from leasing the motor vehicle and subject to sales tax, regardless of whether or not the customer could waive coverage or the refueling charge. The court concluded that a customer could not lease a vehicle without either accepting or rejecting the damage waiver or refueling charges and these items were, therefore, part of the “gross receipts” of the lease transaction, and subject to sales tax.

Bridgeport Ethanol v. Nebraska Department of Revenue (08/10/2012)
284 Neb. 291 818 N.W. 2d 600

Synopsis: On August 10, 2012, the Nebraska Supreme Court ruled that a refund claim for sales and use taxes paid on qualifying manufacturing machinery and equipment can only be made by the party that paid the sales and use tax. In addition, the court held that Option 3 contractors, who are deemed the purchaser/consumer of all manufacturing machinery and equipment they purchase, cannot qualify for the manufacturing machinery and equipment sales tax exemption, unless they are engaged in the business of manufacturing.

In Bridgeport Ethanol v. Nebraska Department of Revenue, Bridgeport Ethanol (Bridgeport) filed a claim for refund of sales and use taxes paid on qualifying manufacturing machinery and equipment by its contractor on building materials and equipment used for the design and construction of an ethanol facility. The court held that Bridgeport was not entitled to a refund because the contractor, not Bridgeport, paid sales and use taxes on the building materials. In addition, the court held the appointment of the contractor as a purchasing agent pursuant to a contract was insufficient under state law for purposes of granting the sales tax exemption.

Larson v. Nebraska Department of Revenue (03/21/2012)
CI 12-447, Lancaster Co. Dist. Ct.

Synopsis: The plaintiff brought an action pursuant to Neb. Rev. Stat. §§77-2708(2)(f) (Supp. 2011), 77-27,127 (2009) and 84-917 (Supp. 2010) seeking review of a decision of the Nebraska Department of Revenue (Department) denying a claim for refund of Nebraska sales tax filed by the Plaintiff.

No praecipe for summons was filed with the clerk of the district court as required under Neb. Rev. Stat. §25-502.01 (2008) and the plaintiff failed to serve a copy of the summons on the Attorney General as required. The plaintiff did not file proof of service as required by Neb. Rev. Stat. § 25-507.01(2008).

Because the plaintiff did not validly serve the Department within thirty days of filing the petition for review, the court lacked subject matter jurisdiction. As a result, the court ordered granted the Department’s motion to dismiss and dismissed the case at plaintiff’s costs.

2011

Skylark Meats LLC v. Nebraska Department of Revenue
CI 10‑ 703 District Court of Lancaster County
Gibbon Packing LLC v. Nebraska Department of Revenue (05/06/2011)
CI 10‑702 District Court of Lancaster County

Synopsis: On May 6, 2011, the Lancaster County District Court ruled that a taxpayer bears the burden of requesting an administrative hearing on a sales and use tax refund claim and that such a request must be made upon filinga refund claim under the rules and regulations promulgated by the Department of Revenue (Department).

In both Skylark Meats LLC v. Nebraska Department of Revenue, and Gibbon Packing LLC v. Nebraska Department of Revenue, Skylark Meats (Skylark) and Gibbon Packing (Gibbon) filed refund claims for sales and use taxes paid on building cleaning services, which the Department denied. Skylark and Gibbon subsequently requested administrative hearings on the denials of the refund claims. The Department denied the requests for hearings because the requests were not timely. The court held that the Department properly denied the requests for administrative hearings under the rules and regulations promulgated by the Department and that Skylark and Gibbon should have requested hearings at the time of filing the refund claims with the Department.

Cargill v. Nebraska Department of Revenue (03/28/2011)
CI 10‑2623 District Court of Lancaster County

Synopsis: On March 28, 2011, the Lancaster County District Court held that for purposes of the Nebraska Advantage Act, employees of a company who were employed at other Nebraska locations and subsequently transferred to a project should be considered base‑year employees. The court also ruled that a “regular full‑time workweek for hourly employees” means the standard number of hours an employee is required to work to be considered full‑time by an employer.

In Cargill v. Nebraska Department of Revenue, Cargill, Inc. (Cargill) filed a claim for a personal property tax exemption for purposes of the Nebraska Advantage Act (Act). The claim was subsequently denied by the Department on the basis that Cargill did not meet the required level of employment under the Act. The Department’s decision was appealed by Cargill. The court held that employees at other Nebraska locations who are subsequently transferred to the project should be considered base‑year employees; that Cargill had established its regular work week to be 40 hours; and that the number of hours in a year (except for “short” tax years) was 2,080 hours.

2010

State of Nebraska v. Nebraska Diamond Sales Company, Inc. (07/21/2010)
CR 09-396, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that “willfully” is defined as “the intentional, voluntary violation of a known legal duty”.

In a criminal prosecution, the defendant brought several motions, of which the only one the court granted was to define “willfully” as “the intentional, voluntary violation of a known legal duty”. The court rejected a request for a Bill of Particulars, and declined to define the material elements of the crime for which the defendant was charged.

2009

Swift & Co. v. Nebraska Department of Revenue (10/23/2009)
278 Neb. 763, 773 N.W.2d. 381

Synopsis: On October 23, 2009, the Nebraska Supreme Court held that the cleaning and maintenance of tangible personal property is taxable if it is incidental and related to the cleaning and maintenance of the building and fixtures.

In Swift & Co. v. Nebraska Department of Revenue, several meatpacking plants paid sales tax on building cleaning services, which also included cleaning of machinery and equipment located within the plants. The meatpacking plants then filed a refund claim for sales tax paid for cleaning of machinery and equipment located within the plants. The Department denied the refund claim. The Nebraska Supreme Court held that a contract for cleaning a building, taxable under Nebraska law, that also included the cleaning of some tangible personal property located within the building, was taxable. Under Nebraska law, a contract for cleaning tangible personal property is not taxable; however, the cleaning and maintenance of tangible personal property is taxable if it is incidental and related to the cleaning and maintenance of the building and fixtures.

National Research Corporation v. Nebraska Department of Revenue (07/17/2009)
CI 08‑2582 District Court of Lancaster County

Synopsis: On July 16, 2009, the Lancaster County District Court held that a significant delay in the review of a tax incentive agreement was not unreasonable in‑and‑of‑itself, but dependent upon the facts underlying each proceeding. Additionally, the court held that the Tax Commissioner has discretion in denying amendments to a tax incentive agreement.

In National Research Corporation v. Nebraska Department of Revenue, National Research Corporation (NRC) filed an application for tax benefits under the Employment and Investment Growth Act (Act) in 1997. In 2004, the Department issued a draft agreement; NRC subsequently requested amendments to the draft agreement, which the Department denied. The court held that the delay was reasonable based on the facts of the case and that the delay did not materially affect NRC’s ability to secure tax incentives under the Act. The court also held that the Department maintains discretion in approving or denying amendments to an agreement under the Act.

Concrete Industries Inc. v. Nebraska Department of Revenue (06/05/2009)
277 Neb. 897, 766 N.W.2d. 103

Synopsis: On June 5, 2009, the Nebraska Supreme Court held that the purchase of parts assembled into manufacturing machinery and equipment qualifies as the purchase of manufacturing machinery and equipment, and was therefore exempt from sales tax.

In Concrete Industries Inc. v. Nebraska Department of Revenue, Concrete Industries, Inc. purchased parts to build its own manufacturing machinery and equipment. The Nebraska Supreme Court held that the purchase of parts assembled into manufacturing machinery and equipment qualified as the purchase of manufacturing machinery and equipment since the law exempted assembled machinery from sales and use taxes. The Court determined that it made little sense to impose a tax on the purchase of the same parts when they were purchased to subsequently assemble the machinery and equipment in the first place.

Berrington Corporation dba Eldorado Hills Golf Club v. Nebraska Department of Revenue (05/15/2009)
277 Neb. 765, 765 N.W.2d. 448

Synopsis: On May 15, 2009, the Nebraska Supreme Court held that fees charged to members of a golf course were subject to sales tax as taxable admissions because the fees did not grant the members the right to participate in the legal or business affairs of the organization, and therefore did not qualify as exempt membership fees under the state’s sales tax regulations.

In Berrington Corporation dba Eldorado Hills Golf Club v. Nebraska Department of Revenue, the Department of Revenue issued an assessment on membership fees paid by Berrington’s members. While the membership dues allowed Berrington members to serve on an advisory board to the Berrington shareholders, the Berrington shareholders alone maintained direct control over the operations of the golf club. As a result, the Nebraska Supreme Court held that the fees were taxable admissions because members did not have the right to participate in the legal or business affairs of Berrington.

2008

Intralot, Inc. v. Nebraska Department of Revenue (10/31/2008)
276 Neb. 708, 757 N.W.2d. 182

Synopsis: On October 31, 2008, the Nebraska Supreme Court held that purchases of thermal paper and pay slips were purchased for fulfilling a contractual obligation rather than for purposes of resale, and therefore were subject to use tax.

In Intralot, Inc. v. Nebraska Department of Revenue, the Department issued an assessment for use tax on Intralot Inc.’s (Intralot) purchases of thermal paper and pay slips used to print lottery tickets. The court held that Intralot contracted with and was compensated for providing the Nebraska Lottery (Lottery) with a complete on-line lottery system including the purchases of thermal paper and pay slips. Since the cost of the paper and pay slips were incorporated into the cost of the contract, the purchase was not eligible for an exemption from use tax as a purchase for resale.

Becton, Dickinson & Co. v. Nebraska Department of Revenue (10/10/2008)
276 Neb. 640, 756 N.W.2d 280

Synopsis: On October 10, 2008, the Nebraska Supreme Court held that the statute of limitations for the filing of a refund claim could not be extended because the taxpayer was not prevented from filing its refund claim in a timely manner.

In Becton, Dickinson & Co. v. Nebraska Department of Revenue, Becton, Dickinson & Company (Becton) filed a claim for refund of sales and use taxes under Nebraska’s Employment and Investment Growth Act (Act), which was subsequently denied by the Department because it was filed beyond the statute of limitations. The Supreme Court held the statute of limitations could not be extended on equitable grounds where both parties had previously agreed to extend the statute. In addition, a party must request an administrative hearing at the time of filing a refund claim with the Department, as required under the Department's regulations.

Goodyear Tire & Rubber Company v. State of Nebraska (05/02/2008)
275 Neb. 594

Synopsis: The Nebraska Supreme Court held that qualified property as used in tax incentives under LB 775 did not include components that were not subject to depreciation, amortization, or other recovery under the Internal Revenue Code.

Taxpayer had entered into an agreement with the Department of Revenue pursuant to LB 775 which provided that Taxpayer would be entitled to a refund of all sales tax paid on qualifying property. Taxpayer asked for a refund on some component parts used for repair and replacement of existing property, and the Department denied this request. The court found that the repair and replacement parts were not qualifying property because they were not depreciable or subject to amortization or other recovery under the Internal Revenue Code. The court noted that the identified repair and replacement parts were items that would ordinarily be treated as expenses. The court also ruled that the Department of Revenue was not required to issue a regulation that interpreted and defined what qualifying property was because such an action was not necessary for carrying out the purposes of LB 775.

State of Nebraska ex rel. John Bruning v. R.J. Reynolds Tobacco Company (03/28/2008)
275 Neb. 310, 746 N.W.2d 672

Synopsis: The State brought an action against the tobacco companies that are party to the Master Settlement Agreement (MSA), seeking a declaration that a non-participating manufacturer adjustment (NPMA) to the State’s annual MSA payment should not be made. Under the MSA, the independent auditor determines whether a NPMA is required and calculates the adjustment. The adjustment is only applied if the State failed to diligently enforce the terms of the MSA. In this case, the independent auditor found that a NPMA was required but presumed the states had diligently enforced the terms of the MSA. The tobacco companies sought to dispute the determination regarding diligent enforcement through arbitration, citing sections of the MSA that require arbitration of disputes regarding the independent auditor’s calculation of annual payments. The State argued that the determination whether a state diligently enforced the terms of the MSA is not included in the arbitration clause of the MSA. The State argued that the Court with jurisdiction to implement and enforce the MSA, as stated in the MSA, should determine whether the state diligently enforced the terms of the MSA.

The Court held that arbitration is purely a matter of contract and found that the contract required arbitration of the dispute between the State and tobacco companies. The court reached this holding because the MSA provides that the Federal Arbitration Act (FAA) governs arbitration and the FAA requires that any doubts regarding the scope of an arbitration clause be resolved in favor of arbitration. Additionally, the court held that a dispute regarding diligent enforcement is a dispute “relating to” the independent auditor’s calculations and is therefore subject to the arbitration clause.

2007

PSI Group, Inc. v. Nebraska Department of Revenue (12/06/2007)
CI 07-691 District Court of Lancaster County

Synopsis: On August 16, 2007, the Lancaster County District Court ruled that the business of a mail presort company did not constitute a qualified business activity under the Employment and Investment Growth Act (Act).

In PSI Group, Inc. v. Nebraska Department of Revenue, PSI Group Inc. (PSI) filed a refund claim for sales and use tax which was subsequently denied by the Department because PSI was not a qualifying business pursuant to the Act. PSI’s business activities included presorting mail for its customers before it was taken to the U.S. Postal Service for delivery; PSI did not perform “distribution,” “transportation,” or “storage” of tangible personal property for purposes of the Act.

Norris Public Power District v. Nebraska Department of Revenue (09/04/2007)
CI 07-837 and CI 07 1069, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that the Department properly assessed Norris Public Power District (Norris) and Seward Public Power District (the Districts) sales tax on lease fees and Gross Revenue Tax reimbursements that the Districts received from their customers. The Court further found that the support fees at issue were separable from the sale of software based upon the applicable contract between Norris and their vendor and use tax was not due on the support fees. Finally, the Court determined that magazines purchased by Norris were purchased sale for resale.

The Districts appealed determinations from the tax commissioner that they owed sales and use tax on their lease fees, gross revenue tax reimbursements, postage, support fees, and a magazine produced by one of the districts. The court affirmed the tax assessments on the lease fees, gross revenue tax reimbursements, and postage, finding that all of these assessments were justified by the statutes. The lease fees and the gross revenue tax reimbursements were found to be a part of the purchase price for the service, and the gross receipts were defined broadly in accordance with Neb. Rev. Stat.§ 77-2701.35 (Reissue 2003). The Court found that checks, which were written to USPS by the Districts, provided to the printer, and deposited into the printers account, constituted a payment to the printer for postage and the use of the printer’s postal service number, which was taxable under the applicable regulations.

The Court reversed the determination on the tax for support fees and the magazine. When Norris paid for support for software and licenses, they paid sales taxes, but where the services were related to telephone, , educational, technical hardware support, or training and web conferencing servicesthe plaintiff did not pay taxes. The Department believed that these two groups of charges were inseparable and that the charges were a mandatory part of the sale, but the court rejected this, finding that the applicable agreement separated the charges out. As such, use tax was not due on these charges. Finally, the Court held that the magazine purchased by Norris and distributed to their customers was a sale for resale, and thus exempt from tax. Although the charge was not itemized on each customer’s bill and was charged in conjunction with the sale of the electricity, Norris charged customers for the magazines. The rate charged for the magazine appeared on the magazine itself and noted that customers had the right to opt out.

Farmland Foods, Inc. v. State (03/23/2007)
273 Neb. 262, 729 N.W.2d. 73

Synopsis: On March 23, 2007, the Nebraska Supreme Court held that the tax incentive credits earned under the Employment and Investment Growth Act (Act) could not be used before the taxpayer met the minimum employment and investment thresholds required under the Act.

In Farmland Foods, Inc. v. Nebraska Department of Revenue, Farmland Foods, Inc. (Farmland) entered into an agreement with the Department pursuant to the Act. While the Act was silent on the issue, Farmland’s agreement specified that tax credits can be claimed only after the minimum levels of employment and investment had been met. The court held that a provision in an incentive agreement is controlling when the language of the statute does not contradict or is silent on the issue.

2006

J.C. Penney Company, Inc. v. Balka (12/17/2006)
254 Neb. 521, 577 N.W.2d 283

Synopsis: The Nebraska Supreme Court held that direct mail catalogs sent by the taxpayer were subject to use tax.

The department assessed use taxes based on the shipment of these items to Nebraska, arguing that the taxpayer was using the catalogs in Nebraska. First, determining that the state of Nebraska was not barred by the commerce clause from taxing the catalogs, the court cited to a case decided by the U.S. Supreme Court that upheld a Louisiana use tax assessment against a catalog sender. The court then held that by sending the catalogs to Nebraska addresses, the taxpayer had asserted control over them and used them in Nebraska, subjecting the taxpayer to the use tax.

Travel & Transport, Inc. v. Nebraska Department of Revenue (07/11/2006)
CI 06-579, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that the petitioner was not entitled to carryover its LB 775 credits because it did not meet the definition of “taxpayer” within LB 775.

Petitioner had entered into an LB 775 agreement and had earned carryover credits as of 2000. However, effective January 1, 2001, Petitioner made an S-corp election while it had an Employee Stock Ownership Plan and Trust (“ESOP”) as the sole shareholder, which the Department determined disqualified the Petitioner from utilizing credits under LB 775. The Department averred that an ESOP is not “subject to” Nebraska sales or income tax and is therefore not a “taxpayer” under LB 775. The Department issued a Notice of Deficiency seeking the repayment of taxes and interest.

Petitioner first argued that the credits it received under LB 775 could be used during the carryover period even if the Petitioner did not maintain the required levels of employment or investment throughout the period. The court rejected this argument finding that the term “taxpayer,” as it was used in LB 775, was not merely an identification term but was instead a word with specific meaning. Petitioner also argued that they met the technical definition of taxpayer because its ESOP was “exposed to” both Nebraska sales and use tax and Nebraska income tax. The court ruled against this as well, holding that “exposed to” and “subject to” did not mean the same thing and that while the ESOP was exposed to Nebraska income tax, it was not subject to it, which caused the Petitioner to fall outside of the definition of “taxpayer.”

Eatmon Well Service Co., Inc. v. Department of Motor Vehicles (03/22/2006)
S-04-1402, Nebraska Supreme Court

Synopsis:The Nebraska Supreme Court held that the Department of Motor Vehicles (DMV) lacked jurisdiction to determine whether Eatmon was exempt from tax under the Diesel Fuel Tax Act.

The DMV had determined that Eatmon (taxpayer) was not exempt from taxes under the exemption contained in Neb. Rev. Stat. § 66-672 (since recodified). The district court reversed the DMV’s determination, finding that the taxpayer was exempt under the statute, which exempts fuel used in agriculture, quarrying, or non-highway use. On appeal, the DMV relied on Department of Revenue statutes to argue that the DMV, the district court, and the Supreme Court lacked subject matter jurisdiction to make a determination as to the exemption of the taxpayer. The Supreme Court agreed, holding that while the DMV could audit and collect taxes, it lacked the power to determine exemptions under the Diesel Fuel Tax Act, which the court held belongs to the Department of Revenue.

2005

Norris Public Power Dist. v. Department of Revenue (12/21/2005)
CI 05-4158, Lancaster Co. Dist. Ct.

Synopsis: On December 21, 2005, the Lancaster County District Court held that a final administrative decision must be rendered prior to appealing to a District Court. The District Court also held that a taxpayer must state a claim for relief when appealing instead of relying on a request for injunctive relief.

In Norris Public Power District, the plaintiffs filed a petition seeking (1) a declaratory judgment that certain charges were not part of the gross receipts, and (2) an injunction barring the Nebraska Department of Revenue from making those charges part of the gross receipts and enjoining the Tax Commissioner from issuing a deficiency assessment for unpaid sales taxes against the plaintiffs. The District Court found that there was no administrative decision to appeal from since there had been no final decision by the Tax Commissioner, and therefore, the District Court did not have subject matter jurisdiction. The District Court further found that the plaintiff failed to state a claim for relief since an injunction can only be given when there is no other legal remedy, which was not the case in this matter. The District Court dismissed the plaintiff’s petition for lack of subject matter jurisdiction and for failing to state a claim for relief.

Tyson Fresh Meats, Inc. v. State (10/21/2005)
270 Neb. 535, 704 N.W.2d 788

Synopsis: On October 21, 2005 the Nebraska Supreme Court held that the taxpayer owed interest assessed on unpaid use tax, even though the tax was ultimately paid and refunded. In addition, the court held that the Nebraska Department of Revenue (Department) did not have the statutory authority to waive interest assessed on delinquent taxes.

In Tyson Fresh Meats, Inc. v. State, the Department assessed IBP, Inc. (IBP) for unpaid use tax, interest, and penalty. IBP appealed the Department’s determination imposing interest on the portion of delinquent tax that was later refunded under the Employment and Investment Growth Act. The court held that the taxpayer owed the accrued interest because it had not paid the use tax at the time it was due. Furthermore, the court held that the plain language of Neb. Rev. Stat. § 77-2711 did not provide the Department any discretion to waive interest for unpaid tax. Note –Neb. Rev. Stat. § 77-2711 was amended by LB 914 (2008), and now allows the Tax Commissioner to waive both penalty and interest in his or her discretion.

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Nebraska Department of Revenue (04/22/2005)
CI 05-274, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court dismissed the plaintiff’s complaint for failure to properly serve the defendant.

The Department challenged the service saying that the person who served the Attorney General was not a person authorized to serve a defendant by Neb. Rev. Stat. § 25-506.1. This statute provides that service may only be performed in person by the sheriff of the county where service is made, or another person authorized by law or appointed by the court. The Attorney General was served in person by the son of the plaintiff’s attorney, and the court held that this was improper under Neb. Rev. Stat. § 25-506.1 and the Administrative Procedure Act, and dismissed the request for judicial review.

2004

No cases to report.

2003

American Asphalt, Inc. v. Nebraska Department of Revenue (08/26/2003)
CI 03-2349, Lancaster Co. Dist. Ct.

Synopsis: On August 25, 2003, the Lancaster County District Court held that a taxpayer must provide service of process to both the Nebraska Department of Revenue (“Department”) and the Nebraska Attorney General’s Office when appealing a claim for refund.

In American Asphalt, the taxpayer filed a petition in an appeal of a claim for refund with the Lancaster County District Court on June 27, 2003, and served the Nebraska Department of Revenue using certified mail on July 2, 2003. The Department filed a motion to dismiss against American Asphalt, Inc. The District Court found that Neb. Rev. Stat. § 25-510.02(1) states that in order to serve a state department, the petitioner must also serve the Nebraska Attorney General’s Office. The District Court further found in Concordia Teacher’s College v. Nebraska Dep’t of Labor, 252 Neb. 504, that the Nebraska Supreme Court held that serving a state department and not the Nebraska Attorney General was insufficient service to invoke the subject matter jurisdiction of the court, and thus dismissed the petition. The Lancaster County District Court dismissed American Asphalt’s petition due to insufficiency of service of process.

Nebraska Energy, L.L.C. v. Mary Jane Egr (07/07/2003)
CI 02-301, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that Nebraska Energy’s amended tax return was properly denied by the Department of Revenue.

Nebraska Energy wanted to file amended income tax returns for a three-year period. The Nebraska Department of Revenue rejected Nebraska Energy’s amended income tax returns. Nebraska Energy’s original returns included an election to transfer the tax credits received in those years to the members of the L.L.C. as allowed under Neb. Rev. Stat. §77-4108. The court found that this attempt to amend the prior years’ tax returns amounted to an attempt by Nebraska Energy to transfer those credits back from the members to the company. The court held that the statute did not allow the transfer of credits from the members to the company and that when a taxpayer makes a valid statutory election with regard to taxes, they are bound by that choice.

Nebraska Leadership Foundation v. Nebraska Department of Revenue (01/17/2003)
CI02-3158, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that the Nebraska Leadership Foundation met the exemption from sales and use tax given to groups that are created “exclusively for religious purposes.”

Nebraska Leadership Foundation is an organization that sponsors forums, retreats, and prayer breakfasts to target people who want to use Christianity to develop and encourage leadership skills. They applied for an exemption from sales tax based on that they were created for a religious purpose, and the Department denied their request, arguing that the purpose of the organization was leadership, and not religion. The court looked at the statute providing the property tax exemption for religious organizations (Neb. Rev. Stat. § 77-202) as compared to the sales tax exemption for organizations created exclusively for religious purposes under Neb. Rev. Stat. § 77-2704.12 and determined that since the stated purpose of the organization and the conduct of the organization were religious, the Foundation was entitled to this sales tax exemption.

2002

Utelcom, Inc. v. Mary Jane Egr (12/06/2002)
264 Neb. 1004

Synopsis: The Nebraska Supreme Court held that when a corporate taxpayer has been granted an automatic extension for filing its return, the three year statute of limitations period for claiming an income tax refund starts to run on the date of the extended deadline.

Taxpayer argued that the three year statute of limitations for their refund claim should begin to run on the extended due date because they received a three month extension. The Department felt it should be three years from the time the return was filed, not from the time the return was due. The court found that the statute of limitations for filing a refund claim was three years from the date the return was due, looking at previous advice that the Department gave to taxpayers, other constructions of due date, and the differences between the Nebraska Regulations and the Internal Revenue Code. The court determined that the taxpayer had three years from the date the return was due, which was the extended filing deadline, and that as a result, the taxpayer’s income tax refund claim was filed in a timely manner.

Am. Bus. Info. v. Egr and Nebraska Department of Revenue (08/16/2002)
264 Neb. 574, 650 N.W.2d 251

Synopsis: On August 16, 2002, the Nebraska Supreme Court held that sales of intellectual property via prospect lists, index cards, computer diskettes, magnetic tapes, CD-ROMs, and online data transfers were sales of tangible personal property for the purpose of apportioning Nebraska income tax.

In Am. Bus. Info. v. Nebraska Department of Revenue, American Business Information, Inc. (ABI) maintained a database of business information which it used to market a number of customized and noncustomized products. The court held that ABI’s sales were sales of tangible personal property because ABI’s customers acquired no intangible intellectual property rights with the products. In addition, the court held that data sent electronically was considered a transfer of tangible personal property.

Capitol City Telephone v. Nebraska Department of Revenue (08/09/2002)
264 Neb. 515, 650 N.W.2d 467

Synopsis: On August 9, 2002, the Nebraska Supreme Court held that certain telecommunication services were taxable because the statutory language allowed for taxation of those services.

In Capitol City Telephone v. Nebraska Department of Revenue, the Nebraska Department of Revenue (Department) assessed sales tax deficiencies against three telephone companies on the gross receipts from services related to a public utility function and installing and connecting telephone communication systems. The Court held that the broad statutory language provided for taxing the services and the Department’s interpretation did not alter or enlarge the statutory language, and therefore should be provided great weight. In addition, the Court held that the issuance of a regulation provides sufficient notice to a taxpayer that it may no longer rely on previously-issued guidance from the Department.

Wasikowski v. Nebraska Quality Jobs Board (07/26/2002)
264 Neb. 403

Synopsis: The Nebraska Supreme Court held that the Nebraska Quality Jobs Board (NQJB) was not an agency under the Administrative Procedure Act (APA), and that the Board did not violate public meetings laws by going into closed session to consider a petition.

Taxpayer brought suit challenging the NQJB’s approval of an application from Nebraska Beef for wage benefit tax credits under the Quality Jobs Act (Neb. Rev. Stat. 77-4901 et seq.). Taxpayer alleged that the approval was invalid because the Department of Revenue had failed to create regulations to govern the approval of the applications and because the approval was made in closed session, which the Taxpayer argued was in violation of open meetings laws. The court first looked at the issue of whether the Department was required to create regulations and had failed to do so, and the court determined that they could not reach those issues because the district court did not have jurisdiction over this case. To have jurisdiction, the court needed a “contested case” under the APA. Because the court found that the NQJB was not an agency subject to the APA, the court did not have jurisdiction to rule on whether the Department’s actions followed the law. On the open meetings law issue, the court found that public bodies are allowed to meet in closed session to consider information that should be kept confidential, and found that as a result the public body did not violate the open meetings law by meeting in closed session to discuss confidential parts of Nebraska Beef’s application and vote on its approval.

A-1 Metro Movers, Inc. v. Mary Jane Egr (07/12/2002)
647 N.W.2d 593, 264 Neb. 291

Synopsis: The Nebraska Supreme Court held that boxes purchased by moving companies that were used to move property out of the state were subject to the Nebraska use tax.

A-1 argued that boxes purchased out of state and then used to move goods out of states should be exempt from the Nebraska use tax since the boxes were not used in the state of Nebraska, but were only brought in for the purpose of transportation. The court affirmed the district court’s rejection of this argument, stating that because the boxes primary use was to pack up belongings in Nebraska, after which they were disposed of, the boxes were used in Nebraska and were subject to the Nebraska use tax. The court did not reach the issue of whether or not two co-plaintiffs who had previously litigated this issue were collaterally estopped from bringing an argument that the boxes were subject to the use tax.

Kozak v. Nebraska Department of Revenue (03/21/2002)
C101-1822, Lancaster Co. Dist. Ct.

Synopsis: The Lancaster County District Court held that the plaintiff in this case was barred from bringing suit because he failed to bring the claim in a timely manner.

Plaintiff filed a 1997 income tax return claiming that he owed no tax and that all withheld money should be refunded, and filed no state income tax return in 1998. The Department served plaintiff with a determination of the balance due for 1997 in 1999. Plaintiff failed to challenge the notice of proposed deficiency until 2001, after further action was taken by the Department against the balance due. The Department claimed that the action by the plaintiff was barred since it was not filed within the 90 day protest period required by statute. The court agreed with the Department and this made it unnecessary to address the plaintiff’s remaining issues.

First Data Corporation v. Nebraska Department of Revenue (03/08/2002)
263 Neb. 344

Synopsis: The Nebraska Supreme Court held that the computer software utilized by taxpayer was tangible personal property and thus constituted qualified property for the purposes of the Employment and Investment Growth Act, LB 775.

First Data filed a request for a refund of sales taxes paid on licenses to use certain software products. The department denied the claim, arguing that the software did not constitute tangible property. The Court held that First Data acquired only property rights in the manifestation or embodiment of the software, and not the intellectual property rights. The Court looked at the Internal Revenue Code and some cases decided by the U.S. Tax Court, and while stating that they were not bound by that court’s decisions, the court did agree with their interpretation of the software as tangible property, and forced the department to award the taxpayer the refund.

Northwall v. Nebraska Department of Revenue (01/18/2002)
263 Neb. 1, 637 N.W.2d 890

Synopsis: On January 18, 2002, the Nebraska Supreme Court held that it lacked authority to hear an appeal by a taxpayer where the taxpayer did not first exhaust his administrative remedies.

In Northwall v. State, the Nebraska Department of Revenue (Department) issued an assessment against corporate officers determined to be liable for unpaid sales tax of their business pursuant to Neb. Rev. Stat. § 77-1783. The Court held that it did not have authorization to order a declaratory judgment nor order a refund because the officers did not file a claim for refund, as required under the statute, in order to challenge the Department's corporate officer assessment.