In an unpublished opinion, the Louisiana Court of Appeal has clarified that corporation franchise tax refund claims filed under UTELCOM, Inc. v. Bridges1 should be considered by the Louisiana Board of Tax Appeals (BTA).2 In UTELCOM, the Court of Appeal previously held that the holding of a limited partnership interest in a partnership conducting business in Louisiana was not sufficient to subject a foreign corporation to the Louisiana corporation franchise tax. The Court of Appeal explained in the instant case that the Louisiana Department of Revenue was attempting to litigate the merits of the refund claims in the district court, but the BTA was the venue that had original jurisdiction to consider the claims.

Background

KCS Holdings I, Inc. (KCS), a Delaware corporation, timely remitted an estimated Louisiana corporation franchise tax payment of $85,000 for the 2008 tax year with an extension request. On the original extended return filed on November 14, 2008, KCS claimed overpayment of $5,245 of the franchise tax paid. On December 21, 2011, KCS filed an amended return requesting a refund of all 2008 Louisiana franchise tax paid per the original return pursuant to a statute that authorizes refunds of overpayments.3 KCS asserted that pursuant to the UTELCOM decision, KCS did not have franchise tax nexus with Louisiana in 2008 because its only relationship to Louisiana was its passive ownership of a pass-through entity doing business in the state. On December 27, 2011, KCS also filed a petition with the BTA under a statute allowing claims against the state.4

The Department denied the refund claim by asserting that the amount paid was not refundable under a statute, La. Rev. Stat. Ann. Sec. 47:1621(F),5 which prohibits a refund of tax overpaid through a mistake of law arising from a misinterpretation of the Secretary of Revenue. KCS then filed another petition with the BTA appealing the denial of the refund claim. The Department filed several exceptions to the appeal of the refund denial, arguing that the BTA lacked jurisdiction to hear the refund claim and that the BTA was precluded from ordering the Department to issue a refund, both pursuant to La. Rev. Stat. Ann. Sec. 47:1621(F).

The BTA denied the Department's exceptions by finding that, while La. Rev. Stat. Ann. Sec. 47:1621(F) may prohibit the Department from making a refund in this case, the subsection does not prohibit the BTA from making a refund. In addition, the BTA also overruled one of its earlier decisions where it held that La. Rev. Stat. Ann. Sec. 47:1621(F) could not be used to refund taxes paid, but not under protest, where a mistake of law arose due to a misinterpretation by the Department of either the law or the regulations.

The Department filed in the district court a petition for judicial review of the BTA's denial of exceptions. The appeal, writ application and petition for declaratory judgment were dismissed by the district court with prejudice due to the lack of appellate, supervisory or declaratory judgment jurisdiction. The Department appealed the dismissal to the Court of Appeal, asserting that the district court erred in declining to find jurisdiction.

District Court Lacked Jurisdiction

The district court's dismissal was upheld by the Court of Appeal which sustained the lack of subject matter jurisdiction and the dismissal of the Department's petition for declaratory judgment. Specifically, a district court's appellate jurisdiction over a BTA "decision or order" applies only to "final" decisions or orders by the BTA. Because the Department's exception was interlocutory in nature, the district court correctly dismissed the Department's petition for judicial review for lack of subject matter jurisdiction. Similarly, due to the lack of subject matter jurisdiction, the district court properly dismissed the Department's application for supervisory writs.

The Court of Appeal concluded that the district court correctly dismissed the Department's petition for declaratory judgment because the BTA has original jurisdiction. The Department's request for declaratory judgment on the merits of its defense to the refund claim required an interpretation of the statute that authorizes refunds of overpayments, but it was not a challenge to the statute's legality or constitutionality. As a result, the Department was attempting to litigate the merits of the refund claim in district court, as a court of original jurisdiction, rather than before the BTA, which is the proper venue that has exclusive original jurisdiction over the claim.

Commentary

While this decision may have handed the taxpayer a procedural victory in a matter that may not be resolved for some time, given the likelihood for appeal to the Louisiana Supreme Court, the decision highlights a number of unresolved procedural and substantive issues surrounding the ability to raise refund claims and the UTELCOM decision.

To begin, the application of the UTELCOM decision to KCS was not substantively decided and is still pending. The controversies discussed above resulted from KCS's appeal of the Department's denial of its refund claim filed on December 21, 2011. The refund claimed directly against the state of Louisiana in the case filed on December 27, 2011 was not at issue. The district court specifically noted that it could not decide the merits of the Department's exceptions because the BTA's denial of the Department's exceptions was an interlocutory (versus "final") judgment. That decision may become possible when the BTA actions become "final" on the matter.

According to the Court of Appeal, the administrative process has not concluded, and all administrative procedures must be exhausted before judicial action is appropriate. Even though the UTELCOM case is "final," there are over 100 cases pending before the BTA on this issue. The Department is continuing to challenge UTELCOM refund claims and is utilizing all procedural and substantive arguments as a means to do so. The Department's petition in district court sought judicial review to get uniformity on the matter rather than having over 100 separate cases dealing with a similar issue pending before the BTA. The Court of Appeal rejected the Department's uniformity argument in favor of letting the administrative matter play out.

In addition, it is significant that the BTA overruled one of its own prior decisions with respect to the application of La. Rev. Stat. Ann. Sec. 47:1621(F) and tax payments made, or not made, under protest. The provision has long been a source of controversy between the Department and taxpayers. In light of the BTA overruling a prior decision and now allowing for refunds to be paid based on a "mistake of law," it seems likely that a taxpayer's best opportunity to receive a refund under UTELCOM would be to pay under protest and claim refund before the BTA.6

There undoubtedly will be further administrative, judicial and potentially legislative developments before Louisiana corporation franchise tax positions under UTELCOM are settled. In light of La. Rev. Stat. Ann. Sec. 1621(F) and the effect of the payment of taxes under protest, taxpayers should carefully manage prospective filing positions and payments as well as opportunities for UTELCOM refunds and assessment protests (as well as other Louisiana income and franchise tax positions), including the application of ASC 740 and ASC 740-10. The statute of limitations (the "prescription" period in Louisiana) for assessments of all Louisiana state and local taxes, except real property taxes, is set by the Louisiana Constitution at three years after December 31 in the year the taxes were due.7 A claim for credit or refund must be filed with the Department within three years from December 31 of the year in which the tax became due, or within one year from the date that the tax was paid, whichever comes later.8

Footnotes

1 77 So. 3d 39 (La. Ct. App. 2011), review denied, 83 So. 3d 1046 (La. 2012).

2 Louisiana Department of Revenue v. KCS Holdings I, Inc., Louisiana Court of Appeal, First Circuit, Nos. 2013 CA 1479, 1480 and 1481, March 31, 2014 (not designated for publication).

3 LA. REV. STAT. ANN. § 47:1621.

4 LA. REV. STAT. ANN. § 47:1481.

5 LA. REV. STAT. ANN. § 47:1621(F) may not be construed to authorize any refund of tax overpaid through a mistake of law arising from the misinterpretation by the Secretary of Revenue of the provisions of any law or of the rules and regulations promulgated thereunder. In the event a taxpayer believes that the Secretary has misinterpreted the law or promulgated contrary rules and regulations, the taxpayer's remedy is by payment under protest and suit to recover, or by appeal to the BTA in instances where such appeals lie.

6 Interestingly, the role of the BTA may be changing in the future, as proposed legislation (H.B. 863) would transfer the BTA from the executive branch to the Department of State Civil Service, making the BTA more of a quasi-judicial entity. If this legislation is enacted, all pending cases within the BTA's jurisdiction would be transferred as well. Alabama (Act 146 (H.B. 105), Laws 2014) and Mississippi (Ch. 492 (S.B. 2712), Laws 2009) have already enacted similar legislation providing more autonomy for this type of entity.

7 LA. CONST. art. VII, § 16; LA. REV. STAT. ANN. § 47:1579.

8 LA. REV. STAT. ANN. § 47:1623(A).

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