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This page is a compilation of some of the recent developments in our firm’s Practice Areas. To check for updates in your area of interest, simply click on the Practice Area to your left.

Taxation

Fox v. Moultrie, 379 S.C. 609, 666 S.E.2d 915 (2008).
Opinion No. 26546, decided September 15, 2008.

A foreclosure property which was subject to a federal tax lien was sold in a judicial sale, but the Internal Revenue Service (IRS) was not given notice of the sale. The buyer brought this quiet title action in order to obtain clear title of the property. However, the IRS appeared and argued that because it was not notified of the sale pursuant to federal law and because there had been no application to discharge the tax lien, the buyer acquired the property subject to the tax lien. The master-in-equity held that the property was subject to the federal tax lien, and the South Carolina Supreme Court affirmed. The court held that while the federal lien was subordinated to a county property tax lien, the county lien did not render the federal lien invalid. Thus, the federal lien remained valid and survived the tax sale.

SCANA Corp. v. S.C. Dep’t of Revenue, 2008 WL 2572595 (S.C. 2008).
Opinion No. 26511, decided June 30, 2008.

A corporate taxpayer and the South Carolina Department of Revenue disputed the effective date language of a 1997 amendment to S.C. Code Ann. § 12-14-60, which governs the economic impact zone investment tax credit. The South Carolina Supreme Court found that the effective date language of the amendment was ambiguous, and therefore resorted to the rules of statutory construction. Thus, because any ambiguity is resolved against the taxpayer in cases involving a tax deduction or, as in this case, a tax credit, the court found in favor of the Department of Revenue.

Sonoco Products Co. v. S.C. Dep’t of Revenue, 378 S.C. 385, 662 S.E.2d 599 (2008).
Opinion No. 26502, decided June 9, 2008.

A manufacturer sought a refund of property taxes it paid on its corporate office buildings. The office buildings, which were located across a public right-of-way from the manufacturing facility, were assessed as manufacturing-related property, which is assessed at a 10.5 percent ratio rather than the 6 percent ratio used for non-manufacturing-related property. The manufacturer argued that because the office buildings were separated from the manufacturing facility by a public road, they were not “contiguous” for purposes of S.C. Code Ann. § 12-43-220, even though the manufacturer held a fee simple interest in the road. The Department of Revenue declined to issue the refund, finding that the properties were indeed “contiguous.” The Administrative Law Court upheld the department’s decision, but the circuit court reversed. However, the South Carolina Supreme Court reversed the circuit court and reinstated the Administrative Law Court’s order. The court found that the Legislature intended the term “contiguous” in S.C. Code Ann. § 12-43-220 to be construed broadly. The court also found that the grant of an easement or right-of-way does not defeat contiguity. Thus, because there were no intervening landowners between the manufacturing facility and the office buildings, the Administrative Law Court was correct in finding that the properties were “contiguous.”

U.S. v. Clintwood Elkhorn Mining Co., 128 S.Ct. 1511 (2008).
Docket No. 07-308, decided April 15, 2008.

Several coal companies paid taxes on exports under a portion of the Internal Revenue Code which was later ruled unconstitutional and sought refunds of the taxes. Under I.R.C. § 7422(a), a taxpayer seeking a refund of unlawfully assessed taxes must file an administrative claim with the Internal Revenue Service before filing suit against the government itself. If the taxpayer fails to do so, any suit against the government is barred by the statute. The companies filed the proper administrative claims and received refunds for the taxes paid from 1997-1999, but because the time for administrative claims for taxes paid in years prior to 1997 had passed, the companies sought relief directly from the Court of Federal Claims for taxes paid from 1994-1996. The Court of Federal Claims and the United States Court of Appeals for the Federal Circuit allowed the claims to go forward despite the fact that the companies had not first sought administrative relief. However, the United States Supreme Court reversed, holding that the plain language of the statute clearly requires a taxpayer seeking a refund of unlawfully assessed taxes to file a timely administrative claim prior to bringing suit.

Knight v. Commissioner of Internal Revenue, 552 U.S. 181 (2008).
Docket No. 06-1286, decided January 16, 2008.

Both individuals and trusts may subtract from their federal taxable income certain itemized deductions, but only to the extent the deductions exceed 2% of their adjusted gross income. Pursuant to IRC § 67(e)(1), however, trusts may deduct certain costs without regard to the 2% floor if the costs are paid or incurred in connection with the administration of the trust and would not have been incurred if the property were not held in trust. The question presented in this case was whether investment advisory fees incurred by a trust are fully deductible or if they are subject to the 2% floor. The United States Supreme Court held that investment advisory fees incurred by a trust are generally subject to the 2% floor because such fees would probably be incurred by an individual holding the property and the trustee in this case failed to carry his burden of showing otherwise.

CSX Transportation, Inc. v. Georgia State Board of Equalization, 552 U.S. 9 (2007).
Docket No. 06-1287, decided December 4, 2007.

A rail carrier challenged the valuation method used by the State of Georgia to calculate the amount of ad valorem taxes the carrier was required to pay on its railways. The district and circuit courts held that the Railroad Revitalization and Regulatory Reform Act, which bars discriminatory state taxation of railroad property, does not allow railroads to challenge a state’s chosen valuation methodology. However, the United States Supreme Court reversed, holding that because courts must calculate the true market value of in-state railroad property in order to apply the Act, they may scrutinize the state’s valuation methodology in order to do so.

U.S. v. Sarubin, 507 F.3d 811 (4th Cir. 2007).
Docket No. 06-2069, decided November 16, 2007.

A taxpayer failed to pay income taxes totaling approximately $2 million in 1994 and 1995. After years of unsuccessful collection attempts, the IRS filed this collection action in 2005, seeking a judgment of over $4 million for the underlying debt and accrued interest. The IRS subsequently moved for summary judgment, offering as proof of the tax liability a Certificate of Assessment which reflected only the underlying tax liability but not the accrued interest. The taxpayer argued that the IRS should be limited to recovering the balances reflected on the Certificate because it failed to substantiate the full amount of the judgment sought. The United States Court of Appeals for the Fourth Circuit rejected the taxpayer’s arguments and held that the IRS had a common-law right to collect on the debt, including the interest that had accrued by the operation of IRC § 6601(a), and remanded to the district court for the entry of summary judgment in favor of the IRS for the full amount sought.

City of Charleston v. Hotels.com, LP, 520 F.Supp.2d 757 (D.S.C. 2007).
Decided November 5, 2007.

Various online resellers of hotel rooms contracted with hotels for discounted room rates and then sold the rooms at marked-up prices on their websites. The resellers charged consumers accommodations taxes on the marked-up rates, but only remitted tax payments to the municipalities based on the discounted rates, keeping the difference as profit. The municipalities filed suit against the resellers alleging various causes of action including violation of the local tax ordinances. The resellers moved to dismiss the claims, but the United States District Court for the District of South Carolina denied the motion, rejecting the resellers’ argument that the statute enabling the ordinances prohibits the taxation of out-of-state corporations. The court found that the enabling act permits municipalities to levy accommodations taxes against the providers of hotel rooms within the municipal boundaries regardless of the provider’s physical location.

 

 

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