URGENT: On 12/31/2018, Prescription Runs for Tax Year 2014 Refunds, Claims for Credit for Taxes Paid
Wednesday, December 12, 2018
Posted by: Andre Ladegaillerie
On December 5, 2018, the Louisiana Supreme Court rendered a unanimous decision in the case of Smith v. Robinson, 2018-CA-0728 (La. Dec. 5, 2018), holding that Act 109 from the 2015 regular session of the Louisiana Legislature was unconstitutional, as it was a violation of the dormant Commerce Clause of the US Constitution.
Act 109 made changes to La. R. S. 47:33, a statute that provides an income tax credit to resident individuals for income taxes paid in another state on income taxable by Louisiana. Act 109 had effectively denied Louisiana resident individual taxpayers the credit for Texas franchise taxes. Act 109 was passed during the regular legislative session in 2015 and was effective for any returns filed on or after July 1, 2015, regardless of the tax year to which the return related.
As a result of this decision there are possible steps that a CPA must take for his or her clients before year end to protect the clients’ rights to obtain refunds of the now illegal Louisiana income taxes paid by virtue of Act 109. THOSE POTENTIAL REFUNDS COULD INCLUDE MORE THAN JUST THE TEXAS FRANCHISE TAX ISSUE. For example, if a taxpayer limited his or her credit for taxes paid to another state based on the language in section 47:33(A)(5) as enacted by Act 109, those additional taxes paid may be refundable as well. All of Act 109 was declared unconstitutional.
An issue exists for 2014 affected returns. For any 2014 tax returns filed on or after July 1, 2015, that did not take the full credit for taxes paid to other states as a result of the Act 109 changes, taxpayers were allowed, if the return was on a valid extension, to receive the disallowed portion of the credit one-third each year for the 2017, 2018, and 2019 years. Presumably taxpayers in that situation have received the one-third disallowed credit on the 2017 return. Since Act 109 was declared unconstitutional, taxpayers who want the remaining two-thirds of their disallowed credits must file for a refund, either by filing an amended tax return or by filing a refund claim with the Secretary of the Department of Revenue ON OR BEFORE December 31, 2018. The prescriptive period for a 2014 tax year refund will run on December 31, 2018 (see La. R. S. 47:1623(A)).
The amended return or refund claim must clearly state the reason for the refund and the amount of the refund sought. If, on the other hand, those taxpayers are willing to wait until the 2018 and 2019 filings to recoup the remaining two-thirds of the disallowed credits, they are only risking the time value of the money as well as the possible action by the Department to forego allowing the remaining two-thirds credit on those 2018 and 2019 returns because Act 109 has been declared unconstitutional.
Please be advised that the Department will take the position that the refund will be denied because the disputed taxes were not paid under protest, relying on a recent decision by the Louisiana First Circuit Court of Appeal, Bannister Properties, Inc. v. Louisiana, 2018-CA -0030 (La. App. 1 Cir. 11/2/2018). Tax counsel has indicated to the LCPA that the Bannister case may have been wrongly decided, and it is not yet a final decision and that, regardless, the Department may be interpreting Bannister too broadly considering the ruling issued by the Louisiana Supreme Court in Smith that Act 109 was unconstitutional.
The Bannister case holds that a taxpayer must either pay taxes under protest if he or she thinks the Department has misinterpreted the law in order to recover the taxes after a court decision in the taxpayer’s favor. Or, the taxpayer could file a timely claim against the state (see La. R. S. 47:1481), but that a simple administrative refund claim is NOT available. The Department will maintain that an administrative refund claim is NOT available to recover illegal taxes paid such as in the Act 109 case as a result of the Bannister decision if those taxes were not paid under protest.
Another possible step that the CPA could take to protect the clients’ rights to get their money back would be the filing of the aforementioned “claim against the state.” For the 2014 tax year, this claim must also be filed on or before December 31, 2018. It has essentially the same prescriptive period as a refund claim. A claim against the state is filed with the Louisiana Board of Tax Appeals (BTA). It is a petition similar to a lawsuit that is filed with the BTA, and for which a filing fee must be paid. Below we have provided a link to the BTA rules regarding a claim against the state as well as a sample petition for a claim against the state filing. A monetary amount relating to what would have been the refund claim amount must be sought in the claim against the state filing. CPAs should consider whether they wish to take this additional protection dependent in part on the amount at issue.
It is important that CPAs fully understand the rules and regulations of procedure and practice before the BTA if they decide to file a claim on behalf of clients.
View the Rules and Regulations of Procedure and Practice Before the BTA
View the sample petition (PDF). See BTA Rule 18: Claims Against the State
A few reminders:
- The original petition and attachments AND 6 copies of the petition and attachments must be filed with BTA.
- There will be a filing fee. See BTA Rule 16 for the fee schedule.
- Specific instructions for delivering or mailing the petition are posted under BTA FAQs. (Note: You must maintain official USPS proof of mailing if you intend to rely upon the mailbox file date.)
Special thanks to Robert "Bob” S. Angelico, CPA, JD, with Liskow & Lewis and a member of LCPA's State and Local Tax Committee, for providing the technical content of this Alert.
Questions about the content of this Alert should be directed to LCPA State Government Relations Director Linda Babin.