The Louisiana Department of Revenue and Taxation (the "Department"), relying on La. R.S. 47: 1621, has denied refunds of overpayments the Department agrees were paid in error. La. R.S. 47:1621 authorizes refunds of overpayments. The statute defines an overpayment as "a payment of tax, penalty or interest when none was due, or the excess of the amount of tax, penalty or interest paid over the amount due." Once it is determined that an overpayment exists, the statute lists six criteria where the refund will be authorized:
(1) The tax was overpaid because of an error on the part of the taxpayer in mathematical computation.
(2) The tax was overpaid because of a construction of the law on the part of the taxpayer contrary to the secretary's construction of the law at the time of payment.
(3) The overpayment resulted from a change made by the secretary in an assessment under the provisions of La. R.S. 47:1565(c).
(4) With regard to a Louisiana income tax overpayment, the overpayment resulted from a change in federal income tax data, which formed the basis for calculation of the Louisiana income tax.
(5) With regard to Louisiana income tax overpayment, the overpayment resulted from an overpayment of estimated Louisiana income tax.
(6) With regard to a Louisiana income tax overpayment, the overpayment resulted from application of a Louisiana net operating loss carryback.
An example of the Department's interpretation of La. R.S. 47:1621 recently occurred in Amoco Production Co. v. John Neely Kennedy, Secretary of the Louisiana Department of Revenue. Amoco Production Co. ("Amoco") had inadvertently failed to deduct the cost of goods sold from gross sales, causing the Louisiana income and franchise tax to be overpaid. In reviewing the refund request the Department concluded that the error did not fit any of the six criteria listed in the statute; therefore, the refund was denied. Amoco petitioned for a hearing with the Board of Tax Appeals, where the Board upheld the Department's denial of the refund. Amoco then appealed the Board's ruling to the 19th Judicial District Court in Baton Rouge, La. The District Court upheld the Board of Tax Appeals' ruling, noting that the authorization for refunds contained in La. R.S. 47:1621 was unambiguous and clear and that Amoco did not meet the requirements of the statute.
Testimony from Amoco included the fact that Amoco knew they were overpaying the tax, expected to be able to get the tax back, and knew the judicial rate of interest on refunds exceeded the rate that could have been secured in the open market. Additionally, the potential refund plus interest exceeded one hundred million dollars that, if paid, could have resulted in a budget deficit for the State of Louisiana.
Once the Department has denied a claim for refund or has not acted on the refund for one year, the taxpayer may appeal to the Board of Tax Appeals. If the taxpayer is not satisfied with the Board's ruling, the issue can be appealed to the applicable District Court.
The Department's reliance on La. R.S. 47:1621 applies to refund requests that do not meet the criteria of La. R.S. 47:1621 which authorizes refunds of overpayments. Interestingly, this particular statute is silent on credit for taxes overpaid. One could then draw the conclusion that credit for taxes overpaid do not have any limiting criteria except to prove that a valid overpayment existed. Prescription as defined in La. R.S. 47:1623 applies to refunds or credits, interest on refunds or credits is contained in La. R.S. 47:1624 and the appeals process contained in La. R.S. 47:1625 applies to refunds or credits. The taxpayer who has an overpayment could request a refund of amounts overpaid or a credit against future tax liability plus applicable interest as allowed for in La. R.S. 47:1624. If the refund and credit request is denied or not acted upon by the Department after one year then an appeal can be filed to the Board of Tax Appeals for a hearing. The appeal has to be filed within 60 days of the denial or from the end of the one year as required in La. R.S. 47:1625.
The Department has successfully utilized La. R.S. 47:1621 as a basis for denial of a refund request as evidenced in United Gas Corp. v. Fontenot, 129 So. 2d 776 (La. 1961) in which the taxpayer contended that an incorrect amount of revenue was improperly allocated to Louisiana, thereby overpaying vits franchise tax. The court denied the taxpayer's claim for refund, stating that the error was neither a mathematical error or a construction of the law contrary to the collector's. In Gulf Refining Co. v. McFarland, 103 So. 28 (La. 1925), the Louisiana Supreme Court ruled that the taxpayer should be allowed to credit previously overpaid severance tax against currently owed severance tax. The court noted the following:
"The legality of the tax is admitted and a partial payment thereof alleged. The Plaintiff is simply asking that it be credited with said payment. There is ample authority for allowing credits and imputing payments in matters of taxation, particularly where the character of and the period covered by the tax is the same as that for which the payment is sought to be credited."
In Union Exploration Partners, Ltd., Limited Partnership ("UXP") v. Secretary of the Department of Revenue and Taxation, State of Louisiana, 610 So. 2d 854 (La. App. 1st Cir. 1992), cert. Denied, 616 So. 2d 682 (La. 1993), UXP had paid sales tax on diesel fuel for boats operating in federal waters. The Board of Tax Appeals ruled that the Department did not have to give a credit for taxes overpaid against an amount underpaid. UXP filed for summary judgment in district court where the court ordered that UXP be allowed to offset underpayments against overpayments. The case then went to the court of appeals which overturned the judgment in the lower court citing La. R.S. 47:1622 which allows for credits, but only where a refund as determined in La. R.S. 47:1621 is due. Since there was no mathematical error or a construction of law different between the taxpayer and the Department, the court concluded no refund was due; therefore, no credit should be given.
In the near future the Department has indicated that it will issue a position memorandum on refunds. A taxpayer should still file a refund or credit request with the Department, classifying the overpayment as a mathematical error or a construction of the law that is contrary to the Department's construction of the law where possible. At this time the Board of Tax Appeals and appeals to the District Court is the arena for obtaining refunds or credits that are validly due if denied by the Department. Since legislative action will likely be required to eliminate this inequity, taxpayers should be extremely careful not to make overpayment errors on transactions that are not taxable under Louisiana law.
If you have any questions regarding the matters discussed above or if you need assistance with a refund that has been denied, please call Mr. Timmy Hulin, Manager, Louisiana Tax Services at 225.334.0040.
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