2012 Tax Forum presentation by Assistant Attorney General Scott Boak
October 4, 2012
2011-2012 Maine state tax decisions
A Powerpoint given by Scott W. Boak, AAG
The Appeal Process:How a state tax dispute gets to court
- Tax Assessment: usually consists of tax, interest, and penalty portions, and appeal information. A dispute could involve another determination by the State Tax Assessor.
- Reconsideration: requested by the taxpayer in writing within 60 days. Internal review by the MRS division, which results in a Reconsideration Decision.
- Appeal of a Reconsideration Decision: either to the Maine Superior Court directly, or for matters in excess of $5,000, to the new Maine Board of Tax Appeals (BOTA).
- BOTA established by 36 MRS § 151-D. 3-member board assisted by an appeals office. New process, with procedures in development.
- Decisions by BOTA are appealable to the Superior Court by either the taxpayer or the Assessor.
- “De novo” appeal: Appeals to both BOTA and to Superior Court are de novo – meaning all issues of fact and law decided from scratch.
- AG’s role: In tax matters, the AG typically represents MRS (rather than the taxpayer or the public) in Superior Court. The AG’s office also may be involved in matters before BOTA.
- Further appeal: to the Maine Supreme Court and possibly beyond…
- The end result: a collection of final decisions interpreting Title 36 that become part of the governing body of Maine state tax law.
Turning to select decisions in 2011-2012…
- The Late Appeal: Mohamud v. MRS, Cumberland Co. Superior Ct., AP-11-041.
- TP timely requests reconsideration of assessment, which is then upheld by MRS.
- TP attempts to file appeal with Superior Court within the time limit (now 60 days – used to be 30). Filing occurs when delivered to the court.
- BUT: TP fails to include required civil summary sheet with original filing. Appeal stamped by clerk as “incomplete.”
- TP later files required civil summary sheet AFTER expiration of 30-day period.
- Result: appeal dismissed as untimely. Court has no jurisdiction unless ALL required portions of the appeal are timely filed.
- No special leeway given to individuals who represent themselves (pro se).
- No Pro Se Appeal by Corporation: Corp. v. MRS, Kennebec Co. Super. Ct.
- TP corporation attempts to file an appeal. It is mailed to court within time limits.
- BUT - Court, on its own, rejects appeal and sends it back to TP, as if never filed.
- Why? Appeal was signed by corp. officer, not lawyer authorized to practice in Maine.
- A corporation is a fictitious legal entity and may not represent itself pro se, but may appear in court only through a licensed attorney.
- See Spickler v. York, 566 A.2d 1385, 1390 (Me. 1989).
- NOTE: TP had more time left even after appeal sent back (due to new 60-day filing deadline instead of old 30-day period).
- For whatever reason, TP did not timely re-file the appeal through a lawyer.
- Awareness of changes in law is important.
Income Tax Refunds
- Limitations on Refund: Desimone v. MRS, York Co. Superior Ct., AP-11-21
- In 2011, TP filed a late 2006 Maine income tax return and sought refund for overpayment of 2006 taxes.
- 36 MRS § 5278(1): refund filing deadline is 3 years from filing of return, or date when tax paid, whichever later.
- Refund request here was timely: TP filed refund request WITH the late 2006 return in 2011.
- BUT: 36 MRS § 5278(2) also limits amount of any timely claim for credit or refund, which may not exceed the portion of the tax that was paid within the 3 years immediately preceding the refund request.
- Here: no tax paid in that period (after the 2006 tax year before the 2011 filings).
- Result: Total refund amount that could be claimed was limited to zero.
- Court: “[T]here appears to be a measure of unfairness in this result… However, the Legislature is permitted to establish procedures for the orderly and timely collection of taxes, including the limitation at issue here.”
Maine Estate Tax:What Goes In The Estate?
- Estate of Behrens v. Assessor, Kennebec Co. Superior Court, AP-10-40.
- 2 properties at issue: No. 1 owned by decedent mom. No. 2 property owned by decedent mom’s husband, who predeceased mom.
- After husband’s death, mom a) renunciates any interest in No. 2, and b) gifts both properties to daughter. On same day, daughter leases both properties back to mom until mom’s death.
- Property No. 1: Court holds that under IRC and IRS rules, which are used to value Maine estate, Property No.1 goes into mom’s estate. The transfer was testamentary in nature.
- By agreement, mom retained a life interest in and control over the property until her death.
- A true lease for fair rental value might disprove any retained interest. But lease for No. 1 was not arm’s length. It had favorable terms for mom such as below-market rent, automatic annual renewals, etc.
- Property No. 2: argument that mom previously disclaimed interest in it after husband’s death.
- If effective under IRC/IRS rules, disclaimed property was never owned by mom, and would not go into her estate.
- Court: mom’s earlier disclaimer not unqualified. Mom received consideration for lease, which occurred on same day as renunciation of interest in property. The two events cannot be separated.
- RESULT: both Nos. 1 and 2 go in Maine estate.
- Valuation: MRS offered evidence of value of both Nos. 1 and 2 at mom’s death. The estate did not; offered evidence only of value at time mom gifted properties to daughter.
- Under IRC/IRS rules, both Nos. 1 and 2 are valued at the time of mom’s death. Estate failed to carry burden on this issue.
- Estate appeal to Maine Law Court; withdrawn.
Maine Estate Tax:PR Liability
- Metcalf v. Assessor, Sagadahoc Co. Super. Court, AP-11-003.
- Maine resident appointed as PR of estate probated in Massachusetts. PR assessed personally for unpaid Maine estate tax stemming from estate property located in Maine.
- PRs among those specifically liable for Maine estate tax. 36 MRS § 4078.
- Maine estate tax “shall be paid by the [PR] to the extent of assets subject to his control.” 36 MRS § 4065(1).
- Maine property already sold by PR at time of appointment in Mass. $$ in the estate at that time.
- PR : because Maine assets (property) no longer under PR’s control, PR could not be personally liable for failing to pay Maine estate tax.
- Assessor: $$ still in the estate subject to PR’s control at time of appointment. Just a change in form of asset. Then $$ later spent by PR.
- Court holds for PR for different reason: no jurisdiction over personal liability of a foreign PR appointed in a Mass. probate matter.
- Probate liability of PR is determined by law of state where probated.
- Assessor, however, relied on Maine tax statute governing PR liability for Maine tax purposes.
- PR liable for Maine estate tax. 36 MRS § 4078.
- For Title 36, PR defined as the “personal representative of the decedent or, if there is no [PR] appointed, qualified and acting within this State, any person who is in the actual or constructive possession of any property included in the gross estate of the decedent.”
- Court: plain meaning of tax definition of PR must mean local PRs only and not foreign PRs.
- Court: Maine probate code has separate definitions of and rules for PR and “Foreign PR,” so tax definition must make a similar distinction.
- Result: Court has no jurisdiction over foreign PR’s liability here. Only Mass. has jurisdiction over PR and PR’s personal liability.
- Query: Might the Legislature want a broader definition of PR in Title 36 for tax purposes to help ensure that all Maine estate taxes get paid, regardless of how the estate containing Maine property is probated?
- Appeal by Assessor to Maine Law Court.
Maine Use Tax
- Maine use tax imposed at the same rate as Maine sales tax on the storage, use or other consumption of tangible personal property in Maine. 36 MRS § 1861.
- Blue Yonder, LLC v. Assessor, 2011 ME 49, 17 A.3d 667.
- Victor Bravo Aviation, LLC v. Assessor, 2011 ME 50, 17 A.3d 1237 (“Victor Bravo I”).
- TPs in both cases argue: 1) exempt by 36 MRS § 1760(23-C) (immediate removal from Maine); 2) exempt by 36 MRS § 1760(82) (delivery outside of Maine); 3) Commerce Clause, etc.
- And: exempt by 36 MRS § 1760(45)(B) - Certain Property Purchased Outside of Maine:
- “Sales of property purchased and used by the present owner outside the State: … -(B) For more than 12 months in all other cases.”
- Assessor’s position: any in-state storage/use during 12 months following out-of-state purchase of property defeats exemption.
- TP position: any out-of-state use during 12 months entitles one to the exemption.
- Maine Law Court: decides that 36 MRS § 1760(45)(B) is ambiguous. Susceptible to more than 1 reasonable interpretation.
- Law Court’s (4-2) creates a test:
- Section 1760(45)(B) applies if use of the aircraft outside of Maine was “sufficiently substantial” to warrant Maine’s use tax.
- Blue Yonder: 21-25 Maine days – no use tax.
- Victor Bravo I: 156 Maine days – use tax. Unlike Blue Yonder, Maine use not minimal, but substantial and ongoing.
- Dissents in both: Legislature didn’t make this test, and there is no line.
- Q: How do you measure/compare activity inside vs. outside of Maine under the Blue Yonder test?
- Q: Where is the line under the new test?
- Q: How does the test work for other kinds of property purchased out-of-state and then brought into Maine for use?
- Q: How do you know if there is Maine use tax liability?
(Stay tuned. More to come.)
- Interest abatement: Victor Bravo Aviation, LLC v. Assessor, 2012 ME 32, 39 A.3d 65 (“Victor Bravo II”).
- Law Court interprets the interest abatement standard in 36 MRS § 186.
- The standards is “a highly discretionary standard that is not easily met by the taxpayer.”
- Furthers principle of time value of money.
- Sears, Roebuck & Co. v. Assessor, 2012 ME 110, _ A.3d _. Bad Debt Sales Tax Credit: 36 MRS § 1811-A.
- Sears paid the full amount of sales tax due on goods sold from its Maine retail stores.
- Sears had financing agreement with 3rd party creditor when payment plan elected by customers: Sears received full payment (including sales tax), and 3rd party creditor collected payment for goods purchased.
- 3rd Party charged off bed debts when it was unable to collect from customers. Sears claimed bad debt sales tax credit for those amounts.
- Law Court reaffirms principle that two separate corporations cannot be treated as a single entity for purposes of obtaining the bad debt sales tax credit.
- Consistent with prior Law Court decisions on the same subject:
- Linnehan Leasing v. Assessor, 2006 ME 33, 898 A.2d 408; and
- DaimlerChrysler Services North America, LLC v. Assessor, 2003 ME 27, 817 A.2d 862