Sasol North America, Inc. v. Louisiana Department of Revenue

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

15-569

SASOL NORTH AMERICA, INC.

VERSUS

LOUISIANA DEPARTMENT OF REVENUE

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APPEAL FROM THE
BOARD OF TAX APPEALS, THIRD, NO. 8580

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SHANNON J. GREMILLION
JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, Shannon J. Gremillion
and Phyllis M. Keaty, Judges.

REVERSED AND RENDERED.

David R. Cassidy
David R. Kelly
Breazeale, Sachse & Wilson, L.L.P.
P. O. Box 3197
Baton Rouge, LA 70821
(225) 387-4000
COUNSEL FOR APPELLANT:
Sasol North America, Inc.

Miranda Y. Conner
Antonio Ferachi
Brandea Averett
Debra Morris
Brian DeJean
Louisiana Department of Revenue
P. O. Box 4064
Baton Rouge, LA 70821-4064
(225) 219-2080
COUNSEL FOR APPELLEE:
Louisiana Department of Revenue

GREMILLION, Judge.

This dispute revolves around the claim of Sasol North America, Inc.,

Appellant, of entitlement to a refund in the amount of $741,350.00 on its 2000

Louisiana State income taxes. From an adverse decision of the Louisiana Board of

Tax Appeals (the Board), Appellant lodged this appeal. The Louisiana Department

of Revenue (Department) has answered the appeal and asserts that the Board erred

in finding that Appellant‟s refund claim was not prescribed.

FACTS

Appellant is engaged in commodity chemical production for use in the

manufacture of consumer products. Appellant purchased an interest in PHH

Monomers, LLC, in 1996 for $59,334,951.00. Appellant characterizes PHH as a

partnership between Condea Vista1, the predecessor of Appellant, and Pittsburgh

Paint and Glass (PPG) to produce vinyl chloride monomers. Condea Vista and

PPG would take in-kind shares of the vinyl chloride monomers PHH produced.

Appellant used this to produce polyvinyl chloride (PVC).

In 1999, Appellant sold its interest in PHH for $37,073,593.00. Between

1996 and 2000, Appellant claimed losses on its interest in PHH of $44,678,924.00,

which took the form of depreciation. Appellant claims that its tax department

overstated its capital gain on the sale by $7,744,027.00, though. The then-manager

of Appellant‟s tax department, Mr. Brad Blue, a Certified Public Accountant,

testified before the Board that this overstatement resulted from applying

depreciation as though PHH‟s assets were its own, rather than those of the

partnership Appellant characterizes PHH.

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Condea Vista had been owned by a German concern. In 1999, it was sold to the Sasol
group and its name was changed.

An audit of Appellant‟s taxes by the Department revealed this overpayment.

The Department and Appellant entered into successive agreements, pursuant to

La.R.S. 47:1623(B), that suspended prescription over taxes owed or refunds owed

for the years 1996-2000. The last of those agreements was to expire on December

31, 2008. On December 12, 2008, the Department sued Sasol in the Nineteenth

Judicial District Court to collect additional taxes for 2000. That suit was dismissed

by the trial court on motion for involuntary dismissal in 2012.

Appellant filed an amended Louisiana tax return in May 2012 seeking a

refund of the $741,350.00. This return was rejected because the Department

adopted the position that if a taxpayer is time-barred from filing an amended

federal tax return, that taxpayer cannot file an amended state tax return. In support

thereof, the Department cited La.R.S. 47:287.63, which reads, “‛Allowable

deductions‟ for a taxable year means the deductions from federal gross income

allowed by federal law in the computation of taxable income of a corporation for

the same taxable year, subject to the modifications specified in this Part.” Because

Appellant would be unable to file an amended federal return, it could not,

according to the Department, file an amended state return.

The matter came before the Board of Tax Appeals. The Department

interposed an exception of prescription, which was denied by the Board. After

hearing the evidence on the merits, the Board ruled that the accounting error was

not an “„error, omission, or mistake of fact of consequences[sic]‟ as contemplated

by R.S. 47:1621B(3).” Because Appellant‟s error failed to qualify for a refund

under La.R.S. 47:1621(B), the Board concluded that Appellant was not qualified

under Subsection (C), which requires a showing by the taxpayer of entitlement to a

refund by clear and convincing evidence. The Board discounted the testimony of

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Mr. Blue as self-serving, and found that Appellant had failed to submit

documentation of the nature of the transaction in which Appellant divested itself of

its interest in PHH, and its proof did not rise to meet the clear-and-convincing-

evidence standard in Subsection (C). This appeal followed.

ASSIGNMENTS OF ERROR

Appellant assigns two errors of the Board: was it entitled to a refund, and

whether a taxpayer seeking a refund pursuant to La.R.S. 47:1621(B) is required to

prove its case by a preponderance of the evidence.

The Department answered the appeal and asserts that the Board erred in

denying its exception of prescription.

ANALYSIS

Prescription

We will first address the Department‟s argument that Sasol‟s claim for a

refund is barred by prescription. The prescriptive period for refunds or credits is

established in La.R.S. 47:1623, which reads, in pertinent part:

A. After three years from the 31st day of December of the year
in which the tax became due or after one year from the date the tax
was paid, whichever is the later, no refund or credit for an
overpayment shall be made unless a claim for credit or refund has
been filed with the secretary by the taxpayer claiming such credit or
refund before the expiration of said three-year or one-year period. The
maximum amount which shall be refunded or credited shall be the
amount paid within said three-year or one-year period. The secretary
shall prescribe the manner of filing claims for refund or credit.

B. Provided that in any case where a taxpayer and the secretary
have consented in writing to an extension of the period during which
an assessment of tax may be made, the period of prescription for
refunding or crediting overpayments as provided in this Section shall
be extended in accordance with the terms of the agreement between
the taxpayer and the secretary.

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After the Department‟s suit was filed, Sasol filed its claim for this refund.

The Department argues that because Appellant did not pursue its claim for a refund

by the December 31, 2008 deadline specified in the agreement, it is barred from

pursuing it. This argument ignores the language of La.R.S. 47:1623(F)(1)(a),

which provides that when the Department initiates an action to collect taxes, the

period of prescription for a refund or credit is suspended when the taxpayer has

submitted a refund claim prior to an assessment becoming final. The Department‟s

suit against Appellant was dismissed in April 2012. Appellant‟s claim for a refund

was submitted in May.

Prescription of refund or credit claims is governed by La.R.S. 47:1623(A),

which provides that a claim for a refund prescribes after three years from the 31 st

day of December of the year in which the tax became due, or one year from the

date the tax was paid, whichever is later. The tax on this gain was due in 2000.

The first of the agreements between Appellant and the Department was dated

August 7, 2003. The claim by Appellant for its refund, then had almost five

months before it would have been prescribed. The claim was timely filed, as

prescription had been suspended until April 2012 and this claim was filed a month

later.

Merits of Appellant’s Demand

The factual determinations of the Board of Tax Appeals are reviewed under

the manifest error standard. Daigle Bros. Sand & Dirt, Inc. v. Sec’y of Dep’t of

Revenue & Taxation for State of La., 594 So.2d 935, 936 (La.App. 3 Cir. 1992).

Louisiana Revised Statutes 47:1621 governs the refund of overpayments of

state income taxes. Subsection (B) provides that the secretary shall make a refund

of each overpayment where it is determined that:

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(1) The tax was overpaid because of an error on the part of the
taxpayer in mathematical computation on the face of the return or on
any of the supporting documents.

(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 was the result of an error, omission, or a
mistake of fact of consequence to the determination of the tax
liability, whether on the part of the taxpayer or the secretary.

(4) The overpayment resulted from a change made by the
secretary in an assessment, notice, or billing issued under the
provisions of Chapter 18 of Subtitle II of this Title.

(5) 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.

(6) With regard to any Louisiana tax overpayment, the
overpayment resulted from an overpayment of estimated Louisiana
tax.

(7) With regard to a Louisiana income tax overpayment, the
overpayment resulted from application of a Louisiana net operating
loss carryover for all claims for this deduction on any return filed on
or after July 1, 2015, regardless of the taxable year to which the return
relates.

(8) The overpayment resulted from a subsequent determination
that the taxpayer was entitled to pay a tax at a reduced tax rate.

The statute further provides, in Subsection (C), that, “Notwithstanding the

provisions of Subsection B, where it is determined that there is clear and

convincing evidence that an overpayment has been made, the secretary shall make

a refund, subject to the conditions and limitations provided by law.”

We do not find it necessary to address Appellant‟s contention that the Board

applied the wrong burden of proof under Subsection (B), because under either a

preponderance-of-the-evidence or a clear-and-convincing-evidence standard, we

find that the Board manifestly erred in finding that Appellant did not prove that it

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overpaid its taxes as “the result of an error, omission, or a mistake of fact of

consequence to the determination of the tax liability, whether on the part of the

taxpayer or the secretary,” under La.R.S. 47:1621(B)(3). Treating the assets of

PHH as Appellant‟s own asset was certainly an error of consequence to the

determination of Appellant‟s tax liability if PHH is properly classified as a

partnership.

In support of its contention that PHH was a partnership, Appellant offered its

Schedule K-1 forms that it filed with the Internal Revenue Service during the tax

years 1996 through 1999. Schedule K-1 is the Internal Revenue Service form on

which a partner‟s share of a partnership‟s income is reported. Further, Appellant

offered the December 5, 2007 correspondence of Ms. Charlene Blanchard, a

Revenue Tax Audit Specialist for the Department, who acknowledged that PHH

was a partnership.

This evidence notwithstanding, the Board found that Appellant failed to

carry its burden of proof. At least in part, this conclusion was based upon the

Board‟s discounting of Mr. Blue‟s testimony as “self-serving.” The Board must

consider the evidence that is presented to it to the same extent as a state district

court. La.R.S. 47:1412. Accordingly, when the court of appeal reviews a Board

decision, it cannot find that the Board manifestly erred when there are two

permissible views of the evidence. Rosell v. ESCO, 549 So.2d 840 (La.1989).

Conversely, when there is but one permissible view of the evidence, the Board may

not ignore that evidence. A trier of fact‟s findings must be reasonable in light of

the record reviewed in its entirety. Sistler v. Liberty Mut. Ins. Co., 558 So.2d 1106

(La.1990). In this matter, the Board‟s findings are not reasonable in light of the

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evidence discussed above, including Mr. Blue‟s testimony, the Schedule K-1s, and

the Department‟s position in its audit of Appellant.

The Department argues further that Appellant is barred from claiming a

“deduction” on its state return because it is barred from doing so on its federal

return due to the passage of time. The Department‟s position is based upon La.R.S.

47:287.63, which reads, “„Allowable deductions‟ for a taxable year means the

deductions from federal gross income allowed by federal law in the computation of

taxable income of a corporation for the same taxable year, subject to the

modifications specified in this Part.” Under state law, gross income for state tax

purposes is the same as gross income for federal tax purposes. La.R.S. 47:287.61.

For federal tax purposes, a capital loss from the sale of an asset represents a

deductible item for purposes of establishing a taxpayer‟s adjusted gross income.

26 U.S.C.A. §62(a)(3). Capital gains, however, are income that is calculated by

determining the difference between the asset‟s sale price and its basis. See C.I.R. v.

Gillette Motor Transp., Inc., 364 U.S. 130, 80 S.Ct. 1497 (1960). The basis is not

a deduction; it is the amount subtracted from a sale price to determine whether

there has been a “gain” realized on the sale. Louisiana Revised Statutes 47:287.63

does not apply to this case.

For the foregoing reasons, the judgment of the Board of Tax Appeals

denying Sasol North America, Inc., a refund on its fiscal year 2000 state income

taxes is reversed. Judgment is rendered herein in favor of Sasol North America,

Inc., and against the State of Louisiana, Department of Revenue in the amount of

$741,350.00. All costs of this appeal, in the amount of $1,197.00, are taxed to the

Louisiana Department of Revenue.

REVERSED AND RENDERED.

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