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

Citations: 184 So. 3d 902; 15 La.App. 3 Cir. 569; 2016 La. App. LEXIS 232; 2016 WL 516502Docket: No. 15-569

Court: Louisiana Court of Appeal; February 9, 2016; Louisiana; State Appellate Court

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Sasol North America, Inc. is appealing a decision by the Louisiana Board of Tax Appeals regarding its claim for a refund of $741,350.00 from its 2000 Louisiana state income taxes. The Louisiana Department of Revenue contends that the Board incorrectly determined that the refund claim was not time-barred. Sasol, which produces commodity chemicals, incurred significant losses from its investment in PHH Monomers, LLC between 1996 and 2000, claiming a total of $44,678,924.00 in depreciation losses. After selling its interest in PHH for $37,073,593.00 in 1999, Sasol alleged that its capital gain was overstated by $7,744,027.00 due to misapplication of depreciation.

Sasol and the Department had multiple agreements that suspended the statute of limitations for tax liabilities and refunds for the years 1996-2000, with the last agreement expiring on December 31, 2008. Following a lawsuit initiated by the Department in 2008, which was later dismissed, Sasol filed an amended tax return in May 2012 seeking the refund. The Department rejected this claim, arguing that if the taxpayer cannot amend their federal return due to being time-barred, they likewise cannot amend their state return, citing La.R.S. 47:287.63.

At the Board hearing, the Department raised a prescription exception, which the Board denied. Ultimately, the Board ruled against Sasol, stating that the accounting error did not constitute a mistake of fact as defined by R.S. 47:1621 B(3). The Board found that Sasol did not provide sufficient documentation to support its claim and discounted the testimony from its tax manager, Mr. Blue, as self-serving. Sasol argues two errors on appeal: its entitlement to a refund and the evidentiary standard required to prove its case. The Department, in its response, maintains that the Board erred in denying its prescription exception.

Sasol's claim for a tax refund is challenged by the Department on the grounds of prescription, citing La.R.S. 47:1623, which establishes a three-year period from the end of the year the tax became due or one year from the payment date, whichever is later, for filing a refund claim. The Department contends that Sasol missed the December 31, 2008 deadline specified in their agreement, thus barring the claim. However, La.R.S. 47:1623(F)(1)(a) states that the prescription period for refunds is suspended if the taxpayer submits a refund claim before the tax assessment becomes final, which occurred in this case when the Department's suit was dismissed in April 2012 and Sasol filed its claim in May 2012. The claim was therefore timely, as it was filed within five months of the tax becoming due in 2000, despite the agreement's deadline. Furthermore, La.R.S. 47:1621 outlines the conditions under which refunds for overpayments are warranted, including errors in computation or law interpretation by the taxpayer, mistakes of fact, or changes made by the secretary in tax assessments.

A Louisiana tax overpayment arose from an estimated tax overpayment and the application of a net operating loss carryover for returns filed after July 1, 2015. The overpayment was further supported by a determination that the taxpayer was eligible for a reduced tax rate. Under La.R.S. 47:1621(C), if clear evidence of an overpayment exists, the secretary must issue a refund, adhering to legal conditions. The Board found that the taxpayer failed to prove an overpayment due to an error or mistake in tax liability determination, despite evidence suggesting that the taxpayer's assets were misclassified, specifically regarding PHH's status as a partnership. The taxpayer presented Schedule K-1 forms and correspondence from a tax audit specialist that acknowledged PHH as a partnership. The Board’s dismissal of testimony as "self-serving" was found unreasonable given the evidence. The Department contended that the taxpayer could not claim deductions on its state return if barred from doing so federally, referencing La.R.S. 47:287.63, but this statute was deemed inapplicable. Ultimately, the Board's denial of a refund to Sasol North America, Inc. for fiscal year 2000 was reversed, resulting in a judgment for the taxpayer in the amount of $741,350.00, with appeal costs of $1,197.00 charged to the Louisiana Department of Revenue.