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A Second Bite at the Apple? Kentucky’s high court holds taxpayers may seek refund without protesting original assessment

In Dep’t of Revenue v. Cox Interior, Inc., the Kentucky Supreme Court affirmed decisions of the lower courts, holding that a taxpayer may seek a tax refund without having protested the original assessment.

The Cox Interior tax story

In 2005, the Kentucky Department of Revenue conducted a tangible personal property tax audit of Cox Interior and issued a Notice of Assessment. Cox Interior paid the assessed tax and interest and then filed refund claims a year and four months later, alleging an overpayment because the department had improperly classified certain manufacturing machinery as non-manufacturing. The department denied Cox Interior’s refund claims on the grounds that Cox Interior paid the assessment without protest. Cox Interior then timely submitted a protest for the denied refund claim.

Kentucky law gives a taxpayer 45 days to file a protest and has a two year statute of limitations to file a refund claim for tangible personal property taxes paid. Kentucky law also provides that no refund of property taxes will be made unless the taxpayer has exhausted the administrative remedies.

At issue was whether Cox Interior forfeited its ability to file a refund claim by paying the tax without filing a protest. The department had asserted that Cox Interior waived, as a matter of law, any right to a refund by failing to protest the assessment at the time the tax was paid.

Upon review, the Kentucky Supreme Court rejected the department’s position which would require a taxpayer to exhaust two administrative remedies, rather than one, and would prevent a taxpayer from pursuing valid refund claims if no protest was made. The court held, “the Refund-Seeking Taxpayer exhausts his administrative remedies by securing a ruling on his refund request from the Department, protesting that denial … and, if still denied a refund, appeal to the Board of Tax Appeals.” Cox Interior thus exhausted its administrative remedies by timely protesting the department’s denial of its refund claim.

Protesting an assessment and seeking a refund

Although this is a taxpayer-favorable decision, it highlights the importance of reviewing notices of assessment early in the process and retaining the services of a skilled state and local tax professional to assist with evaluating the assessment, identifying weaknesses and developing and articulating positions for the protest of the assessment, if needed.

If you have questions about how this case may affect you or your business, please contact a member of Bingham Greenebaum Doll LLP’s Tax and Finance Practice Group.

DISCLOSURE REQUIRED BY CIRCULAR 230. This Disclosure may be required by Circular 230 issued by the Department of Treasury and the Internal Revenue Service. If this article, including any attachments, contains any federal tax advice, such advice is not intended or written by the practitioner to be used, and it may not be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Furthermore, any federal tax advice herein (including any attachment hereto) may not be used or referred to in promoting, marketing or recommending a transaction or arrangement to another party. Further information concerning this disclosure, and the reasons for such disclosure, may be obtained upon request from the author of this article. Thank you.

  • Mark A. Loyd

    As a Partner and Chair of the Firm’s Tax and Employee Benefits Department, Mark’s practice focuses on resolving clients’ state, local and federal tax issues through planning, audit management, administrative protest ...



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