Kentucky Board of Tax Appeals Holds that a Settlement Agreement Does Not Apply to Future Tax Years
In Rent-A-Center East v. Finance and Administration Cabinet, Department of Revenue, Order No. K-24567, File No. K13-R-04, 2014 Ky. Tax LEXIS 86 (Feb. 13, 2014), the Kentucky Board of Tax Appeals (“Board”) held that a settlement agreement entered into between a taxpayer and the Kentucky Department of Revenue (“Department”) regarding the valuation of tangible person property for tax years 1997-2001 did not also cover future years when the agreement was silent as to whether future years were to be included.
Rent-A-Center East, Inc. (“RAC”) owns a chain of retail stores across Kentucky and is in the business of renting household items. For tax years 1997-2001, RAC and the Department entered into a settlement agreement regarding the valuation of certain tangible personal property. RAC argued to the Board that their agreement should apply to the parties on a “going forward” basis and that the Department should be required to value RAC’s tangible personal property in subsequent years according to the agreement. The Department disagreed and claimed that it was not bound by the agreement in subsequent years. Since the agreement did not explicitly state that it was a “going forward” agreement, the Board held in favor of the Department and found the agreement applied only to years 1997-2001 and not to future tax years.
Additionally, the Board held that RAC failed to carry its burden of proving that the Department had over-valued the tangible personal property at issue. RAC did not present a certified appraiser as a witness. Rather, RAC relied on the testimony of a corporate representative regarding the general business of RAC and on conclusory documents prepared by RAC’s accountant, without providing any supporting materials for such documents.
The Board also decided that the Department’s imposition of the omitted property tax penalty was justified. RAC argued that it had demonstrated sufficient reasonable cause to justify the waiver of the penalty since it relied on the erroneous advice of a tax advisor. However, the Board found that RAC did not exercise reasonable care and prudence when it took the tax advisor’s advice to apply the aforementioned settlement agreement on a “going forward” basis.
Lastly, the Board held that the Department need not set forth its tangible property method of assessment in a separate statute or regulation. Citing Dean v. Revenue Cabinet, 967 S.W.2d 594 (Ky. App. 1998), the Board explained that it is sufficient for the Department to set forth its valuation methods in the tangible personal property tax returns and instructions, which are incorporated by reference into regulation 103 KAR 3:010.