Kentucky Supreme Court Reaffirms That A Taxpayer May Seek A Tangible Personal Property Tax Refund Without Protesting The Initial Assessment
In Dep’t of Revenue v. Cox Interior, Inc., No. 2010-SC-000794-DG (Ky. June 20, 2013), the Kentucky Supreme Court affirmed decisions of the courts below holding that a taxpayer’s ability to seek a refund of a payment for a tangible personal property tax assessment is not conditioned upon first filing a protest of that assessment.
The Department of Revenue had adapted the practice of denying refunds to taxpayers based on its position in Cox Interior. We have seen this routinely. This Opinion should end that practice.
The facts are straightforward. In 2005, the Department 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.
KRS 131.110 provides a taxpayer forty-five (45) days to file a protest, and KRS 134.590(2) provides for a two year statute of limitations for a taxpayer to file a refund claim for tangible personal property taxes paid. KRS 134.590 also provides that the Commonwealth will not refund ad valorem taxes unless the taxpayer has exhausted its administrative remedies.
At issue was whether Cox Interior forfeited its ability to file a refund claim under KRS 134.590 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 it paid the tax.
In a de novo 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 within forty-five (45) days of the initial tax assessment. The Court held, “[T]he Refund-Seeking Taxpayer exhausts his administrative remedies by securing a ruling on his refund request from the Department, protesting that denial under KRS 131.110 and, if still denied a refund, appeal to the Board of Tax Appeals under KRS 131.340. Judicial review is available as well.” Cox Interior thus exhausted its administrative remedies by timely protesting the Department’s denial of its refund claim.