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Supreme Court of Kentucky Will Review Case Holding Taxpayers May Seek Tangible Personal Property Tax Refunds Even Though the Assessments Were Not Protested


In Department of Revenue v. Cox Interior, Inc., No. 2009-CA-001691 (Ky. App. Nov. 5, 2010), Discretionary Review granted, No. 2010-SC-794-D (Ky. Nov. 16, 2011), the Supreme Court of Kentucky (“Court”) issued an Order granting discretionary review of the Kentucky Courts of Appeals’ Opinion, which affirmed both the Franklin Circuit Court and Kentucky Board of Tax Appeals’ decisions holding that a taxpayer’s ability to seek a refund of ad valorem taxes is not conditioned upon first filing a protest of a tax assessment.

In 2005, the Department conducted a tangible personal property tax audit of Cox Interior for the tax years 2001 through 2004 and issued a Notice of Assessment. Cox Interior paid the assessed tax and interest in March 2006 and then filed refund claims in July 2007 in the amount of $44,717.00 representing a portion of the tax and interest paid in March 2006. The Department denied Cox Interior’s refund claims on August 17, 2007. Cox Interior submitted a Protest on August 28, 2007, which was within the forty-five (45) day statutory period for filing a Protest.

KRS 134.590(2) provides for a two (2) year statute of limitations for a taxpayer to file a refund claim for tangible personal property taxes paid and KRS 131.110 provides a taxpayer forty-five (45) days to file a protest of the Department’s denial of refund claims. KRS 134.590 also provides that no ad valorem taxes will be refunded unless the taxpayer has properly 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 first. The Department asserted that Cox Interior effectively waived the right to a refund by failing to protest the assessment at the time it paid the tax.

The Court of Appeals, affirming the Franklin Circuit Court and Kentucky Board of Tax Appeals’ Opinions, held that Cox Interior’s failure to protest the original assessments made at the conclusion of the audit did not preclude it from filing a refund claim if it later on discovered that it had overpaid its property taxes. The Court further stated, “Requiring a taxpayer to protest taxes prior to payment as a mandatory condition in order to later request a refund creates unnecessary and inefficient procedural obstacles for the taxpayer.”

The Franklin Circuit Court’s Opinion cited to Cabinet v. Castleton, Inc., 826 S.W.2d 334 (Ky. App. 1992), a sales and use tax case which held that, “the remedy for filing a claim for a refund of taxes…is not conditioned upon satisfaction of the procedural requirements provided in 131.110 for filing a protest of tax assessment.” The Franklin Circuit Court stated that the Department’s position would have required the exhaustion of two administrative remedies rather than one and would prevent taxpayers from pursuing valid refund claims if no protest was made to the initial tax assessment within forty-five (45) days.

The Department filed a Motion for Discretionary Review with the Supreme Court of Kentucky on December 6, 2010. The Court issued an Order granting same on November 16, 2011.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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