Supreme court sides with Department of Revenue in tax dispute with AT&T
by Clay Chandler
Published: September 16,2012
A dispute that started between AT&T Mississippi and the state’s tax collection agency has lasted long enough that one of the entities has undergone a name change.
Even with a Sept. 6 ruling from the Mississippi Supreme Court, it still might not be over.
What began with an audit of the company’s finances in 1997 has been sent back to Hinds County Chancery Court after the supreme court ruled 9-0 that AT&T did not adhere to the statute that outlines tax appeals.
During the audit, the Department of Revenue (known until a couple years ago as the State Tax Commission) determined that from 1994-1996, AT&T had filed its taxes using the “consolidated method,” which was only allowed for groups whose affiliates did business solely in Mississippi. It was not available to AT&T, which had affiliates across the U.S. Under the state’s tax law, the company should have filed its taxes using the “combined” method. The result of the audit was the Department of Revenue levying a $5.1 million tax bill on the company.
The company’s appeals to the old Board of Review and to the full Tax Commission resulted in that total being lowered by about $5.08 million.
What happened next goes to the crux of the supreme court’s ruling in favor of the Department of Revenue.
AT&T appealed the Commission’s order to Hinds County Chancery Court. Instead of filing a bond that was equal to twice the amount in dispute, as required by law, the company paid the assessment under protest, filing separately with the court its petition for relief. The petition claimed the state’s distinction between “combined” and “consolidated” tax reporting was unconstitutional.
The proceedings in chancery court were divided into two sections: one that sought to answer the question of whether the tax statutes were unconstitutional. If the court held that they were, the second phase of the litigation would deal with calculating a new tax bill for AT&T.
The presiding chancellor, Judge William Singletary, ruled in 2006 that the statutes violated the Constitution’s Commerce Clause, and that AT&T was entitled to the “tax benefits” given to “other taxpayers.”
In an order entered in November 2010, Singletary awarded AT&T $12.7 million as a result of the Department of Revenue’s error. The agency appealed the decision to the supreme court. AT&T also appealed, claiming the chancery court erred in calculating the company’s award.
The high court never reached the point of resolving those issues, because it found that the chancery court never should have granted itself jurisdiction because AT&T had not raised a proper appeal to it.
Specifically, AT&T did not file a bond equal to twice the amount in question (in this case, $10.16 million), instead choosing to pay the disputed tax levy before proceeding with the chancery court appeal.
The failure to post a bond and AT&T’s decision to pay the disputed taxes were what the high court cited most often in ruling for the Department of Revenue.
The statute establishing the chancery appeals process said that court had jurisdiction to restrain the collection of taxes when the collecting agency did not have proper authority. Because AT&T had already paid its taxes, there was nothing left to collect, rendering the appeals statute inapplicable, justices ruled. The court said the same thing about the company’s failure to post a bond as part of its appeal.
“Instead, from the outset of this matter, AT&T consistently chose to act by its own rules, regardless of whether statutorily outlined procedures were contravened,” Justice Mike Randolph wrote in the majority opinion.
Department of Revenue spokesperson Kathy Waterbury said the statute requiring those appealing a Board of Tax Appeals (formerly known as the Board of Review) order to chancery court was modified in 2010. Instead of requiring a bond equal to twice the amount in dispute, it now requires a bond equal only to half that number. The change was made, Waterbury said, to make the appeals process less cost-prohibitive.
Waterbury said the agency has felt throughout its dispute with AT&T that the tax statutes were constitutionally sound.
“We’re satisfied we followed the law,” she said.
AT&T has 14 days from Sept. 6 to ask the high court for a rehearing. Lawyers for the company and company officials declined multiple requests for comment last week.
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