April 24, 2024

Of Counsel

Turning Back the Clock on Tax Assessments

A challenge to the way the Department of Revenue issues 'final assessments' on corporate taxes still reverberates.

Jason Garcia | 2/27/2018

A challenge to the way the Department of Revenue issues ‘final assessments’ on corporate taxes still reverberates.

Seven years ago, one of Florida’s biggest corporate taxpayers decided to take the state’s Department of Revenue to court. The taxpayer was Verizon, and the lawsuit involved one of its subsidiaries, Verizon Business Purchasing, a Delaware-based unit the company established to buy electrical equipment for resale to other Verizon subsidiarie

In 2008, after reviewing the company’s books, Florida auditors informed Verizon that they intended to make changes to the company’s tax returns from 2004-06. The state typically must issue any assessment for back taxes within three years. But Verizon and DOR agreed to extend that deadline until March 31, 2011, in order to give both sides time to work through the various disputes.

In February 2011, a little more than one month before the deadline, DOR issued what’s known as a “notice of proposed assessment,” informing Verizon that the company owed nearly $3.2 million in back taxes. But the notice gave Verizon 60 days to challenge the assessment before it became a “final assessment” — which would happen after the March 31 deadline

Florida tax attorneys had been grumbling for years that the Florida Department of Revenue was routinely flouting the statute of limitations by using proposed assessments, instead of final assessments, to beat the clock. “One day the court will have to resolve this issue,” Joseph Moffa and Gerald Donnini II, partners at Moffa, Sutton & Donnini, which specializes in defending taxpayers, wrote in a 2011 article in “Florida CPA Today.”

Verizon, which could afford prolonged litigation, forced the issue. It sued DOR, claiming a proposed assessment was not enough to satisfy the statute of limitations. A trial court ruled against the company. But four years after the case began, in June 2015, Florida’s 1st District Court of Appeal overturned the ruling. The state declined to try taking the case to the Florida Supreme Court, so the DCA’s decision was final.

The decision has reverberated far beyond Verizon. “We’d been filing arguments on that issue for several years before the Verizon case went up,” says James Sutton, another partner at Moffa, Sutton & Donnini.

Once the ruling came down, the department relented on all of the challenges. Altogether, it dropped more than $100 million worth of assessments it had been pursuing against taxpayers because of the Verizon decision, Sutton says.

The fallout hasn’t ended. Another wave of disputes has followed, which collectively could expand the Verizon impact.

One case involves Certified Marketing Consultants, which operates a jewelry business in Delray Beach that is facing an assessment for nearly $600,000 in back taxes — much of it stemming from a dispute over the sale of scrap gold — for the tax years from 2009-12.

The company is now challenging that bill in court because the final assessment wasn’t issued until July 2013. Under the logic of the Verizon case, which says DOR must issue its final assessment within three years, Certified Marketing Consultants says the state can’t seek any further taxes prior to July 2010. The jeweler has asked the court to throw the entire assessment out because of the flaw — or at least to have the part of the assessment arising from before July 2010 tossed. Tax attorneys say many more disputes like this one wait in the wings.

An even bigger threat looms from a case involving concrete manufacturer Cemex. In 2012, DOR hit Cemex with a bill for $6.5 million in unpaid taxes, penalties and interest for 2003-08 tax years.

Like so many other pre-Verizon cases, DOR had used a “proposed” assessment to beat the statute of limitations clock. Cemex hadn’t challenged that, though. Instead, the company negotiated a settlement, agreeing to pay $3.1 million in October 2014.

But now the company wants its money back. In a lawsuit led by the same attorney who guided the Verizon case — Michael Bowen, chair of Akerman’s state and local tax practice — Cemex now argues that the Department of Revenue’s initial assessment was illegal and that it should never have agreed to the settlement.

The company has asked a Leon County circuit judge to order DOR to refund the $3.1 million settlement payment it made in 2014, with interest. And if it wins, it’s a sure bet that many more taxpayers will come forward with their own refund claims.


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