Court Holds Actual Extended Filing Date is Key in Determining Timeliness of Refund Claim
The Oklahoma Supreme Court held that a corporation’s refund claim was timely because it was filed within three years from the filing of its original return on extension. In doing so, the Court rejected the Oklahoma Tax Commission’s (“Tax Commission”) assertion that the claim had to be filed within three years of the return’s due date without extension. In re Raytheon Co. & Subsidiaries v. Okla. Tax Comm’n, 2022 OK 32, 2022 WL 1011840 (mandate issued Apr. 5, 2022).
Facts: Raytheon Company and Subsidiaries’ (“Raytheon”) original tax return for 2012 was due on March 15, 2013. Raytheon obtained an extension and timely filed the return on September 27, 2013. Subsequently, it determined that it had incorrectly included sales of Arizona property in the numerator of its Oklahoma sales factor.
On September 27, 2016, exactly three years from the date that it filed its original return on extension, it filed an amended return which corrected its sales factor and claimed a refund. While the Tax Commission did not dispute the calculation of the tax on the amended return, the Tax Commission nonetheless denied the refund on the basis that it was not filed within three years from the original due date of the return, without extension.
Ruling: The Oklahoma Supreme Court held that the statute—Section 2373—was ambiguous and that it therefore had to engage in statutory construction. The relevant portion of that statute provides: “the amount of the refund shall not exceed the portion of the tax paid during the three (3) years immediately preceding the filing of the claim….” After reviewing the legislative history of the statute, other sections of the Oklahoma Code, the Internal Revenue Code, and the Tax Commission’s own regulations, the Court concluded that Raytheon’s taxes were paid when it actually filed its 2012 return and, therefore, its refund claim was timely. The Court believed that its holding best harmonized the various statutes and carried out the legislative objectives.
Two justices wrote concurring opinions. The first believed that the mistakenly paid taxes should be returned under a different statute which provides that the Tax Commission shall return to the owner moneys that remain after the liquidation of the taxpayer’s tax liability. “[T]he State’s integrity should require that money paid in error to it, money in which it had no authority over, must be returned.” The second justice believed that since the statute at issue was not an exemption or a credit provision that it should be interpreted in favor of the taxpayer.
It appears that all of the justices were frustrated with the Tax Commission’s attempt to use procedural grounds to keep monies to which it was not entitled. Indeed, the majority opinion noted that the Tax Commission “had no jurisdiction over the Arizona income and could not have attempted to assess liability for that income in the event Raytheon’s return was filed without the error.”
This case is an important reminder that when state departments of revenue try to take the low road, the courts can and often will assist taxpayers so that justice can prevail.
This article is one in a series of articles written for the April 2022 edition of The BR State + Local Tax Spotlight.