Words Matter: South Carolina Refund Claim Is Timely, “Even Though” a Previous Protest Was Filed

The BR State + Local Tax Spotlight

The South Carolina Administrative Law Court (“ALC”) recently allowed a challenge to a refund claim denial to proceed, even though a protest had been filed from an assessment for the same set of years, which was paid and no contested case was filed. Order on Motions for Summary Judgment filed on January 10, 2022, and Order Denying Motion to Dismiss filed on December 31, 2021, DIRECTV Group, Inc. v. S.C. Dep’t of Revenue, No. 21-ALJ-17-0378-CC (S.C. ALC).

Facts: The Department of Revenue (the “Department”) audited and assessed the years 2006 to 2011, the company protested, and the protest challenge was properly proceeding. Then, the Department audited the years 2012 to 2015, assessed the company, and the company timely protested and requested that it be held in abeyance while the 2006 to 2011 protest challenge proceeded. After the 2006 to 2011 protest challenge was resolved, the company asked the Department to issue a determination for 2012 to 2015. On July 6, 2018, the Department issued the determination (which was appealable by filing a contested case with the ALC within 30 days). The company paid the determination on July 31, 2018. 

On September 27, 2019, the company filed a claim for refund for 2012 to 2015. On November 22, 2019, the Department denied the refund claim on procedural grounds. The company timely protested the refund claim denial. On August 19, 2021, the Department issued a determination upholding the denial on procedural grounds. On September 16, 2021, the company filed a contested case with the ALC.

What’s the beef? The Department’s denial asserted that a company has a choice when presented with an assessment: 1) file a Department protest, or 2) pay the assessment and seek a refund. The Department asserted that the time to file a refund (within three years of return filing or two years of tax payment) is only applicable if no protest was filed. Here, the Department said that the company filed a protest and then asked that a determination be issued on the protest. As the requested determination was issued on July 6, 2018, according to the Department, a contested case must have been filed by August 6, 2018, and, inasmuch as a contested case was not filed by August 6, the company purportedly could not seek a refund.

The Decision: There are two levels of appeal: the Department level and, after the Department issues a determination, the ALC. The judge reviewed the refund statute (S.C. Code 12-60-470(A)), and summarized that a refund claim is considered timely if it is “filed within the period specified in Section 12-54-85 [the three-year/two-year rule] even though the time for filing a protest under Section 12-60-450 [90 days rule] has expired and no protest was filed.” The ALJ ruled that the language “no protest filed” did not limit refund claims to only when no protest was filed. The “no protest filed” language modified the whole phrase—that is, even if no protest is filed. Therefore, the judge concluded that the Department was incorrectly reading the appeal procedure and, as long as no determination was appealed to the ALC following the determination issued on the assessment protest, the company could file a refund claim within two years from paying the amount on the determination that resulted from a protested assessment.

The Takeaway: Don’t be bullied by any tax agency reading its own statutes or rules in a way that goes against you and asserts that you lose because the tax agency says so. Take a step back, read the language, and proceed. Words matter and neutral judges exist and will give you a fair shake.

This article is one in a series of articles written for the January 2022 edition of The BR State + Local Tax Spotlight.

© 2022 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.