Oct 19, 2015
From KPMG TaxWatch
Recently, the Wyoming State Board of Equalization addressed whether a taxpayer that over-collected sales and use taxes was entitled to a refund or credit against underpayments when it was unable to refund the over-collected taxes to its customers. The taxpayer, an operator of two coffee shops and a restaurant/bar/gift shop, collected and remitted tax on certain non-taxable items. The taxpayer also (1) failed to collect sales taxes on certain sales of taxable tangible personal property and catering services, and (2) underreported its use tax. The taxpayer requested its underpayments be offset by the excess taxes it improperly collected from customers due to its misapplication of the law. The Department denied the request. Later, the taxpayer requested a refund of the over-collected taxes, which was denied on the basis that the taxpayer had not identified the customers from which taxes were improperly collected.
The matter went before the Board, where the taxpayer appeared as both a vendor and a taxpayer. In other words, it was responsible for both improperly collecting and remitting sales taxes on certain non-taxable transactions and for failing to collect and remit tax on certain taxable sales, as well as owing use tax on purchases used in its business. The Department’s policy in this area rested—based, it argued, on its interpretation of Wyoming caselaw—on a distinction between “erroneous” taxes, which are taxes that are improperly collected due to reliance on departmental guidance, and “excess” taxes, which are taxes that are improperly collected from customers based on the vendor’s mistaken application of the law. The Department took the position that excess taxes can only be refunded if the vendor identifies customers who are owed a refund or has already refunded the over-collected taxes to customers. Erroneously collected taxes, on the other hand, can be refunded to the vendor without a refund to the ultimate taxpayer.
Under Wyoming law, any tax, penalty or interest that has been erroneously paid, collected or computed shall either be credited against any subsequent tax liability of the vendor or refunded. The taxpayer argued that under the plain language of the statute it was entitled to a refund of the over-collected taxes or an offsetting credit. In the taxpayer’s view, the Department’s rule and policy limiting refunds and credits to those situations where the vendor had identified customers or already refunded customers was an improper expansion of the statute. In a lengthy decision, the Board agreed. In its view, while the Department had offered “compelling policy reasons” for its position, the statute was clear, and the taxpayer was entitled to a refund or credit of taxes incorrectly charged its customers and remitted to the Department. The taxpayer was not required to first identify customers who overpaid taxes or to refund said taxes to those customers. The Board noted that the Legislature would likely modify the statute if it should disagree with this outcome. Please contact Steve Metz at 303- 382-7177 with questions on this decision.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.