Hard Cases

JOSEPH MARGULIES

Cornell law professor Joseph Margulies uses the killing of Rayshard Brooks in Atlanta by police to explain some lessons for reform we might learn. Margulies calls upon us to use this case to reexamine the circumstances that should result in a custodial arrest and to shrink the function of police so as to use them only in the very few situations that truly require them.

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Organic Cannabis Foundation v. Commissioner

Court: US Court of Appeals for the Ninth Circuit

Dockets: 17-72874, 17-72877

Opinion Date: June 18, 2020

Judge: Collins

Areas of Law: Tax Law

The Ninth Circuit affirmed the tax court's dismissal, based on lack of jurisdiction, of untimely petitions for redetermination of federal income tax deficiencies. In this case, taxpayers' attorneys selected an overnight delivery service that was not then on the published list and the error would not have mattered if the petitions had nonetheless arrived the next day. However, they were not received by the tax court until two days after being dropped off at a FedEx office in California. The panel held that the tax court did not err by concluding that the petitions had not been timely received and that the mailbox rule did not apply. Furthermore, because I.R.C. 6213(a)'s time limits are jurisdictional, the panel held that equitable exceptions such as equitable tolling and waiver do not apply. Finally, the panel held that there was no basis for declaring the notice of deficiency invalid because of an improperly addressed notice.

TOMRA of North America, Inc. v. Dept. of Treasury

Court: Michigan Supreme Court

Docket: 158335

Opinion Date: June 16, 2020

Judge: David F. Viviano

Areas of Law: Business Law, Government & Administrative Law, Tax Law

Plaintiff TOMRA of North America, Inc., brought two separate actions in the Court of Claims against the Michigan Department of Treasury, seeking a refund for use tax and sales tax that plaintiff had paid on the basis that plaintiff’s sales of container-recycling machines and repair parts were exempt from taxation under the General Sales Tax Act, and the Use Tax Act. Plaintiff moved for summary judgment, seeking a ruling on the question whether plaintiff’s container-recycling machines and repair parts performed, or were used in, an industrial-processing activity. The Court of Claims denied plaintiff’s motion and instead granted summary disposition in favor of defendant, holding that plaintiff’s container-recycling machines and repair parts were not used in an industrial-processing activity and that plaintiff therefore was not entitled to exemption from sales and use tax for the sale and lease of the machines and their repair parts. The Court of Claims found that the tasks that plaintiff’s machines performed occurred before the industrial process began, reasoning that the activities listed in MCL 205.54t(3) and MCL 205.94o(3) were only industrial-processing activities when they occurred between the start and end of the industrial process as defined by MCL 205.54t(7)(a) and MCL 205.94o(7)(a), respectively. Plaintiff appealed, and the Court of Appeals reversed, declining to interpret MCL 205.54t(7)(a) and MCL 205.94o(7)(a) as placing a temporal limitation on the activities listed in MCL 205.54t(3) and MCL 205.94o(3), respectively. To this, the Michigan Supreme Court concurred and affirmed the Court of Appeals. The matter was remanded to the Court of Claims for further proceedings.

Dreyer Electric Co., LLC v. Director of Revenue

Court: Supreme Court of Missouri

Docket: SC98007

Opinion Date: June 16, 2020

Judge: Laura Denvir Stith

Areas of Law: Government & Administrative Law, Tax Law

The Supreme Court reversed the decision of the Administrative Hearing Commission (AHC) that certain equipment purchased by Dreyer Electric Co. was exempt from sales tax because it was "replacement equipment" "used directly in the manufacturing process," as those terms are used in Mo. Rev. Stat. 144.030.2(5), holding that the AHC erred. Specifically, the Supreme Court held (1) the AHC correctly applied the three-factor "integrated plant doctrine" test set out in Floyd Charcoal Co. v. Director of Revenue, 599 S.W.2d 173 (Mo. banc 1980), to determine whether the subject replacement parts and equipment were "used directly in manufacturing"; but (2) the AHC erred in making specific findings as to some parts and then grouping all the parts together, including those it had not mentioned specifically in its decision, to find they were collectively integral to the electrical system that powered the machinery. The Court remanded the case for application of the integrated plant test to each type of replacement part or equipment purchased.

Lakehaven Water & Sewer Dist. v. City of Federal Way

Court: Washington Supreme Court

Docket: 96585-4

Opinion Date: June 18, 2020

Judge: Debra Stephens

Areas of Law: Government & Administrative Law, Tax Law

The city of Federal Way (City) is a noncharter code city incorporated under Title 35A RCW. To address a budget deficit, the City identified and implemented cost-saving measures, but the spending cuts did not close the deficit. The City thus considered several potential sources of new revenue, including levying an excise tax on water and sewer utilities. The council found it necessary to expand the kinds of excises levied in order to pay for basic municipal services and to meet the budget deficit. In passing the ordinance, the council relied on RCW 35A.82.020, which it concluded gave the City broad authority to impose excises for regulation or revenue regarding all places and kinds of businesses. The issue this case presented for the Washington Supreme Court's review reduced to a decision on a municipal corporation's authority to impose an excise tax on another municipal corporation doing business within its borders. Several water-sewer districts petitioned for declaratory judgment, arguing the City lacked express legislative authority to impose the tax on them. The districts also raised a governmental immunity defense, and further challenged the ordinance on constitutional grounds, arguing it violated both due process vagueness principles and privileges and immunities antifavoritism principles. The parties cross moved for summary judgment, and the superior court granted summary judgment in the City’s favor. The Washington Supreme Court affirmed, finding the legislature granted code cities broad authority to levy excises on all places and kinds of business. "That policy prescription contemplates code cities may choose to exercise their local taxing power by imposing excises for regulation or revenue on the business of providing water-sewer services to ratepayers. We hold the governmental immunity doctrine does not bar the city from taxing the districts because they perform a proprietary function when they engage in this business. As for the districts’ constitutional claims, they lack standing to bring such claims."

731 Market Street Owner, LLC v. City and County of San Francisco

Court: California Courts of Appeal

Docket: A154369(First Appellate District)

Opinion Date: June 18, 2020

Judge: Frank Y. Jackson

Areas of Law: Real Estate & Property Law, Tax Law

In 2009, 731 Market leased the ground floor of its commercial building to CVS for a term of 45 years. Once the lease was recorded with the City and County of San Francisco, a “Real Property Transfer Tax” was paid under the San Francisco Business and Tax Regulations Code, based on the value of the stream of rental payments due over the lease’s life. In 2015, 731 Market sold the building, which included the CVS lease. All terms of the original lease remained unchanged with a remaining term of more than 35 years. 731 Market paid a documentary transfer tax, then unsuccessfully sought a refund of the amount of tax it paid based on the value of the remaining stream of payments due over CVS’s lease. The trial court and court of appeal agreed with 731 Market that the 2015 transaction did not trigger the tax as to the leasehold interest because the transaction did not result in any “realty sold” under the ordinance. San Francisco impermissibly collected a “double tax” on the property.