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Jamie C. Yesnowitz
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On Sept. 18, 2020, the Louisiana Court of Appeal held that a taxpayer that failed to follow the proper procedures to challenge interest and penalties imposed on a sales tax assessment did not have a wrongful seizure cause of action against the Louisiana Department of Revenue under general tort law.1
Rather than following the statutory protest procedures, the taxpayer remitted a payment that excluded the disputed interest and penalties and advised the Department that the payment was in “full satisfaction and compromise” of all amounts due. Because Louisiana law provides specific remedies for challenging a tax assessment, the Court determined that the taxpayer had no cause of action under tort law.
In December 2014, the Department issued a notice of assessment to the taxpayer for over $320,000 in sales and use taxes, interest and penalties due for the March 31, 2009, through Sept. 30, 2012, filing periods. In June 2016, following the taxpayer’s appeal to the Louisiana Board of Tax Appeals, the taxpayer and Department reached a consent decree under which the taxpayer agreed to pay over $139,000 in taxes. The taxpayer contended that while the agreement did not address interest and penalties, the Department’s collections unit would address these issues in the future. Following execution of the consent decree, the Board dismissed the taxpayer’s appeal with prejudice.
In October 2016, the Department issued a revised notice of assessment that added nearly $85,000 of interest and penalties to the existing tax obligation. The taxpayer disputed the interest and penalties and argued that its delay in paying the taxes was due to the Department’s unreasonably lengthy audit. On Nov. 3, 2016, the taxpayer remitted a check to the Department consisting of the amount of taxes addressed in the consent decree, with a cover letter providing that the check was in “full satisfaction and compromise” of all sales tax and any related interest and penalties. The cover letter also indicated that the Department should return the check if it decided to reject the check in full satisfaction of the amount owed. The Department subsequently processed the check.
In October 2017, the Department seized over $97,000 from the taxpayer’s bank account to collect the outstanding interest and penalties owed. The taxpayer subsequently filed a petition in Louisiana district court for damages against the Department, arguing that its payment of more than $139,000 represented a compromise of the taxpayer’s debt under civil law. According to the taxpayer, the Department’s withdrawal from the taxpayer’s bank account was a wrongful seizure that entitled the taxpayer to tort damages. Following a hearing, the district court granted the Department’s motion to dismiss the case, explaining that the taxpayer had not stated a cause of action because it failed to comply with Louisiana tax law. The taxpayer appealed the case to the Court of Appeal.
No civil cause of action
The Court of Appeal held that the district court properly dismissed the case because the taxpayer failed to follow the statutory tax protest procedures and had no cause of action under tort law. On appeal, the taxpayer unsuccessfully argued that the district court mistakenly treated the case as a protest under Louisiana tax law rather than a wrongful seizure suit under Louisiana tort law. The taxpayer contended that it presented sufficient facts to support a wrongful seizure cause of action.
As explained by the Court, because Louisiana tax law provides a specific collection system, general provisions of the law such as tort law have little relevance. If two statutes conflict, and the legislature has enacted a specific statutory scheme to address an issue, the specific statute prevails over the general statute. Louisiana law provides that a taxpayer protesting a tax assessment must pay the “amount due and at that time shall give notice of intention to either file suit or file a petition with the Board of Tax Appeals for purposes of recovery of such tax.”2
If a taxpayer fails to timely make payment under protest or to appeal the assessment to the Board, the assessment becomes final.
In this case, after the Department issued the revised notice of assessment that included the interest and penalties, the taxpayer did not pay the disputed amount under protest or timely appeal the revised assessment to the Board. Rather than following the statutory procedures, the taxpayer paid the undisputed underlying tax assessment and challenged the interest and penalties by indicating that the payment was in “full satisfaction and compromise” of all amounts owed. In rejecting the taxpayer’s argument, the Court explained that “a taxpayer cannot dictate the manner by which it protests the Department’s assessments.” The taxpayer could not circumvent the statutory scheme for protesting tax assessments “by relying on general Civil Code principles regarding compromise in an attempt to characterize its cause of action as one for wrongful seizure.” A revised assessment becomes final after the period for paying an assessment or filing an appeal with the Board has expired. Therefore, the taxpayer could not pursue a civil cause of action against the Department.
The Court of Appeal’s decision holding that the taxpayer could not file a wrongful seizure suit against the Department under tort law emphasizes what can happen when a taxpayer attempts to fashion its own procedural remedy that is not authorized by statute. The taxpayer was understandably aggrieved by the Department’s decision to impose additional interest and penalties on a tax assessment that the taxpayer likely considered to be closed. However, the taxpayer’s response proclaiming that its check solely covering the tax owed satisfied the assessment did not effectively preserve the taxpayer’s procedural rights. The Department’s tendency to strictly apply procedural requirements may serve to hamper taxpayers’ efforts to obtain relief, even in matters where such taxpayers may have strong substantive arguments. While the Department’s reaction to seize the taxpayer’s assets to cover the penalties and interest may seem draconian, the Court of Appeal concluded that the taxpayer could not pursue a remedy under tort law or otherwise challenge the Department’s decision. Given the unique circumstances of this case, the taxpayer may appeal the decision to the Louisiana Supreme Court.
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