In re Warnquist
| Decision Date | 07 March 2018 |
| Docket Number | SUPERIOR COURT Civil Action DOCKET NO. AP-16-0039 |
| Parties | ERIC V. WARNQUIST, and, ROSAMOND C. WARNQUIST, Petitioners, v. STATE TAX ASSESSOR, Respondent. |
| Court | Maine Superior Court |
YORK, ss.
This case is a Rule 80C action brought by petitioners Eric and Rosamond Warnquist, seeking review of the Tax Assessor's determination that they were not entitled to the full Section 5217-A credit requested on their 2012 and 2013 tax returns. See 36 M.R.S.A. § 5217-A (2010). Petitioners also seek to avoid paying penalties and interest if the court finds that the credit was properly adjusted.
The facts presented to the court are relatively straight forward and generally agreed upon. Petitioners are Maine residents who earned income from two rental properties they owned in the county of Rogaland of the country of Norway (the "Properties"). (Resp.'s S.M.F. ¶¶ 1-2.) The first property was a single-family house located at 34 Bogenessvein ("Property 1"). (Resp.'s S.M.F. ¶ 4.) The second property was an industrial complex located at Jattaflatten 10 ("Property 2"). (Resp.'s S.M.F. ¶¶ 5-6.)
Petitioners earned rental income from the Properties in both 2012 and 2013. (Resp.'s S.M.F. ¶ 9.) Additionally, Property 1 was taken by expropriation, the Norwegian equivalent of eminent domain, by the City of Stavanger in 2013. (Resp.'s S.M.F. ¶ 7.)
Petitioners paid income tax to Rogaland Norway on both the rental and expropriation income from the Properties. (Resp.'s S.M.F. ¶ 9.) In 2012, Petitioners paid $208,860 in income tax to Rogaland. (Resp.'s S.M.F. ¶ 10.) In 2013, Petitioners paid $238,374 in income tax to Rogaland. (Resp.'s S.M.F. ¶ 11.) Rogaland taxed Petitioners on their gross income and did not allow Petitioners any deductions. (Resp.'s S.M.F. ¶ 48.)
On their federal tax returns for these years, Petitioners reported the rental income from the Properties and deducted certain expenses. (Resp.'s S.M.F. ¶ 12.)
In 2012, Petitioners reported $8,339.12 in income from Property 1 and deducted $59,052.72 in expenses. (Resp.'s S.M.F. ¶ 13.) For Property 2, Petitioners reported rental income of $1,099,262.68 and deducted $106,627 in expenses. (Resp.'s S.M.F. ¶ 14.) Including income and expenses from two other properties unrelated to the instant matter, Petitioners reported their Schedule E income as $948,262.35. (Resp.'s S.M.F. ¶ 15.) Petitioners reported their federal adjusted gross income, which includes income from interest, dividends, and pensions/annuities, totaled $1,026,451.98 in 2012.1 (Resp.'s S.M.F. ¶ 18.) Petitioners then reported their income tax as $306,374.32 and claimed a foreign tax credit in the same amount for taxes paid to Rogaland. (Resp.'s S.M.F. ¶¶ 19-19A.)
On their 2012 Maine tax return, Petitioners reported a federal adjusted gross income of $1,026,452. (Resp.'s S.M.F. ¶ 21.) Petitioners then reported their Maine adjusted gross income as$1,037,381. (Resp.'s S.M.F. ¶ 22.) Petitioners claimed a standard deduction in the amount of $12,850 and accordingly reported their total Maine tax as $85,429 in 2012. (Resp.'s S.M.F. ¶¶ 23-24.)
Petitioners claimed a tax credit pursuant to Section 5217-A for income tax paid to Rogaland in the total amount of their taxes owed, $85,429. (Resp.'s S.M.F. ¶ 25.) The Worksheet for Credit for Income Tax Paid to Other Jurisdiction ("Worksheet") used to calculate this credit instructs taxpayers to compare their Maine adjusted gross income stated in line 1 with income sourced to and taxed by another jurisdiction "included in line 1" in line 2. (Resp.'s S.M.F. ¶ 27.) The Worksheet further provided, "The income considered taxed by the other jurisdiction is income, after deductions, that is analogous to Maine adjusted gross income (federal adjusted gross income plus or minus income modifications)." (Resp.'s S.M.F. ¶ 26.) Specifically, taxpayers are directed to calculate the percentage of other income taxed by foreign jurisdictions by dividing the income sourced to other jurisdictions by their total Maine adjusted gross income. (Worksheet for Credit for Income Tax Paid to Other Jurisdiction (the "Worksheet"), Pet. Ex. 2 at 1.) Taxpayers are entitled to credit of the lesser of either the multiplication of this percentage and their total taxes or the taxes paid to the other jurisdiction on the income subject to Maine tax. See M.R.S.A. § 5217-A.
In the year 2013, Petitioners similarly reported rental income and expenses from the Properties on their federal returns. (Resp.'s S.M.F. ¶ 29.) Petitioners reported $4,122.49 in income from Property 1 and deducted $33,614.01 in expenses. (Resp.'s S.M.F. ¶ 30.) For Property 2, Petitioners reported rental income of $381,190.24 and deducted $118,684.97 in expenses. (Resp.'s S.M.F. ¶ 31.) Including income and expenses from the two other unrelated properties, Petitionersreported their Schedule E income as $229,498.70. (Resp.'s S.M.F. ¶ 32.) Petitioners also reported the income from the expropriation of Property 1 as a capital gain in the amount of $683,148.32. (Resp.'s S.M.F. ¶ 33.) Including an unrelated capital gain, Petitioners reported a total Schedule D income of $691,716.56. (Resp.'s S.M.F. ¶ 34.)
Petitioners reported their federal adjusted gross income, which includes both the Schedule D and Schedule E incomes as well as income from interest, dividends, and pensions/annuities, as $990,317.85 in 2013. (Resp.'s S.M.F. ¶ 37.) Petitioners then reported their income tax as $306,324.57 and claimed a foreign tax credit in the same amount for taxes paid to Rogaland. (Resp.'s S.M.F. ¶¶ 36-36A.)
On their 2013 Maine tax return, Petitioners reported a federal adjusted gross income of $990,318. (Resp.'s S.M.F. ¶ 38.) Petitioners then reported their Maine adjusted gross income as $993,366. (Resp.'s S.M.F. ¶ 39.) Accordingly, Petitioners reported their total Maine tax as $76,784 in 2013. (Resp.'s S.M.F. ¶ 40.)
Again, Petitioners claimed a tax credit pursuant to Section 5217-A for income tax paid to Rogaland in the total amount of their taxes owed, $76,784. (Resp.'s S.M.F. ¶ 41.) Although slightly re-formatted, the Worksheet's instructions remained the same as in 2012. (Resp.'s S.M.F. ¶¶ 42-43.)
In 2014, Maine Revenue Services ("MRS") audited Petitioners' 2012 and 2013 federal and Maine income tax returns. (Resp.'s S.M.F. ¶ 45.) MRS first found that Petitioners had used the incorrect standard deduction on their 2012 Maine tax return, and accordingly increased it from $12,850 to $13,050. (Resp.'s S.M.F. ¶ 46.)
Next and most importantly to the instant case, MRS determined that Petitioners had miscalculated their 5217-A credit on both their 2012 and 2013 Maine tax returns by overstating the income that was taxed in both Maine and Rogaland. (Resp.'s S.M.F. ¶ 47.) Specifically, while Petitioners had reported all of the income taxed by Rogaland on then 5217-A Worksheet ($1,099,262.68 in 2012 and $1,172,702 in 2013) because Rogaland taxed Petitioners' gross income, MRS determined that only the income subject to tax in Maine, i.e. Petitioners' net income: the total income minus the deductions available in Maine ($941,922 in 2012 and $916,161 in 2013), was creditable. (Resp.'s S.M.F. ¶¶ 49-53.)
Accordingly, MRS adjusted Petitioners' 5217-A credits from $85,429 to $76,927 in 2012 and from $76,784 to $70,810 in 2013. (Resp.'s S.M.F. ¶¶ 51, 54.) MRS explained that Petitioners were not subject to Maine tax on all of the income taxed by Rogaland, but only the portion of that income after the available deductions ($941,922 in 2012 and $916,161 in 2013), and thus were not entitled to a credit for the total amount of their taxes owed. (Resp.'s S.M.F. ¶ 55.) The Assessor then issued assessments for tax, interest, and substantial understatement penalties in the following amounts: for 2012, $7,804 in tax, $911.25 in interest, and $1,482.76 in penalties; for 2013, $5,974 in tax, $248.07 in interest, and $418.18 in penalties. (Resp.'s S.M.F. ¶ 57.)
Petitioners timely requested that the Assessor reconsider these assessments pursuant to 36 M.R.S.A. § 151(1). (Resp.'s S.M.F. ¶ 58.) In a decision dated September 21, 2015, the Assessor upheld the assessments in full. (Resp.'s S.M.F. ¶ 59.)
The Warnquists then appealed this decision to the Board of Tax Appeals (the "Board"). (Resp.'s S.M.F. ¶ 60.) During this appeal, MRS determined that the amount of tax assessed for 2012 was overstated by $66 and agreed to abate $66 in tax with a commensurate reduction in interest and penalties. (Resp.'s S.M.F. ¶ 61.) Otherwise, the Board upheld the assessments andsubsequent reconsideration decision in full on July 21, 2016. (Resp.'s S.M.F. ¶ 62.) Following the Board's decision, Petitioners' appealed to this court. Respondent then moved for summary judgment.
a. Petitioner's Opposing Statement of Material Facts
Petitioners' denials of Respondent's statement of material fact and opposing statement of material fact are deficient in several important ways. First, Petitioners do not explain their rationales for their denials of Respondent's statements of material fact, only citing to Eric Warnquist's deposition. As far as this court can discern, Petitioners only dispute material facts either based on (1) the disputed issue of the correct calculation of the section 5217-A credit (Resp.'s; S.M.F. ¶¶ 65-67, 73, 75) or (2) whether the worksheet by provided by MRS for the calculation of the credit contained erroneous information. (Resp.'s; S.M.F. ¶¶ 28, 44.) These contentions are both legal issues to be decided by the court. Diversified Foods, Inc. v. First Nat'l Bank, 605 A.2d 609, 612 (Me. 1992) (citation omitted). Additionally, the cited evidence, Warnquist's deposition, does not sufficiently contradict Respondent's statements of material fact. M.R. Civ. P. 56(h).
In their opposing statement of material facts, Petitioners cited eight...
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