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High-Stakes Tax Dispute May Spell Solo's Second Trip to U.S. Supreme Court
At issue is whether companies can collect nearly $212M in refund claims after Kentucky's tax rules were changed
Fulton County Daily Report
September 08, 2009
An Atlanta solo practitioner may get his second trip to the U.S. Supreme Court to defend a victory he won at the Supreme Court of Kentucky that is potentially worth more than $212 million.
Last year, C. Christopher Trower was a U.S. Supreme Court novice when he won the Kentucky government's fight over the taxation of municipal bonds. Both he and his opposing counsel in the latest case say there are good reasons for the nation's highest court to take up the latest Kentucky tax case, too.
Trower said he's been helping Kentucky with the tax dispute for 12 years, beginning even before he took on the matter that went to the high court last year. "We'll see where it heads," said Trower. "It's been a long journey."
The history of the case is convoluted and involves both complicated tax issues and heady constitutional questions. At its core, it's a high stakes dispute between the Kentucky government and dozens of corporations over whether the companies can collect on refund claims they filed after the Kentucky Supreme Court changed corporate tax filing rules in 1994.
According to Trower, the pot of money corporations are claiming in refunds from Kentucky in the litigation, including interest, had grown to $212 million as of the end of June. The corporations with a stake in the battle include Phillip Morris, which, according to Trower, has more than $100 million at issue. Trower said the $212 million sought in refunds is equivalent to one year's worth of corporate income tax revenues for the commonwealth.
The corporations' lawyer, Erica L. Horn of Stites & Harbison in Frankfort, Ky., downplayed the amount of money at stake, saying it's impossible to know what the case is worth. She noted that even if her clients win this fight the commonwealth still may find other reasons to deny the corporations' right to file the sort of tax return they want to file.
"Certainly we recognize that the Legislature has not only the right but the obligation" to protect the public treasury, said Horn. But, she said, "to the extent that a statute is unconstitutional, it shouldn't matter whether there is a dollar or a billion dollars at stake. If it's unconstitutional, it's unconstitutional."
The corporations claim the right to file Kentucky tax returns under what's called a "unitary" business plan for certain past tax years. Under that method, various related corporations -- such as Phillip Morris' cigarette business and its Kraft food business, or the many newspaper subsidiaries of Gannett -- may be able to file one tax return together. While the effect of the unitary method depends on how much of a conglomerate's business is done in a given state or commonwealth, and therefore is subject to tax there, it would save money for the corporations fighting Kentucky in this case.
For years, in the 1970s and 1980s, the Kentucky Revenue Cabinet had allowed certain businesses to choose whether to file separate returns or a combined return under the unitary business concept. It made an about-face in 1988, saying Kentucky law forbid the filing of a combined, unitary return. That decision led to a bit of a corporate revolt, as companies disadvantaged by that change of policy argued that the key state statute in effect at the time allowed multiple corporations engaged in a unitary business to file combined tax returns. The Kentucky Supreme Court agreed with the corporate challengers in a 1994 decision known as GTE v. Revenue Cabinet, 889 S.W.2d 788.
Up to that time, Trower, a Kentucky native who began his legal career practicing there, had been representing corporations fighting Kentucky tax authorities over their returns. But in early 1997, after Kentucky had been deluged with refund claims in the wake of the GTE decision, Trower got a call from then-Gov. Paul E. Patton's general counsel.
