On February 1, 2024, the Chancery Court of Hinds County, Mississippi granted summary judgment in favor of Watkins Construction, Inc. d/b/a Watkins Construction and Roofing (“Watkins”) as to all primary issues raised in an appeal by the Mississippi Department of Revenue (“MDOR”) with respect to a decision of the Mississippi Board of Tax Appeals (“BTA”).
The BTA previously ruled in favor of Watkins on all primary issues raised in the chancery court proceedings.
The first issue related to the MDOR’s contention that the 1% sales tax authorized by Section 27-65-241 of the Mississippi Code applied to all of Watkins’ roofing jobs, regardless of whether said jobs were performed within or outside the municipal limits of the City of Jackson. Judge Tiffany Grove held that, in spite of MDOR’s own regulations to the contrary, the relevant statutes placed the situs of the sales as the location of the jobs, or the customers’ respective residences or business locations. As such, any jobs performed outside the City of Jackson were not subject to the 1% sales tax. MDOR based its assessment on the fact that Watkins previously had its corporate headquarters within the City of Jackson; however, only administrative business took place at that location. Further, all materials (the tangible personal property subject to any sales tax) were purchased from a third party supply house in Pearl, Mississippi and delivered directly to the customers’ locations. Therefore, the Court concluded that “no sale of tangible personal property” took place “within the municipality.”
The second issue related to jobs paid for by insurance. Watkins claimed that they were advised by MDOR in a previous audit to treat insurance jobs as non-taxable, invoking “prior audit relief” pursuant to Section 27-65-37 of the Mississippi Code. Essentially, Watkins argued that, if they followed the prior guidance of MDOR in a subsequent audit and relied on same to their detriment, MDOR would be precluded from assessing tax when Watkins utilized the same method previously blessed by MDOR. Judge Grove agreed. As support, Watkins offered the affidavit of a former MDOR employee, being the auditor from the prior audit; and Judge Grove determined that MDOR was unable to provide proof to rebut the affidavit. Based on this same affidavit, Judge Grove also held that MDOR could not assess tax for a period of eight months that was, per the affidavit, included in the prior audit period.
Though the insurance issue was resolved in Watkins’ favor via the “prior audit relief” the Court failed to specifically address Watkins’ arguments as to whether insurance jobs were even appropriately subject to sales tax in the first place. The BTA actually did the same, considering such an analysis unnecessary in light of its ruling on “prior audit relief”.
Watkins anticipates seeking additional guidance from the Court on ancillary issues, such the possible abatement of penalties and/or interest, as well as whether any of the remaining tax owed was properly attributable to the prior audit period, which, per the Court, could not be assessed in the present audit.
The initial tax assessment, made in 2019, was for nearly $525,000. Watkins was successful in reducing the total tax to roughly $425,000 via the decision of MDOR’s Board of Review in July of 2020. The total tax owed, per the BTA, was determined to by $168,474, including all penalties and interest as of March 9, 2022.
The case is styled Mississippi Department of Revenue v. Watkins Construction, Inc., Civil Action No. G-2022-558 G/2 in the Chancery Court of the First Judicial District of Hinds County, Mississippi.
Advocating on behalf of Watkins in the chancery court proceedings was Will Janoush, Shareholder.
BBJ continually represents clients with tax problems before the IRS and MDOR
