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Warnquist v. State

Supreme Court of Maine

January 29, 2019


          Argued: November 6, 2018

          Gregory J. Orso, Esq. (orally), Orso Law, PA, York, for appellant Eric V. and Rosamond C. Warnquist

          Janet T. Mills, Attorney General, and Kimberly L. Patwardhan, Asst. Atty. Gen. (orally), Office of the Attorney General, Augusta, for appellee State Tax Assessor


          HUMPHREY, J.

         [¶1] Eric V. Warnquist and Rosamond C. Warnquist appeal from a summary judgment entered by the Superior Court (York County, O'Neil, /.) in favor of the State Tax Assessor (the Assessor) on the Warnquists' appeal from the assessment of tax on certain foreign income. See M.R. Civ. P. 80C; 5 M.R.S. §11001(2017).

         [¶2] The Warnquists claim that the court misinterpreted and misapplied 36 M.R.S. § 5217-A (2017) regarding the income tax credit available to them for income taxes paid to a foreign jurisdiction. They also challenge the court's determination that the penalties and interest assessed against them for the 2012 and 2013 tax years were appropriate. See 36 M.R.S. §§ 186, 187-B(7) (2017). We affirm the court's judgment.

         I. BACKGROUND

         [¶3] The following facts are drawn from the properly formed portions of the parties' statements of material facts and their stipulated exhibits. See BCN Telecom, Inc. v. State Tax Assessor, 2016 ME 165, ¶ 3, 151 A.3d 497.

         [¶4] The Warnquists are residents of Cape Neddick, Maine, and own two rental properties in the county of Rogaland, in the country of Norway. One of the properties is a single-family home and the other is an industrial complex. In 2013, the home was taken by "expropriation," the Norwegian equivalent of eminent domain. The Warnquists paid income taxes to Rogaland on the rental income from both properties and on the income from the expropriation- $208, 860 in 2012 and $238, 374 in 2013. The Rogaland taxes were based on the Warnquists' gross income and did not include any deductions for expenses related to the properties.

         [¶5] On their 2012 and 2013 federal tax returns, the Warnquists reported their Norwegian income, as well as income from interest, dividends, and pensions sourced in Maine, and deducted from this income certain expenses allowed by the federal tax code, including expenses associated with the properties, to establish their federal adjusted gross income (AGI). The Warnquists then imported their federal AGI to their Maine tax returns. 36 M.R.S. § 5102(1-C)(A) (2017).

         [¶6] To avoid what they viewed as double taxation on the income from the properties, the Warnquists claimed a tax credit on their 2012 and 2013 Maine returns, pursuant to 36 M.R.S. § 5217-A, for the full amount of the income taxes they paid to Rogaland, which was based on the gross income from the properties. For each tax year, the Warnquists used a "Worksheet for Credit for Income Tax Paid to Other Jurisdiction," issued by Maine Revenue Services (MRS), to calculate the section 5217-A credit. Instructions on the worksheet guide taxpayers through each step of the credit calculation. Because the credit the Warnquists claimed in both years exceeded the amount of their Maine income tax obligations, they paid no Maine income taxes.

         [¶7] In 2014, the Assessor[1] audited the Warnquists' 2012 and 2013 tax returns. The Assessor increased the Warnquists' standard deduction for 2012, but also determined that the Warnquists had claimed a larger credit than is allowed under section 5127-A because they overstated the income that was taxed by both Rogaland and the State of Maine.[2] The Assessor calculated the portion of the Warnquists' Rogaland income that was subject to tax in Maine and, based on that calculation, adjusted the Warnquists' section 5217-A credits for both tax years and issued assessments for tax, interest, and penalties.

         [¶8] After receiving notice of the recalculations, adjusted credits, and assessments from the Assessor, together with an explanation of how to properly calculate the section 5127-A credit, [3] the Warnquists timely petitioned the Assessor for reconsideration of its decision pursuant to 36 M.R.S. § 151(1) (2017). The Assessor denied the petition.

         [¶9] The Warnquists then appealed to the Board of Tax Appeals (the Board). 36 M.R.S. § 151(2)(F)(1) (2017). The Board reduced the tax assessed for 2012 by $66 because the Warnquists understated their allowable standard deduction, but otherwise upheld the assessments in a decision dated July 21, 2016. The Warnquists sought reconsideration of the Board's ...

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