April 21, 2019

Colorado Court of Appeals: Taxes Paid to Wrong Municipality Cannot be Recovered and Are Still Owed to Correct Municipality

The Colorado Court of Appeals issued its opinion in Qwest Corporation v. City of Northglenn on Thursday, April 24, 2014.

Use Taxes—Statute of Limitations—CRS § 39-26-210.

Qwest Corporation has a facility in Thornton, a home-rule municipality. Under Thornton’s tax code, Qwest must pay use taxes on new purchases delivered to the Thornton facility. Northglenn, an adjacent home rule municipality, has a similar tax ordinance.

Qwest’s Thornton facility is across the street from Northglenn. Between 2002 and 2005, an error in Qwest’s computer software recognized the Thornton facility as being in Northglenn. As a result, Qwest mistakenly paid to Northglenn use taxes it owed to Thornton during that time.

In 2008, Thornton conducted an audit of Qwest and discovered the error. After Thornton notified Qwest of the deficiency, Thornton and Qwest entered into numerous agreements extending the three-year limitations period under CRS § 39-26-210 for collecting tax assessments and requesting refunds applicable to Qwest’s tax liability to Thornton. Thornton ultimately issued Qwest a sales and use tax assessment totaling $65,862.19 for the subject period.

In 2010, pursuant to CRS § 29-2-106.1(3), Qwest requested a hearing concerning the deficiency by the Colorado Department of Revenue (Department) and joined Northglenn as a respondent. This was the first time that Qwest notified Northglenn that it had received tax payments in error. The Department concluded that any action against Northglenn for taxes for the 2002 through 2005 period was time barred, and Qwest remained liable to Thornton.

Qwest appealed to the district court and moved for summary judgment. The district court affirmed the Department.

On appeal, Qwest argued that under CRS § 29-2-106.1(5) and (6), it is immune from liability for use taxes owed to Thornton for 2002 to 2005 because it erroneously paid those taxes to Northglenn. It further argued that the statute of limitations did not relieve Northglenn of any obligation to forward the erroneously paid taxes to Thornton. The Court of Appeals disagreed.

Colorado’s general use tax statute limits the time to collect taxes to three years after the date the tax is due. The parties agreed that if the limitations period applies, it has expired. The Court concluded that it clearly applies because it covers “any action to collect use taxes.”

Qwest also argued that it should be relieved of its tax liability to Thornton because it paid the amounts due to Northglenn. The Court rejected this argument because Thornton cannot recover the money from Northglenn due to the statute of limitations. The Court therefore affirmed the district court’s decision that Qwest remains liable to Thornton for the use tax deficiency.

Summary and full case available here.

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