On May 2, the Nebraska Supreme Court issued a decision in the case of Goodyear Tire & Rubber Co. v. State. At issue in the case was whether Goodyear could receive a “direct refund” under LB 775 of sales and use taxes paid on parts used to repair equipment, if the equipment was placed in service prior to Goodyear’s LB 775 application date. Goodyear generally expensed (and did not capitalize and depreciate) the repair parts at issue.
The Tax Commissioner had initially rejected Goodyear’s claim, arguing that Goodyear may only claim a refund for repair or replacement parts used on equipment which was placed into service after Goodyear’s application date.
In affirming the Tax Commissioner’s decision, the Supreme Court held that, to be “qualified property” under the Act, components used to repair or replace equipment must themselves be subject to depreciation, amortization, or other recovery under the Internal Revenue Code. Because the record did not reflect that Goodyear had capitalized and depreciated the cost of the repair parts, the Court concluded that Goodyear’s refund claim was properly denied. The Supreme Court thus rejected Goodyear’s refund claim on a different basis than the Commissioner’s original decision.
At the Supreme Court hearing, Goodyear also argued that the Commissioner’s decision should be set aside because the Department failed to issue regulations which interpreted the term “qualified property.” The Court also rejected this argument. Rather, the Court ruled that, under LB 775, the Department is only required to promulgate regulations which are “necessary” for carrying out the purposes of LB 775, which include encouraging new investment and employment in the state. The Court declared that a regulation establishing the Department’s interpretation of the term “qualified property” was not necessary to carry out the purposes of LB 775.