Jessica M. Karmasek Jan. 17, 2013, 3:43pm

JACKSON, Miss. (Legal Newsline) -- The Mississippi Supreme Court has agreed to review an appeals court's ruling that the state Department of Revenue bears the burden of proving that the use of an "alternative apportionment" was the proper method to assess a company's income tax obligation.

The state's high court granted MDOR's petition for certiorari in a one-page Jan. 10 decision.

The department had conducted an audit of state income taxes and determined that taxpayers Equifax Inc. and Equifax Credit Information Services Inc. owed additional taxes.

Equifax Inc., the parent company of ECIS, is a Georgia corporation in the business of consumer credit reporting. It was registered to do business and was, in fact, doing business in Mississippi.

The services provided by Equifax Inc and ECIS include: credit reporting, information services, direct mail marketing, risk management, and mortgage loan processing and approval. The primary services provided are credit reports, credit scores and fraud alerts.

In particular, MDOR audited Equifax for payment of state income taxes for the period of Jan. 1, 2000 through Dec. 31, 2003.

During that period, Equifax had about 800 customers located in Mississippi. The revenue generated from those customers was $5,275,406 in 2000, $6,579,281 in 2001, $5,646,283 in 2002 and $5,178,370 in 2003.

Based on those figures, the total gross receipts for the sale of Equifax's services provided to state customers during the audit period totaled $22,679,340.

At the conclusion of the audit, on Feb. 28, 2008, MDOR issued assessments against Equifax.

The department determined that the apportionment method used by the company did not fairly reflect the extent of its business in Mississippi, and that it should have used an alternative-apportionment method, a market-based sourcing method, during the audit period.

Equifax disagreed with the assessments and appealed to the Mississippi Tax Commission Board of Review. The board upheld the assessments in a reduced amount.

Equifax then appealed to the three-member tax commission, which upheld the board's reduced assessments.

Equifax eventually paid the assessments in May 2009 -- under protest -- including interest and penalties. Equifax Inc.'s assessments totaled $467,836; ECIS's assessments totaled $271,201.

Soon after, the company appealed to the Hinds County Chancery Court, which affirmed the department's assessment.

Equifax then appealed to the state Court of Appeals, arguing that (1) the chancellor applied the incorrect standard of review; (2) the chancellor improperly placed the burden of proof on the taxpayers for alternative apportionment; (3) the department's use of special apportionment violated the Mississippi Administrative Procedure Act; and (4) the assessed penalties were erroneous because the chancellor found the taxpayers acted reasonably and without willful neglect.

The appeals court, in a May ruling, found reversible error and remanded the judgment of the lower court.

"We conclude that the chancellor was incorrect as a matter of law to give deference to the department's decision and apply an arbitrary and capricious standard," Presiding Judge Kenny Griffis wrote in the appeals court's 13-page decision.

From Legal Newsline: Reach Jessica Karmasek by email at

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