Farmers Co-op v. State, 893 N.W.2d 728

Background

Farmers Cooperative and Frontier Cooperative sought refunds under Neb. Rev. Stat. § 77-2708.01 for sales/use taxes paid on repairs and parts for agricultural machinery; the Department denied portions of their claims.
The Department’s September 2014 Information Guide defined “depreciable repairs or parts” by reference to the IRS Farmer’s Tax Guide: items that appreciably prolong life, arrest deterioration, or increase value/usefulness and are capital expenditures depreciated over time.
Cooperatives submitted Form 7AG-1 claims with invoices but did not provide personal property tax returns or depreciation schedules to show the items were taxed as personal property; Frontier refused to produce those documents absent an audit.
The Tax Commissioner denied parts of the refunds as taxes paid on nondepreciable repairs/parts; claimants appealed to the Lancaster County District Court rather than requesting administrative hearings.
The district court found the phrase “depreciable repairs or parts” ambiguous, examined legislative history, adopted the Department’s interpretation (aligned with the IRS guidance), and affirmed the partial denials because claimants failed to prove entitlement to refunds.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Meaning of “depreciable repairs or parts” in § 77-2708.01	“Depreciable” should track the definitional framework in § 77-119/related tax regulations (items with determinable life >1 year)	The phrase is ambiguous and should follow the Department’s Information Guide/IRS Farmer’s Tax Guide: capital-type repairs that appreciably prolong life, increase value/usefulness	Ambiguous; legislative history and purpose support Department’s IRS-based definition: repairs/parts that appreciably prolong life, arrest deterioration, or increase value/usefulness and are capital expenditures depreciated over time
Proof required to obtain refund	No statutory requirement to submit personal property tax returns; invoices alone suffice	Claimant bears burden to prove items were subject to personal property tax (to avoid double taxation); Department may require personal property tax return/depreciation schedule	Claimants bear burden; Cooperatives failed to show items were taxed as personal property, so partial denials upheld
Whether “depreciable” must have the same meaning across Chapter 77	Cooperatives: same meaning throughout (consistency with § 77-119 and § 77-2704.36 exemptions)	Department: context differs; “depreciable” may vary by statutory scheme and purpose	Court: context matters; Legislature treated machinery exemption and repair refund differently, so meanings need not be identical
Availability of administrative hearing before judicial appeal	Cooperatives implicitly argued administrative proceedings not required or that record was sufficient	Department noted no formal hearing was requested and record lacked proof	Court: absence of administrative hearing and lack of documentation meant record could not establish entitlement; deference to procedure and evidence requirements upheld

Key Cases Cited

Stewart v. Nebraska Dept. of Rev., 294 Neb. 1010, 885 N.W.2d 723 (Neb. 2016) (standard of review for APA judicial review)
Archer Daniels Midland Co. v. State, 290 Neb. 780, 861 N.W.2d 733 (Neb. 2015) (statutory interpretation principles)
Project Extra Mile v. Nebraska Liquor Control Comm., 283 Neb. 379, 810 N.W.2d 149 (Neb. 2012) (in pari materia/ambiguity guidance)
Trumble v. Sarpy County Board, 283 Neb. 486, 810 N.W.2d 732 (Neb. 2012) (when legislative definitions control)
Dean v. State, 288 Neb. 530, 849 N.W.2d 138 (Neb. 2014) (use of legislative history when statute ambiguous)
State v. Duncan, 294 Neb. 162, 882 N.W.2d 650 (Neb. 2016) (statutory construction—to determine purpose and mischief)
Bridgeport Ethanol v. Nebraska Dept. of Rev., 284 Neb. 291, 818 N.W.2d 600 (Neb. 2012) (tax exemptions construed narrowly)
Goodyear Tire & Rubber Co. v. State, 275 Neb. 594, 748 N.W.2d 42 (Neb. 2008) (analogy between tax exemption and refund burden of proof)