Citibank takes $30 million bank franchise tax refund fight to South Dakota Supreme Court

Citibank's efforts to reclaim $30 million in overpaid taxes have reached the South Dakota Supreme Court, where the financial group argued Wednesday against "inequity" in the way the state has dealt with bank franchise taxes.

Supreme Court justices heard oral arguments in Citibank's appeal in a case that goes back to a 2012 refund claim from Citibank on state bank franchise taxes it paid between 1999 and 2002.

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The Internal Revenue Service in 2012 reduced Citibank's taxable income for the earlier period, which lowered the state bank franchise tax payment since that is based on federal taxable income.

South Dakota's Department of Revenue rejected Citibank's claim, and the state has argued that the firm didn't request a refund until after the three-year legal window in state law had passed. Citibank said it complied with state regulations and filed a timely refund request after the federal tax agency finished its review of the financial group's books, when it learned its final tax outcome.

Andrew Fergel, a Department of Revenue attorney, told the justices that Citibank should have asked for the refund within the statute of limitations — even though the federal audit wasn't finished — in order to comply with state law.

A circuit court judge had dismissed the bank's appeal of an administrative appeal in 2013, and Citibank brought the case to the state Supreme Court.

The financial group also points to a 2007 payment of $4.3 million to the state for underpaid taxes between 1993 and 1998, which the state accepted even though the three-year legal window had closed.

"(Citibank) did what they were supposed to do — they paid it," Thomas Welk, an attorney for Citibank, told the high court. "So if the logical extension of (the state's) argument is three years and we're done, then they shouldn't have kept the money, and we're entitled to the money back plus interest."

The financial group said in a statement that it's "willing to explore and develop possible alternatives to recover the overpayment while minimizing the impact of the refund on state finances."