Starting in the late 1990s, HealthSouth Corporation, which advertises itself as the nation’s largest provider of inpatient rehabilitative healthcare services, began intentionally overstating its earnings in order to meet expectations of Wall Street analysts.
Then in 2002, HealthSouth added non-existent “miscellaneous”
assets to its Colorado ledgers to balance its books. It did the same in
other states across the nation. By 2003 it had overstated its earnings
by at least $1.4 billion. HealthSouth then began filing misleading personal
property declarations with Boulder County and other state taxing authorities,
to match its fraudulent accounting to avoid raising the suspicion of federal
authorities. It then paid personal property taxes on these non-existent assets.
In 2004, HealthSouth filed with Boulder County petitions for refund of
taxes paid in 2002. HealthCare admitted that it had inflated income with
matching entries to non-existent assets in a fraudulent scheme, and had
paid taxes on those bogus assets. Boulder County denied the refund under
a Colorado statute it believed controlled the situation.
On appeal, the Colorado Board of Assessment Appeals (BAA) dismissed the
petitions, upholding Boulder County. The Colorado Court of Appeals, in
a split decision, reversed the BAA, giving a broad interpretation to “overvaluation”
of assets as a ground for authorizing a refund.
The Colorado Supreme Court reversed the Colorado Court of Appeals, holding
after careful analysis that none of the four conditions for refund authorized
by the statute had been met nor existed. These reasons include (1) erroneous
valuation for assessment; (2) irregularity in levying; (3) clerical error;
and (4) overvaluation.
Intentionally paying taxes on properties it knew did not exist in order
to perpetuate a fraudulent scheme does not authorize a refund of those
All Colorado business taxpayers should read the full opinion of the Colorado