Legal Definitions - tax costs

The term "tax costs" generally refers to one of two distinct situations:

• Increased Tax Liabilities from a Corporate Transaction: This refers to additional or unexpected tax payments that arise directly from a significant business event, such as a merger, acquisition, or sale of assets. These are the financial burdens imposed by tax laws on the transaction itself.
• Challenging Litigation Expenses: More frequently, "tax costs" refers to a formal request made by the losing party in a lawsuit to challenge specific expenses claimed by the winning party. After a court orders the losing party to pay the winner's litigation expenses (like court filing fees, expert witness fees, or deposition costs), the losing party can file a "motion to tax costs." This motion asks the court to review the winning party's itemized list of expenses and reduce or eliminate certain items, arguing they are not legally recoverable, are excessive, or were unnecessary.

Here are some examples illustrating these meanings:

• Example 1 (Corporate Transaction): A successful family-owned manufacturing company decides to sell its entire operation to a larger conglomerate. During the due diligence phase, their financial advisors discover that the specific structure of the sale, involving the transfer of intellectual property rights, will trigger a significantly higher capital gains tax liability than initially anticipated. This unexpected increase in the tax burden directly resulting from the sale transaction is considered a tax cost of the acquisition.

  This example illustrates how "tax costs" can refer to the additional tax liabilities incurred as a direct consequence of a corporate transaction, impacting the overall financial outcome for the selling company.

• Example 2 (Challenging Litigation Expenses - Specific Items): A small business successfully sues a former employee for theft of trade secrets and wins a judgment. The court orders the former employee to pay the business's litigation costs. The business submits a detailed list of expenses, including fees for a private investigator who conducted surveillance, and costs for a lavish celebratory dinner for the legal team after the verdict. The former employee's attorney files a motion to tax costs, arguing that the private investigator's fees were not directly relevant to the evidence presented at trial, and the celebratory dinner is not a recoverable litigation expense under applicable court rules. The court would then review these specific items to determine if they should be paid by the losing party.

  This example demonstrates how a "motion to tax costs" is used to challenge specific categories of expenses claimed by the winning party, arguing they are not legally permissible for reimbursement.

• Example 3 (Challenging Litigation Expenses - Amount of an Item): A property owner wins a lawsuit against a construction company for significant structural defects. The court orders the construction company to pay the property owner's expert witness fees. The property owner submits a bill that includes charges from an engineering expert who billed at an extremely high hourly rate for what the construction company believes was routine testimony and report preparation. The construction company files a motion to tax costs, not arguing that expert witness fees are generally unrecoverable, but rather that the *amount* charged by this particular expert is unreasonable and excessive for the services provided, asking the court to reduce that specific cost item to a more reasonable market rate.

  This example illustrates how a "motion to tax costs" can also be used to challenge the reasonableness of the amount charged for a particular expense, even if the expense itself is generally recoverable.