Allen v. Commissioner of Revenue Services
152 A.3d 488
| Conn. | 2016Background
- Jefferson Allen (former Tosco and Premcor executive) received nonqualified stock options as compensation while performing services in Connecticut; options lacked readily ascertainable fair market value at grant.
- Allen exercised Tosco options in 2002 while a nonresident and paid Connecticut tax; later exercised Premcor/Valero options in 2006 and 2007 after again relocating out of state and paid tax.
- In October 2009 the Allens filed amended returns seeking refunds for 2002, 2006, and 2007; the Commissioner denied the claims and the Appellate Division affirmed; the Commissioner issued a final determination rejecting refunds.
- The Allens timely appealed under Conn. Gen. Stat. § 12-730; the trial court granted summary judgment to the Commissioner; this appeal to the Connecticut Supreme Court followed.
- Key legal disputes: (1) whether the § 12-732(a)(1) three-year refund filing limit is jurisdictional (affecting the 2002 claim); (2) proper construction of Regs., Conn. State Agencies § 12-711(b)-18(a) (what “during” requires) for taxing option income; (3) whether taxing exercise income of options earned in Connecticut but exercised while a nonresident violates the federal Due Process Clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness/jurisdiction for 2002 refund under § 12-732(a)(1) | Allen: three-year limit is non-jurisdictional and may be equitably tolled | Commissioner: statute is a jurisdictional prerequisite, part of sovereign-immunity waiver scheme, cannot be tolled | Court: § 12-732(a)(1) is a jurisdictional condition precedent to suit; claim for 2002 untimely — trial court lacked jurisdiction (judgment for 2002 should be dismissed) |
| Construction of Regs. § 12-711(b)-18(a) (“during” the period) | Allen: “during” means throughout the entire period (grant year through exercise year) so exercise while nonresident escapes tax | Commissioner: “during” means at some point within the grant and exercise taxable years (presence at grant suffices) | Court: regulation unambiguous; “during” means at some point in the relevant taxable years — presence while options were granted suffices to tax exercise income |
| Due process challenge to taxing option exercise by nonresident | Allen: nexus lacking because options had no ascertainable value at grant and appreciation occurred later outside CT; taxing exercise violates Due Process | Commissioner: sufficient minimum connection exists because options were granted as compensation for services performed in Connecticut | Court: Due Process satisfied — earning options as compensation in CT supplies the minimum connection; taxing at exercise (when value is measurable) is constitutionally permissible |
| Form of judgment/remedy for 2002 claim | Allen: sought refund; trial court dismissed on merits | Commissioner: dismissal for lack of jurisdiction appropriate | Court: affirmed as to jurisdictional defect but reversed trial court’s form of judgment and remanded with direction to render judgment dismissing the 2002 claim for lack of subject-matter jurisdiction; affirmed remainder |
Key Cases Cited
- Williams v. Commission on Human Rights & Opportunities, 257 Conn. 258 (plaintiff’s equitable-tolling authority did not implicate sovereign immunity)
- DaimlerChrysler Corp. v. Law, 284 Conn. 701 (interpretation of tax refund statutes and sovereign-immunity waiver)
- Federal Deposit Ins. Corp. v. Crystal, 251 Conn. 748 (administrative refund claim is a jurisdictional prerequisite to suit)
- Commissioner v. LoBue, 351 U.S. 243 (stock-option exercise is compensatory and taxable when exercised)
- Shaffer v. Carter, 252 U.S. 37 (state may tax income earned within its borders by nonresidents)
- MeadWestvaco Corp. v. Illinois Dept. of Revenue, 553 U.S. 16 (Due Process minimum-connection requirement for state taxation)