213 Conn.App. 719
Conn. App. Ct.2022Background
- John P. Costas, a Connecticut resident, received stock options and restricted stock from UBS that vested/exercised in 2005, 2007 and 2008; those events produced taxable compensation in the years received.
- Costas performed services both in Connecticut and New York during the grant-to-exercise and grant-to-vest periods; the proportion of time in New York varied by year.
- New York audited the plaintiffs, they paid additional NY tax for the listed years, and then filed amended Connecticut resident returns seeking corresponding credits under Conn. Gen. Stat. § 12-704.
- The Commissioner applied Conn. Agencies Regs. §§ 12-711(b)-17(c) and 12-711(b)-18(c), computing apportionment using the total compensation received during the relevant periods (including deferred compensation received for services earned earlier), and partially denied the requested credits.
- Plaintiffs proposed an alternate apportionment under § 12-711(b)-15(a) that would exclude deferred compensation; they appealed the Commissioner’s determination, and the trial court granted summary judgment for the Commissioner.
- On appeal, the Connecticut Appellate Court affirmed: it held the contested regulations unambiguous and properly applied, and that the plaintiffs failed to rebut the presumption that the regulatory method is fair and equitable so as to compel acceptance of their alternate method.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Interpretation of §§ 12-711(b)-17(c) & 12-711(b)-18(c) — whether apportionment includes deferred compensation received during grant-to-exercise/vest periods | Costas: apportionment should include only compensation that was both received and earned during the period (exclude deferred amounts earned earlier). | Commissioner: apportionment is based on total compensation received during the period (taxable events), so deferred compensation received in the period is included. | Court: Regulations are plain and unambiguous; include all compensation received during the period (including deferred compensation). |
| Use of alternate apportionment under § 12-711(b)-15(a) — whether Commissioner must accept plaintiff’s proposed method | Costas: Commissioner abused discretion by refusing their alternate method, which fairly allocates income here. | Commissioner: Methods in the Part are presumed fair; plaintiff bears burden to prove unfairness and failed to do so. | Court: Plaintiffs failed to overcome the statutory presumption of fairness; Commissioner properly declined the alternate method. |
| Whether regulatory interpretation deserves agency deference | Costas: (implicit) agency construction should accommodate regulatory purpose and fairness. | Commissioner: agency reading follows regulatory text and federal/state tax principles focusing on taxable events. | Court: No special deference — regulations not time-tested; court applies plain-language construction and affirms Commissioner’s reading. |
| Constitutional or absurdity challenge to apportionment method | Costas: method produces inequitable allocations (argues policy-based unfairness). | Commissioner: States may choose value-based allocation; no constitutional infirmity shown. | Court: No constitutional problem and no absurd/unworkable result; regulatory text controls. |
Key Cases Cited
- Allen v. Commissioner of Revenue Services, 324 Conn. 292 (interpreting related § 12-711(b)-18(a) language and emphasizing plain-meaning construction)
- State Medical Society v. Board of Examiners in Podiatry, 208 Conn. 709 (administrative regulation interpretation is a question of law when not time-tested)
- Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522 (states have broad discretion in taxation)
- Housatonic Railroad Co. v. Commissioner of Revenue Services, 301 Conn. 268 (state taxing authority as component of sovereignty)
- Cady v. Zoning Board of Appeals, 330 Conn. 502 (courts cannot rewrite statutes/regulations; must follow plain language)