Eilian v. Director of Revenue
2013 Mo. LEXIS 34
| Mo. | 2013Background
- Eilian challenged the Director of Revenue’s denial of Missouri tax benefits from a federal NOL for 2006.
- Eilian incurred a large federal NOL in 2005 ($34,535,882) and used it under §172 to offset federal income in 2006 and 2007.
- Missouri uses a starting point based on federal adjusted gross income (individuals) or federal taxable income (corporations) for §143.121.1 and §143.431.1 respectively, with modifications.
- Brown Group, Inc. v. Administrative Hearing Commission (Mo. banc 1983) held that Missouri cannot grant NOL-based benefits beyond what federal law (§172) authorizes; Brown is central to the dispute.
- Missouri law then evolved with 2002–2003 amendments (coupled approach and 143.121.2(d)) to decouple Missouri from federal deductions, altering how NOLs affect Missouri taxable income.
- The case proceeded to remand for a final calculation of 2006 Missouri taxes in light of Brown and the statutory amendments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Brown controls the Missouri tax treatment of an NOL for individuals. | Eilian argues Brown limits Missouri benefits and 143.121.1 should permit NOL-derived offsets. | Director argues Brown is distinguishable and longstanding, and amendments do not authorize offsetting Missouri-taxable income. | Brown remains controlling; NOL cannot offset Missouri-taxable income. |
| Whether the 2004 amendment to 143.431 abrogated Brown for purposes of 143.121.1. | Eilian contends amendments abrogate Brown’s negative‑income prohibition. | Amendments do not expressly abrogate Brown; Brown remains good law. | Brown remains good law; amendments do not abrogate Brown’s core rule. |
| How §143.121.2(4) should be applied to the NOL in light of 2002–2003 amendments. | Eilian misapplies §143.121.2(4) by adding/subtracting the full NOL amount. | Director/Commission dispute how to treat NOL under amendments; the statute must be read cumulatively. | Proper interpretation does not require adding the full NOL amount; Brown controls the result. |
| Whether itemized federal deductions create a Missouri tax double benefit under the NOL framework. | Itemized deductions should increase NOL carryforward and Missouri deduction. | Deductions are consistent with NOL mechanics and Missouri’s 143.111/141 rules. | There can be no tensor-based double benefit; the NOL rules and Missouri law determine the outcome. |
Key Cases Cited
- Brown Group, Inc. v. Administrative Hearing Comm'n, 649 S.W.2d 874 (Mo. banc 1983) (central holding that Missouri tax benefits from NOL are limited to federal §172)
- Libson Shops, Inc. v. Koehler, 353 U.S. 382 (1957) (explains that NOL provisions mitigate annual tax consequences)
- State ex rel. Conservation Comm'n v. LePage, 566 S.W.2d 208 (Mo. banc 1978) (supports Missouri deduction treatment of itemized federal deductions)
- Custom, Hardware Eng’g & Consulting, Inc. v. Dir. of Revenue, 358 S.W.3d 54 (Mo. banc 2012) (set of standards for reviewing commission decisions on revenue law)
- Buder v. Hackmann, 265 S.W.2d 532 (1924) (cited for interpretation of taxable income and harmonization of federal/state tax concepts)