CENTRAL & SOUTHERN COMPANIES, INC. v. Riсhard A.WEISS, Director of Finance & Administration
98-407
Supreme Court of Arkansas
October 28, 1999
3 S.W.3d 294
Malcolm P. Bobo, for appellee.
RAY THORNTON, Justice. The court of appeals certified this case to us because it involves substantial questions of law concerning the validity, construction, or interpretation of an act of the General Assembly, and because it is a matter of first impression. The issue is whether the deduction for charitable contributions should be applied agаinst the consolidated income of the affiliated companies in a consolidated tax return, or whether each separate affiliated corporation should take such deductions separately prior to consolidation as contended by Appellee, the Department of Finance and Administration (the Department).
Appellant, Central and Southern Companies, Inc., the parent corporation of ten affiliated comрanies, filed a consolidated state tax return applying deductions after consolidation. Based upon the Department‘s interpretation of
Motions for summary judgment were filed in chancery court by appellant and the Department. Both parties agreed that there
In its point on appeal, appellant argues that the chancellor‘s finding, that
(g) This section is specifically designed to clarify the filing of consolidated corporate income tax returns with the Revenue Division of the Department of Finance and Administration and is to amend the Arkansas Income Tax Act,
§ 26-51-101 et seq. This section is based upon the concept of filing federal consolidated income tax returns.
However, the Department contends thаt the language of subsection (f) of
(f) In computing Arkansas consolidated taxable income or loss to which the tax rate is applied, the separate net income or loss of each corporation which is entitled to bе included in the affiliated group shall be included in the consolidated net income or loss to the extent that its net income or loss is separately apportioned or allocated to the State of Arkansas in accordance with the provisions of
§ 26-51-701 et seq.
In addressing the issue on appeal, we must interpret
As a guide for our review, we look to the rules of statutory construction. The basic rule of statutory construction is to give effect to the intent of the legislature. Ford v. Keith, 338 Ark. 487, 996 S.W.2d 20 (1999). Where the language of a statute is plain and unambiguous, we determine legislative intent from the ordinary meaning of the language used. In considеring the meaning of a statute, we construe it just as it reads, giving the words their ordinary and usually accepted meaning in common language. We construe the statute so that no word is left void, superfluous, or insignificant; and meaning and effect are given to every word in the statute if possible. Id.
The first question we must address is whether the Arkansas statutory scheme is ambiguous. We have determined that a statute is ambiguous where it is open to two or more constructions, or where it is of such obscure or doubtful meaning that reasonable minds might disagree or be uncertain as to its meaning. ACW, Inc. v. Weiss, 329 Ark. 302, 947 S.W.2d 770 (1997).
It appears that the provisions of subsections (f) and (g) are inconsistent. Subsection (g) states that the statute “is based upon the concept of filing federal consolidated income tax returns.” The federal system for filing consolidated income-tax returns provides
(a) the consolidated taxable income for a consolidated return year shall be determined by taking into account:
(1) The separate taxable income of each member of the group;
(2) Any consolidated net operating loss deduction;
(3) Any consolidated charitable contributions deduction.
However, the Department strongly contends that the language of the federal rules uses the phrase “taxable income” and argues that this differs from the language of subsection (f) which uses the phrase “separate net income.” The use of these different phrases is offered as the justification for imposing a different rule for computation of Arkansas taxes, than that used in computation of federal taxes.
The distinction in meaning between “net income” and “taxable income,” upon which the Department relies, is not made clear in the Arkansas statutes. “Net income” is defined as “the adjusted gross income of a taxpayer less deductions allowed by this act.”
In both the state and federal returns, as filed by appellant, the incomes of the affiliated companies were consolidated before deductions such as net operating losses and the deduction fоr charitable contributions were taken. Deductions for charitable contributions are correctly taken from consolidated taxable income for the
Section 170 of the Internal Revenue Code of 1986, as in effect on January 1, 1997, regarding deductiоns for charitable contributions, is hereby adopted for the purpose of computing Arkansas income tax liability. ....
Looking to other provisions of the Arkansas Code is useful in our analysis. With regard to “net operating losses,” the General Assembly has provided in
(D) As used in this section, the term “taxable income or net income” shall be deemed to be the net income computed without benefit of the deductions for income taxes, personal exemptions, and crеdit for dependents.
When a statute is ambiguous, we must interpret it according to the legislative intent. ACW, Inc., supra. Our review becomes an examination of the whole act. We reconcile provisions to make them consistent, harmonious, and sensible in an effort to give effect to every part. We also look to the legislative history, the language, and the subject matter involved. The manner in which a statute has been interpreted by executive and administrative officers may also be considered, and will not be disregarded unless clearly wrong. Id. We must also remain mindful of a final rule of statutory construction in the area of taxation cases. Specifically, when we are deciding any issue involving the levying of taxes any and all doubts
In our determination of legislative intent, we examine the whole act. At the outset we note that section one of Act 708 of 1979, codified as
SECTION 1. PURPOSE OF THE ACT. This act is specifically designed to clarify the filing of consolidated corporate income tax returns with the Division of Revenue of the Department of Finance and Administration and is used to amend Act 118 of 1929, as amended. This Act is based upon the concept of filing Federal consolidated income tax returns.
Act 708 of 1979 (emphasis added). We note that this enactment was a clear expression of the legislаtive intent, or purpose of the entire act, and that its later compilation as subsection (g) does not detract from that expression of legislative intent. Moreover, requiring federal returns to be attached to state returns is a further indication of legislative intent to conform state returns to the requirements of federal concepts. We also note that
Our review next turns to a considerаtion of how the statute has been interpreted by executive and administrative officers. We note that the Department has applied an interpretation of
1. There shall be allowed as a deduction from gross income on a consolidated return of an affiliated grouр, a consolidated net operating loss carryover under the following rules:
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(C) The Consolidated Net Operating loss shall include the separate net income or loss of each member corporation separately apportioned or allocated to Arkansas and shall be subject to net operating loss adjustments provided in Section 13 of Act 118 of 1929 as amended. Net operating loss deductions shall not be taken into account in computing separate net income or loss.
DFA Reg. 1980-1 (1980) (emphasis added). This method of determining the net operating loss used by the state is identical to the method used in the federal system. Treasury Regulation 1.1502-12 states:
The separate taxable income of a member is computed in accordance with the provisions of the Code covering the determination of taxable income of separate corporations, subject to the following modificatiоns:
(h) no net operating loss deductions shall be taken into account;
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(l) no deductions under section 170 with respect to charitable contributions shall be taken into account.
Under the federal statutes, both deductions for charitable contributions and those for net operating losses are to be taken at the consolidated level. The statutory provision relied upon by the Department to justify a different treatment for charitable сontributions is ambiguous, and in the absence of a clear distinction between these deductions, the same rules should be applied to deductions for
The intent to impose a tax must be clearly expressed, and when the taxing statute is ambiguous the statute must be given that interpretation most favorable to the appellant taxpayer. See Leathers v. Active Realty, Inc., 317 Ark. 214, 876 S.W.2d 583 (1994).
Based upon all of these considerations, we conclude that the legislative intent is to follow the federal concept of allowing deductions for charitable contributions to be taken at the consolidated-entity level. Accordingly, the finding of the сhancellor is reversed, and the matter is remanded for disposition in accordance with this decision.
Reversed and remanded.
BROWN, J., not participating.
Special Associate Justice JAY SHELL joins.
IMBER, J., dissents.
ANNABELLE CLINTON IMBER, Justice, dissenting. I cannot agree with the majority‘s holding that the language in subsections (f) and (g) of
A cardinal principle of statutory construction is that we look first at the plain language of the statute and give the words their plain and ordinary meaning. See ERC Contr. Yard & Sales v. Robertson, 335 Ark. 63, 977 S.W.2d 212 (1998); Ford Motor Credit Co. v. Ellison, 334 Ark. 357, 974 S.W.2d 464 (1998). Section 26-51-805 (f) simply states that the “separate net income” of each corporation in the affiliated group is to be included in the “consolidated net income” when computing the “consolidated taxable income” of the affiliated group of corporations. Therefore, the key question is whether the term “separate net income” refers to income after deductions or income before deductions. If that term refers to
Nonetheless, the majority suggests that the definition of “net income” at
The majority then posits that
As the majority points out, it is a rule of statutory construction that statutes should be construed so that meaning and effect arе given to every word in the statute if possible. Kildow v. Baldwin Piano & Organ, 333 Ark. 335, 969 S.W.2d 190 (1998). Therefore, the last sentence of
The trial court properly ruled that
For these reasons, I respectfully dissent.