11 Or. Tax 410 | Or. T.C. | 1990
Plaintiff's Motion For Summary Judgment granted September 27, 1990. Defendant disallowed a net operating loss (NOL) carryforward on plaintiff's 1985 individual income tax return. As *411 a result, plaintiff incurred a minimum tax on certain preference items. Plaintiff appealed. The parties have stipulated the facts and thoroughly briefed the issues. The matter is before the court on cross-motions for summary judgment.
During the years 1981 through 1984 plaintiff was a resident of Connecticut but owned a ranch in Oregon. During those years the ranch incurred substantial losses. As of December 31, 1984, plaintiff had a NOL carryforward attributable to Oregon sources of $4,879,253. However, overall plaintiff reported a positive federal taxable income (from sources outside Oregon) during the years 1982 through 1984. At the end of 1984 plaintiff had no federal NOL carryforward. In 1985, plaintiff moved to Oregon and filed a "full-year resident" Oregon income tax return. In that year he had items of tax preference totaling $3,325,841 but otherwise had a negative Oregon taxable income (loss) of $1,557,823.
The parties agree that if plaintiff cannot use his 1984 NOL carryforward in computing his 1985 Oregon taxable income, his 1985 tax is $48,631. On the other hand, if plaintiff can use his 1984 NOL carryforward of $4,879,253, his 1985 tax is zero.
1. The focus of this dispute is ORS
"Notwithstanding ORS
316.012 , in the computation of state taxable income the net operating loss, net operating loss carryback and net operating loss carryforward shall be the same as that contained in the Internal Revenue Code as it exists at the close of the tax year for which the return is filed and shall not be adjusted for any changes or modifications contained in this chapter or by the case law of this state."
The parties agree that Bechtold v. Dept. of Revenue,
The parties also agree that the statute, as enacted, is unclear. It falls in the class described by the Oregon Supreme Court as "inexact terms." Such terms may embody "complete expressions of legislative meaning, even though that meaning *412
may not always be obvious." Springfield Education Assn. v.School Dist.,
Having agreed that the statute is unclear, each party proposes a word to make it clear. Plaintiff believes that the statute refers to "definitions" contained in the Internal Revenue Code (IRC). In plaintiff's view, this clarifies the intent that NOL carryforwards be computed as defined by the IRC. So defined, a NOL based on Oregon sources will be allowed without regard to a taxpayer's federal NOL. Defendant, on the other hand, contends the statute refers to the "amount" of the NOL. By referring to "amount," defendant concludes that a NOL for Oregon purposes cannot exceed the taxpayer's federal NOL.
2. The duty of the court is to determine what the legislature intended. The first step in that process is to examine all the words used by the legislature to express its intent. Consideration of the legislative history is appropriate only to aid the court in discerning the intent behind the words of the statute.
From that perspective, defendant's position has much to commend it. Use of the terms "the" and "that," when referring to NOL, seem to suggest an "amount" more than a "definition." Since the legislative intent was to simplify the computation of NOLs, choosing an "amount" would be a quick way to do so. As defendant points out, its representative explained the proposed law to the legislative committee in terms of amounts.
Nevertheless, the court does not find defendant's view acceptable. If we insert the word "amount" in the statute, it reads:
"Notwithstanding ORS
316.012 , in the computation of state taxable income the net operating loss [amount], net operating loss carryback [amount] and net operating loss carryforward [amount] shall be the same as that [amount] contained in the Internal Revenue Code as it exists at the close of the tax year for which the return is filed and shall not be adjusted for any changes or modifications contained in this chapter or by the case law of this state."
As plaintiff points out, there is no "amount" in the relevant provisions of the IRC. Consequently, defendant's interpretation, to make sense, requires substantial rewriting *413 of the statute. For example, can we assume the legislature intended to refer to the amount contained in the taxpayer's federal tax return? If that were true, why did it specify "as it exists at the close of the tax year" since tax returns do not usually exist at that time?
Defendant also argues that it previously used federal "definitions" of NOL and such use did not eliminate the complexity of the computations. However, that use was before ORS
The problems with defendant's interpretation are suggested by its administrative rule. That rule explains that the amount of NOL "is the same amount as the resident computes for federal purposes." OAR
Since the IRC does not contain the amount of NOL, ORS
Whether ORS
3. ORS
"In the case of a nonresident, the net operating loss deduction, net operating loss carryback and net operating loss carryforward shall be that described in subsection (1) of this section which is attributable to Oregon sources."
Only by inserting "amount" in subsection (1) can defendant conclude that a nonresident's NOL is limited to the lesser of the Oregon NOL or the taxpayer's federal NOL. OAR
"The purpose of the carryfoward and carryback aspect of the net operating loss deduction is to overcome the rigidity inherent in the concept of an annual tax." Christian v. Dept. of Rev.,
269 Or. 469 ,471 ,526 P.2d 538 (1974).
4. As expressed in Mertens Law of Fed Income Tax § 29.01:
"Thus, the net operating loss deduction is, in effect, an averaging provision that allows a loss to be carried to years other than the year in which the loss arose."
Defendant's interpretation does more than simplify the computation of a NOL. It changes the basic concept. Defendant would allow no averaging effect unless the nonresident's Oregon income or loss is consistent with his or her *415 income or loss outside Oregon. As in this case, where the taxpayer realized gains outside Oregon but incurred a NOL in Oregon, the Oregon NOL would be lost. This court does not question the legislative power to so limit NOL deductions. However, the court is persuaded that if the legislature intended to modify the basic concept of a NOL, such intent would be discernible in either the statute or the legislative history.
Nothing in the legislative history produced by defendant supports its position. To the contrary, the thrust of the legislative history was to simplify the computation of a NOL. That can be achieved without affecting the basic concept.
If ORS
This interpretation avoids the inequity which would occur when, as here, a taxpayer incurs a NOL while a nonresident and then later becomes a resident. Under defendant's interpretation, the NOL carryforward would be lost because the resident taxpayer's NOL is the same as the federal NOL. However, under plaintiff's interpretation, the NOL experienced as a nonresident may be carried over and included in the resident's NOL calculation.
5. The court finds that ORS
IT IS ORDERED that defendant's Motion For Summary Judgment is denied; and
IT IS FURTHER ORDERED that plaintiff's Motion For Summary Judgment is granted. Costs to neither party.
"Any term used in this chapter has the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes, unless a different meaning is clearly required or the term is specifically defined in this chapter. Any reference in this chapter to the laws of the United States or to the Internal Revenue Code means the laws of the United States relating to income taxes or the Internal Revenue Code as they are amended on or before December 31, 1984, even where the amendments take effect or become operative after that date, except where the Legislative Assembly has specifically provided otherwise. (Or Laws 1985, ch 802, § 1.)
