*1 was worthy being in accordance considered with the other protec instruction, tions.” After the defense counsel his excep “reiterate[d]” tion stating merely “the instruction should have that to related affecting admissibility.” objection cryptic inadequate Defendant’s was (defendant with comply V.R.Cr.E 30 must object instruction, “stating distinctly objects the matter to which he grounds and the objection”). best, his At seeking defendant was an instruction that the judge admissibility had made an ruling only and had away not taken the function of the to find test jury result reliable order to convict. failWe to see how defendant’s added or different approach would jury have aided which knew little about the admissibility event, dispute. any defendant no proposed alternative instruction position would have made his clear to the court jury. and the v. Crosby, 123, 125-26(1964) State 124 Vt. (finding no objection error where defendant’s nebulous to instruction did not reasonably indicate specificity what requesting). he was
Affirmed. Amy
Richard and Tarrant Taxes
[733 733] A.2d No. 96-608 Skoglund, JJ., Allen, (Ret.) Present: Johnson (Ret.), Gibson, CJ. J. J., Katz, Supr. Specially Assigned
Opinion 9, 1999 April Filed Reargument May Motion for Denied *2 Luce, Roy D. Roger Christopher Prescott Robert B. William Downs, Martin, PC., Burlington, Plaintiffs-Appellees. Rachlin & for General, Jr., J. Amestoy, Attorney Malley, L. Wallace
Jeffrey General, Bagwell, Special M. Assistant Attorney and John Acting General, Attorney Defendant-Appellant. Montpelier, Ostrach, Boston, Massachusetts, for Amicus Curiae S. Stephen England Legal New Foundation.
Skoglund, appeals superior J. The Vermont Taxes Tarrant holding Amy Richard and taxpayers court decision joint their 1989 income tax return an income tax credit on entitled to their to states paid by for their rata share of pro such taxation treatment of recognize pass-through that did not the court erred constru- contends corporations. disallows the newly explicitly enacted V.S.A. which ing issue, as amendment to 32 V.S.A. 5825 rather than as a clarification of law. preexisting We affirm. of this IDX parties stipulated Systems the facts case.
Corporation, formerly known as IDX Corporation, headquar- has Burlington, ters South In are Vermont residents. president Mr. Tarrant was IDX and owned 48.23% of its Previously, shares.1 IDX had made a valid federal S corporation election, By election, also recognized by Vermont. virtue of this IDX not pay did either federal or Vermont income taxes is, below, That as explained more detail rather than the corporation paying taxes on distributions shareholders and the shareholders received, paying personal then taxes on the distributions IDX’s income, distributed, whether or not was attributed to its shareholders proportion their percentage ownership. in 1989taxpay- — ers reported taxes on 48.23% of IDX’s net income allocable to Mr. Tarrant as a shareholder as personal income federal and This purposes. known taxation. See I.R.C.
During year issue, IDX conducted business in a number beyond states Vermont. those states that accorded. IDX -pass- *3 through treatment, tax taxpayers required were to pay personal income taxes on-their pro rata share of IDX’s net income attributable to IDX’s business activities those states. Since taxpayers paid personal states, they income taxes permitted were to claim a to.those § pursuant to business, 5825 for those taxes. IDX conducted however, in several states2 other that either did not recognize IDX’s or, corporation S status3 while IDX an recognizing S corporation, state, imposed nonetheless corporate-level tax on IDX’s net incomé attributable to corporation’s activities within the state.4 1991, taxpayers filed an timely amended Vermont income tax 1989, return for claiming a credit under against 5825 their 1989 1Amy Tarrant, spouse, party Tarrant’s Richard this matter because the Tarrants jointly. filed their 1989 Vermont income tax return and amended return See 32 VS.A. 5861(d) (imposing joint filers). liability joint and several on jurisdictions California, Connecticut, Columbia, Louisiana, 2 These were District of Massachusetts, Jersey, Michigan, New and North Carolina. 1989, Since some of recognizing corporations. these states have enacted statutes S (West 1996). See, e.g., N.J. Stat. Ann. 54A:5-9 example, 1989, recognized required For California S status but still corporations pay corporate-level such to tax on income attributable to activities (West 23802(b)(1) 1992); conducted within California. See Cal. Rev. & Tax. Code see (Ct. Bd., 88, 1994) Rptr. (discussing also Heller Franchise Cal. App. Tax 2d purposes). treatment S California’s for tax IDX rata of taxes that pro taxes for a share income Vermont ver- Pursuant states. non-pass-through-taxation to such paid for 1989: of 5825 effect sion . . shall receive credit
A of this state . taxpayer year, by 5822 of this that taxable section imposed, the tax to, state or another imposed by title for taxes Columbia, District of United States territory from sources within earned or received upon his income state, territory, or district. 1989).5 (Cum. denied Supp.
32 V.S.A. denial to Commissioner Taxpayers appealed credit. S maintaining passes that because other states on IDX’s imposed by the tax through to Com- taxpayers’ on income. The imposed constituted only afforded grounds denied the claim the missioner liable the taxes to personally pay were the credit where adverse appealed then the Commissioner’s Taxpayers the other state. court. superior determination to had hearing but after the filed May prior parties
On court, Act superior Legislature passed of law with memoranda Tax Changes.” to Miscellaneous Relating “An Act No. entitled had contained de previously tax code Whereas Vermont’s taxation, § 21 of the Act created a coverage minimis of S the tax treatment of subchapter specifically taxation dealing new 21; Sess.), (Adj. chapter Title corporations. subchapter of this subchapter provides: 10A. Section 5916 new title, of this no credit shall be purposes For section 5825 individual, for taxes a resident estate or trust available States, territory another state or the United imposed an S upon the District of Columbia or a Province of Canada corporation. the income of an corporation or years January on or beginning This section after applies *4 1995, Sess.), § 27. The also (Adj. No. 169 1997. See 1997, subsequently and 1997. See 5825 of Title 32 was amended Section (a) provisions adding 50, (designating existing § of section as subsection and No. (b), who are Vermont residents which deals with issues subsection 1991, Sess.), (Adj. (changing jurisdiction); catchline in another No. 186 domiciled concerning paid provinces); adding provisions taxes Canadian section and concerning provinces). (adding provision Canadian '26 section; provided provision sunset for this it as of lapses January 2000. See id. court both parties allowed to file supplemental memoranda to
address the light Commissioner’s decision in of this legislation. new that, Taxpayers dispute did not 5916 had been effect they could not have received the they They 5825 credit seek. however, argued, amendment, constituted altering contrast, meaning By contended that § 5916 only confirmed and restated existing law of 5825. The court, agreeing taxpayers’ interpretation of 5916 and noting this interpretation was the significant” “most factor in its decision, reversed the Commissioner’s determination allowed the credit. This appeal followed.
Before addressing specific appeal, forth, issue on first set way of background, brief overview of the S corporation business form. “One disadvantages doing business in [traditional] corporate form is phenomenon of ‘double taxation.’” v.Wolff Revenue, (Mo. 1990). Director 791 S.W.2d A traditional corporation, also known as a C because its governing provisions C, in Subchapter found Chapter Subtitle A of the United States (I.R.C.), Internal Revenue Code is treated as a separate entity by taxable government federal and is required pay corporate income taxes based on or measured its net income. aWhen C corporation distributes its earnings and to its profits shareholders, these generally distributions are taxable to the share- holders as dividends. a C corporation’s income that is distrib- uted to its shareholders is taxed twice: once at the corporate level once at the level. Congress adopted Subchapter S of the I.R.C. primarily
curtail the impact of double taxation on small businesses. See McDaniel, al., generally E et Federal Income Taxation of Fartnerships (2d 1997) and S Corporations, 383-87 ed. (discussing legislative history purpose corporations); Fletcher, al., 14A W et Fletcher Cyclopedia of the Law of §§ Frivate Corporations 6970.191- 1991) 6970.215 (perm. ed. rev. vol. (discussing corporation charac teristics). Subchapter S permits businesses, small or S corporations, to receive the “non-tax advantages incorporation as continuity such existence, insulation from personal liability, and ease of transfer ability of ownership,” Revenue, Cohen v. Colorado Dep’t 593 P.2d (Colo. 1979), which corporations. are also available to C There *5 C however, corporations corporations, S and are, between differences tax treatment.6 notably their most most part are for the their and corporations S (1986). 1363(a) § taxation. See I.R.C. from double
statutorily exempt (S from gain recognized taxable on corporation is But id. see while acquired or income items assets disposition appreciated in a corporation a corporation, or from C was C corporation transaction). their share- Instead, corporations S and nonrecognition much like and their purposes partnerships for tax holders are treated (1982)(“These 97-640,at 15 rules Rep. S. No. partners. See respective partners the taxation governing the. . . rules follow generally loss.”); Beard see also partnership income respect to items 1993) (“The (11th S States, corpora- Cir. 992 F.2d United traits of both is, effect, hybrid combining in Code-created tion can thus “select A small business partnerships.”). corporations . into desired, taking . . organization without the form business 85-1983, Rep. Ño. major consequence.” in tax S. account differences (1958). at 87 level, required to file an are
At the federal S (or return, year gross reporting the taxable informational shareholders, loss), deductions, credits, and the identity 6037(a). of each item. See I.R.C. pro shareholders’ rata shares in the corporation typically computed an same taxable income of S 1363(b). deductions, of an individual. See id. Certain manner as that may however, corporation, to the S but be claimed are not available taxes paid These include deductions for the individual shareholders. See, id. e.g., United possessions. countries or States foreign (or loss), deductions, 1363(c)(1), corporation’s S shareholders, proa rata to the passed through credits are basis id. on their income tax returns. See report who them loss, 1366(a)(1)(A)(items income, income, including tax-exempt — deduction, any separate or treatment of which could affect shareholders). liability passed through shareholder’s in the items retain their character shareholder’s These corporation identity restrictions on the number and Other differences include 1361(c)(2) (1986). 1361(b)(1)(A), 1361(b)(1)(B), See, §§ e.g., shareholders. I.R.C. 1361(b)(1). addition, See id. It corporation. must an S be domestic (1) individual, see id. have a who is nonresident alien cannot stockholder (2) 1361(b)(1)(B). 1361(b)(1)(C), Finally, See id. corporation, partnership. an exception may (although there stock only one class of stock issue 1361(c)(4). 1361(b)(1)(D), rights). See id. voting §§ IDX terminated its varies publicly. when it offered its stock election (character 1366(b) hands. See id. item any included sharehold- er’s pro rata share shall be determined as such item were realized from same directly source as corporation, realized or incurred 97-640, same by corporation); manner incurred S. Rep. at 16 (similar to partnerships, items involved in determination credits shareholders). pass through corporation’s to S each share- reports holder on personal item a income tax return as if the item *6 1366(b); were derived the directly. shareholder See I.R.C. S. (like Rep. 97-640, No. at partners, 17-18 each corporation share- holder account of rata pro takes of of corporation’s share items etc.).7 income, deduction, credit, mind, With this in background now turn to the appeal.
Where
is
there
an intermediate level of
from an
appeal
body,
administrative
we review the case under the same standard as
applied
the
appeal.
intermediate
See
re
Sherburne,
In
Town
154
603,
596,
274,
(1990).
Vt.
581 A.2d
278
We will not set
aside
findings
Commissioner’s
of fact unless clearly erroneous.
re
See In
Admin.,
68, 75,
Agency
1349,
141 Vt.
444 A.2d
1352
law,
Conclusions of
findings,
unlike
not
so
id.
protected. See
Nonetheless, we do accord
deference
the Commissioner’s construc
tion of tax
represents
statutes where it
a permissible
construction
Club,
the statute. See Brattleboro Tennis
Inc. v. Department of
Taxes,
604, 604,
166 Vt.
(1997)
(mem.);
1063
cf.
Burlington
Elec.
Dep’t Department
154 Vt.
(absent
A.2d
compelling
error,
indication
we will
on
sustain
appeal interpretation of statute by
body
administrative
execution);
responsible for its
Admin.,
In re Agency
atVt.
(we
Here, neither the Commissioner nor superior court made findings because the parties submitted the matter for upon decision stipulated facts. The 5825,however, Commissioner’s construction of primarily special treatment, due to this the maximum corporation 39.6%, effective rate of taxation on S income was estimated while the maximum effective rate of taxation of distributed C income was estimated ah, McDaniel, See E 60.74%. et Partnerships Federal Income Taxation of (2d 1997). Corporations, surprisingly, at 384 ed. Not the avoidance of taxation double popular has made the S form in the United States. See id. business justified denial of The Commissioner review. not withstand does liabil- phrase “personal by importing taxpayers’ requested on the unduly then focused The Commissioner into the statute. ity” of the credit meaning that the plain to conclude language imported for taxes claiming a refund from precluded provision income but on personal their considers .imposed what Vermont paid non-pass-through-taxation taxes to their S which states. early that an version argues appeal,
On as the plain this reading provision supports tax credit foreign was first foreign provision tax credit statute. meaning When “should a resident this state language it included the added 52, § 1 (emphasis liable to another state.” . . . become (1959)). added) (codified changed was phrase 32 V.S.A. Sess.), (Spec. No. 61 in 1966. See to the current version 5825). (codified The Commissioner testified before as 32 V.S.A. change way that the bill did Finance Committee Senate their tax The Commis- taxpayers compute individual liabilities. which merely summarized a memorandum sioner also submitted foreign tax credit. The providing restating § 5825 as liability carried was alleges concept to, imposed by, language “for taxes statutory forward *7 added).8 (emphasis state.” 32 V.S.A. 5825 another that the historical Contrary pres- to conclusion the concept demonstrates that the ence of the word “liable” 5825, presume in the interstices of we liability continues to reside attempts support to its contention that tax credits are available The also by taxpayer “personally relying the only a liable” on for those taxes for which is permits language in Section 5822 in three other sections Title 32. contained year by every imposition “upon of tax the income earned or received in that taxable individual, imposes “upon trust.” Section 5832 estate and Finally, year by every corporation.” in that taxable taxable income earned or received individual, 5861(a) subject any “[ejvery requires trust or estate to taxation for synergistic year file claims a under a tax return. taxable section 5822” conjunction Legislature’s reading evinces the intent of these sections by taxpayer and for which a for those taxes make a tax credit available agree “personally read taxpayer that these other sections should be is liable.” While we of Rushford, 494, 497, 18 re Estate pari 111 Vt. A.2d materia with see First, (1941), argument none of these sections this without merit. 176-77 we find liability,” unnecessarily. “personal it expressly and we decline add mentions the term infra, conclude, importantly, due to the nature of More as is discussed we corporations legislative allowing to elect S intent and the behind status, that, law, as Vermont shareholders a Vermont a matter paid by pro their S personally share of taxes liable for their rata they conduct business. to other states where that the Legislature statutory language advisedly. adds and removes Bank, Payea v.Howard 106, 107, 663 937, 938(1995); See 164 Vt. A.2d Fuller, (it (1995) see also State v. 523, 528, 163 Vt. 660 A.2d expand inappropriate statute into it implication reading effective). there, it something necessary unless to make statute accept legislative history Even we were to sparse this v. “liable,” a legislative Swett manifested intent to retain the word cf. Inc., 1, 6-7, Haig’s, 164 Vt. 663 A.2d (declining sparse decisive), accept legislative history meaning as plain.9 Precisely would remain far from what constitutes “his income received,” (1989), earned see 32 would persist V.S.A. as an open question it question, by tying unanswered to income on which because, Vermont, a taxpayer personal liability incurs least taxation renders personally liable for taxes income at issue. statute, When interpreting principal goal our is to West, See In re effectuate the intent of Legislature. 165 Vt. (1996). 1099, 1102 685 A.2d Initially, in our attempts to ascertain legislative intent look guidance plain meaning clear, legislative words used. If intent is the statute must be enforced according to its terms without resorting statutory construction. if, here, Conversely, the statute is ambiguous, legislative intent must through statute, be determined consideration of the entire matter, including subject effects and consequences, as well as the Sherman, Harris v. spirit 613, 614, reason and the law. 167 Vt. (1998) (mem.). 708 A.2d While we recognize general rule that statutes granting strictly credits must be construed the taxpayer, the construction must not defeat the purposes Stephens Department statute. 134 Vt. effect of intervening enactment becomes a matter interpretation only plain after the does not language prove decisive. As we have concluded that the plain language of statute does not question us, resolve the before we now address primary grounds on which the superior court reversed the Commissioner’s decision: *8 § 9 We note that disallowance of the 5825 credit for to nonrecognizing appear prior plain, states did not to enactment to one (Vermont) (CCH) ¶ knowledgeable Rep. 10-215, tax commentator. See St. Tax. at 1112 (“Applicable years beginning through taxable in 1997 no credit bewill available individual, imposed by to a resident estate or trust for taxes another state on the income.”). or its import appropriate Act 169’s review of Act 169. Nondeferential — the Commission- given that superior it at the court as was here enactment, Commissioner and the to its prior issued er’s decision into Act consideration. to take the had no opportunity therefore first 10A is Vermont’s subchapter that
199
construing
merely
5916 as
If
clarifying legislation.
merely
§ 5916
law,
clarified
date
existing
effective
would have been unnecessary
surplusage. By
its own terms
January
5916was
effective until
1, 1997. Consequently,
Department’s
contention that the section
clarifies
5825 in effect seeks retroactive effect for disallowance of
the credit. Such a construction of the amendment
would contravene
214(b)(1)
V.S.A.
(prohibiting
statutory
amendment
provision
date).
from affecting operation
provision
prior to effective
The
that,
dissent as well
Department
as the
contend
because Act 169 also
contains extensive provisions
to and
adding
changing the law with
respect to S
corporations,
Legislature understandably provided
add,
one
provision
sunset
for the
amend,
sections that
clarify
corporation legislation.
it
Although
agree may
have been easier for
the Legislature to enact one
sunset
the entire S corporation
legislation instead of
providing
provision
sunset
for only those
sections that
existing legislation,
presume
amended
we also
that the
Legislature inserted the
provision
sunset
advisedly. See
Payea,
atVt.
Looking
both the purpose
specific
underlying
section at
issue and the more general purposes
statutory
behind Vermont’s
schemes,
taxation
we encounter additional grounds
permitting
taxpayers the credit. For Vermont individual taxpay
ers, §
clearly
permits
for taxes paid
foreign
jurisdic
purpose
of affording
tions.
taxpayers credit for income taxes paid
in another state is to prevent or alleviate the burden of double
taxation.
Stephens,
A of double second at the again then level and corporate of income is taxed taxation businesses this double Particularly for small level. form onerous; hybrid corporate the creation hence proved for certain entity recognized as which business of its and, equivalent a functional partnerships, similar purposes is, respect That with for taxation purposes. aggregate *10 tax, corporation. for the shareholders substitute the individual income subjected to were The contends entities, corporation and the two distinct the double taxation because individuals, of corpo- The tax treatment S pass-through were taxed. however, corporate the rations, in a renders or should render sense for entity purposes. transparent by in and operate form and Vermont
By S to allowing treatment, Legislature the en- adopting the federal and entities, the its taxing corporation both S policy a against dorsed Neehemias, shareholders, on same income. See S. the individual to Paid Another by Corporation Credits Taxes the S Shareholder (1996)(“[I]f 141,146 a of State, Tax’n shareholder’s state Corp. 8 J. S then corporations, status S recognizes flow-through residence the corporation a taxation’ of S has ‘double policy such state income.”). has since Legislature fact that the Regardless the the as it then policy, policy a see 32 V.S.A. espoused different if its only permitted be resident stood could realized Vermont to paid to a corporate-level receive credit 5833(a), to a traditional nonrecognizing states. Pursuant 32 V.S.A. on income is taxed Vermont taxable Vermont, its while in other states to activities activities attributable states. A resident shareholder of solely by are taxed those other for taxes corporation may S claim credit under resident does to states in which the S by the shareholder other status. recognize the other states business credit, however, Department’s interpretation of either essentially deprives taxpayers the benefit included, to other without § 5833 because income allocable states credit, same time as on their tax return corresponding personal Thus, corporate level. under the other states tax view, places instead of the income taxed two one to the income arose. Since allocated the location where according consequence corporation pass-through potential taxation is inclusion of on a undistributed resident sharehold- return, er’s personal necessary corresponding it is supply consistently taxation of apply policy alleviating Vermont’s double small businesses. “piggyback”
Vermont’s on the income tax framework federal provides additional for the has support credit. expressly codified its intent conform the Vermont and Code, corporate income taxes Internal the United States Revenue 5820(a) (em “except as otherwise expressly provided,” V.S.A. added), phasis for the purpose simplifying taxpayer’s filing returns, burdens, reducing taxpayer’s accounting facilitating id.; collection administration of taxes. See also these see Oxx v. Department Vt.
(noting that one of Legislature’s goals is to “piggyback” Vermont’s structure). tax provisions onto federal The Legislature began “piggybacking” Vermont’s tax statutes on (Vermont’s federal tax code 1947.See 1947 tax policy V.S. as closely may Code”); “conform as be with Internal Revenue 932(VI) (“‘Net income, see also id.” income’means the net same as 26,1947, defined under the Internal Revenue Code effect April (a) excluding income which under such code is expressly exempted (b) losses.”).11 states; from taxation capital gains and *11 1958, in Congress permitted when the formation of corporations S provided I.R.C., and for them the provisions, Vermont’s tax due to the “piggyback” policy, automatically permitted the formation and operation Vermont, S corporations within and adopted also same tax corporations treatment of S provided the I.R.C. that, level,
We note the federal shareholders of an corporation S to a entitled tax credit foreign share of foreign their income paid by 901(b)(3), 1373(b) taxes an corporation. §§ S See I.R.C. (1986). provisions Vermont’s tax contain no language expressly deny- ing taxpayers the credit In at issue. light of Vermont’s 5820 policy I.R.C., tax conforming our code to the absent express provision to scheme, deviate from the federal tax the newly 5916, like enacted shareholders are entitled a tax credit for their “foreign” share of paid by income an corporation state, S regardless another 1967, Legislature changed the manner in which income tax was calculated, percentage percentage from a of net income to a of federal income tax liability. See No. See White recognizes corporations.12 “foreign” that state whether (Minn. T.C., Aug. *2 Commissioner, WL TSB-D-90(28)I, 1990 at *3 WL Baker, 1995); No. 805550 In re that shareholder (N.Y. 11, 1990)(holding resident Trib. Oct. App. Tax by corporation paid tax credit for taxes eligible of S “consistent with this conclusion is noting in another state an S that shareholders of provides Code which Internal Revenue their share of tax credit for foreign to a are entitled by corporation”). an S foreign has been corporations concerning S legislation federal While the fundamental forty years, the past over the and revised amended — aas “to eliminate the Subchapter purposes profits operating under which the entity provide system taxable shareholders,” directly are taxed corporations qualifying McDaniel, Because of Vermont’s unchanged. at 384 remain supra, also provisions, to conform to the federal goal purposes. these fundamental and has maintained implicitly adopted pass through the credit to construing permitting 5825 as by shareholders, goals fundamental we ensure to the resident businesses to small Vermont multistate provided tax benefits procedural outweighed are not as S operating rules. See J. with other states’ compliance and costs complexities Maze Kozub, Endure Corporations R. Multistate S Connors & Laws, Tax’n, at 179. J. Mar. State remaining to the few respond we must Finally, Department puts stock against granting credit. arguments that, they expressly would have passed, bills had two unenacted in the case. We fail to present of tax credit at issue granted type Legislature may since the well of these two bills significance see the reasons, § 5825 for other such as the belief rejected the bills have City Burlington, Munson v. the credit. See already granted of S. Vt. may not claim contends that also that-are allows those federal credits because Vermont the credit 5811(4) 5811(4). 32 V.S.A. in 32 V.S.A. identified specifically 1989) (“‘Federal (Cum.' . . . the liability’ income tax means Supp. . . under the laws of the taxpayer. payable federal income tax , of the retirement . . after the allowance United States *12 lacking be found in 32 VS.A. 5916. express provision in 1989 can now 12 The that was See discussion infra. credit, credit, credit, tax foreign dependent investment child care and credit, credit and care alternative minimum tax but before the of any liability.”). allowance other credit that disagree. We Section 5828b of Title also credit that not grants federal listed 5811(4). (Cum. 1989) (“A 5828b(a) See id. §in resident Supp. individual. . . who to tax granted is entitled an earned income credit under the laws of the United States shall be entitled to credit .”). 5811(4) . only . . because is not containing section credits, federal in concluding available we are constrained that issue, grants credit at which is also available to S corporation shareholders at the federal level. that, argues lastly we construe as issue,
granting credit we will in financing effect be subsidizing other those states’ decisions to tax Vermont corpora- so, tions the corporate level. If it was a legislative decision in the first instance one since changed. has More- over, disagree that it to amounts a subsidy. above,
As §§ discussed two Vermont tax provisions, 5825 and allocate the primary taxing authority on income the state from which it arises. two These sections alleviate the burden double taxation for persons resident corporations respectively. At the level, personal received, all report individuals must no matter source, on their income tax they returns. While potentially subject income, to Vermont taxation total taxpayer able to offset some of the Vermont liability by claiming pursuant credit 5825. The maximum tax credit can be claimed, however, that, is-limited. Section 5825 states no case “[i]n shall allowed portion this section exceed the of Vermont tax, imposed by otherwise this chapter, attributable adjusted gross income earned or received from sources within such state, (Cum. 1989). territory other or district.” 32V.S.A. Supp. short, the actual amount of the income tax that was another determined, state is first potential and then the Vermont income tax on the out-of-state income is calculated using Vermont’s income tax provisions. taxpayer may only claim credit lesser of By contrast, these two amounts. are taxed on net income that is received from Vermont sources. See 32 V.S.A. is, That opposed income, to a credit for non-Vermont § from the provides outset for according allocation of income its state source.
The interface between Vermont’s policy policies other states has both a positive negative impact on the revenues *13 in New work instance, residents many Vermont For here. collected on these residents’ income tax collects currently Vermont Hampshire. impose does not Hampshire New because earnings Hampshire New tax, income Vermont to enact Hampshire a tax. Were New such If the §to tax pursuant for that a credit then allow would to collect the continue would Vermont higher, tax rate were Vermont rates. New and Vermont Hampshire the New between difference the certainly lower tax would of an income Hampshire’s enactment residents who from the Vermont could collect tax Vermont total Nonetheless, not mean this does Hampshire. in work New perform To the Hampshire. New subsidizing be would then that Vermont windfall, from New has received benefit, Vermont or contrary, the Similarly, be reduced. merely tax would of income lack Hampshire’s tax on collect a legally in this can appeal at issue other states the they in their state. Whether from activities derives income that IDX form of a tax the collecting policy adopt choose taxation of tax, they recognize pass-through because income tax, not they do because in the form of corporations, treatment, way either opportunity have the they such tax recognize of income. on that stream a tax imposing tax reve- maximize Vermont’s attempted has including taxpayers, resident Vermont’s protecting nues while and burdensome shareholders, unfair possibly from the higher imposes another state In the event of double taxation. impact Vermont, Vermont, pays not taxpayer, tax rate than does credit ensured itAs existed difference. the form of were able “to select small business shareholders taking into desired, necessity of without the organization business 85-1983, consequence.” Rep. S. major account differences at 87. Legisla- consequences cannot escape Depart- accept If we were to policies. and tax
ture’s bar, case at not authorized a credit was position ment’s insulating them from business favoring small policies Vermont’s be taxpayers would compromised, would be double taxation § of 5825 and Scylla between unreasonably caught penalized § 5833. Charybdis § 5825 entitled conclude that Accordingly, states that did IDX to other for 1989 taxes a credit claim basis. Our on a corporation’s the S treat issues the constitutional need to address obviates the conclusion by taxpayers. raised
Affirmed. part, For the most J., dissenting.
Katz, Supr. assigned, specially is aimed at statute of a interpretation lengthy Court’s one-sentence instant situation in the granting its view that supporting result, however, ignores the Court achieve this To good policy. standard applicable and the statute meaning of the relevant plain I dissent. Accordingly, review. and S are Vermont residents
Taxpayers on their rata share pro tax in Vermont paid personal who *14 individual As resident Corporation. IDX Systems income of the net at the applicable under Vermont law they were entitled taxpayers, “for income tax assessed the individual against to receive credit time to, . . his income upon state . by, paid another imposed taxes 32 V.S.A. 5825 from sources within that state.” and received earned added). 1989) ease, a (Cum. taxpayers In seek this (emphasis Supp. IDX’s imposed upon tax that Massachusetts corporate credit for a plain §of 5825’s interpretation Based on a reasonable income. of Taxes determined Commissioner meaning, the Vermont view, Commissioner’s to the credit. were not entitled from taxpayer a entity separate IDX a distinct because not apply. the credit does taxpayers, such as individual shareholders view, defer to correct and that we should I believe that this is the explicitly does not state decision. Section 5825 the Commissioner’s Vermont, claim shareholders, may taxed as individuals whether another state on their S imposed by taxes corporate credit for precludes of the statute reading But a literal corporation’s income. Nechemias, Shareholder Credits in such circumstances. See S. credit State, Corp. to Another 8 J. S by Corporation Taxes Paid the S for (in (1996) 141, that allow statutory provisions 144 states with Tax’n to another state shareholders paid by credit for taxes corporate credit is available say nothing about whether but itself, taxes is not available corporate credit for by corporation paid shareholders); Kreizenbeck v. by those taxes were not because 1126-94-I, 331529, Revenue, at *5 1995 WL Dep’t Arizona of 1995) (under (Ariz. statute, 24, similar App., Apr. Bd. Tax. imposed by for taxes another available to S corporation). state on S statutory language of the plain meaning must that the presume
We intent, Department v. see Chamberlin Legislature’s evinces the of 206
Taxes,
580,
(1993),
578,
1103,
must
160
632 A.2d
1104
and we
Vt.
of a
made
the administrative
interpretation
sustain
statute
execution,
responsible
compelling
absent
indication of
agency
Taxes,
332,
Burlington
Dep’t v.Department
error. See
Elec.
154Vt.
of
337, 576
450, 453
Further,
repeatedly
A.2d
we have
stated
strictly
statute
credit must
providing
exemption
be
exemption or
party claiming
construed
credit unless
produce
such a
results
construction would
irrational
or defeat
Chamberlin,
580,
purposes
the statute. See
160Vt. at
Section at 5825 is aimed alleviating the burden double taxation. Stephens, 134 at But See Vt. A.2d at 356. the double taxation by § 5825 two precluded separate imposing states type same the same during taxing period. the same id. 356 (part-time, out-of-state residents taxed Vermont York). Here, and New York on personal income New earned imposed an individual on taxpayers’ income tax income, while Massachusetts imposed tax on taxation, IDX’s just income. there is no double as there is no *15 double taxation of a corporation when is taxed both corporate level it passes and after on to shareholders in of the form Servs., Inc., dividends. See State Tax Comm’n v. Television P.2d (Ariz. 1972) (no double taxation occurs when corporation income, taxed on its then same income is taxed after being passed dividends; on to of corporation shareholders form and its stock separate entities, holders are and distinct and their are incomes taxation). separate subjects and distinct of Ver Notwithstanding mont’s elective of the treatment income of S corporations, S corporations individual shareholders remain case, taxpayers. distinct entities and In this separate taxpayers individuals, and Massachusetts has corporation, taxed their not them.
Section purpose 5825’s double taxation is de- preventing not by denying feated credit S corporation shareholders for taxes recognize that do not by states S corporations on their imposed or income earned sure, corporations’ be the S S election. To federal S election the federal recognize that do not in those few states derived §But levels. and shareholder corporate taxed at the will be (“the having pay from taxpayer”) individuals protect continues Indeed, income. of tax on the same type the same two states separate denying explicitly now enacted a statute has although on S imposed shareholders for election, federal S recognizing other states not by in Vermont resident S see 32 V.S.A. imposed income taxes individual to receive credit continue the federal S election. recognize that do states stands, with law as it now reasoning, Vermont the Court’s Under public fundamental Vermont’s compromises the enactment I taxation. do businesses from double insulating small policy goals lament to the repeated Notwithstanding the Court’s agree. interpretation reasonable the Commissioner’s contrary, upholding double taxation preventing goal § 5825 would not undermine does so now. more than any event, interpretation well-reasoned any the Commissioner’s notwithstanding subsequent to deference 5825 is entitled changed § 5825 nor amended which neither
enactment included in Act provision was one small law. Section 5916 existing sec- twenty-seven twenty-seven sections. Of which consisted 32, six added new tions, in Title specific provisions amended sixteen appropri- and two concerned provisions, two old repealed provisions, a new 21 of Act 169 added dates. Section ations and effective first creating 32 aimed at Vermont’s chapter 151of Title subchapter the taxation of S concerning of laws orderly compilation discrete subchap- of this new provisions Section one corporations. to a individual ter, shall be available resident that “no credit provides upon another state. . . imposed by ... for taxes not refer to Section 5916 does corporation.” the income of an S amendatory sections Further, each of the sixteen although § 5825. amended, § 21 does being provision to and set forth the Act 169refer Moreover, amends or implicates not indicate that 169’s summary of each of Act a written containing memorandum Ways House and Means Committee that was sent to the sections Taxation, Act indicated which drafted unchanged. Although current law would remain existing when law of other sections summary noted specifically *16 208 amended, § 21 being summary
was nothing § § that 5916 was intended suggests change 5825. sum, code,
In 169 tax but many provisions Act amended § was one of 5916 is but one of 5825 not them. Section several confirms, contained in new that provisions subchapter specifies, details, See, existing concerning corporations. and consolidates law 5914(a) 32 in 32 e.g., (confirming existing V.S.A. law contained 5862); 5911(b), 32 (confirming §§ V.S.A. V.S.A. 5912 law existing 5832). §§ contained in 32 Because is only V.S.A. a small of a part act aimed comprehensive principally specifying the law consolidating corporations, on S its enactment does Tax Oklahoma Comm’n indicate substantive the law. See change Co., (10th 1940) Pipe Stanolind Line 113 F.2d Cir. (presumption that new change enactment intended substantive fairly isolated, law existing independent case of amend- strong ment, but has much persuasive less force when new enactment code); general, 1A comprehensive Singer, tax see N. Sutherland 22.30, (5th 1994) (accord). Statutory Construction at 266 ed. provision §§ Nor is the imposed through sunset of Act 169 meaningless rendered merely we conclude that specified existing law. An effective date limited duration would make no if applied only sense but considering general scope it provision, sunset does not undermine the State’s view merely specified and confirmed existing plain law under the meaning §of
Further, I am not impressed the Court’s reliance on fact that federal law entitles S to a foreign for their of foreign share income taxes corporation. required Vermont is not follow federal law. general, individ- ual’s Vermont state income tax is a percentage calculated as of that Further, notes, individual’s federal income tax. as the our Court income tax conform simplify laws to federal law to filing returns 5820(a). and ease administrative burdens. V.S.A. But Vermont’s of a adoption “piggyback” system does not mean that Vermont income follow, follow, tax law is required does nuance of every federal Kozub, Multistate S Corporations Endure law. J. & R. See Conners Laws, (March 1989) Maze State 70 J. Tax’n 176-77 (noting regarding differences between Vermont law and federal law corporations). provision Section 5825 is Vermont’s tax code does not exist in the stray federal code. We should not from its plain based on law. meaning perceived analogous federal end, arguments a number of policy *17 In the the Court sets forth — a under the instant circumstances why a credit should be allowed rejected the expressly by that been has position that it a credit but has failed demonstrate enacting and strict construction of 5825. plain meaning the available under escape cannot Ironically, proclaims “[t]he the that Court when in fact the Legislature’s policies,” of the consequences allowing not Legislature plainly adopted Department’s position circumstances, and this Court refuses to a credit under the instant confirming statute interpretation defer to the of the consequences this evades of the position. that It is Court that by which Legislature’s policies imposing policy, ignores own long-standing but also our expertise Commissioner plainly provided a claimed credit unless it is policy denying “open states it is an under question” statute. Court that here, yet are to the credit claimed taxpayers whether entitled it grants notwithstanding ambiguity recognizes credit Court contrary ruling agency assigned implement and the Further, ambiguous point as to the of law statute. indeed 5825 is raised this the Court fails to that 5916 was appeal, recognize clarify enacted left in doubt merely question previous statute. I that are not to a under
Because believe entitled meaning, the statute’s chal plain taxpayers’ constitutional contribution, lenges equal to the statute on protection, proportional merit, common grounds wholly benefits without see Oxx v. (1992) Vt. (statute is if it reasonably legitimate constitutional public related Co., 360, 362, 543 v. Constr. A.2d purpose); Fleury Vt. Kessel/Duff (one who to void very seeks statute undertakes burden); State, 127Vt. weighty Wheeler A.2d (1969) (party challenging constitutionality has of statute burden to demonstrate arbitrary discrimination to extent it is and unrea sonable), I dissent. notes corporations. See concerning taxation S of laws orderly compilation from the fact that Sess.), §§ 21-24. It then draws (Adj. No. 169 law, §id. see existing confirm undisputedly at least some sections 1366),the to I.R.C. to adhere (requiring cuts that provide does not evidence that the enactment conclusion §of as an amendment. construction against either newly that created support their view Taxpayers amendment, a of preexisting as to clarification opposed constitutes an law, “AnAct to Miscellaneous Relating the fact Act 169is entitled added). Sess.) (Adj. (emphasis Changes.” No. 169 Tax Further, provision of effective and rely Legislature’s on the they necessary dates, not have been arguing that such dates would sunset that, enacts Legislature a mere clarification and where for the specifies provides it this and clarifying provision, regularly 12(e) See, 235, § upon passage. e.g., statute be effective (“Sec. . . . clarify law. Such existing and 9b are intended 9a retroactively.”). passage apply and shall shall take effect on sections evince an changes that material statutes Finally, taxpayers observe existing Ages Corp. effect of law. See Rock change intent to A.2d 134 Vt. Commissioner of of mineral (construing brought amendment that extraction expressly purview manufacturing exemption changing deposits under coverage existing exemption). we that 5916 bears the indicia an amendment. While agree We “[cjlarification objective legislative recognize legitimate that action,” change intends to Legislature presume statute, clearly unless “the circumstances indicate meaning Cambridge v. Town clarification to be intended.” Town of Underhill, 237, 241, 204 The Department A.2d Vt. indicating evidence point any persuasive fails to and, hence, fails to a clarification of 5825 rebut intended 5916 as to S changes respect the law with presumption corporations. Further, fact that Act 169 contains tailored specifically provisions applicable for different and sunset date effective dates including provisions, weighs of the Act’s several