220 Conn. 665 | Conn. | 1991
During the years 1976 through 1982, the plaintiff, United Technologies Corporation (UTC), was a corporation organized and existing under the laws of the state of Delaware. During those years, UTC did business in Connecticut and, consequently, was subject to the Connecticut corporation business tax embodied in chapter 208 of the General Statutes, Revision of 1958, as amended (corporation business tax).
For the years 1976 through 1982, UTC timely filed its Connecticut corporation business tax returns and timely paid in full all taxes and charges that its calculations indicated were due. Thereafter, the commissioner conducted an audit of UTC’s corporation business tax returns for the years 1976 through 1982. As a result, on August 2,1986, the commissioner notified UTC that he had assessed additional corporation business taxes and interest. The disputed portion of the commissioner’s increased assessment was based on his determination that UTC was not allowed to utilize, and should not have utilized operating loss carryovers from 1979 and 1980 in computing its net income for the year 1981. The additional assessment attributable to the commissioner’s disallowance of UTC’s use of its operating loss carryovers in computing its 1981 corporation business tax increased UTC’s corporation business tax liability for that year from $231,316, which UTC had previously acknowledged and paid, to $4,254,897 plus interest.
The single issue reserved for the advice of the court is: “For the purposes of the Connecticut corporate business tax, is a taxpayer entitled to utilize its operating loss carryovers from 1979 and 1980 in computing its net income or loss under Connecticut General Statutes § 12-219 (1) (B) (i) for 1981 and 1982?”
In order to answer the reserved question it is necessary to review briefly the relevant history of the corporation business tax. The parties stipulated that prior to the income year 1981, taxpayers subject to the corporation business tax were required to compute their business tax liability using whichever of three methods yielded the highest tax: (a) the “regular tax” imposed by General Statutes § 12-214,
In January, 1981, however, the legislature amended § 12-219 to provide that in addition to the three bases of computation noted above, corporations would also be required to compute their corporation business tax liability under a fourth measure of the tax popularly known as the “fourth base.” Under the “fourth base,” corporations were required to pay a tax at a rate of 5 percent measured by 50 percent of the net income or loss of the corporation received from business transacted within Connecticut, plus 50 percent of the salaries and other compensation, apportioned to Connecticut, paid to officers of the corporation and certain shareholders. General Statutes § 12-219 (1) (B).
“AVhile the legislature was considering passage of the unincorporated business tax, one of its main concerns was whether unincorporated businesses would incorporate in order to avoid the new tax. See 24 S. Proc., Pt. 7,1981 Sess., p. 2118. In other words, an unincorporated business, faced with the prospect of paying the new tax, might well decide to incorporate and then to ‘drain away’ its taxable income by paying it to officers and shareholders in the form of salaries, bonuses and other benefits, those amounts being deductible in computing the net income of a corporation. See General Statutes § 12-217. The new additional tax base of § 12-219 (1) (B) was added to the corporate tax structure to prevent this method of circumventing the unincorporated business tax. 24 S. Proc., Pt. 10,1981 Sess., p. 3308. Under § 12-219 (1) (B) (ii), ‘salaries and other compensation’ paid to officers and 1 percent shareholders, which were deducted in computing the net income of a corporation, were to be added back to net income in calculating the corporation’s tax base.” (Emphasis in original.) George P. Gustin Associates, Inc. v. Dubno, 203 Conn. 198, 205-206, 524 A.2d 603 (1987).
For the income years 1979 and 1980, UTC had operating losses apportioned to Connecticut in the amounts of $102,414,410 and $76,596,988, respectively. In computing its tax liability for the year 1981, UTC carried over those operating losses so as to reduce its net
The commissioner, however, contends that while UTC correctly deducted its operating loss carryovers in calculating net income and its consequent corporation business tax liability for 1981 under the “regular tax” of § 12-214, it was not allowed to use, and incorrectly used, its operating loss carryovers in determining its net income and consequent corporation business tax liability under the “fourth base” of § 12-219 (1) (B) (i). We disagree.
“Net income” under § 12-219 (1) (B) (i) was stated to be: “net income as defined in this chapter.” The sole definition of “net income” in chapter 208, concerning the imposition and payment of the corporation business tax, was contained in § 12-213,
As previously noted, the commissioner has stipulated that UTC sustained the operating losses, apportionable to Connecticut, previously indicated for the years 1979 and 1980. It would appear then, that under a plain reading of the pertinent statutes, UTC was entitled to carry over those operating losses to reduce its net income to a number not less than zero, for purposes of § 12-219 (1) (B) (i), until the carryovers were exhausted, for each of the five income years following the loss years. See Murphy v. State Employees Retirement Commission, 218 Conn. 729, 735, 590 A.2d 974 (1991). The commissioner has failed to provide us with
The commissioner, moreover, has conceded that UTC properly used its operating loss carryovers to reduce its net income to zero in 1981, under the “regular tax” of § 12-214, with the result that there was no corporation business tax due the commissioner from UTC under that section. He insists, however, that the same operating loss carryovers could not and should not have been used by UTC to reduce its net income under § 12-219 (1) (B) (i). The commissioner’s positions are inconsistent.
Both §§ 12-214 and 12-219 (1) (B) (i) provide that “net income” is the “entire net income [as defined in chapter 208] received by such corporation or association from business transacted within the state during the income year . ...” As previously indicated, “net income” is defined in § 12-213 as “net earnings received during the income year . . . computed by subtracting from gross income the deductions allowed by the terms of section 12-217,” and § 12-217 allows the deduction of operating loss carryovers. If we were to conclude that corporate taxpayers were allowed to use operating loss carryovers to arrive at “net income” under § 12-214 but not allowed to use operating loss carryovers to determine “net income” under
An interpretation of § 12-219 (1) (B) (i) that allowed for the use of operating loss carryovers in arriving at net income would also be compatible with the genesis of that section. As we stated in George P. Gustin Associates, Inc. v. Duhno, supra, 205-206, § 12-219 (1) (B) was passed in 1981 in order to foreclose attempts by unincorporated businesses to circumvent the newly enacted unincorporated business tax by incorporating and paying out all their earnings to principals in salaries and other compensation and thus avoiding payment of business taxes altogether.
Also if the legislature had intended such a radical departure from the established method of calculating net income, a method that the commissioner concedes is allowed under § 12-214, a statute enacted many years prior to § 12-219 (1) (B), it surely would have manifested clearly its intention to do so. “In the interpretation of a statute, a radical departure from an established policy cannot be implied. It must be expressed in unequivocal language.” Jennings v. Connecticut Light & Power Co., 140 Conn. 650, 667, 103 A.2d 535 (1954); Kinney v. State, 213 Conn. 54, 66, 566 A.2d 670 (1989); Nor’easier Group, Inc. v. Colossale Concrete, Inc., 207 Conn. 468, 481, 542 A.2d 692 (1988); Gomeau v. Forrest, 176 Conn. 523, 527, 409 A.2d 1006 (1979). The commissioner would have us conclude, however, that it was the legislative intent, in order to enforce the new unincorporated business tax, to enact a tax statute that had the potential to raise a taxpayer’s corporation business tax liability astronomically, in this instance from zero under § 12-214 and a maximum of $100,000 under § 12-219 (1) (A), to well over $4,000,000 under § 12-219 (1) (B), without any indication in the newly enacted legislation that it was doing so. The commissioner would have us determine, moreover, that this was done without any discussion or mention of that potential tax increase in either house of the legislature during the debate on the bill embodying the statute.
The answer to the reserved question is yes.
No costs shall be taxed to either party.
In this opinion the other justices concurred.
“The Connecticut corporation business tax; General Statutes § 12-213 et seq.; is a tax upon the franchise of corporations, whether they be domestic or foreign, ‘for the privilege of carrying on or doing business, owning or leasing property within the state in a corporate capacity . . . .’General Statutes § 12-214; Connecticut Bank & Trust Co. v. Tax Commissioner, 178 Conn. 243, 247, 423 A.2d 883 (1979); Spector Motor Service, Inc. v. Walsh, 135 Conn. 37, 56, 61 A.2d 89 (1948); Stanley Works v. Hackett, 122 Conn. 547, 551, 190 A. 743 (1937); Underwood Typewriter Co. v. Chamberlain, 94 Conn. 47, 55, 108 A. 154 (1919), aff’d, 254 U.S. 113, 41 S. Ct. 45, 65 L. Ed. 165 (1920).” Schlumberger Technology Corporation v. Dubno, 202 Conn. 412, 415, 521 A.2d 569 (1987).
“[General Statutes (Rev. to 1983)] Sec. 12-218. APPORTIONMENT OF NET income. Any taxpayer which is taxable both within and without this state shall apportion its net income as provided in this section. For purposes of apportionment of income under this section, a taxpayer is taxable in another state if in such state such taxpayer conducts business and is subject to a net income tax, a franchise tax for the privilege of doing business, or a corporate stock tax, or if such state has jurisdiction to subject such taxpayer to such a tax, regardless of whether such state does, in fact, impose such a tax. . . .”
“[General Statutes (Rev. to 1987)] Sec. 12-236. hearing by commissioner. Any taxpayer, aggrieved by the action of the commissioner or his authorized agent in fixing the amount of any tax, penalty or interest provided for by this part, may apply to the commissioner, in writing, within thirty days after the notice of such action is delivered or mailed to it, for a hearing and a correction of the amount of the tax, penalty or interest so fixed, setting forth the reasons why such hearing should be granted and the amount in which such tax, penalty or interest should be reduced. The commissioner shall promptly consider each such application and may grant or deny the hearing requested. If the hearing is denied, the applicant shall be notified thereof forthwith. If it is granted, the commissioner shall notify the applicant of the time and place fixed for such hearing. After such hearing the commissioner may make such order in the premises as appears to him just and lawful and shall furnish a copy of such order to the applicant. The commissioner may, by notice in writing, at any time within three years after the date when any return of any taxpayer has been due, order a hearing on his own initiative and require the taxpayer or any other individual whom he believes to be in possession of relevant information concerning the taxpayer to appear before him or his authorized agent with any specified books of account, papers or other documents, for examination under oath.”
“[General Statutes (Rev. to 1987)] Sec. 12-237. appeal. Any taxpayer aggrieved because of any order, decision, determination or disallowance of the commissioner of revenue services under the provisions of this part may, within one month after service upon the taxpayer of notice of such order, decision, determination or disallowance, take an appeal therefrom to the superior court for the judicial district of Hartford-New Britain, which shall be accompanied by a citation to the commissioner of revenue services to appear before said court. Such citation shall be signed by the same authority, and such appeal shall be returnable at the same time and served and returned in the same manner, as is required in case of a summons in a civil action. The authority issuing the citation shall take from the appellant a bond or recognizance to the state of Connecticut, with surety to prosecute the appeal to effect and to comply with the orders and decrees of the court in the premises. Such appeals shall be preferred cases, to be heard, unless cause appears to the contrary, at the first session, by the court or by a com
The parties have briefed only the question whether UTC was entitled to use its operating loss carryovers from 1979 and 1980 in computing its net income or loss under General Statutes § 12-219 (1) (B) (i) for the year 1981. We will therefore specifically address only that year. Our conclusions, however, as to the application of operating loss carryovers vis-a-vis § 12-219 (1) (B) (i) would also apply to the year 1982.
“[General Statutes (Rev. to 1981)] Sec. 12-214. imposition of tax. Every mutual savings bank, savings and loan association and every company engaged in the business of carrying passengers for hire over the highways of this state in common carrier motor vehicles doing business in this state,
“[General Statutes (Rev. to 1981)] Sec. 12-219. additional tax. (1) For each income year beginning on or after January 1,1973, for which the tax calculated under subdivision (A) of this section exceeds the tax imposed by section 12-214, each company subject to the provisions of this part, except savings banks, Morris plan companies, corporations qualified under the laws of the United States as small business investment companies and state banks and trust companies incorporated under the laws of this state and production credit associations and savings and loan associations and banks incorporated under the laws of the federal government and The Connecticut Development Credit Corporation, shall pay for the privilege of carrying on or doing business within the state, in addition to the tax imposed by section 12-214, an additional tax of the amount by which the tax calculated under subdivision (A) of this section for such income year exceeds the tax imposed by section 12-214. In the case of a company other than a regulated investment company or real estate investment trust, the tax calculated under this section shall be: (A) A tax of thirty-one one hundredths of a mill per dollar for each income year of the amount derived (a) by adding (i) the average value of the issued and outstanding capital stock, including treasury stock at par or face value, fractional shares, script certificates convertible into shares of stock and amounts received on subscriptions to capital stock, computed on the balances at the beginning and end of the taxable year or period, the average value of surplus and undivided profit computed on the balances at the beginning and end of the taxable year or period, and (ii) the average value of all surplus reserves computed on the balances at the beginning and end of the taxable year or period, (b) by subtracting from the sum so calculated (i) the average value of any deficit carried on the balance sheet computed on the balances at the beginning and end of the taxable year or period, and (ii) the average value of any holdings of stock of private corporations including treasury stock shown on the balance sheet computed on the balances at the beginning and end of the taxable year or period, and (c) by apportioning the remainder so derived between this and other states under the provisions of section 12-219a, provided in no event shall the tax so calculated exceed one hundred thousand dollars or be less than fifty dollars. For each income year beginning on or after January 1, 1972, in the case of any regulated investment company or real estate investment trust, which, in arriving at net income as defined in section 12-213, is entitled to a deduction under section 12-217 for dividends paid as defined in the federal corporation income tax law, the tax calculated under this subdivision shall not exceed ten thousand dollars and shall be calculated at the rate of five-tenths of one mill per dollar of the amount derived by adding the average value of the issued and outstanding
It appears that the figures stipulated to are not entirely accurate. Prior to the January, 1981 legislative session, the amount paid for each corporation included in a joint return was $50. The revision of General Statutes § 12-219 enacted in that term raised that amount to $250. See General Statutes (Rev. to 1988) § 12-219. For purposes of this opinion, however, the inaccuracy is inconsequential.
“[General Statutes (Rev. to 1981)] Sec. 12-223c. minimum tax in combined return. Each corporation included in a combined return, other than the corporation whose tax is computed and paid on the combined basis, shall pay the minimum tax of fifty dollars prescribed under section 12-219.”
General Statutes (Rev. to 1983) § 12-219 (1) (B) provides: “additional TAX IN THE AMOUNT BY WHICH ALTERNATIVE COMPUTATIONS EXCEED TAX UNDER SECTION 12-214. MINIMUM TAX.
[Text of section applicable to income years of corporations before January 1, 1983\
“(1) For each income year beginning on or after January 1, 1973, for which the tax calculated under subdivision (A) of this section, or subdivision (B) of this section with respect to any company the gross income of which exceeds fifty thousand dollars in such income year, whichever is higher, exceeds the tax imposed by section 12-214, each company subject to the provisions of this part, except savings banks, Morris plan companies, corporations qualified under the laws of the United States as small business investment companies and state banks and trust companies incorporated under the laws of this state and production credit associations and savings and loan associations and banks incorporated under the laws of the federal government and The Connecticut Development Credit Corporation, shall pay for the privilege of carrying on or doing business within
Because the other methods of determining corporation business tax liability did not entail a tax on net income, these two methods are the only ones in issue. Under General Statutes § 12-219 (1) (A), UTC’s corporation business tax liability would have been $100,000, plus $250 for each affiliated company included in its combined return. Under General Statutes §§ 12-219 (1) (A) and 12-223c its corporation business tax liability would have been $5750.
“[General Statutes (Rev. to 1983)] Sec. 12-213. definitions. When used in this part, unless the context otherwise requires . . . ‘net income’ means net earnings received during the income year and available for con
In a case addressing the exact issue found in this case, the Superior Court (Aspell, J.) concluded that a plain reading of the applicable statutes allowed the use of operating loss carryovers as a deduction under General Statutes § 12-219 (1) (B). Distributor Publications v. Commissioner of Revenue Services, Superior Court, judicial district of Hartford-New Britain at Hartford, Docket No. 299080 (October 14, 1987).
The unincorporated business tax was repealed for income years commencing on or after January 1,1983. Public Acts, Spec. Sess., November,
The commissioner also contends that UTC’s interpretation of General Statutes § 12-219 (1) (B) is incorrect because hypothetically it could result in the double utilization of a deduction. He argues that theoretically a loss could lower the salary component of § 12-219 (1) (B) in the loss year and also be carried over as an operating loss in ensuing years. While that may have been possible, a similar result was also theoretically possible under the unincorporated business tax. Because § 12-219 (1) (B) and the unincorporated business tax were intended to be “parallel taxes,” that argument of the commissioner is unavailing. See George P. Gustin Associates, Inc. v. Dubno, 203 Conn. 198, 206, 524 A.2d 603 (1987). Moreover, in this instance, such a double deduction did not occur and could not have occurred because the operating losses carried over by UTC were incurred in years prior to the effective date of § 12-219 (1) (B) and the utilization of the salary component.