Consolidation Coal Co. v. Indiana Dept. of State Revenue, 82S00-8909-TA-667

• Citation: 583 N.E.2d 1199
• Decision Date: 12 December 1991
• Docket Number: No. 82S00-8909-TA-667,82S00-8909-TA-667
• Parties: CONSOLIDATION COAL COMPANY, Appellant (Plaintiff Below), v. INDIANA DEPARTMENT OF STATE REVENUE, Appellee (Defendant Below).
• Court: Supreme Court of Indiana

Page 1199

583 N.E.2d 1199

CONSOLIDATION COAL COMPANY, Appellant (Plaintiff Below), v. INDIANA DEPARTMENT OF STATE REVENUE, Appellee (Defendant Below).

No. 82S00-8909-TA-667.

Supreme Court of Indiana.

Dec. 12, 1991.

Richard A. Sherry, Richard J. Klein, Consol. Coal Co., Pittsburgh, Pa., James M. Buthod, Buthod & Buthod, Evansville, for appellant.

Larry Stroble, Michael Rosiello, Barnes & Thornburg, Indianapolis, amicus curiae, for General Motors Corp. in support of appellant.

Barton T. Sprunger, Mark J. Richards, Ice Miller Donadio & Ryan, Indianapolis, amici curiae for Gencorp, Inc. & Diversitech General, Inc., in support of appellant.

Linley E. Pearson, Atty. Gen., Joel Schiff, Deputy Atty. Gen., Lynn A. Francis, Deputy Atty. Gen., Indianapolis, for appellee.

SHEPARD, Chief Justice.

This case explores whether West Virginia's Business and Occupation Tax is a state tax "based on or measured by income" for purposes of an add back provision in Indiana's Adjusted Gross Income Tax law. We hold that it is.

I. Factual Background

The taxpayer in this case, Consolidation Coal Company, is a Delaware corporation with its principal place of business in Pittsburgh, Pennsylvania. Consolidation Coal mines and sells coal in several states, including Indiana and West Virginia. This appeal concerns Consolidation Coal's liability for Indiana Adjusted Gross Income Tax for the years 1983 through 1985.

Indiana's Adjusted Gross Income Tax is codified as Indiana Code Secs. 6-3-1-1 to -8-6 (West 1989 & Supp.1990). Under this law, a corporation pays a tax of 3.4% on that portion of its adjusted gross income derived from sources within Indiana. Adjusted gross income is calculated by making certain adjustments to the taxpayer's federal taxable income. Ind.Code. Sec. 6-3-1-3.5(b). One of these adjustments to federal taxable income requires adding back "any deduction or deductions allowed or allowable pursuant to Section 63 of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by any state of the United States...." Ind.Code Sec. 6-3-1-3.5(b)(3) (West 1989) (emphasis added).

In deriving its federal taxable income, Consolidation Coal deducted taxes it had paid to West Virginia under that state's Business and Occupation Tax, W.Va.Code Secs. 11-13-1 to -31 (Michie 1987) [hereinafter "B & O Tax"]. Because Consolidation Coal did not consider the B & O Tax to be a tax "based on or measured by income," it did not add the tax back to its federal taxable income in calculating its Indiana adjusted gross income. The Indiana Department of State Revenue did consider the B & O Tax to be a tax "based on or measured by income," however, and insisted that Consolidation Coal add it back. The Department re-calculated Consolidation Coal's adjusted gross income and assessed it an additional $43,362 in tax, plus $13,726.67 in interest. Consolidation Coal paid the amount assessed and filed refund claims, which the Department denied.

On appeal to the Indiana Tax Court, both sides moved for summary judgment. The Tax Court denied Consolidation Coal's motion and granted the Department's, holding that West Virginia's B & O Tax was a state tax "based on or measured by income," and therefore, had to be added back to federal taxable income in deriving Indiana adjusted gross income. Consolidation Coal Company v. Indiana Department of State Revenue (1989), Ind. Tax, 538 N.E.2d 309. Consolidation Coal appeals this decision, pursuant to this Court's appellate jurisdiction. Ind.Code Sec. 33-3-5-15 (West Supp.1990).

II. Issue Presented

The parties agree that the B & O Tax is a state tax and that it is an allowable deduction under Sec. 63 of the Internal Revenue Code. The sole issue is whether the tax is "based on or measured by income."

Both parties have focused their attention primarily on the word "income," and they have proffered two meanings of the word that lead to different results. Consolidation Coal argues that when dealing with the sale of a tangible good like coal, "income" from the sale does not include the recovery of capital investment and thus is equivalent to gross receipts less the cost of goods sold. Because it asserts the B & O Tax is a tax on gross receipts, and allows no deduction for cost of goods sold, Consolidation Coal concludes the tax is not based on or measured by "income," so defined. The Department asserts that "income" does include the recovery of capital investment and that "income" from the sale of coal is analogous to gross receipts without any reduction for cost of goods sold. It concludes the B & O Tax is a tax based on or measured by "income."

III. The General Assembly's Intent

This Court's goal in statutory construction is "to determine and effect legislative intent." Spaulding v. International Bakers Serv. (1990), Ind., 550 N.E.2d 307, 309. Where the General Assembly has defined a word, this Court is bound by that definition, even though it conflicts with the common meaning of the word. Id. Where the General Assembly has used a word without definition, however, this Court must examine the statute as a whole and attribute the common and ordinary meaning to the undefined word, unless doing so would deprive the statute of its purpose or effect. Id.; Park 100 Development Co. v. Indiana Dep't of State Revenue (1981), Ind., 429 N.E.2d 220. Moreover, tax statutes are generally to be construed against the Department. Park 100 Development Co., 429 N.E.2d at 222.

Although the General Assembly devoted an entire chapter of the Adjusted Gross Income Tax law to definitions, many of which contain the word "income," Ind.Code Secs. 6-3-1-1 to -28 (West 1989), it did not define the single word "income." Thus, we turn to the common and ordinary meaning of the word. Black's Law Dictionary defines "income" as "[t]he return in money from one's business, labor, or capital invested; gains, profits, salary, wages, etc." Webster's Third New International Dictionary states that income is:

a gain or recurrent benefit that is usually measured in money and for a given period of time, derives from capital, labor, or a combination of both, includes gains from transactions in capital assets, but excludes unrealized advances in values: commercial revenue or receipts of any kind except receipts or returns of capital.

(emphasis added). These definitions are consistent with the U.S. Supreme Court's understanding of the term "income," due in part no doubt to that Court's resort to the dictionary definition of the word "income" in interpreting both the Constitution and early federal income tax laws. See, e.g., Eisner v. Macomber, 252 U.S. 189, 207, 40 S.Ct. 189, 193, 64 L.Ed. 521 (1920) (citing dictionaries to inform the meaning of "income" as used in the 16th Amendment). In Doyle v. Mitchell Bros. Co., 247 U.S. 179, 184-85, 38 S.Ct. 467, 469, 62 L.Ed. 1054 (1918), the Court stated:

[I]t is plain, we think, that by the true intent and meaning of the act the entire proceeds of a mere...