Allen v. Comm'r of Revenue Servs.

Decision Date28 December 2016
Docket NumberSC 19567
Citation152 A.3d 488,324 Conn. 292
CourtConnecticut Supreme Court
Parties Jefferson ALLEN et al. v. COMMISSIONER OF REVENUE SERVICES

Daniel J. Krisch, Hartford, with whom was Leslie E. Grodd, Westport, for the appellants (plaintiffs).

Patrick T. Ring, assistant attorney general, with whom were Matthew J. Budzik, assistant attorney general, and, on the brief, George Jepsen, attorney general, Hartford, for the appellee (defendant).

Palmer, Zarella, Eveleigh, McDonald and Robinson, Js.

EVELEIGH, J.

The plaintiffs, Jefferson Allen and Evita Allen, appeal1 from the trial court's award of summary judgment upholding the decision of the defendant, the Commissioner of Revenue Services, denying their request for a tax refund for the taxable years 2002, 2006, and 2007. In this appeal, the plaintiffs claim that the trial court improperly concluded that: (1) it lacked subject matter jurisdiction with respect to the plaintiffs' claim for a refund for the taxable year 2002 on the basis of the three year limitation period to file an income tax refund pursuant to General Statutes § 12–732 (a) ; (2) § 12–711(b) –18 of the Regulations of Connecticut State Agencies permitted the defendant to tax the plaintiffs' income derived from the exercise of options because the options were granted as compensation for performing services within the state; and (3) it is constitutional to impose a tax on income derived from the exercise of nonqualified stock options2 by a nonresident who was granted the options as compensation for performing services within the state. We disagree with each of the plaintiffs claims. Because the form of the trial court's judgment with respect to the plaintiffs' claim relating to the taxable year 2002 was improper, we reverse the trial court's award of summary judgment with respect to that taxable year and remand the case with direction to render judgment dismissing that claim. We affirm the judgment of the trial court in all other respects.

The following undisputed facts and procedural history are relevant to this appeal. From 1990 to 2001, Jefferson Allen3 served as president and chief financial officer of Tosco, Inc. (Tosco). During this period, Allen was domiciled in and performed services solely within Connecticut. As part of his compensation while employed with Tosco, he was awarded nonqualified stock options.4 In 2002, while the plaintiffs were residing outside of Connecticut, Allen exercised the options he was granted by Tosco, resulting in $7,633,027 of income. The plaintiffs filed a Connecticut nonresident and part year resident income tax return reporting income from exercising these options in 2002 and paid the applicable tax.

After a period of nonresidency from 2002 to 2004, the plaintiffs returned to Connecticut in 2005. From January 1, 2005 to August 31, 2005, Allen served as the chief executive officer of Premcor, Inc. (Premcor), and performed services solely within Connecticut. As part of his compensation for performing services for Premcor, Allen was awarded nonqualified stock options.5 The plaintiffs again moved out of Connecticut and resided outside the state in 2006 and 2007. In 2006, Allen exercised certain stock options he had earned performing services for Premcor, resulting in $43,360,812 of income. In 2007, Allen again exercised certain stock options that were earned as compensation for performing services for Premcor, resulting in $2,247,745 of income. The plaintiffs timely filed their tax returns and paid the applicable tax for the taxable years 2007 and 2008.

In October, 2009, the plaintiffs filed amended returns for the taxable years 2002, 2006, and 2007, claiming refunds for the income tax that the plaintiffs had paid in each of those years. The plaintiffs' claims for a refund were denied. In 2013, the Appellate Division of the Department of Revenue Services affirmed the denial. The defendant thereafter issued a final determination denying the plaintiffs' claims for refunds.

Pursuant to General Statutes § 12–730,6 the plaintiffs timely filed an appeal from the defendant's determination in the Superior Court. The parties filed cross motions for summary judgment on stipulated facts, which the trial court granted in favor of the defendant. This appeal followed.

Additional facts and procedural history will be set forth as necessary.

I

First we address the issue of whether the trial court properly concluded that it lacked subject matter jurisdiction regarding the plaintiffs' claim for a refund for the taxable year 2002 because they filed their claim after the lapse of the three year statute of limitations for such a claim pursuant to § 12–732 (a) (1). The plaintiffs concede that their request for a refund was filed after the lapse of the three year period.7 Nevertheless, relying principally upon Williams v. Commission on Human Rights & Opportunities , 257 Conn. 258, 777 A.2d 645 (2001), the plaintiffs argue that the three year statute of limitations is not jurisdictional and, therefore, should be equitably tolled. In response, the defendant claims that the statute of limitations, because it forms part of a statutory scheme that waives sovereign immunity, is jurisdictional and should not be tolled. We agree with the defendant.

The following additional facts and procedural history are relevant to the resolution of this issue. The defendant commenced an audit of the plaintiffs' taxable year 2005 income tax return in July 2006. In March 2007, the defendant expanded the audit to include the taxable years 2001 through 2004. Around this same time, the plaintiffs filed a Connecticut nonresident and part year resident return reporting income from 2002 and paid the applicable tax. In October 2009, the plaintiffs filed amended returns for the taxable year 2002, claiming a refund for the income tax that the plaintiffs had paid. In October, 2012, the plaintiffs claim for a refund for the taxable year 2002 was disallowed. The defendant denied the request for a refund on the grounds that, pursuant to § 12–732 (a) (1),8 the claim for a refund was untimely. The trial court affirmed the determination of the defendant, concluding that it lacked subject matter jurisdiction to consider the plaintiffs' claim.

Our standard of review with respect to a trial court determination regarding subject matter jurisdiction is well settled. "A determination regarding a trial court's subject matter jurisdiction is a question of law. When ... the trial court draws conclusions of law, our review is plenary and we must decide whether its conclusions are legally and logically correct and find support in the facts that appear in the record." (Internal quotation marks omitted.)

Citibank, N.A. v. Lindland , 310 Conn. 147, 161, 75 A.3d 651 (2013).

"The principle that the state cannot be sued without its consent, or sovereign immunity, is well established under our case law. ... It has deep roots in this state and our legal system in general, finding its origin in ancient common law. ... Not only have we recognized the state's immunity as an entity, but [w]e have also recognized that because the state can act only through its officers and agents, a suit against a state officer concerning a matter in which the officer represents the state is, in effect, against the state." (Internal quotation marks omitted.) DaimlerChrysler Corp. v. Law , 284 Conn. 701, 711, 937 A.2d 675 (2007). The principle of sovereign immunity implicates the subject matter jurisdiction of the court. Id. ; see also Giannoni v. Commissioner of Transportation , 322 Conn. 344, 349, 141 A.3d 784 (2016) ("sovereign immunity implicates [a court's] subject matter jurisdiction" [internal quotation marks omitted] ); Chief Information Officer v. Computers Plus Center, Inc. , 310 Conn. 60, 79, 74 A.3d 1242 (2013) (same); Nelson v. Dettmer , 305 Conn. 654, 660, 46 A.3d 916 (2012) (same); Miller v. Egan , 265 Conn. 301, 313, 828 A.2d 549 (2003) (same).9

The principles governing statutory waivers of sovereign immunity are well established. "[A] litigant that seeks to overcome the presumption of sovereign immunity [pursuant to a statutory waiver] must show that ... the legislature, either expressly or by force of a necessary implication, statutorily waived the state's sovereign immunity .... In making this determination, [a court shall be guided by] the well established principle that statutes in derogation of sovereign immunity should be strictly construed. ... [When] there is any doubt about their meaning or intent they are given the effect which makes the least rather than the most change in sovereign immunity. ... Furthermore, because such statutes are in derogation of the common law, [a]ny statutory waiver of immunity must be narrowly construed ... and its scope must be confined strictly to the extent the statute provides." (Citation omitted; internal quotation marks omitted.) Housatonic Railroad Co. v. Commissioner of Revenue Services , 301 Conn. 268, 288–89, 21 A.3d 759 (2011). "Whether the legislature has waived the state's sovereign immunity raises a question of statutory interpretation." Id. As such, we are guided by the principles of General Statutes § 1–2z.

A tax appeal is a two step process. With respect to a claim for a refund for income taxes, the plaintiff must first timely file a claim with the defendant. General Statutes § 12–732 (a) (1) ; see Federal Deposit Ins. Corp. v. Crystal , 251 Conn. 748, 759, 741 A.2d 956 (1999). Section 12–732 (a) (1), in establishing an administrative claim for a refund, is not itself an express or implicit waiver of sovereign immunity. See DaimlerChrysler Corp. v. Law , supra, 284 Conn. at 715, 937 A.2d 675 (noting that sales and use tax refund statute, General Statutes § 12–425 is not waiver of sovereign immunity). The applicable appeal statute, § 12–730, does, however, statutorily waive sovereign immunity. Id. Compliance with the refund statute is a condition precedent to availing...

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