Bell Atlantic Nynex Mobile, Inc. v. Commissioner of Revenue Services
| Decision Date | 17 July 2003 |
| Docket Number | CV010511279S. |
| Court | Connecticut Superior Court |
| Parties | Bell Atlantic Nynex Mobile, Inc. et al. v. Commissioner of Revenue Services. |
The plaintiffs, thirteen corporations, bring these tax appeals pursuant to General Statutes § 12-237. The plaintiffs seek a refund of corporation business taxes paid for their 1995 income years based on a credit allowed under General Statutes § 12-217t. 1
Each plaintiff is a calendar year taxpayer that timely filed a Corporation Business Tax return and paid taxes for the 1995 income year. The returns did not claim a tax credit for municipal property taxes paid on electronic data processing (EDP) equipment located in Connecticut. The plaintiffs timely filed a claim for a refund pursuant to § 12-225 to the Commissioner. The Commissioner denied each of the plaintiff's claims.
Prior to July 1995, the Bell Atlantic Companies and the NYNEX Companies were each separately in the business of providing public wireless cellular telecommunications services, commonly referred to as mobile telephone or cellular telephone services. Each group of companies provided services on its own network and were in competition with each other where their networks overlapped. In 1995, Bell Atlantic Corporation and NYNEX Corporation agreed to create a single cellular network covering a larger geographic area than either group of affiliates served separately. This agreement occurred on July 1, 1995 with the formation of a partnership named Cellco Partnership (Cellco). NYNEX became a partner in Cellco by contributing assets directly to Cellco. Bell Atlantic Companies became a partner in Cellco by contributing assets directly or through a partnership named Bell Atlantic Cellular Holding, L.P. (BACH). The end result was that the Bell Atlantic Companies directly and indirectly through the partnership known as BACH, and the NYNEX Companies became partners in Cellco. From July 1, 1995, the two groups of companies, as partners in Cellco, provided cellular services throughout the region previously served by each separately. The affairs of Cellco were managed through their jointly owned corporation, the plaintiff Bell Atlantic NYNEX Mobile, Inc., a 0.01% general partner of Cellco.
The operation of the cellular network requires the use of EDP equipment within the meaning of § 12-217t. Certain plaintiffs owned and used such EDP equipment located in Connecticut. The EDP equipment was listed on the October 1, 1994 grand lists of various Connecticut municipalities by the corporations, and the tax on the equipment was assessed against the companies owning it. The plaintiffs continued to own and use the EDP equipment until the formation of Cellco on July 1, 1995, at which time Cellco acquired ownership of all of the EDP equipment. Cellco paid the taxes assessed against the Connecticut EDP Equipment on the 1994 grand lists. The amount of the tax assessed and paid to Connecticut municipalities on EDP equipment was $ 957,718.
Although some of the Bell Atlantic Companies and the NYNEX Companies did business in Connecticut and therefore paid a corporate business tax, upon the formation of Cellco all of the Bell Atlantic Companies and the NYNEX Companies became subject to the tax and were required to file returns and pay the tax. The reason for this was the operation of Conn. Gen. Stat. § 12-214(a)(3), which defines companies doing business in Connecticut to include corporate partners conducting business in Connecticut.
In 1994, the General Assembly enacted a credit against the Corporate Business Tax contained in Chapter 208 of the general statutes, now § 12-217t, for municipal property taxes paid in 1995 on EDP equipment on the grand lists of October 1, 1994.2
The corporate partners of Cellco now claim that because a partnership in Connecticut is not a taxable entity, and therefore not subject to the Corporation Business Tax, they, as corporate partners, are entitled to offset their payment of the Corporate Business Tax with the tax credit allowed under § 12-217t.
The plaintiffs argue that on October 1, 1994, the individual corporate partners owned and were assessed a municipal tax on the EDP equipment. After the partners contributed all of their assets to the partnership, the partnership acquired the obligation to pay and did pay the municipal property tax, completing a chain that gives rise to the tax credit.
The plaintiffs further argue that Connecticut passes through all of the tax attributes of a partnership to its corporate partners as if they themselves conducted all of the business of the partnership doing business in Connecticut, and therefore, in effect it was the corporate partners doing business in Connecticut, not the partnership, thereby entitling them to the municipal tax credit on the EDP equipment.
The basis for the plaintiffs' argument is the Internal Revenue Code of 1986 that requires each partner to take into account its ratable share of the partnership's income, deduction, gain, loss or credit. IRC Sec. 702(a). By ratable share, the plaintiffs mean the distributive share made by the partnership to each of the partners.
The Commissioner's position is that tax credits do not pass through to the partners. The Commissioner contends that the plaintiffs were not the owners of the EDP equipment when the municipal property taxes came due, but rather it was the partnership Cellco that held title to the EDP equipment, and therefore it was the partnership that was the taxpayer obligated to pay the municipal property tax. The Commissioner further argues that since a partnership does not pay a Corporate Business Tax, Cellco is not entitled to take the credit for municipal property taxes on the EDP equipment.
The key issue in this case is whether the tax credit created under § 12-217t remains with Cellco as the partnership or whether it can be passed through from the partnership to the corporate partners as a distributive share.
Our analysis begins with the concept that our state statutes treat a partnership as a recognizable entity for the purpose of doing business in the state of Connecticut. General Statutes § 34-313 provides that a partnership is an entity distinct from its partners for the purpose of doing business in Connecticut. General Statutes § 34-315 provides that property acquired by a partnership is that of the partnership and not the partners individually. "A partner is not a co-owner of partnership property and has no interest in partnership property which can be transferred either voluntarily or involuntarily." General Statutes § 34-346. Under this concept, we find it difficult to accept the plaintiffs' argument that it is the corporate partners that run the cellular network business in Connecticut rather than Cellco.
The tax credit in § 12-217t was given to the owner of the EDP equipment who has paid a property tax to a municipality. That owner was Cellco, not the corporate partners. The individual corporate partners did not own the EDP equipment at the time of the imposition of the property tax and the payment of the tax, and therefore, facially, the individual corporate partners were not entitled to the municipal tax credit. Although the individual corporate partners will end up paying a corporate business tax on its distributive share of earnings and profits from Cellco, the municipal tax assessment was made against the partnership Cellco. An assessment against a partnership is not an assessment against the individual partners because the individual partners are separate taxpayers. In re Galletti, 314 F.3d 336, 344 (9th Cir. 2002). In this sense Cellco was the owner of the EDP equipment, and in the eyes of the...
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