Canty v. Idaho State Tax Com'n

• Court: Idaho Supreme Court
• Writing for the Court: SCHROEDER, Justice.
• Citation: Canty v. Idaho State Tax Com'n, 59 P.3d 983, 138 Idaho 178 (Idaho 2002)
• Decision Date: 29 November 2002
• Docket Number: No. 27354.,27354.
• Parties: Earle and Jolyn CANTY, Plaintiffs-Respondents, v. IDAHO STATE TAX COMMISSION, Defendant-Appellant.

59 P.3d 983

138 Idaho 178

Earle and Jolyn CANTY, Plaintiffs-Respondents, v. IDAHO STATE TAX COMMISSION, Defendant-Appellant.

No. 27354.

Supreme Court of Idaho, Coeur d'Alene, 2002 Term of Court.

November 29, 2002.

Alan G. Lance, Attorney General, Boise, for appellants. Charles E. Zalesky argued.

Elsaesser, Jarzabek, Anderson, Marks, Elliott & McHugh, Sandpoint, for respondent. Bruce A. Anderson argued.

SCHROEDER, Justice.

This is an individual income tax case involving the Idaho credit for taxes paid statute, I.C. § 63-3029. The parties filed cross-motions for summary judgment, which the district court granted in favor of the taxpayers, Earle and Jolyn Canty (Cantys). The district court held that the Cantys were entitled to a credit on their 1995 and 1996 Idaho individual income tax returns for taxes paid in their 1994 California income tax return, finding that the Idaho credit for taxes paid statute was ambiguous and could be read to allow credit for taxes paid to another state in a prior taxable year. The Idaho State Tax Commission (Commission) contends that the credit provision is specifically limited to taxes paid to another state for the same taxable year.

I. FACTUAL AND PROCEDURAL BACKGROUND

Prior to 1994 the Cantys lived in California where Earle Canty (Canty) was an executive for Ventritex, Inc. As part of his compensation package, Canty received incentive stock options. In February of 1994 Canty exercised stock options, purchasing 63,732 shares of Ventritex stock for $45,241.60. Shortly thereafter, he terminated his employment. In June of 1994 the Cantys moved to Hayden Lake, Idaho. In September and October of 1994 Canty exercised additional stock options with Ventritex that allowed him to purchase 10,500 more shares of Ventritex stock. As a result of exercising these stock options in 1994, Canty received a total of 74,232 shares of Ventritex stock. In 1994 Canty's total unrealized gain for exercised stock options was $1,835,569.

The Cantys filed individual tax returns for 1994 in California and Idaho. They reported total unrealized gains of $1,835,569 in California. They paid about $157,000 to the State of California as an alternative minimum tax (AMT), which was triggered because of the acquisition of the Ventritex stock. California treats the exercise of incentive stock options as a taxable event, requiring such purchaser to pay an "alternative minimum tax" on unrealized gains associated with such purchases. Idaho, however, does not treat such a purchase as a taxable event. California gives taxpayers an alternative minimum tax credit for this payment for the same amount which may be carried forward indefinitely and used to offset liability on future California tax returns. The Cantys filed an Idaho part-year resident individual income tax return. They did not report the $1,835,569 as taxable income in Idaho and no Idaho tax was paid.

In 1995 the Cantys sold some of their Ventritex stock resulting in a taxable gain of $1,000,902. On their 1995 Idaho tax return, however, they only reported $176,595 in taxable gain from the sale of the stock due to a miscalculation of the basis.¹ In 1996 the Cantys again sold some of their Ventritex stock and miscalculated the basis for their tax return, underestimating their 1996 taxable income by $138,391. The Tax Commission subsequently selected their 1995 and 1996 returns to be audited. During the audits the Tax Commission discovered the errors and adjusted the proper income and tax due accordingly. In addition the Tax Commission found that the Cantys had claimed a tax credit in 1995 on their Idaho tax return for AMT paid to California. The auditors disallowed that credit because the Cantys had paid no California income tax for the 1995 taxable year.

The Cantys filed a timely protest and sought a redetermination of the Notice of Deficiency Determination. They disagreed with the auditors' determination that they could not apply the credit for taxes paid to California and disagreed with the adjustments. The Tax Commission denied the appeal. The Cantys appealed the Tax Commission decision to the district court. The Commission filed a Motion for Summary Judgment, supported by affidavits from Mark Jeffrey and Charles Zalesky. The Cantys filed a Cross-Motion for Summary Judgment with affidavits from Earle Canty and Bruce Anderson. The district court granted summary judgment for the Cantys, and the Tax Commission appealed.

II. THE CANTYS ARE NOT ENTITLED TO A CREDIT ON THEIR 1995 AND 1996 IDAHO INDIVIDUAL INCOME TAX RETURN FOR THE CALIFORNIA ALTERNATIVE MINIMUM TAX THEY PAID FOR THE 1994 TAXABLE YEAR

A. Standard of Review

When this Court reviews the district court's ruling on a motion for summary judgment, it employs the same standard as the district court's original ruling on the motion. Farmers Ins. Co. v. Talbot, 133 Idaho 428, 431, 987 P.2d 1043, 1046 (1999) (citing Smith v. Meridian Joint Sch. Dist. No. 2, 128 Idaho 714, 718, 918 P.2d 583, 587 (1996); City of Chubbuck v. City of Pocatello, 127 Idaho 198, 200, 899 P.2d 411, 413 (1995)). Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. I.R.C.P. 56(c); Mutual of Enumclaw v. Box, 127 Idaho 851, 852, 908 P.2d 153, 154 (1995).

B. The credit for taxes paid in a previous year in another state may not be credited against subsequent tax liability in Idaho.

This case involves the interpretation of Idaho Code § 63-3029. The object in interpreting a statute is to "derive the intent of the legislative body that adopted the act." Payette River Property Owners Ass'n v. Board of Comm'rs of Valley County, 132 Idaho 551, 557, 976 P.2d 477, 483 (1999). "Such analysis begins with the literal language of the enactment." Id. at 557, 976 P.2d at 483. If the statutory language is unambiguous, "the clearly expressed intent of the legislative body must be given effect, and there is no occasion for a court to consider rules of statutory construction." Id. at 557, 976 P.2d at 483.

The Idaho Court of Appeals described in State v. Browning when a statute is ambiguous:

A statute is ambiguous when the meaning is so doubtful or obscure that "reasonable minds might be uncertain or disagree as to its meaning." Hickman v. Lunden, 78 Idaho 191, 195, 300 P.2d 818, 819 (1956). "However, ambiguity is not established merely because different possible interpretations are presented to a court. If this were the case then all statutes that are the subject of litigation could be considered ambiguous.... [A] statute is not ambiguous merely because an astute mind can devise more than one interpretation of it." Rim View Trout Co. v. Higginson, 121 Idaho 819, 823, 828 P.2d 848, 852 (1992).

123 Idaho 748, 750, 852 P.2d 500, 502 (Ct. App.1993).

Where an ambiguity is found in tax statutes, the statutes are generally "strictly construed against the taxing authority and in favor of the taxpayer and ambiguities therein are to be resolved in favor of the taxpayer." Department of Employment v. Diamond Int'l Corp., 96 Idaho 386, 387, 529 P.2d 782, 783 (1974). If there is ambiguity in a tax statute specifically regarding deductions, however, "the law is to be construed strongly against the taxpayer." Potlatch Corp. v. Idaho State Tax Comm'n, 128 Idaho 387, 389, 913 P.2d 1157, 1159 (1996); see also Manufab, Inc. v. Mississippi State Tax Comm'n, 808 So.2d 947, 949 (Miss.2002) (tax credits and exemptions construed strictly against taxpayer); Bennett v. State Dep't of Assessments and Taxation, 143 Md.App. 356, 795 A.2d 124, 132 (Md.2001) ("It is a firmly established principle of law that exemptions from taxation are not favored, but are strictly construed in favor of the State."); Hermann v. Director of Revenue, 47 S.W.3d 362, 365 (Mo.2001) (en banc), reh'g denied, (June 26, 2001) ("Tax credits and exemptions are construed strictly and narrowly against the taxpayer"); William Lyon Co. v. Franchise Tax Board, 4 Cal.App.4th 267, 5 Cal.Rptr.2d 680, 685 (1992) (same).

At issue in this case are both the 1995 and 1996 statutes. The 1995 version of the statute reads as follows: 63-3029. Credit for income taxes paid another state or territory.—(a) Whenever a resident person, excluding corporations, has become liable for income tax to another state, as a nonresident of such state, upon his taxable income, or any part thereof, for the taxable year, which is derived from sources without this state and subject to taxation under this chapter, the amount of income tax payable by him under this chapter shall be credited with the income tax so payable by him to such other state or territory.... The credit granted shall be limited to the proportion of the tax computed under this chapter, but before the allowance of this credit, which the adjusted gross income as defined in section 62 of the Internal Revenue Code from such other state or territory bears to total adjusted gross income as defined in section 62 of the Internal Revenue Code; provided, however, that such credit shall not be in excess of the actual tax payable to such other state or territory and that such adjusted gross income shall be corrected to reflect additions to and subtractions from income required by this act.

I.C. § 63-3029(a) (1989). The 1996 statute provides the following:

63-3029. Credit for income taxes paid another state or territory.—(a) Whenever a resident individual has become liable for income tax to another state upon his taxable income, or any part thereof, earned while domiciled in this state, which income is derived from sources without this state and subject to taxation under this chapter, the amount of income tax payable by him under this chapter shall be credited with the income tax so payable by him to such other state or territory .... The credit granted shall be limited to the proportion of the tax computed under this chapter, but before the allowance of this credit, which the adjusted

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