Comptroller of Treasury v. Fairchild Industries, Inc.

• Decision Date: 01 September 1984
• Docket Number: No. 115,115
• Citation: 493 A.2d 341,303 Md. 280
• Parties: COMPTROLLER OF the TREASURY v. FAIRCHILD INDUSTRIES, INC. ,
• Court: Maryland Court of Appeals

Page 280

303 Md. 280

493 A.2d 341

COMPTROLLER OF the TREASURY v. FAIRCHILD INDUSTRIES, INC.

No. 115, Sept. Term, 1984.

Court of Appeals of Maryland.

June 7, 1985.

Gerald Langbaum, Asst. Atty. Gen., Annapolis (Stephen H. Sachs, Atty. Gen., Baltimore, and John K. Barry, Asst. Atty. Gen., Annapolis, on brief), for appellant.

Michael L. Quinn, Baltimore (Marvin J. Garbis and Garbis & Schwait, Baltimore, on brief), for appellee.

Argued before MURPHY, C.J., and SMITH, ELDRIDGE, COLE, RODOWSKY, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals of Maryland (retired) and ALAN M. WILNER, Associate Judge of the Court of Special Appeals, Specially Assigned.

MURPHY, Chief Judge.

The question presented is whether, under Maryland Code (1957, 1980 Repl. Vol.), Article 81, § 310(c), a corporate taxpayer is entitled to interest on a state income tax refund arising out of a carryback of a net operating loss and, if so, the date from which interest must be paid. Section 310(c) provides that interest shall be paid on income tax refunds

"accounting from the date the return required under this subtitle was due to be filed, but interest may not be paid on tax refunds now pending or subsequently filed pursuant to this section if the tax originally paid was paid in whole or in part by reason of a mistake or error on the part of the taxpayer and not attributable to the State or any department or agency thereof ...." ¹

I

Fairchild Industries, Inc. (Fairchild), a calendar year taxpayer, timely filed its Maryland corporate income tax returns for the 1975, 1976 and 1977 tax years. The returns were filed by the extended due dates of October 15, 1976, 1977 and 1978, respectively, as permitted by § 306 of Art. 81.

For the 1978 tax year, Fairchild incurred a net operating loss which, by § 280A of Art. 81, may be used as a retroactive income tax deduction (a "carryback") for each of the preceding three tax years. Thus, Fairchild's reported taxable income for the 1975, 1976 and 1977 tax years was entitled to be recomputed and reduced by the amount of the net operating loss, resulting in a refund of taxes previously paid. To claim the refund, Fairchild timely amended its Maryland corporate income tax returns for the 1975, 1976 and 1977 tax years and recomputed its taxable income and final tax liability to reflect the net operating loss. The amended returns, filed on September 27, 1979, showed refunds due to Fairchild for each of the three tax years in question and Fairchild received refund payments totalling $728,152, without interest.

Upon Fairchild's challenge to the Comptroller's denial of interest on the refunds, the Maryland Tax Court determined that interest was properly payable thereon, from which order the Comptroller appealed to the Circuit Court for Baltimore City. The Tax Court further determined that interest on Fairchild's tax refunds accrued only from September 27, 1979, the date the amended returns reflecting the net operating loss carryback were filed. From this determination, Fairchild appealed to the circuit court.

The circuit court (Angeletti, J.), affirming in part and reversing in part, held that Fairchild was entitled to interest on the refunds commencing from the extended due dates of the original returns, rather than from the date the amended returns were filed. Upon the Comptroller's appeal to the Court of Special Appeals, we granted certiorari, 483 A.2d 237, to consider the important issues raised in the case.

II

Entitlement to interest on a tax refund is a matter of grace which can only be authorized by legislative enactment. Comptroller v. Campanella, 265 Md. 478, 290 A.2d 475 (1972); Wasena Housing Corp. v. Levay, 188 Md. 383, 52 A.2d 903 (1947); Lady v. Prince George's County, 43 Md.App. 99, 403 A.2d 1277 (1979). In construing § 310(c) (enacted by ch. 28 of the Acts of 1952), the real and actual intent of the legislature must be ascertained. Scott v. State, 297 Md. 235, 465 A.2d 1126 (1983); State v. Loscomb, 291 Md. 424, 435 A.2d 764 (1981). The primary source for determining the legislature's intent is the language of the statute itself which should be construed according to its ordinary and natural import. Ryder Truck Lines v. Kennedy, 296 Md. 528, 463 A.2d 850 (1983); Board of Educ. Garrett Co. v. Lendo, 295 Md. 55, 453 A.2d 1185 (1982); Vallario v. State Roads Comm'n, 290 Md. 2, 426 A.2d 1384 (1981). A statute should not be construed by forced or subtle interpretations designed to extend or limit the scope of its operation. State v. Intercontinental, Ltd., 302 Md. 132, 486 A.2d 174 (1985); Guy v. Director, 279 Md. 69, 367 A.2d 946 (1977). Thus, where statutory language is plain and free from ambiguity and expresses a definite and sensible meaning, no construction or clarification is needed or permitted. Hornbeck v. Somerset Co. Bd. of Educ., 295 Md. 597, 458 A.2d 758 (1983); Blum v. Blum, 295 Md. 135, 453 A.2d 824 (1983); Koyce v. State, Central Collection Unit, 289 Md. 134, 422 A.2d 1017 (1980).

III

Insofar as here pertinent, § 310(c) requires that interest be paid on income tax refunds except where the tax, as originally paid, was due to "a mistake or error on the part of the taxpayer and not attributable to the State or any department or agency thereof." (Emphasis added.) The Comptroller maintains that the quoted provisions of the statute must be interpreted in the disjunctive, i.e., that despite the legislature's use of the conjunctive "and," the exception should nevertheless be viewed as creating alternative conditions--either one of which, if present, would be sufficient to reject a taxpayer's claim for interest on a tax refund. The Comptroller's interpretation is premised on the principle of law recognized by us in Little Store, Inc. v. State, 295 Md. 158, 163, 453 A.2d 1215 (1983) that the words "and" and "or" are interchangeable "when it is reasonable and logical to do so." The Comptroller asserts that such a construction is reasonable and logical in this instance, and as no mistake or error can be attributed to the State, the payment of interest on Fairchild's tax refund is prohibited. In so concluding, the Comptroller seizes upon the phrase in § 310(c)--"but interest may not be paid"--to express a general prohibition against the payment of interest on tax refunds. He suggests that this is consistent with a legislative purpose to tighten the law by requiring the State to be at fault before a taxpayer may receive interest on a tax refund.

According to Black's Law Dictionary 79 (5th ed. 1979), the word "and" is used as

"[a] conjunction connecting words or phrases expressing the idea that the latter is to be added to or taken along with the first....

"It expresses a general relation or connection, a participation or accompaniment in sequence, having no inherent meaning standing alone but deriving force from what comes before and after. In its conjunctive sense the word is used to conjoin words, clauses, or sentences, expressing the relation of addition or connection, and signifying that something is to follow in addition to that which proceeds and its use implies that the connected elements must be grammatically co-ordinate, as where the elements preceding and succeeding the use of the words refer to the same subject matter."

To like effect, see Webster's Third New International Dictionary 80 (unabr. ed. 1971). It is ordinarily presumed that the word "and" should be interpreted according to its plain and ordinary meaning and that it is not interchangeable with the word "or." C. Sands, 1A Sutherland Statutory Construction § 21.14 (4th ed. 1972 and Cum.Supp.1984); 73 Am.Jur.2d Statutes § 241 (1974). As we indicated in Little Store, supra, circumstances may require courts to construe the word "and" to mean "or" whenever such a conversion is mandated by the context of the words used; the principle is applicable to legislative enactments where it is necessary to effectuate the obvious intention of the legislature. See Union Ins. Co. v. United States, 73 U.S. (6 Wall.) 759, 764, 18 L.Ed. 879 (1868); Duncan v. Wiseman Baking Co., 357 S.W.2d 694, 698 (Ky.1962); Sale v. Johnson, 258 N.C. 749, 129 S.E.2d 465, 469-70 (1963).

There is nothing in the words of § 310(c) or in the legislative history underlying the statute's enactment to suggest that the legislature intended that the disputed provisions of the section be interpreted other than in the conjunctive. We think the plain and ordinary meaning of § 310(c) is that to justify denial of interest on a tax refund there must be a taxpayer mistake or error which is not attributable to the State. Comptroller v. Davidson, Co.-Exec., 234 Md. 269, 199 A.2d 360 (1964) supports the view that the General Assembly intended that interest be paid on refunds unless the overpayment was due solely to taxpayer mistake or error. In that case, we considered an earlier statutory provision containing language identical to § 310(c). In holding that the taxpayer was entitled to interest upon overpayment of Maryland estate taxes, we said in dicta:

"In order to have a forfeiture of interest under sec. 218, there must have been a mistake or error by the taxpayer, not attributable to the State or a State agency. It is perfectly clear, we think, that there was no mistake or error on the part of the executors.... [I]nterest on the refund is required upon any theory of the case." 234 Md. at 273, 199 A.2d 360.

In this case, of course, there was no mistake or error on the part of Fairchild in filing its returns for the three years here in question. Manifestly, therefore, Fairchild is entitled to interest on its refunds.

IV

The proper computation of interest on Fairchild's refunds is governed by that part of § 310(c) which provides that interest be paid "on such amounts refunded accounting from the date the return required under this subtitle was due to be filed."

The Comptroller, adopting the Tax Court's view, urges that the word "return" in §...