DaimlerChrysler Services v. CIR

• Decision Date: 28 June 2005
• Docket Number: No. 17277.,17277.
• Citation: 274 Conn. 196,875 A.2d 28
• Court: Connecticut Supreme Court
• Parties: DAIMLERCHRYSLER SERVICES NORTH AMERICA, LLC, v. COMMISSIONER OF REVENUE SERVICES.

875 A.2d 28

274 Conn. 196

DAIMLERCHRYSLER SERVICES NORTH AMERICA, LLC, v. COMMISSIONER OF REVENUE SERVICES.

No. 17277.

Supreme Court of Connecticut.

Argued February 9, 2005.

Decided June 28, 2005.

Peter O. Larsen, with whom were Donald E. Frechette and, on the brief, David E. Otero, pro hac vice, and William E. Murray, Hartford, for the appellant (plaintiff).

Paul M. Scimonelli, assistant attorney general, with whom, on the brief, was Richard Blumenthal, attorney general, for the appellee (defendant).

BORDEN, NORCOTT, KATZ, VERTEFEUILLE and ZARELLA, Js.

KATZ, J.

The plaintiff, DaimlerChrysler Services North America, LLC, appeals from the judgment of the trial court dismissing the plaintiff's appeal from the decision of the defendant, the commissioner of revenue services, denying the plaintiff's claim for a sales tax refund under General Statutes § 12-408(2)(B).¹ Specifically, the plaintiff claims that the trial court improperly concluded that: (1) the "retailer" that is entitled to the refund under § 12-408(2)(B) is limited to the retailer that made the original sale and remitted the sales tax to the defendant; and (2) the right to a refund or credit under the statute is not assignable by the retailer that made the original sale to a third party absent explicit statutory or contractual language conferring such a right. We disagree, and, accordingly, we affirm the judgment of the trial court.

The record reveals the following relevant facts and procedural history. During the period relevant to this appeal, the plaintiff was engaged in the business of selling and leasing automobiles to consumers in Connecticut. More significantly for the purposes of this appeal, the plaintiff also provided financing for automobiles sold by other retail automobile dealers to consumer purchasers in Connecticut. In each of the plaintiff's financing transactions, the dealer forwarded the potential buyer's credit application to the plaintiff. After the plaintiff had approved the application, the purchaser executed a contract with the dealer to pay in installments the purchase price of the vehicle, interest and the applicable sales tax and to grant the dealer a security interest in the vehicle. After the purchaser had executed the installment contract with the dealer, the dealer in turn would execute an assignment of the installment contract to the plaintiff. In exchange for the assignment, the plaintiff paid the dealer the total amount financed, including the sales tax, less any down payment made by the purchaser. The dealer then remitted to the defendant the sales tax, which became due at the time of the initial sales transaction. When the plaintiff received an installment payment from the purchaser, it credited that payment on a pro rata basis against the entire amount financed, including the sales tax.

Certain purchasers defaulted on their payment obligations under their installment contracts. After the defaults, an unpaid balance remained on the purchasers' accounts, even after the unpaid balance was reduced by any proceeds from the sale of a repossessed vehicle. The plaintiff wrote off the unpaid balances as worthless and uncollectible for federal income tax purposes. On or about February 17, 2000, the plaintiff filed a claim with the defendant, pursuant to § 12-408(2)(B), for a sales tax refund to recover the sales tax the plaintiff had paid on the uncollected balances in the amount of $977,668.76 for the period from January 1, 1997, through December 31, 1999. The defendant thereafter issued notice to the plaintiff of a proposed disallowance of the tax refund sought. The plaintiff timely filed a written protest, however, on April 8, 2002, the defendant issued a final determination that the plaintiff was not entitled to relief pursuant to § 12-408(2)(B). Specifically, the defendant concluded that a bad debt refund could be obtained only by the retailer that had made the original sale and had remitted directly the sales tax to the defendant, which the plaintiff admittedly had not done in the present case. The defendant further noted that the claim did not contain complete information to support its validity.

The plaintiff subsequently appealed from the defendant's decision to the trial court. The trial court granted the plaintiff's motion to bifurcate the issues of liability and damages. The plaintiff then filed a motion for partial summary judgment on the issue of liability, claiming that it was entitled to the refund under § 12-408(2)(B) either in its own right as a "retailer" or as an assignee of the retail dealers' rights.

The trial court concluded that § 12-408(2)(B) clearly refers to the first level purchase of the automobile between a consumer and a dealer. The court rejected the plaintiff's claim that the focus of the statute is on the retailer that charged off the debt. It further concluded that the statute clearly applies only to the retailer who directly remitted the sales tax to the defendant. The trial court noted that to interpret the statute otherwise impermissibly would rewrite its text. With respect to whether the plaintiff was entitled to relief pursuant to the assignment of the retail dealers' rights under the statute, the trial court determined that common-law principles of assignment could not be applied to the present case without consideration of established tax principles. The court therefore concluded that, because the right to a sales tax refund is a statutory right, not a common-law right, that right is not assignable absent explicit statutory or contractual language. Accordingly, the trial court denied the plaintiff's motion for partial summary judgment. In reliance upon the reasoning of the trial court's decision, the defendant thereafter filed a motion for summary judgment, which the trial court granted. This appeal followed.²

The plaintiff contends that the trial court improperly concluded that: (1) the term "retailer" within the meaning of § 12-408(2)(B) applies only to the retailer that made the original sale and remitted the sales tax to the defendant; and (2) the right to a refund or credit under the statute generally is not assignable to a third party. We disagree with both of these claims.

We first set forth the well established principles guiding our review. With respect to the defendant's construction of § 12-408, we note "that the traditional deference accorded to an agency's interpretation of a statutory term is unwarranted when the construction of a statute ... has not previously been subjected to judicial scrutiny [or to] ... a governmental agency's time-tested interpretation.... The [defendant] does not claim that [his] interpretation of the statute is time-tested. Accordingly, we exercise plenary review over the plaintiff's claims." (Citation omitted; internal quotation marks omitted.) Southern New England Telephone Co. v. Dept. of Public Utility Control, 261 Conn. 1, 13-14, 803 A.2d 879 (2002). We do so according to general principles of statutory construction and specific rules of construction of tax statutes. General Statutes § 1-2z provides: "The meaning of a statute shall, in the first instance, be ascertained from the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered." When the relevant statutory text and the relationship of that text to other statutes do not reveal a meaning that is plain and unambiguous, our analysis is not limited, and we look to other factors relevant to determining the meaning of § 12-408, including its legislative history, the circumstances surrounding its enactment and its purpose. Nine State Street, LLC v. Planning & Zoning Commission, 270 Conn. 42, 46, 850 A.2d 1032 (2004). "The test to determine ambiguity is whether the statute, when read in context, is susceptible to more than one reasonable interpretation." (Internal quotation marks omitted.) Tarnowsky v. Socci, 271 Conn. 284, 287 n. 3, 856 A.2d 408 (2004).

"The general rule of construction in taxation cases is that provisions granting a tax exemption are to be construed strictly against the party claiming the exemption.... Exemptions, no matter how meritorious, are of grace, and must be strictly construed. They embrace only what is strictly within their terms.... [Moreover] [w]e strictly construe such statutory exemptions because [e]xemption from taxation is the equivalent of an appropriation of public funds, because the burden of the tax is lifted from the back of the potential taxpayer who is exempted and shifted to the backs of [other taxpayers]." (Internal quotation marks omitted.) Interlude, Inc. v. Skurat, 266 Conn. 130, 140, 831 A.2d 235 (2003). With these principles in mind, we turn to the plaintiff's claims.

I

Section 12-408(2)(B) provides a mechanism by which a "retailer" may obtain a tax credit for sales tax that the retailer has remitted to the defendant after a tax debt from a consumer has become worthless. Regs., Conn. State Agencies § 12-408-1. The plaintiff contends that the trial court improperly concluded that it is not a "retailer" within the meaning of § 12-408(2)(B). Specifically, the plaintiff asserts that it is entitled to the credit because it is a retailer as that term is defined under the tax statutes; see General Statutes § 12-407(a);³ in that it engages in the business of making retail sales of automobiles and because it has the requisite permit from the state pursuant to General Statutes § 12-409 to make such sales. The plaintiff further asserts that, as used in § 12-408(2)(B), the term "retailer" applies to the retailer who actually charged off the bad debt.

The defendant contends that a plain reading of § 12-408(2)(B) establishes that the tax credit is available only to the original seller who...