General Elec. Co. v. Iowa State Bd. of Tax Review

• Decision Date: 25 November 1992
• Docket Number: No. 91-837,91-837
• Citation: 492 N.W.2d 417
• Parties: GENERAL ELECTRIC COMPANY, Appellant, v. IOWA STATE BOARD OF TAX REVIEW, Appellee.
• Court: Iowa Supreme Court

Page 417

492 N.W.2d 417

GENERAL ELECTRIC COMPANY, Appellant, v. IOWA STATE BOARD OF TAX REVIEW, Appellee.

No. 91-837.

Supreme Court of Iowa.

Nov. 25, 1992.

Drew R. Tillotson, Burns Mossman, and Bruce W. Baker of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C., Des Moines, for appellant.

Bonnie J. Campbell, Atty. Gen., and Harry M. Griger, Sp. Asst. Atty. Gen., for appellee.

Considered by McGIVERIN, C.J., and LARSON, LAVORATO, NEUMAN, and SNELL, JJ.

LARSON, Justice.

This is an appeal from a judgment of the district court affirming a decision of the Iowa Department of Revenue and Finance to deny an income tax refund to General Electric (GE). We affirm the court of appeals and the district court.

In 1981, the Iowa Department of Revenue and Finance (Department) conducted a field audit of GE's income tax liability and issued an assessment for 1977 through 1979. GE filed a protest. The Department notified GE in 1982 that its protest would be held in abeyance pending the outcome of two pertinent tax cases then pending in the United States Supreme Court. In January 1984, following resolution of the Supreme Court cases, the Department notified GE that it was lifting its abeyance and would proceed to complete the audit.

In December 1985, an audit of 1983 through 1984, and a reaudit of 1977 through 1979 began. The Department wrote to GE regarding the results. The letter dealt with issues that GE initially had raised in its protest, including its deductions for federal taxes and several contributions. The Department referred to certain business income items and indicated that it would be agreeable to consider some of them as nonbusiness income. As a part of the Department's proposals, the approximately $5.3 million in audited tax liability might be reduced. In addition, $450,000 in penalty might be waived if an agreement on the business income issues could be reached.

On May 16, following receipt of additional information from GE, the Department wrote again. It stated that GE's federal tax deductions, as well as several contributions and dividends, were in the apportionable tax base and would not be negotiated. The Department noted that these items alone amounted to approximately $1.8 million in additional tax. The Department then presented a new offer of settlement. The new offer resulted in an audited liability for 1977 through 1984 of $3,094,541 in additional tax. It would waive all penalties, but the matter of interest was apparently to be negotiated separately.

At the request of GE, representatives of GE and the Department met to discuss settlement. GE acceded on the issues that the Department had indicated were not negotiable. The parties discussed the possibility of applying amnesty principles as GE requested. Apparently, for strategic reasons, GE asked that it not be required to make a formal application for amnesty.

On October 17, 1986, following this meeting and several telephone conferences, the Department agreed to resolve the tax matters provided payment of $3,366,767.82 was received by October 31. GE sent a check for that amount on October 28, and the Department's closing order was issued.

Almost a year after this settlement, our court decided Kelly-Springfield Tire Co. v. Iowa State Board of Tax Review, 414 N.W.2d 113 (Iowa 1987), which substantially changed the rules regarding application of Iowa's statute of limitations, Iowa Code § 422.25(1). Prior to Kelly-Springfield, it had been assumed that a pending Internal Revenue Service audit broadly extended the time for the Department to collect Iowa income taxes. Under Kelly-Springfield, the Iowa statute of limitations was extended by a federal audit only as to those issues involved in the federal audit that affected the income tax liability to the State of Iowa; a federal audit did not extend the Iowa statute of limitations for those federal adjustments that had no effect on Iowa income tax, which was the case here.

GE immediately filed an application for refund of the taxes and interest it had paid under the settlement. It claimed that, because Kelly-Springfield held that section 422.25(1) would have applied a three-year statute of limitations, GE could not have been required to pay the Iowa income tax when it did. Its claim for refund was based primarily on Iowa Code section 422.73(2):

If it appears that an amount of tax, penalty, or interest has been paid which was not due under division II, III or V of this chapter, then that amount shall be credited against any tax due on the books of the department by the person who made the excessive payment, or that amount shall be refunded to the person or with the person's approval, credited to tax to become due.

I. GE claims that its tax for 1977 through 1984 "was not due" under this section because, under Kelly-Springfield, the Department could not have enforced the collection of the tax beyond the three-year period. The Department counters that a refund is not required by this section because, while the taxes would not have been collectible because of Kelly-Springfield, the tax was nevertheless "due." In any event, the parties had settled all claims between them.

GE argues that, in construing tax statutes, doubt should be resolved in favor of the taxpayer. See American Home Prods. Corp. v. Iowa State Bd. of Tax Review, 302 N.W.2d 140, 143 (Iowa 1981). However, as we noted in American Home Products, this is only one of the rules of construction. In addition:

(1) In considering legislative enactments [including tax statutes] we should avoid strained, impractical or absurd results.

(2) Ordinarily, the usual and ordinary meaning is to be given the language used but the manifest intent of the legislature will prevail over the literal import of the words used.

(3) Where language is clear and plain, there is no room for construction.

(4) We should look to the object to be accomplished and the evils and mischiefs sought to be remedied in reaching a reasonable or liberal construction which will best effect its purpose rather than one which will defeat it.

(5) All parts of the enactment should be considered together and undue importance should not be given to any single or isolated portion.

(6) We give weight to the administrative interpretation of statutes, particularly when they are long-standing.

Id. at 142-43 (quoting Iowa Nat'l Indus. Loan Co. v. Iowa State Dep't of Revenue, 224 N.W.2d 437, 440 (Iowa 1974)).

GE concedes that the tax had been due at one time, and it does not argue that it "overpaid" them. It candidly admits that what it requests is a windfall. Because the parties did not anticipate the impact of Kelly-Springfield, GE had paid a tax obligation that the state could not enforce.

Kehe v. Blackhawk County, 125 Iowa 549, 101 N.W. 281 (1904), is analogous. In Kehe, the taxpayers paid property taxes for the years 1896 to 1901 pursuant to an agreement with "tax ferrets" employed by the county. Unknown to either party, the authority of the county treasurer to collect the taxes for 1896 had lapsed. Nevertheless, the county and the taxpayer compromised, and the 1896 taxes were paid. We stated the issue:

It is admitted that the [taxpayers] were owners of moneys and credits [subject to taxation], during the year 1896, to the amount shown by the tax ferrets' report, and that if they had listed the same they would have been required to pay in taxes for that year--at least as much as they eventually paid to the county treasurer. But it is contended that there was no legal assessment of taxes against them by the county treasurer, and that at the time they paid these taxes the county treasurer had no authority to assess, or to call for any taxes upon, property omitted from taxation for the year 1896, which was more than five years prior to the first Monday in April of the year 1901; in other words, that the remedies of the county for the...