George, Inc. v. Norberg

Decision Date29 April 1982
Docket NumberNo. 79-425-M,79-425-M
Citation444 A.2d 868
PartiesGEORGE, INC. v. John H. NORBERG, Tax Administrator. P.
CourtRhode Island Supreme Court
OPINION

SHEA, Justice.

We granted certiorari in this case to consider the validity of additional corporate income taxes assessed against the taxpayer, George, Inc. (George). The District Court sustained the tax administrator's decision that required George to pay an additional $2,649.97 plus interest in state income taxes for 1976. We sustain George's petition and quash the judgment below.

George was a Delaware corporation with its principal place of business in Rhode Island. 1 It was a wholly owned subsidiary of a Rhode Island corporation established as a personal holding company for the benefit of its sole stockholder, a Rhode Island resident. George's sole asset consisted of securities held in Canadian corporations.

For the taxable year 1976 George received income from its Canadian holdings and paid a tax of $36,573.25 to the Canadian government. On its United States income tax return George took a credit for foreign taxes paid and reduced its federal corporate tax liability by the full amount of those taxes. The Internal Revenue Code permits a taxpayer either to deduct foreign income taxes from gross income (in the case of a corporation) or to take them as a credit against tax liability. 26 U.S.C.A. § 164(a)(3) (1978), § 901(a) (1967).

In computing its 1976 Rhode Island business corporation income tax, George deducted the Canadian taxes from its gross income. In so doing George relied on the provisions of G.L.1956 (1980 Reenactment) § 44-11-11(a)(3). That section permits a corporate taxpayer to reduce its gross income as reported on its federal return by "all items deductible under the federal corporation income tax law applicable to the taxable year * * *." It thus computed its Rhode Island income tax liability to be $14,924.11.

The tax administrator determined that the foreign taxes were not deductible on George's state return. He assessed a further tax of $2,649.97 plus interest against George. George paid the additional tax and filed for a refund pursuant to § 44-11-20. An administrative-hearing officer upheld the assessment and the District Court sustained the decision upon George's appeal under § 44-11-35. We granted certiorari pursuant to G.L.1956 (1977 Reenactment) § 42-35-16.

The sole issue concerns the proper meaning of the word "deductible" contained in § 44-11-11(a)(3). The tax administrator ruled, and the District Court agreed, that George could not deduct the foreign taxes on its state return because it had not elected to deduct these taxes on its federal return. Because George had elected to take a credit against its federal tax liability, the tax administrator ruled that the item was no longer deductible. 2

The interpretation given to § 44-11-11(a)(3) by both the tax administrator and the District Court would require that the item actually be deducted on the federal return before a taxpayer could also deduct the item on his state return. George argues that the validity of the deduction for state tax purposes should not be dependent upon whether the item was actually deducted on its federal return. It contends that "deductible" clearly means "capable of being deducted," rather than "taken as a deduction." Webster's Third New International Dictionary 589 (1967); see also Black's Law Dictionary 372 (5th ed. 1979). When a federal return is being prepared, federal law allows the deduction of foreign taxes. Moreover, George argues, the filing of the return, despite the election of the credit, does not make the foreign taxes any less capable of being deducted. Actually, they remain deductible because a taxpayer who takes a credit for foreign taxes may change his election and file an amended tax return claiming the deduction thereon. 26 U.S.C.A. § 6511(d)(3) (1967). The sense of George's view is that what determines whether or not an item is deductible is the federal law applicable to that particular tax year and not the actual schedule of deductions applicable to that year.

The tax administrator interprets the term "deductible" to mean "taken as a deduction." He reads § 44-11-11(a)(3) as a consideration of what deductions are applicable to the tax year in question and not what the law applicable thereto otherwise permits, regardless of what a taxpayer decides to do. Accordingly the nondeduction of an item on the federal return for a given tax year, according to the tax administrator, would preclude that item from being deductible for purposes of the state corporation income tax.

The tax administrator is required to resolve questions of law and fact to apply revenue statutes consistently with legislative intent. However, his determinations of law are not binding upon the reviewing court. They "may be reviewed to...

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12 cases
  • General Motors Corp. v. Arizona Dept. of Revenue
    • United States
    • Arizona Court of Appeals
    • 26 november 1996
    ...GM cites numerous cases from other jurisdictions whose tax schemes differ substantially from ours. For example, in George, Inc. v. Norberg, 444 A.2d 868 (R.I.1982), cert. denied sub nom. Norberg v. George, Inc., 459 U.S. 908, 103 S.Ct. 214, 74 L.Ed.2d 170 (1982), the state tax provision exp......
  • Income Tax Protest of Flint Resources, Matter of
    • United States
    • Oklahoma Supreme Court
    • 17 januari 1989
    ...the taxpayer's federal return. See, Bogner v. State Dept., note 4, 107 Idaho at 856, 693 P.2d at 1058, supra and George, Inc. v. Norberg, --- R.I. ----, 444 A.2d 868, 870 (1982), cert denied 459 U.S. 908, 103 S.Ct. 214, 74 L.Ed.2d 170 (1982). Like the court in Knosher, both the courts in Bo......
  • Skaarup Shipping Corp. v. Commissioner of Revenue Services
    • United States
    • Connecticut Supreme Court
    • 15 april 1986
    ...finds support in Bogner v. Department of Revenue and Taxation, 107 Idaho 854, 856, 693 P.2d 1056 (1984), and in George, Inc. v. Norberg, 444 A.2d 868, 869-70 (R.I.1982), while the defendant relies on Caterpillar Tractor Co. v. Lenckos, 84 Ill.2d 102, 126, 49 Ill.Dec. 329, 417 N.E.2d 1343 (1......
  • Cookson America, Inc. v. Clark
    • United States
    • Rhode Island Supreme Court
    • 18 mei 1992
    ...involving the applicability of a statute to undisputed facts. Rhode Island CATV Corp. v. Clark, 541 A.2d 462 (R.I.1988); George, Inc. v. Norberg, 444 A.2d 868 (R.I.), cert. denied, 459 U.S. 908, 103 S.Ct. 214, 74 L.Ed.2d 170 (1982). When stipulations of fact are involved, however, we have e......
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