Indiana Dept. of State Revenue v. Endress & Hauser, Inc.

• Decision Date: 27 May 1980
• Docket Number: No. 1-1279A368,1-1279A368
• Citation: 404 N.E.2d 1173
• Court: Indiana Appellate Court
• Parties: INDIANA DEPARTMENT OF STATE REVENUE, Defendant-Appellant, v. ENDRESS & HAUSER, INC., Plaintiff-Appellee.

Page 1173

404 N.E.2d 1173

INDIANA DEPARTMENT OF STATE REVENUE, Defendant-Appellant, v. ENDRESS & HAUSER, INC., Plaintiff-Appellee.

No. 1-1279A368.

Court of Appeals of Indiana, First District.

May 27, 1980.

Theo. L. Sendak, Atty. Gen., Carmen L. Quintana, Deputy Atty. Gen., Indianapolis, for defendant-appellant.

Leonard J. Betley, David M. Mattingly, Barton T. Sprunger, Ice, Miller, Donadio & Ryan, Indianapolis, for plaintiff-appellee.

RATLIFF, Judge.

STATEMENT OF THE CASE

The Indiana Department of State Revenue (Department) appeals from an adverse ruling on Endress & Hauser, Inc.'s (Endress's) Motion for Summary Judgment. The facts were uncontested, and the trial court's judgment was based solely on an interpretation of the applicable Indiana tax statutes.

FACTS

The undisputed facts are as follows. On March 30, 1970, the taxpayer, Endress, was incorporated as a Massachusetts corporation with its only business location in Beverly, Massachusetts. When it ceased doing business as a Massachusetts corporation on December 31, 1973, Endress had suffered net operating losses of $362,963.00. On January 16, 1974, Endress reincorporated as an Indiana corporation with its principal office in Greenwood, Indiana, and effected an "F reorganization" pursuant to Section 368(a)(1)(F) of the Internal Revenue Code. Endress thus remained the same taxpayer for federal income tax purposes.

Endress filed timely Indiana adjusted gross income tax returns for the years 1974, 1975, and 1976, but reported no adjusted gross income for these years as a result of deducting the net operating losses suffered in Massachusetts. The Department disallowed the deductions, and Endress paid adjusted gross income and supplemental net income taxes in the amounts of $6,267.16 for the year 1974, $6,082.12 for the year 1975, and $5,412.26 for the year 1976. Endress filed a claim for refund which was denied. Endress then brought the current action seeking a refund of the taxes and interest attributable to the disallowance of the net operating losses for the years, 1974, 1975, and 1976. The trial court held that

"The Department wrongfully and illegally disallowed the net operating loss deductions claimed by Endress for the years 1974, 1975, and 1976, since the starting point for determining Endress's adjusted gross income for purposes of the Act is 'taxable income' as defined in Section 63 of the IRC, and net operating loss deductions are properly allowable in computing such taxable income. Since Endress had no adjusted gross income within the meaning of IC 6-3-1-3.5 for the years 1974, 1975, and 1976, it had no adjusted gross income derived from sources within the State of Indiana upon which a tax could be imposed under IC 6-3-2-1."

The trial court, therefore, ordered the Department to refund the adjusted gross income and supplemental net income taxes and interest paid by Endress for the years 1974, 1975, and 1976 plus interest as required by law.

We affirm.

ISSUE

The sole issue in this case is whether the trial court erred in permitting the net operating losses which may be carried over and deducted in arriving at taxable income for federal income tax purposes to be reflected in the computation of Indiana adjusted gross income and supplemental net income taxes. Phrased somewhat differently the issue becomes whether the term "adjusted gross income" should be given the meaning set out by the statute or whether the context requires it be given the meaning adopted by the Department in Circular IT-82.

DECISION

It is a well established principle that courts will accord great weight to longstanding administrative interpretations because they are thought to be indicative of legislative acquiescence. Baker v. Compton, (1965) 247 Ind. 39, 211 N.E.2d 162; Indiana Department of State Revenue v. Sohio Petroleum Co., (1976) Ind.App., 352 N.E.2d 95. Such interpretations are not binding on courts, however, if they are wrong. Id. In this case the interpretation of the statute was not established as a published policy of the Department until November 27, 1974, near the end of the first tax year for which Endress is seeking to claim a net operating loss carry-over. There is nothing in the record to suggest either the longstanding nature of the interpretation or that it dates from the time of the legislative enactment, both requisites of the doctrine of legislative acquiescence. Baker v. Compton, supra; State Board of Tax Commissioners v. Wright, (1966) 139 Ind.App. 370, 215 N.E.2d 57, reh. den. 217 N.E.2d 596. Appellant Department's reliance on this theory for authority to support its position that the trial court erred, therefore, is misplaced. Moreover, we feel that the interpretation adopted by the Department is wrong.

Indiana corporations are subject to three (3) separate Indiana income tax statutes in addition to Indiana property and special county and local tax statutes, not to mention the federal tax statutes. Only two (2) of these statutes concern us here: the Indiana Adjusted Gross Income Tax Act (the Act), IC 6-3-1-1 et seq., and the Supplemental Corporate Net Income Tax Act, IC 6-3-8-1 et seq. The Adjusted Gross Income Tax Act provides that a tax is to be "imposed on that part of the adjusted gross income derived from sources within the state of Indiana of every corporation." IC 1971, 6-3-2-1 (Burns Code Ed., Repl.1978). It also provides that, in the case of corporations, "adjusted gross income" shall mean

"the same as 'taxable income' as defined in section 63 of the Internal Revenue Code, adjusted as follows:

"(1) Subtract income that is exempt from taxation under this act by the constitution and statutes of the United States;

"(2) Add an amount that is equal to any deduction or deductions allowed or allowable pursuant to section 170 of the Internal Revenue Code;

"(3) Add an amount equal to any deduction or deductions allowed or allowable pursuant to section 63 of the Internal Revenue Code for taxes based on or measured by income and levied at the state level by any state of the United States or for taxes on property levied by any subdivision of any state of the United States."

Ind.Code 6-3-1-3.5(b). ¹ None of these adjustments involves net operating losses.

The Supplemental Corporate Net Income Tax Act provides for an additional tax to be imposed on the net income of every corporation. IC 6-3-8-1. "Net income" means "adjusted gross income as defined in IC 1971, 6-3-1-3(b) . . ." and is further adjusted by subtracting the greater of three possible sums not pertinent here. IC 6-3-8-2. Thus, computation of the supplemental corporate net income tax is basically determined by the concept of adjusted gross income. If there is no adjusted gross income, there will be no net income, hence no supplemental corporate net income tax.

The term "Internal Revenue Code," as applied in this case, is defined as "the Internal Revenue Code of 1954 of the United States as amended and in effect" on January 1, 1973, and on January 1, 1975. IC 6-3-1-11. A 1977 amendment to the Act, IC 6-3-1-17, incorporates into Indiana law all pertinent provisions of the Internal Revenue Code, together with the rules and regulations of the Code. Although a statutory amendment may raise the presumption that the legislature intended to change the law, it may also reflect their desire to express their original intention more clearly. Economy Oil Corporation v. Indiana Department of State Revenue, (1974) 162 Ind.App. 658, 321 N.E.2d 215. According to 1964 Op.Ind. Att'y Gen. No. 17, it was the legislature's intent that the Adjusted Gross Income Tax Act be, as closely as possible, coordinated with and interpreted in harmony with the Internal Revenue Code. It would appear that this 1977 amendment was enacted to make that intention clearer.

One of the fundamental rules of statutory construction is that a statute which is clear and unambiguous on its face needs no interpretation. Economy Oil Corp. v. Indiana Department of State Revenue, supra; Johnson v. Wabash County, (1979) Ind.App., 391 N.E.2d 1139. If there is room for more than one interpretation, then the court should construe the statute in such a way as to give effect to the general intent of the legislature. Gonser v. Board of Commissioners for Owen County, (1978) Ind.App., 378 N.E.2d 425, trans. den. It seems to us that the plain meaning of the statutory definitions and words, as well as legislative intent, directs corporations to begin the computation of their adjusted gross income for tax purposes under the Adjusted Gross Income Tax Act with the item denoted as "taxable income" on their federal income tax returns followed by the three adjustments provided by statute. The Department contends, however, that the definition of adjusted gross income provided by the statute should not govern in this case. They rely on IC 6-3-1-2 which provides: "Except where the context otherwise requires, the definitions given in this article (6-3-1-1 6-3-8-6) govern the construction of this act (6-3-1-1 6-3-8-6)." The Department argues that "the context" requires a definition other than that provided in the statute. They have taken the position that since IC 6-3-2-2 provides that only business income which is derived from sources within the state of Indiana is taxable under Indiana's Adjusted Gross Income Tax Act, then only those net operating losses which are suffered in Indiana may be deducted in calculating adjusted gross income. The Department contends that the context of the Act and equity require the logical conclusion of apportioning both income and net operating losses. We agree with the Department that such conclusion may be logical and result in an equitable distribution of the tax burden. We disagree with the Department, however, that this is what the legislature provided. Under the unique set of facts of this case there is really no need for the Department to discuss apportionment or IC 6-3-2-2 because there was no adjusted gross...