Int'l Paper Co. v. Testa
| Decision Date | 26 October 2016 |
| Docket Number | No. 2014–1614.,2014–1614. |
| Citation | 150 Ohio St.3d 348,81 N.E.3d 1225,2016 Ohio 7454 |
| Parties | INTERNATIONAL PAPER COMPANY, Appellee, v. TESTA, Tax Commr., Appellant. |
| Court | Ohio Supreme Court |
150 Ohio St.3d 348
81 N.E.3d 1225
2016 Ohio 7454
INTERNATIONAL PAPER COMPANY, Appellee,
v.
TESTA, Tax Commr., Appellant.
No. 2014–1614.
Supreme Court of Ohio.
Submitted July 12, 2016.
Decided Oct. 26, 2016.
Zaino, Hall & Farrin, L.L.C., Thomas M. Zaino, and Richard C. Farrin, for appellee.
Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant Attorney General, for appellant.
PER CURIAM.
{¶ 1} This case presents an issue concerning the credit available under the commercial-activity tax ("CAT"), which permits taxpayers to realize some benefit from net operating losses ("NOLs") now that Ohio's corporate-franchise tax has been replaced by the CAT. As we explained in Navistar, Inc. v. Testa, 143 Ohio St.3d 460, 2015-Ohio-3283, 39 N.E.3d 509, the NOLs were potential deductions under the income measure of the former corporate-franchise tax and they were carried on the corporate books as tax-deferral assets. Id. at ¶ 10. When 2005 legislation phased out the corporate-franchise tax and replaced it with the CAT, the NOLs lost their value in Ohio, so the CAT/NOL credit was created to insulate taxpayers that had accumulated NOLs from the balance-sheet hit of losing them. See id. at ¶ 1, 11.
{¶ 2} A taxpayer's first step in claiming the credit is filing a report to establish the total amount of credit that might be taken over a ten- to twenty-year period. R.C. 5751.53(B) and (D). That report proposes the "amortizable amount," which is then subject to tax-commissioner review. R.C. 5751.53(A)(9) and (D). Here, appellant, the tax commissioner, in a final determination journalized on June 8, 2010, reduced to $927,513 the almost $17 million amortizable amount that appellee, International Paper Company, had reported. However, the tax commissioner's letter to International Paper memorializing this determination, dated June 8, 2010, was not mailed until July 12. International Paper opposed the reduction by appealing to the Board of Tax Appeals ("BTA"), which reinstated International Paper's amortizable amount after concluding that the tax commissioner had violated R.C. 5751.53(D) by failing to notify International Paper of its assessment by the June 30, 2010 deadline. The tax commissioner now appeals that decision.
{¶ 3} On this appeal, we confront only procedural issues. One was dispositive before the BTA: whether the tax commissioner must not only enter his determination on the journal but also mail it to the taxpayer before the June 30, 2010 deadline. The second issue is raised by the tax commissioner as a threshold to the deadline issue: whether the statutes in the first instance require the tax commissioner to issue a final determination to effect a reduction of the amortizable
amount. The tax commissioner submits that failure to comply with the deadline for issuing the final determination has no effect so long as he has actually performed and completed his audit and his adjustment of the amortizable amount by the June 30, 2010 deadline. The commissioner also argues that the deadline is merely directory rather than mandatory.
{¶ 4} Because it is a threshold issue, we consider the second issue first. We hold that R.C. 5751.53(D) does require that a reduction in the amortizable amount be embodied in a timely issued final determination and that a failure to comply with that requirement means that the taxpayer is entitled to claim the NOL credit in accordance with its originally reported amortizable amount. As a result, the amortizable amount depends upon whether a final determination adjusted that amount by the June 30 deadline.
{¶ 5} Next, we consider whether the requirement that the tax commissioner's determination be "issued" by the June 30 deadline means that the determination must be mailed as well as journalized by that date. We hold that R.C. 5751.53(D) requires that the determination be journalized by June 30 but that the determination need not be mailed by that date to be effective. As a result, the BTA erred by finding the tax commissioner's final determination void and it should have considered
International Paper's substantive challenge to the tax commissioner's determination.
{¶ 6} Before deciding to return this case to the BTA for review of the merits, however, we consider the tax commissioner's procedural question. Did International Paper jurisdictionally forfeit any right to a remand for consideration of its substantive claim because it failed to preserve that right by filing a protective cross-appeal? Our answer to this question is no. We hold that because International Paper was not seeking review of the merits issue by this court and because the BTA had not addressed the merits issue in its previous decision, the company was not required to file a protective cross-appeal. Accordingly, we reverse the decision of the BTA and remand for consideration of International Paper's substantive challenge to the tax commissioner's determination.
FACTUAL BACKGROUND
{¶ 7} International Paper timely filed its amortizable-amount report with the tax commissioner in 2006. The report was mailed on June 29, 2006, and received on July 3, 2006. The report computed an amortizable amount of $16,957,077. The tax commissioner conducted an audit that initially led to a reduction of that amount to zero. After consideration of new information, the tax commissioner's agents adjusted the amortizable amount to $927,513 and formulated a final determination embodying that conclusion.
{¶ 8} The parties agree that the final determination was entered on the tax commissioner's journal on June 8, 2010. It was not mailed to the taxpayer, however, until July 12. The final determination recited the reduction of the amortizable amount, and it stated that the taxpayer agreed with the reduction.
{¶ 9} International Paper appealed to the BTA, where discovery was conducted and a hearing held.
{¶ 10} The BTA issued its decision on August 19, 2014. In it, the BTA adhered to an earlier decision that the June 30, 2010 deadline stated in R.C. 5751.53(D) set a boundary for action by the commissioner, just as the June 30, 2006 date stated in the statute set a deadline for submission of the amortizable-amount report by the taxpayer. BTA No. 2010–2230, 2014 Ohio Tax LEXIS 3869, * 7 (Aug. 19, 2014). The BTA invoked its own "plain reading" of the statute to find that the issuance of the final determination was subject to the June 30 deadline and then relied on Carstab Corp. v. Limbach, 40 Ohio St.3d 89, 532 N.E.2d 102 (1988), for the proposition that the word "issue" in the statute refers to mailing the determination, not journalizing it. Id. at * 6–7. Based on that reasoning, the BTA remanded the matter to the commissioner with the instruction to vacate his final determination, specifying that because that final determination was never properly issued, the amortizable amount was $16,957,077. Id. at * 9.
ANALYSIS
R.C. 5751.53(D) REQUIRES THE TAX COMMISSIONER TO ISSUE A FINAL DETERMINATION IN ORDER TO REDUCE THE AMORTIZABLE AMOUNT
{¶ 11} The tax commissioner contends that issuing an "assessment or final determination" reflecting an adjustment of the amortizable amount is purely optional. The relevant sentence is:
Unless extended by mutual consent, the tax commissioner may, until June 30, 2010, audit the accuracy of the amortizable amount available to each taxpayer that will claim the
credit, and adjust the amortizable amount or, if appropriate, issue any assessment or final determination, as applicable, necessary to correct any errors found upon audit.
R.C. 5751.53(D).
{¶ 12} This sentence falls short of the ideal of good draftsmanship, and one difficulty with the statute is the first appearance of the conjunction "or." The tax commissioner reads the "or" as making the issuance of an assessment or final determination completely optional; his theory is that the audit process and any taxpayer communications in relation to the audit are sufficient to reduce the
potential amount of CAT credit. The practical effect of that reading would be that the taxpayer would not be able to appeal a reduced amount of potential credit until some later date when the tax commissioner disallows the amount of credit claimed. Because that date would not arrive until the taxpayer had exhausted the entire amount of potential credit, the occurrence might come relatively late during the long ten- to twenty-year period during which the credit might be taken.
{¶ 13} We reject the tax commissioner's reading of the statute for several reasons. Foremost among them is that as a matter of plain language, the use of the word "necessary" in the quoted sentence strongly implies that the issuance of a final determination is required if...
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