Kimberly-Clark Corp. v. Eagerton, KIMBERLY-CLARK

• Decision Date: 13 July 1983
• Docket Number: KIMBERLY-CLARK
• Parties: CORPORATION, a Corporation, v. Ralph P. EAGERTON, Jr., Commissioner of Revenue. Civ. 3819.
• Court: Alabama Court of Civil Appeals

Page 566

445 So.2d 566

KIMBERLY-CLARK CORPORATION, a Corporation, v. Ralph P. EAGERTON, Jr., Commissioner of Revenue.

Civ. 3819.

Court of Civil Appeals of Alabama.

July 13, 1983.

Rehearing Denied Aug. 24, 1983.

Certiorari Denied Feb. 3, 1984

Alabama Supreme Court 82-1199.

Warren H. Goodwyn and William E. Shanks, Jr. of Balch, Bingham, Baker, Hawthorne, Williams & Ward, Birmingham, for appellant.

Charles A. Graddick, Atty. Gen., and B. Frank Loeb, Acting Chief Counsel, and Bill Thompson, Asst. Counsel, State Dept. of Revenue, Montgomery, for appellee.

E.T. Brown, Jr., Fournier J. Gale, III, and Roy J. Crawford of Cabaniss, Johnston, Gardner, Dumas & O'Neal, Birmingham, for amicus curiae Associated Industries of Alabama, Inc.

WRIGHT, Presiding Judge

This is a corporate income tax case.

Appellant, Kimberly-Clark Corporation (taxpayer), appeals the order of the trial court denying its petition for a writ of mandamus requiring the Commissioner of Revenue of the State of Alabama to refund to the taxpayer amounts representing overpayment of income tax for the years 1974, 1975, 1976 and 1977.

The facts of the case, as stipulated by the parties in the court below, are as follows:

"1. The Taxpayer is a corporation organized and existing under the laws of the State of Delaware, with its principal executive office in Neenah, Wisconsin, and is qualified to do business in the State of Alabama.

"2. This is an action for the recovery of income taxes paid by the Taxpayer for the years 1974-1977. This Court has jurisdiction of this action under the provisions of § 40-18-43, Code of Alabama 1975.

"3. As a foreign corporation for State of Alabama income tax purposes, the Taxpayer apportioned its income to the State of Alabama in accordance with the three-factor formula used in Department of Revenue Regulation 31.2 which regulation is applicable to foreign corporations with multi-state operations.

"4. Beginning in 1973, the Taxpayer embarked on a construction program designed to bring its pollution control facilities in the state of Alabama into compliance with this State's air and water quality standards established in 1972. The Taxpayer, in the course of a five year period, spent the following amounts for pollution control facilities in the State of Alabama:

                Year    Amount
                ----  ----------
                1973  $   38,358
                1974   1,415,052
                1975   2,103,858
                1976   9,753,615
                1977   5,935,972
                

Pursuant to § 40-18-35(12), Code 1975, the taxpayer elected to deduct in full the amount of the foregoing expenditures for pollution control facilities as incurred in each year from income apportioned to the State of Alabama.

"5. For federal income tax purposes the Taxpayer capitalized the foregoing amounts expended for pollution control facilities in the year such facilities were placed in service and deducted as an allowance for depreciation of such facilities the following amounts:

                Year
                1974  $  110,034
                1975     353,430
                1976   1,211,439
                1977   2,252,838
                

"6. Having elected under § 40-18-35(12) to deduct in the year expended the full amount spent for such pollution control facilities, the Taxpayer is not allowed depreciation deductions with respect to such facilities. To make an adjustment for depreciation deductions for such facilities, the Taxpayer added the foregoing amounts allowed as depreciation deductions for federal income tax purposes to apportionable income in the Taxpayer's State of Alabama corporation income tax returns for these four years.

"7. The Alabama Department of Revenue disagreed with the Taxpayer's method of adding back the depreciation deductions described in paragraph 6 above and added the depreciation deductions to the Taxpayer's income apportioned to the State of Alabama for corporation income tax purposes. The Taxpayer paid the additional tax and interest resulting from the Department of Revenue's adding such depreciation deductions to the Taxpayer's income apportioned to Alabama rather than to the Taxpayer's apportionable income.

"8. The Department of Revenue had no regulation concerning § 40-18-35(12) until 1979. Since 1973, it has been the Alabama Department of Revenue's position in interpreting § 40-18-35(12) to add back such depreciation deductions for pollution control facilities to a taxpayer's income apportioned to the State of Alabama. Various taxpayers have disagreed with the Department of Revenue's interpretation of § 40-18-35(12).

"9. In conformance with the provisions of § 40-18-43, Code 1975, the Taxpayer timely filed an Application for Refund of Income Tax for each of the four tax years in the amounts stated below:

                Year     Tax      Interest
                ----  ----------  ---------
                1974  $ 3,167.00  $  475.05
                1975  $10,394.00  $  935.46
                1976  $34,866.00  $ ----
                1977  $82,474.00  $2,057.00
                

The Alabama Department of Revenue took no action with regard to this request for refund."

Section 40-18-35, Code 1975, provides in pertinent part:

"In computing the net income of foreign corporations doing business in this state subject to the tax imposed by section 40-18-31, there shall be allowed as deductions the items described in the following numbered subdivisions of this section, but only if, and to the extent that, such items are referable to or arise in connection with income of such corporations arising from sources within the state of Alabama; the proper apportionment and allocation of deductions of such foreign corporations with respect to the income arising from sources within and without the state of Alabama shall be determined under the rules and regulations prescribed by the department of revenue; provided, that in the case of foreign corporations doing business partly within and partly without Alabama where income is apportioned and allocated to Alabama the expense incurred by such corporation in connection with earning such income shall be apportioned to Alabama in such manner as shall fairly reflect the net income of the corporation attributable to its operations in Alabama; provided, that none of the deductions allowed by subdivision (12) of this section shall be subject to any such apportionment or allocation and all thereof shall be allowed in full, any provisions thereof to the contrary notwithstanding. Subject to the limitations contained in the preceding sentence, there shall be allowed as deductions in computing the net income of corporations:

....

"(6) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence;

....

"(12) All amounts invested during the taxable year in all devices, facilities or structures and all identifiable components thereof or materials for use therein, used or placed in operation in the state of Alabama, or to be used or placed in operation in the state of Alabama, acquired or constructed primarily for the control, reduction or elimination of air or...