Miss. Dep't of Revenue v. AT & T Corp.
Decision Date | 27 October 2016 |
Docket Number | NO. 2015-CA-00600-SCT,2015-CA-00600-SCT |
Citation | 202 So.3d 1207 |
Parties | Mississippi Department of Revenue f/k/a Mississippi State Tax Commission v. AT & T Corporation |
Court | Mississippi Supreme Court |
LAURA HUDDLESTON CARTER, ATTORNEYS FOR APPELLANT BRIDGETTE TRENETTE THOMAS
JOHN FLOYD FLETCHER, ADAM STONE, KAYTIE MICHELLE PICKETT, ATTORNEYS FOR APPELLEE
BEFORE DICKINSON, P.J., KITCHENS AND KING, JJ.
KITCHENS, JUSTICE, FOR THE COURT:
¶1. Mississippi Code Section 27–7–15(4)(i) exempts from taxation “[i]ncome from dividends that has already borne a tax as dividend income under the provisions of this article, when such dividends may be specifically identified in the possession of the recipient.” Miss. Code Ann. § 27–7–15(4)(i) (Rev. 2013). In 2003, the then-Mississippi State Tax Commission assessed additional income tax, penalties, and interest in an amount greater than $11.75 million against AT & T based on its income from dividends from non-Mississippi subsidiaries. After availing itself of the administrative appeal process, AT & T appealed to the Chancery Court of the First Judicial District of Hinds County, arguing that a portion of Section 27–7–15(4)(i) discriminated against interstate commerce in violation of the negative, or dormant, aspect of the Commerce Clause of the United States Constitution. AT & T argued that the scheme allowed an income tax exemption for dividends received from AT & T's Mississippi subsidiaries while denying an exemption to similarly situated non-Mississippi subsidiaries. Ultimately, the chancellor agreed and declared unconstitutional the offensive portion of Section 27–7–15(4)(i). For the reasons articulated below, we affirm.1
FACTS AND PROCEDURAL HISTORY
¶2. The parties stipulated to the facts of this case. On June 11, 2003, the then-Mississippi State Tax Commission (Tax Commission), now the Mississippi Department of Revenue (the Department), assessed against AT & T Corporation (AT & T) $11,755,044 in additional income tax, penalties, and interest based on adjustments to AT & T's original income tax returns for the tax years December 1997 through December 1999. AT & T appealed the assessment to the Tax Commission Board of Review, which affirmed the assessment in full on November 14, 2003. AT & T then appealed the decision of the Board of Review to the full Commission, which, on April 7, 2004, affirmed the assessment in the reduced amount of $10,703,608. The Tax Commission's order required that AT & T pay a revised assessment of $11,864,298, which included up-to-date interest.
¶3. On August 6, 2004, AT & T timely appealed the order of the Tax Commission to the Chancery Court of the First Judicial District of Hinds County and posted an appeal bond in the amount of $23,728,596, twice the revised assessment. According to the stipulation of facts:
The auditors included in business income dividends received by AT & T Corp. from certain subsidiaries which were deemed non-taxable in Mississippi in the year of the distribution. The auditors excluded from business income dividends received by AT & T Corp. from subsidiaries which were deemed taxable in Mississippi in the year of the distribution. Due to the unitary multistate activities of AT & T Corp., the business income of AT & T Corp. so determined had to be apportioned to Mississippi using a single sales factor apportionment formula to arrive at the net Mississippi taxable income subject to the Mississippi income tax....
Further, according to the stipulation, the Department interprets Mississippi Code Section 27–7–15(4)(i) “to permit a recipient of an intercompany dividend to exclude that dividend from the calculation of its gross income if the distributing corporation is doing business in Mississippi in the year of the distribution and files a Mississippi Income Tax Return for that year.” Conversely, the Department interprets Mississippi Code Section 27–7–15(4)(i) “to not permit a recipient of an intercompany dividend to exclude that dividend from the calculation of its gross income if the distributing corporation is not doing business in Mississippi in the year of the distribution or did not file a Mississippi Income Tax Return for that year.”
¶4. According to the stipulation, the Department applies Mississippi Code Section 27–7–15(4)(i) “without any consideration of whether the income of the distributing corporation which gave rise to the dividends at issue had already been fully taxed by that distributing corporation's home state, state of domicile, or states in which it conducted business and/or was taxable.” The Department's “sole criteria [sic] in its interpretation and application of Miss. Code Ann. Section 27–7–15(4)(i) is whether or not the distributing corporation is doing business in Mississippi in the year of the distribution and has filed a Mississippi Income Tax Return for that year.”
¶5. For the tax years in issue, the stipulation specifies the amounts of dividends excluded from gross income for AT & T's Mississippi subsidiaries (nexus subsidiaries), called nexus dividends, and the amounts of dividends included in gross income for AT & T's non-Mississippi subsidiaries (non-nexus subsidiaries), termed non-nexus dividends.2 AT & T was permitted “to exclude the Nexus Dividends from its gross income pursuant to Miss. Code Ann. Section 27–7–15(4)(i) because the distributing companies were subject to Mississippi income tax [for the tax years in issue] by doing business in Mississippi during [those tax years] and being included in the group Mississippi Income Tax Return[s] for those years].” While the nexus subsidiaries were excused from taxes on dividends, AT & T was not permitted to exclude “Non-Nexus Dividends from ... gross income pursuant to Miss. Code Ann. Section 27–7–15(4)(i)....” The dividends AT & T received from non-nexus subsidiaries were not excluded from gross income “because none of the distributing companies were [sic] found by the auditors to have been doing business in Mississippi [in the relevant tax years] and did not file [ ] Mississippi corporate income tax return[s for the tax years in issue].”
¶6. AT & T claimed in its Petition for Appeal of Additional Income Tax Assessment, filed on August 6, 2004, that Mississippi Code Section 27–7–15(4)(i) “establishes a discriminatory method of taxation” in violation of the Commerce Clause, and the Due Process and Equal Protection Clauses, of the United States Constitution. According to AT & T, the tax scheme “improperly favors taxpayers owning subsidiaries doing business in Mississippi by excluding from the taxpayer's gross income dividend income received from such subsidiaries, while denying such an exemption for dividends received from subsidiaries which do not conduct business in Mississippi ....” AT & T sought, inter alia , a reduction to zero of the additional income tax, penalties, and interest assessed, a declaration of the statute's unconstitutionality, and an injunction against the statute's enforcement.
¶7. The Tax Commission answered on September 9, 2004, and counterclaimed, seeking a judgment against AT & T for the $10,703,608 it claimed was due. AT & T filed a reply to the counterclaim on September 30, 2004, and denied that the Tax Commission had decided the issue of the constitutionality of Section 27–7–15(4)(i). The record indicates that the parties agreed to an order holding the case in abeyance on April 6, 2006. According to the Department's brief, the case was held in abeyance due to similar litigation in the chancery court, which ultimately was appealed to the Mississippi Supreme Court. See Miss. Dep't of Revenue v. AT & T Corp. , 101 So.3d 1139 (Miss. 2012) (AT & T 1 ). In that case, the chancery court had ruled, inter alia , that Mississippi Code Section 27–7–15(4)(i) violated the Commerce Clause. AT & T 1 , 101 So.3d at 1142. Because AT & T had not followed statutory procedures for contesting tax assessments and had not posted a bond, but instead had paid the assessed taxes “under protest,” this Court reversed and rendered the judgment, holding that the chancery court was without jurisdiction. Id. at 1149.
¶8. A scheduling order was entered in the present case on December 16, 2013. AT & T sought partial summary judgment on March 24, 2014, arguing, inter alia , that Mississippi Code Sections 27–7–37(2)(a)(i) and 27–7–15(4)(i) “facially discriminate[ ] against interstate commerce in violation of the Commerce Clause” by prohibiting “a multistate taxpayer from filing a consolidated Mississippi income tax return and from availing itself of significant and generally available tax benefits, based solely on the fact that the taxpayer is operating on a multistate basis.” AT & T sought judgment as a matter of law, a declaration that “the improper statutory restrictions at issue are unconstitutional and invalid,” an injunction against enforcement of the statutes, and permission “to take full advantage of those significant and generally available tax benefits which have previously been made available to other taxpayers in the State.” On May 12, 2014, the parties filed the stipulation of facts referenced above.
¶9. On May 30, 2014, AT & T filed an Amended Motion for Summary Judgment, the parties having “amicably resolved the dispute regarding the constitutionality of the restrictions contained in Section 27–7–37(2)(a)(i)....” AT & T claimed in its motion that Section 27–7–15(4)(i) afforded significant tax benefits to nexus subsidiaries and treated “interstate commerce less favorably than intrastate commerce” and asked the court “[to] declare the improper statutory restrictions at issue unconstitutional and invalid, [to] enjoin enforcement of same, and [to] permit AT & T to exclude from its gross income all dividends received from its Non-Nexus Subsidiaries ....” On June 23, 2014, the Department filed its response to AT & T's amended summary judgment motion and a Cross-Motion for Summary Judgment, and the parties presented further responsive filings.
¶10. The Chancery Court of the First...
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