Miss. Dep't of Revenue v. SBC Telecom, Inc.

• Decision Date: 13 August 2020
• Docket Number: NO. 2019-CA-00917-SCT,2019-CA-00917-SCT
• Citation: 306 So.3d 648
• Parties: MISSISSIPPI DEPARTMENT OF REVENUE v. SBC TELECOM, INC., Bellsouth Mobile Data, Inc., BellSouth Corporation, New Cingular Wireless Services, Inc., New Bellsouth Cingular Holdings, Inc., Bellsouth Telecommunications, LLC, Centennial Communications Corp. and SBC Alloy Holdings, Inc.
• Court: Mississippi Supreme Court

306 So.3d 648

MISSISSIPPI DEPARTMENT OF REVENUE

v.SBC TELECOM, INC., Bellsouth Mobile Data, Inc., BellSouth Corporation, New Cingular Wireless Services, Inc., New Bellsouth Cingular Holdings, Inc., Bellsouth Telecommunications, LLC, Centennial Communications Corp. and SBC Alloy Holdings, Inc.

NO. 2019-CA-00917-SCT

Supreme Court of Mississippi.

August 13, 2020

ATTORNEYS FOR APPELLANT: BRIDGETTE T. THOMAS, JOHN S. STRINGER

ATTORNEY FOR APPELLEES: JOHN F. FLETCHER, Jackson

BEFORE KITCHENS, P.J., COLEMAN AND CHAMBERLIN, JJ.

CHAMBERLIN, JUSTICE, FOR THE COURT:

¶1. This appeal arises out of differing interpretations of Mississippi Code Section 57-87-5 (Rev. 2014) by the Mississippi Department of Revenue (MDR) and several taxpaying entities of an affiliated group (the Taxpayers). At issue is the computation of the broadband credit limits that a taxpayer may use against its franchise-tax and income-tax liabilities.

¶2. The taxpayers here each filed a separate franchise-tax return and were included as affiliated group members in the combined corporate income-tax return filed on behalf of the affiliated group. For the purpose of the broadband credits, the MDR argues that the income-tax liability of a taxpayer that is included in a combined corporate income-tax return filed on behalf of the affiliated group is only the amount that the MDR would theoretically be entitled to recover from that taxpayer according to the taxpayer's reported taxable income as reported in the combined return. The taxpayers argue that each taxpayer is jointly and severally liable for the total combined income-tax liability of the affiliated group, therefore making the income-tax liability of each taxpayer the same as the total combined income-tax liability of the affiliated group.

¶3. The chancellor granted summary judgment in favor of the taxpayers and ruled that the taxpayer's tax liabilities under Chapters 7 and 13 of Title 27 ¹ of the Mississippi Code was the aggregate of the taxpayer's separate franchise-tax liability and the total combined income-tax liability of the affiliated group. The MDR appeals.

FACTS AND PROCEDURAL HISTORY

¶4. During the tax periods at issue, AT&T Mobility II, LLC, and BellSouth Telecommunications operated telecommunications enterprises and made significant investments in broadband technology developments throughout Mississippi, generating Broadband Investment Credits (Broadband Credits) under Mississippi Code Section 57-87-5. BellSouth Mobile Data, SBC Alloy Holdings, New BellSouth Cannular Holdings, New Cingular Wireless Services, SBC Telecom, and Centennial were all direct or indirect corporate owners of AT&T Mobility II.

¶5. For the 2010 tax year, each taxpayer filed separate franchise-tax returns and each taxpayer was included in the Mississippi combined corporate income-tax return filed on behalf of SBC Alloy Holdings, Inc. & Affiliates under Mississippi Code Section 27-7-37 (Rev. 2017). Section 27-7-37 permits members of an affiliated group to file one combined corporate income-tax return and makes each member jointly and severally liable for the entire about of the income-tax liability.

¶6. On or about September 15, 2014, each taxpayer amended its 2010 franchise-tax return to utilize additional broadband credits and claim a franchise-tax refund. On December 31, 2014, the Mississippi Department of Revenue denied New BellSouth Cingular Holdings’ refund claim. The other taxpayers’ refund claims were never formally denied but were deemed denied upon the taxpayers’ filing an appeal with the MDR's Board of Review.

¶7. For the 2013 tax year, the taxpayers again each filed separate franchise-tax returns and each taxpayer was included in the combined Mississippi corporate income-tax return filed on behalf of BellSouth Corporation, Inc. & Affiliates. The taxpayers used the same methodology to compute their allowable broadband credits in their 2013 returns as they had used in their amended 2010 returns. The MDR determined that the broadband credits the taxpayers had claimed had been improperly applied to an amount greater than the credit cap of 50 percent of the taxpayers’ tax liabilities according to Mississippi Code Section 57-87-5(3) (Rev. 2014). The MDR disallowed portions of the broadband credits claimed by the taxpayers and assessed additional franchise taxes, interest and penalties to the taxpayers separately on several dates between December 22, 2014, and May 20, 2015.

¶8. The taxpayers appealed the MDR's refund denials and assessments to the MDR's Board of Review under Mississippi Code Section 27-77-5 (Rev. 2017). The Board of Review conducted a consolidated administrative-appeals hearing on or about June 30, 2015, and issued its order upholding the MDR's refund denials and assessments in full on December 29, 2015. The order of the Board of Tax Appeals (BTA) noted that the Board of Review found that in both the taxpayers’ 2013 returns and their amended 2010 returns that

the taxpayer had calculated a broadband credit cap that allowed it to zero out the franchise tax liability of several entities in the combined group filing in Mississippi. In doing so, the taxpayer shifted broadband credits from franchise taxpayers that generated the credit to other franchise taxpayers that did not generate the credit. The Board [of Review] found that this was impermissible, as the statute would cap the allowable credits available for franchise tax purposes at 50% of the franchise tax liability, per year, for each entity that is subject to the franchise tax and actually generates broadband credits in Mississippi. The income tax cap on allowable broadband credits would be 50% of the corporate income tax liability of the combined group filing in Mississippi.

¶9. The taxpayers appealed each of the Board of Review's orders to the BTA and requested an administrative appeals hearing under Mississippi Code Section 27-77-5. The BTA conducted a consolidated administrative-appeals hearing on or about August 16, 2016. On appeal before the BTA were two issues: the allocation issue and the credit-computation issue.

¶10. On the allocation issue, the taxpayers claimed that each affiliated member/taxpayer was permitted to allocate up to the full amount of allowable credits against its income- or franchise-tax liability, even if that allocation eliminated the full amount of the liability to which it was allocated. In its answer, the MDR admitted agreeing at the BTA hearing that the credits "could be used against the franchise or income tax liability of the taxpayer, but that such utilization was limited to [50 percent] of the aggregate of the taxpayer's franchise and income tax liabilities." (Emphasis added.) Later, at the hearing before the chancery court hearing, the MDR stated that historically, the 50-percent limitation had traditionally been allocated by applying half of the credits toward the taxpayers’ franchise-tax liability and half to the taxpayers’ income-tax liability.

¶11. On the credit-computation issue, the taxpayers claimed that when computing the maximum amount of credit allowable for each taxpayer, each company should add together its separate company franchise-tax liability and the entire combined group's income-tax liability due to the joint and several nature of that income-tax liability in accordance with this Court's decision in Mississippi Department of Revenue v. Isle of Capri Casinos, Inc. , 131 So. 3d 1192 (Miss. 2014).

¶12. On September 20, 2016, the BTA issued its order granting the taxpayers partial relief but not the full relief they had requested. The BTA's order granted the taxpayers’ requested relief with respect to the issue of allocation and determined that the taxpayers were permitted to claim the allowable broadband credits against either income tax or franchise tax as they determine most beneficial. The BTA's order rejected the taxpayers’ argument on the credit-computation issue and upheld the MDR's denials of refunds and assessments of additional taxes, interest and penalties. The BTA remanded the matter back to the Board of Review and directed the Board of Review to give the taxpayers the opportunity to direct where the allowable credits are to be claimed in the revised assessments.

¶13. Aggrieved by the BTA's order, the taxpayers filed their petition for appeal with the chancery court on November 17, 2016, under Mississippi Code Section 27-77-7 (Rev. 2017) (held unconstitutional in part by HWCC-Tunica, Inc. v. Miss. Dep't of Revenue , 296 So. 3d 668 (Miss. 2020). The MDR filed its answer and defenses on December 22, 2016. The next year, on November 17, 2017, the MDR moved for summary judgment. The taxpayers filed a cross-motion for summary judgment on December 12, 2017. The chancery court conducted a hearing on both parties’ motions for summary judgment on September 26, 2018, and the chancery court entered its final order granting summary judgment in favor of the taxpayers on May 7, 2019.

¶14. Aggrieved, the MDR timely filed its appeal in this Court on June 5, 2019.

¶15. On appeal, the MDR raises only one assignment of error: whether the chancellor's interpretation of Mississippi Code Section 57-87-5(3) was erroneous. The taxpayers assert an additional assignment of error: that the chancery court lacked jurisdiction to hear the appeal because the MDR failed to satisfy the prerequisites of the preamendment version of Mississippi Code Section 27-77-7(4) (Rev. 2010) and further argue that due to MDR's failure, the chancery court was required to dismiss the MDR's answer and defenses and to enter judgment granting the taxpayers all relief requested.

STANDARD OF REVIEW

¶16. "[I]ssues involving the chancery court's jurisdiction to hear a particular matter are questions of law which require the Court to apply a de novo standard of review." Edwards v. Zyla , 207 So. 3d 1232, 1235 (Miss. 2016) (citing In re Guardianship of Z.J. , 804 So. 2d 1009, 1011 (Miss. 2002) ).

¶17. "[T]his Court employs a de novo standard of review"...