N.H. Resident Ltd. Partners of The Lyme Timber Co. v. N.H. Dep't of Revenue Admin..

• Decision Date: 22 June 2011
• Docket Number: No. 2010–399.,2010–399.
• Citation: 27 A.3d 829,162 N.H. 98
• Parties: NEW HAMPSHIRE RESIDENT LIMITED PARTNERS OF the LYME TIMBER COMPANYv.NEW HAMPSHIRE DEPARTMENT OF REVENUE ADMINISTRATION.
• Court: New Hampshire Supreme Court

162 N.H. 98

27 A.3d 829

NEW HAMPSHIRE RESIDENT LIMITED PARTNERS OF the LYME TIMBER COMPANY

v.NEW HAMPSHIRE DEPARTMENT OF REVENUE ADMINISTRATION.

No. 2010–399.

Supreme Court of New Hampshire.

Argued: March 17, 2011.Opinion Issued: May 26, 2011.As Modified on Denial of Reconsideration June 22, 2011.

McLane, Graf, Raulerson & Middleton, P.A., of Manchester (Wilbur A. Glahn, III and Steven J. Dutton on the brief, and Mr. Glahn orally), for the petitioners.Michael A. Delaney, attorney general (Karen A. Schlitzer, assistant attorney general, on the brief and orally), for the respondent.LYNN, J.

The respondent, New Hampshire Department of Revenue Administration (DRA), appeals a decision of the Superior Court ( Vaughan, J.) ruling that distributions which The Lyme Timber Company (Lyme) made to the petitioners, certain of its limited partners who reside in New Hampshire, are not taxable income to the individual petitioners because their beneficial interests in Lyme are not “transferable shares” within the meaning of RSA chapter 77. See RSA 77:3 (2003) (amended 2004, 2009, 2010); RSA 77:4, III (2003) (amended 2009, 2010). We reverse and remand.

The following undisputed facts are drawn from the trial court's order and the summary judgment record. Lyme is a limited partnership that owns, develops, and manages commercial real estate and timberland. Lyme's partnership agreement, in effect during the relevant times, provided in part:

11. Assignment of Partnership Units. A Limited Partner may sell or assign his Partnership Units but only on the following terms and conditions:

(a) The Limited Partner shall furnish the Partnership with an opinion of counsel satisfactory to the General Partner that the sale or assignment is in compliance with applicable securities laws and regulations.

(b) The purchaser or assignee shall consent in writing, in form satisfactory to the General Partner, to be bound by the terms of this Agreement in the place and stead of the Limited Partner.

(c) Such assignment is to another Partner or a member of the Limited Partner's family or (1) pursuant to a bona fide written offer, (2) the Limited Partner has given the Partnership 60 days to match the offer and (3) the Partnership has not done so.

In 2005, the DRA's audit division reviewed Lyme's distributions to the petitioners and issued notices of assessments to the petitioners for taxes and interest due for the tax years 2002, 2003 and 2004. Although Lyme itself had paid the interest and dividends taxes for these years, the audit division determined that the individual petitioners were responsible for the taxes because their beneficial interests in Lyme were represented by “transferable shares.” See RSA 77:3, :4, III. The petitioners sought redetermination by DRA and, after a hearing, a DRA hearings officer upheld the audit division's assessments. See generally RSA 21–J:28–b (Supp.2010).

The petitioners appealed the DRA's decision to the superior court. See RSA 21–J:28–b, IV (superior court “shall hear the appeal de novo ”). Ruling on cross-motions for summary judgment, the trial court granted the petitioners' motion and denied DRA's motion, thereby reversing the decision of DRA. The court ruled that the relevant DRA regulations relating to the meaning of “ transferable shares” under RSA 77:3 and :4, III contained a number of ambiguities, that the regulations could be reasonably interpreted in a manner that favored the petitioners, and that the ambiguities had to be resolved in favor of the petitioners as the taxpayers. This appeal followed.

In reviewing the trial court's summary judgment rulings, we consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party. N. Sec. Ins. Co. v. Connors, 161 N.H. 645, 649, 20 A.3d 912 (2011); see RSA 491:8–a (2010). If our review of that evidence discloses no genuine issue of material fact, and if the moving party is entitled to judgment as a matter of law, we will affirm the grant of summary judgment. N. Sec. Ins. Co., 161 N.H. at 649, 20 A.3d 912. We review the trial court's application of the law to the facts de novo. Id.

Resolution of this appeal requires us to construe statutes and regulations; ¹ we apply the same principles of construction in interpreting both. Vector Mktg. Corp. v. N.H. Dep't of Revenue Admin., 156 N.H. 781, 783, 942 A.2d 1261 (2008). When construing statutes and administrative regulations, we first examine the language used, and, where possible, we ascribe the plain and ordinary meanings to words used. See Appeal of Union Tel. Co., 160 N.H. 309, 317, 999 A.2d 336 (2010); Vector Mktg., 156 N.H. at 783, 942 A.2d 1261. Words and phrases in a statute are construed according to “the common and approved usage of the language” unless from the statute it appears that a different meaning was intended. RSA 21:1, : 2 (2000); see Pheasant Lane Realty Trust v. City of Nashua, 143 N.H. 140, 142, 720 A.2d 73 (1998). Additionally, we interpret disputed language of a statute or regulation in the context of the overall statutory or regulatory scheme and not in isolation. Appeal of Union Tel. Co., 160 N.H. at 317, 999 A.2d 336 (interpreting statutes); Vector Mktg., 156 N.H. at 783, 942 A.2d 1261 (interpreting regulations). We seek to effectuate the overall legislative purpose and to avoid an absurd or unjust result. See Residents Defending Their Homes v. Lone Pine Hunters' Club, 155 N.H. 486, 488, 924 A.2d 366 (2007). Courts can neither ignore the plain language of the legislation nor add words which the lawmakers did not see fit to include. Appeal of Garrison Place Real Estate Inv. Trust, 159 N.H. 539, 542, 986 A.2d 670 (2009).

An administrative regulation adopted by an agency pursuant to a statute is “ prima facie evidence of the proper interpretation of the ... statute.” Cagan's, Inc. v. Dep't of Rev. Admin., 126 N.H. 239, 248, 490 A.2d 1354 (1985). And while we accord deference to an agency's interpretation of its regulations, “our deference is not total, because we still must examine the agency's interpretation to determine if it is consistent with the language of the regulation and with the purpose which the regulation is intended to serve.” Vector Mktg., 156 N.H. at 783, 942 A.2d 1261 (citation, brackets and quotation omitted). If a taxing statute or regulation is ambiguous, we construe it against the government and in favor of the taxpayer. See Cagan's, Inc., 126 N.H. at 248–49, 490 A.2d 1354; see also Pheasant Lane Realty Trust, 143 N.H. at 143, 720 A.2d 73 (“Because the power to tax arises solely by statute, the right to tax must be found within the letter of the law and is not to be extended by implication.” (citations and quotation omitted)). We are the final arbiter of the intent of the legislature as expressed in the words of a statute considered as a whole, Appeal of Union Tel. Co., 160 N.H. at 317, 999 A.2d 336, and our review of the interpretation of both statutes and administrative rules is de novo, see Appeal of Gamas, 158 N.H. 646, 648, 972 A.2d 1025 (2009) (interpreting statute); Appeal of Murdock, 156 N.H. 732, 735, 943 A.2d 757 (2008) (interpreting administrative rule). With this framework in mind, we turn to the statutes and regulations relevant to this appeal.

Under RSA 77:4, III, taxable income includes “[d]ividends ... on shares in partnerships ... the beneficial interest in which is represented by transferable shares.” RSA 77:3 specifies who is subject to taxation for income received from interest and dividends. It provides in part:

I. Taxable income is that income received from interest and dividends during the tax year prior to the assessment date by:

(a) Individuals who are inhabitants or residents of this state for any part of the taxable year whose gross interest and dividend income from all sources exceeds $2,400 during that taxable period.

(b) Partnerships, ... the beneficial interest in which is not represented by transferable shares, whose gross interest and dividend income from all sources exceeds $2,400 during the taxable year....

(Emphasis added.); see RSA 77:14 to :17 (2003) (repealed 2009); see also RSA 77:14–a to :14–d (Supp.2010).

Therefore, pursuant to the statutory scheme, a partnership entity is subject to taxation under RSA chapter 77 for income received from interest and dividends when the beneficial interest in the partnership is not represented by transferable shares. But if the beneficial interest in the partnership is represented by transferable shares, the individual limited partners are subject to taxation on such income.

The term “transferable” is not defined by statute. However, during the years at issue, the following DRA regulations were in effect. Rule 901.02 provided, in relevant part: “ ‘Beneficial interest in which is not represented by transferable shares,’ as used in RSA 77:3, I(b), means an interest in an organization ... [w]here the shares, equity interests and all ownership rights are not transferable without obtaining prior member approval or causing a dissolution of the organization.” N.H. Admin. Rules, Rev 901.02 (amended 2010) (emphasis added). Rule 901.03 provided, in relevant part: “ ‘Beneficial interest in which is represented by transferable shares,’ as used in RSA 77:4, III, means an interest in an organization ... [w]here the shares, equity interests and all ownership rights are freely transferable without the necessity of securing prior member approval or causing dissolution of the organization.” Id. 901.03 (amended 2010) (emphasis added). Finally, former Rule 901.17 defined “transferable,” as used in RSA 77:3, I(b) and RSA 77:4, III, to mean “the ability of a shareholder or interest holder in an organization to dispose of, by any means, all rights incidental to his interest without a required approval of the disposition by another member, and without dissolution of the organization itself.” Id. 901.18 ² (amended 2010) (...