NCR Corp. v. Department of Revenue

• Decision Date: 10 January 1986
• Docket Number: No. 84-2010,84-2010
• Citation: 128 Wis.2d 442,384 N.W.2d 355
• Parties: NCR CORPORATION, Petitioner-Appellant, v. DEPARTMENT OF REVENUE, Respondent.
• Court: Wisconsin Court of Appeals

Page 355

384 N.W.2d 355

128 Wis.2d 442

NCR CORPORATION, Petitioner-Appellant, v. DEPARTMENT OF REVENUE, Respondent.

No. 84-2010.

Court of Appeals of Wisconsin.

Submitted on Briefs Nov. 7, 1985.

Opinion Released Jan. 10, 1986.

Opinion Filed Jan. 10, 1986.

Quarles & Brady, Milwaukee, for petitioner-appellant; Thomas J. Donnelly, John A. Hazelwood, Mark E. Sanders, and David D. Wilmoth, of counsel.

Bronson C. La Follette, Atty. Gen., Madison, for respondent; Gerald S. Wilcox, Asst. Atty. Gen., of counsel.

Before MOSER, P.J., and WEDEMEYER and SULLIVAN, JJ.

WEDEMEYER, Judge.

NCR Corporation (NCR) appeals from a judgment affirming a Wisconsin Tax Appeals Commission (Commission) decision denying NCR a deduction on its state corporate franchise tax return for federal income taxes paid for the years 1975, 1976, 1977, 1978, and 1980. ¹ NCR contends that the Commission's interpretation of sec. 71.04(3), Stats. (1975), to disallow the deduction was erroneous as a matter of law. NCR further argues that, assuming arguendo that federal income taxes paid by Wisconsin corporate franchises continued to be deductible, the legislature's 1981 effort to retroactively eliminate the deduction by amending sec. 71.04(3) was unconstitutional. See secs. 1090c and 2203(45)(zs), ch. 20, Laws of 1981. Because the legislature clearly intended in 1975 to eliminate the corporate deduction of federal income taxes, we affirm the Commission. We need not address NCR's constitutional challenge to the retroactive impact of the 1981 amendment because our statutory interpretation of the 1975 amendment renders the issue moot.

The event giving rise to this case was a 1975 amendment to secs. 71.04(3) and (3a), Stats. (1973). Prior to 1975, corporations required to file Wisconsin franchise tax returns were allowed to deduct federal income taxes paid within the year covered by the income tax return. The amount of the deduction, however, was limited to a sum not to exceed 10% of the corporation's net income for the taxable year. ²

The 1975 amendment deleted the reference to the deductibility of federal income taxes and repealed the 10% limitation. Secs. 471d and 471f, ch. 39, Laws of 1975. The legislature, however, did not repeal or amend sec. 71.02(1)(c), Stats. (1973), which refers to the basis on which federal income taxes were to be deducted, or sec. 71.11(8)(b), Stats. (1973), which incorporates the rules set forth in sec. 71.02(1)(c). Thus, the relevant 1975-81 statutory sections at issue read in part:

71.02 Definitions (1) Definitions Applicable To Corporations. As used in this chapter:

....

(c) "Paid" or "actually paid" are to be construed in each instance in the light of the method used in computing taxable income whether on the accrual or receipt basis; but the deduction for federal income and excess profits taxes shall be confined to cash payments made within the year covered by the income tax return.

....

71.04 Deductions from gross income of corporations. Every corporation ... shall be allowed to make ... the following deductions:

....

(3) Taxes other than special improvement taxes paid during the year upon the business or property from which the income taxed is derived, including therein taxes imposed by the state of Wisconsin as income taxes ....

....

71.11 Administrative provisions; penalties.

....

(8) Method Of Accounting; General Rule; Corporations.

....

(b) In computing a corporation's taxable income for any taxable year, commencing after December 31, 1953, if such computation is under a method of accounting different from the method under which the taxpayer's taxable income for the preceding taxable year was computed, then there shall be taken into account those adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted, except there shall not be taken into account any adjustment in respect of any taxable year to which this section does not apply, and except that this rule shall not modify or change the rule as to federal income and excess profits taxes set forth in s. 71.02(1)(c). [Emphasis added.]

In challenging the assessment made by the state Department of Revenue (Department), NCR contends that the statutory provisions quoted above, when read together, unambiguously allow a full deduction for federal income taxes paid. The Commission, however, ruled that sec. 71.04(3), Stats. (1975), is ambiguous and determined that the legislature's intent was to eliminate the deduction in its entirety. In addition, the Commission determined that acceptance of the statutory interpretation advanced by NCR would lead to an absurd and unreasonable result. In affirming the Commission, the trial court essentially utilized the same rationale.

The standard of review of an agency's conclusion of law is the same for this court as for the trial court: neither court is bound by the agency's conclusion. See West Bend Education Association v. WERC, 121 Wis.2d 1, 11, 357 N.W.2d 534 539 (1984). Nor, for that matter, is this court bound by the decision of the trial court since the meaning of a statute is a question of law which we decide independently. Id. Nevertheless, we recognize that the construction and interpretation of a statute by an administrative agency charged with the responsibility of applying the law is entitled to great weight. Wisconsin's Environmental Decade, Inc. v. DILHR, 104 Wis.2d 640, 644, 312 N.W.2d 749, 751 (1981). A reviewing court ought not reverse an agency's interpretation of a statute if there exists a rational basis for the agency's conclusion, id., even if we do not entirely agree with the agency's rationale.

In essence, NCR argues that there is no rational basis for the Commission's interpretation of sec. 71.04(3), Stats. (1975). We disagree. The threshold question to be addressed by this court when construing a statute is whether the statute is ambiguous. State v. Wittrock, 119 Wis.2d 664, 669, 350 N.W.2d 647, 650 (1984). A statute is ambiguous if reasonable persons could disagree as to its meaning. Id. NCR correctly notes that even though it disagrees with the Commission about the meaning of sec. 71.04(3), Stats. (1975), this failure to agree does not automatically require a finding of ambiguity. Id. at 670, 350 N.W.2d at 650-51. Rather, NCR focuses on the "plain meaning" of the above-quoted statutory language, along with the simultaneous repeal of sec. 71.04(3a), Stats. (1973), to assert that the real effect of the 1975 amendment was not to eliminate the deduction but to eliminate the 10% cap on the deduction. Thus, NCR contends that it should be allowed a deduction for the full amount of the federal income taxes it paid in the 1975-1980 period.

The gist of NCR's argument is that sec. 71.04(3), Stats. (1975), provided for the deduction of "[t]axes ... upon the business or property from which the income taxed is derived, including therein taxes imposed by the state of Wisconsin as income taxes ...." (Emphasis by NCR). Because the legislature did not delete the references to federal income taxes in secs. 71.02(1)(c) and 71.11(8)(b), Stats. (1975), and because this court must consider "the entire section and related sections" in construing the statute, State v. Clausen, 105 Wis.2d 231, 244, 313 N.W.2d 819, 825 (1982), NCR claims that even after the 1975 amendments ch. 71 clearly and unambiguously allowed corporations to deduct their federal income taxes. NCR further argues that because the Commission itself, from 1921 to 1981, construed "[t]axes ... upon the business or property from which the income taxed is derived" to include income taxes paid to other states and foreign countries, it necessarily follows that income taxes paid to the federal government are deductible. NCR concludes that because the amended statute is plain and unambiguous neither the Commission nor this court may use extrinsic aids to construction. We disagree. ³

NCR's argument is more concerned with chronology than with the substance and content of the Commission's decision. NCR incorrectly argues that linguistic methodology holds sway over legislative intent. On the contrary, the primary purpose of statutory interpretation is to determine and give effect to legislative intent. Ball v. District No. 4 Area Board, 117 Wis.2d 529, 537-38, 345 N.W.2d 389, 394 (1984). To achieve this task we initially examine the language of the statute itself. If the meaning of the statute is clear on its face, this court ought not look outside the statute in applying it. Id. at 538, 345 N.W.2d at 394. Because, however, "whether ... the words of a statute are clear is itself not always clear," N. Singer, 2A Sutherland on Statutes and Statutory Construction § 46.04 at 86 (Sands rev. 4th ed. 1984) (footnote omitted), the plain meaning rule is not without exceptions.

As our supreme court recently reiterated:

It would be anomalous to close our minds to persuasive evidence of intention on the ground that reasonable men could not differ as to the meaning of the words. Legislative materials ... can scarcely be deemed to be incompetent or irrelevant .... The meaning to be ascribed to [a legislative act] can only be derived from a considered weighing of every relevant aid to construction.

Higher Educational Aids Board v. Hervey, 113 Wis.2d 634, 641 n.9, 335 N.W.2d 607, 611 n.9 (1983) (quoting United States v. Dickerson, 310 U.S. 554, 562, 60 S.Ct. 1034, 1038, 84 L.Ed. 1356 (1940)). ⁴ Professor Singer, in discussing the "limits of literalism," observes that "contrary to the traditional operation of the plain meaning rule, courts are increasingly willing to consider other indicia of intent and meaning from the start rather than beginning their inquiry by considering only the language of the act." 2A Sutherland, § 46.07 at 110 (emphasis added); see also City of Madison v. Town of Fitchburg, 112 Wis.2d 224, 236, 332 N.W.2d 782, 787 (1983) (the spirit or intent of a statute...