Pfizer Inc. v. LANCASTER COUNTY BD.

• Decision Date: 25 August 2000
• Docket Number: No. S-99-908 to S-99-913.
• Citation: 616 N.W.2d 326,260 Neb. 265
• Parties: PFIZER INC., appellant, v. LANCASTER COUNTY BOARD OF EQUALIZATION, appellee.
• Court: Nebraska Supreme Court

616 N.W.2d 326

260 Neb. 265

PFIZER INC., appellant, v. LANCASTER COUNTY BOARD OF EQUALIZATION, appellee.

Nos. S-99-908 to S-99-913.

Supreme Court of Nebraska.

August 25, 2000.

Michael L. Schleich, of Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C., Omaha, for appellant.

Gary E. Lacey, Lancaster County Attorney, and Michael E. Thew, Lincoln, for appellee.

HENDRY, C.J., WRIGHT, GERRARD, McCORMACK, and MILLER-LERMAN, JJ., and INBODY and CARLSON, Judges.

McCORMACK, J.

FACTUAL AND PROCEDURAL BACKGROUND

The following facts were stipulated by the parties: Pfizer Inc. is a multinational corporation authorized to do business in Nebraska, engaged in the development, manufacture, and sale of pharmaceuticals and other health care products. In 1994, Pfizer agreed to purchase the assets of SmithKline Beecham Animal Health (SBAH) from SmithKline Beecham PLC, a publicly owned British corporation. This transaction was completed in 1995. As part of the acquisition, Pfizer purchased personal property, real property, and a range of tangible and intangible assets located in 26 different countries.

In the United States, Pfizer purchased the assets of SmithKline Beecham Corporation, a subsidiary of the British parent corporation. These included assets located in Lancaster County referred to as the "Lincoln Plant," the "Lincoln Farm," and the "Agnew Farm." On January 1, 1996, Pfizer owned these properties, including the personal property located therein. There is no material difference in the use made of the property or in the fair market value of the property between the time that the property was owned by SBAH and Pfizer.

Pfizer filed tax returns for 1996, basing those returns on information provided to Pfizer by SBAH, classified by class of property and year first placed in service. The returns were prepared as if the property had still been owned by SBAH, without regard to the transfer of ownership from SBAH to Pfizer. Subsequently, the Lancaster County assessor issued tax increase notices to Pfizer with respect to the three properties listed above, increasing the value of the personal property described on the 1996 tax returns. Pfizer timely protested the tax increase notices to the Lancaster County Board of Equalization (the Board). The Board denied Pfizer's protests, and Pfizer appealed to the Tax Equalization and Review Commission (the TERC). The appeal was subsequently consolidated with similar issues posed by Pfizer's 1997 and 1998 tax returns.

The TERC affirmed the decision of the Board. The TERC found that the purchase of the tangible personal property of SBAH by Pfizer was a purchase as defined by Neb.Rev.Stat. § 77-122 (Reissue 1996) and that the property must therefore be valued at its net book value as defined by Neb.Rev.Stat. §§ 77-118 and 77-120 (Reissue 1996). The TERC determined that pursuant to the relevant federal tax laws, the assessed value of the subject tangible personal property must be calculated based on the acquisition cost, or purchase price, of the property, as adjusted for depreciation pursuant to § 77-120. The TERC further determined that the relevant date for calculating that depreciation was the date of the purchase by Pfizer and, thus, affirmed the determination of the Board.

ASSIGNMENTS OF ERROR

Pfizer assigns, consolidated and restated, that the TERC erred in its interpretation of §§ 77-118 and 77-120 and Neb.Rev.Stat. § 77-201 (Cum.Supp.1998). Pfizer further argues that if the interpretation of those statutes reached by the TERC is correct, then those statutes violate the Equal Protection and Commerce Clauses of the U.S. Constitution and the special legislation and uniformity clauses of the Nebraska Constitution.

STANDARD OF REVIEW

Decisions rendered by the TERC shall be reviewed by the court for errors appearing on the record. Bartlett v. Dawes Cty. Bd. of Equal., 259 Neb. 954, 613 N.W.2d 810 (2000). When reviewing a judgment for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. Id. However, in instances where an appellate court is required to review cases for error appearing on the record, questions of law are nonetheless reviewed de novo on the record. Id. The constitutionality of statutes and statutory interpretation present questions of law. See, Hobza v. Seedorff Masonry, Inc., 259 Neb. 671, 611 N.W.2d 828 (2000); State ex rel. Stenberg v. Moore, 258 Neb. 738, 605 N.W.2d 440 (2000). The burden of establishing the unconstitutionality of a statute is on the one attacking its validity. Daily v. Board of Ed. of Morrill Cty., 256 Neb. 73, 588 N.W.2d 813 (1999); State ex rel. Shepherd v. Neb. Equal Opp. Comm., 251 Neb. 517, 557 N.W.2d 684 (1997).

ANALYSIS

STATUTORY INTERPRETATION

Section 77-201(3) provides in relevant part:

Tangible personal property, not including motor vehicles registered for operation on the highways of this state, shall constitute a separate and distinct class of property for purposes of property taxation, shall be subject to taxation, unless expressly exempt from taxation, and shall be valued at its net book value. Tangible personal property transferred as a gift or devise or as part of a transaction which is not a purchase shall be subject to taxation based upon the date the property was acquired by the previous owner and at the previous owner's Nebraska adjusted basis. Tangible personal property acquired as replacement property for converted property shall be subject to taxation based upon the date the converted property was acquired and at the Nebraska adjusted basis of the converted property unless insurance proceeds are payable by reason of the conversion.

(Emphasis supplied.)

We note that § 77-201(3) was amended in 1997. See 1997 Neb. Laws, L.B. 270 and 271. Those amendments do not affect our disposition of this appeal, and we cite to the current statute for the sake of simplicity and convenience. See A & D Tech. Supply Co. v. Nebraska Dept. of Revenue, 259 Neb. 24, 607 N.W.2d 857 (2000).

Section 77-120(1) provides that "[n]et book value of property for taxation shall mean that portion of the Nebraska adjusted basis of the property as of the assessment date for the applicable recovery period in the table set forth in this subsection." Section 77-118 defines "Nebraska adjusted basis" as "the adjusted basis of property as determined under the Internal Revenue Code increased by the total amount allowed under the code for depreciation or amortization or pursuant to an election to expense depreciable property under section 179 of the code." The Internal Revenue Code states simply that "[t]he basis of property shall be the cost of such property, except as otherwise provided in this subchapter...." I.R.C. § 1012 (1994).

There is no dispute that the property at issue in the instant case is tangible personal property subject to taxation, nor is there a dispute that the transaction in which Pfizer acquired the property was a purchase within the meaning of § 77-122. That section defines "purchase" as follows:

Purchase shall include taking by sale, discount, negotiation, or any other transaction for value creating an interest in property except liens. Purchase shall not include transfers for stock or other ownership interests upon creation, dissolution, or any other tax-free reorganization for income tax purposes of any corporation, partnership, limited liability company, trust, or other entity.

Pfizer argues that although it purchased the property at issue when it acquired SBAH, it was entitled to value the property based upon the net book value and the Nebraska adjusted basis established by SBAH as the original owner of the property. In other words, Pfizer claims that it should be allowed to value the property as if it had been the original owner and no intervening purchase had taken place. Such an interpretation, however, conflicts with the plain language of the relevant statutes.

Pursuant to I.R.C. § 1012, "[g]enerally, a taxpayer's basis in an asset is equal to the cost to the taxpayer of acquiring the asset." (Emphasis supplied.) Muserlian v. C.I.R., 932 F.2d 109, 114 (2d Cir.1991). In this regard, the U.S. Supreme Court has observed:

[W]e think the statutory provision that the "basis of property shall be the cost of such property" ... normally means, and that in this case the Commissioner was justified in applying it to mean, cost to the taxpayer. A property may have a cost history quite different from its cost to the taxpayer. It may have been purchased for less or more than original cost, or built by contract which called for payments on which the builder profited greatly or suffered heavy loss. But generally and in this case the Commissioner was in no error in ruling that the taxpayer's outlay is the measure of his [or her] recoupment through depreciation accruals.

(Citation omitted.) Detroit Edison Co. v. Comm'r., 319 U.S. 98, 102, 63 S.Ct. 902, 87 L.Ed. 1286 (1943). Accord, Pounds v. United States, 372 F.2d 342 (5th Cir.1967); Reis v. Commissioner of Internal Revenue, 142 F.2d 900 (6th Cir.1944). See, also, Hinckley v. C.I. R., 410 F.2d 937 (8th Cir.1969) (stating that basis for property is cost, not replacement value); Parsons v. United States, 227 F.2d 437, 438 (3d Cir. 1955) ("[t]he cost with which we are concerned is a concomitant of acquisition by a taxpayer").

Under I.R.C. § 1012, the basis of property is its cost to the taxpayer—in this case, Pfizer. The basis as defined by § 1012, in turn, composes the Nebraska adjusted basis under § 77-118, which then composes the net book value under § 77-120(1). The plain language of the statutes supports the determination of the TERC. In the absence of anything to the contrary, statutory language is to be given its plain and ordinary meaning; an appellate court will not resort to interpretation to ascertain the meaning of statutory words which are plain,...