Appeal from Montgomery Circuit Court, (CV-06-1838)
BRYAN, Judge.
Rheem Manufacturing Company ("the Taxpayer") appeals the Montgomery Circuit Court's judgment holding that the Administrative Law Division ("the Division") of the Alabama Department of Revenue ("the Department") did not have
jurisdiction to grant the Taxpayer a refund of franchise taxes based on a ground that the Taxpayer had not asserted when its claims for refunds of franchise taxes were before the Department. We affirm.
The Taxpayer paid to the Department franchise taxes for the tax years 1994 through 1999. Subsequently, the Taxpayer timely filed with the Department claims for refunds in accordance with the Alabama Taxpayers' Bill of Rights ("the TBOR"), § 40-2A-1 et seq., Ala. Code 1975. The claims for refunds the Taxpayer filed with the Department asserted two grounds for the refunds. First, the Taxpayer asserted that it was entitled to refunds of all the franchise taxes it had paid for those years because, the Taxpayer said, the franchise tax was unconstitutional ("the constitutional ground"). Second, the Taxpayer asserted that it was entitled to partial refunds of the franchise taxes it had paid for those years because, the Taxpayer said, it should have been allowed to use an alternative-apportionment method in determining its capital employed in Alabama ("the alternative-apportionment ground").
The Department denied some of the claims for refunds by expressly denying them and denied the rest by failing to take
any action with respect to the claims within six months (a "deemed denial").1 Within two years of the express or deemed denial of each of its refund claims, the Taxpayer timely appealed to the Division.2
At a prehearing conference on March 8, 2004, the Division determined that the "overriding issue" before it was a ground that the Taxpayer had not raised before the Department and had not mentioned in the notices of appeal it had filed to appeal the Department's denial of the claims for refunds. That ground was whether goodwill resulting from a merger involving the Taxpayer's "corporate great-grandparent" should have been "pushed down" to the Taxpayer's financial statements for purposes of determining the Taxpayer's franchise-tax liability
("the push-down-accounting ground"). Having determined that the push-down-accounting ground was the overriding issue before it, the Division, on March 8, ordered the parties to address it. The next day, the Taxpayer filed with the Division a document purporting to amend its notices of appeal to assert the push-down-accounting ground as a ground of its appeals. However, the Department objected to the Division's considering the push-down-accounting ground, arguing that, because the Taxpayer had not raised that ground when the Taxpayer's refund claims were before the Department, the Division did not have jurisdiction to consider it. The Division held (1) that it could consider the push-down-accounting ground despite the Taxpayer's failure to raise that ground before the Department; (2) that the goodwill should not have been pushed down; and (3) that the Taxpayer was entitled to refunds for the years 1994 through 1999.
The Department appealed to the Montgomery Circuit Court ("the circuit court"). The circuit court appointed a special master to make a recommendation regarding the issue whether the Division had jurisdiction to consider the push-down-accounting ground. In pertinent part, the special master's
recommendation stated:
"The Department avers that the Division erred in allowing the Taxpayer to amend its Petitions for Refund to include refund claims on the novel push-down accounting ground because, pursuant to the TBOR, taxpayers must first raise refund claims with the Department, not on appeal with the Division from the Department's decision on those claims. The Taxpayer argues that, once it finds itself properly before the Division on appeal, no matter what the nature of the refund claim raised with the Department in the original Petition for Refund, a taxpayer should be able to raise any and all novel grounds for a refund, regardless of the fact that the Department was not first offered the opportunity to address that novel refund claim.
"I am persuaded by the Department's position for the following reasons: any ruling otherwise obviates certain portions of the TBOR that delineate between the initial filing of a petition for refund with the Department and the appeal of the denial of that petition with the Division; and any ruling otherwise allows taxpayers to circumvent the jurisdictional requirements of the TBOR, thereby rendering the periods of limitations in the TBOR superfluous and rendering the Department unable to place limits on any refund claims against it. Not only does Alabama's statutory scheme require such a finding, but also federal case law on the subject, and the policy considerations therein, prove persuasive.
"When construing the language of a statute, this court must presume `"that every word, sentence, or provision was intended for some useful purpose, has some force and effect, and that some effect is to be given to each, and also that no superfluous words or provisions were used."' Ex parte Uniroyal Tire Co., 779 So. 2d 227, 236 (Ala. 2000) (quoting Sheffield v. State, 708 So. 2d 899, 909 (Ala. Crim. App. 1997)). In this case, the TBOR was clear and did not
require interpretation. The Division's unnecessary interpretation served to abrogate portions of the TBOR, and for that reason the Division's decision must not stand.
"Generally, the TBOR's statutory construction establishes a two-tiered refund request review process by which the Department first reviews a taxpayer's refund request and the basis for that request, and, if the Department denies that request, then that taxpayer can appeal either to the Administrative Law Division or to the Circuit Court. The authority of the Division extends only to those requests for refund that first have been denied by the Department. The TBOR is clear on this subject. Section 40-2A-9(a), Ala. Code 1975, provides, in pertinent part: `The purpose of this section is to establish uniform procedures concerning appeals to the Administrative Law Division and to establish the authority and responsibilities of the administrative law judge concerning those appeals.' Section 40-2A-9(b), Ala. Code 1975, provides, in pertinent part: `The administrative law judge shall be responsible for administration of the Division and may schedule and conduct hearings and decide all appeals properly filed with the Division.' (Emphasis added.) This statute does not establish any authority or responsibility by the Division for originally filed petitions for refund. Section 40-2A-9(c)(5)a., Ala. Code 1975, provides, in pertinent part: `A taxpayer may appeal from the denial in whole or in part of a petition for refund by filing a notice of appeal with the administrative law division....' (Emphasis added.) Nothing in the TBOR provides an avenue through which a taxpayer in a case such as this can request a refund of tax directly from the Division; rather, it is the Department that first determines the propriety of any such refund, and the Division reviews the Department's decision. Thus, the Division does not have authority over a taxpayer's request for a refund unless and until the refund has been denied
in whole or in part by the Department, at which time an appeal may be properly filed with the Division.
"As for the authority and responsibility of the Department, Section 40-2A-7(c)(1), Ala. Code 1975, provides that `[a]ny taxpayer may file a petition for refund with the department for any overpayment of tax or other amount erroneously paid to the department or concerning any refund which the department is required to administer.' (Emphasis added.) See also Section 40-2A-7(c)(2)b., Ala. Code 1975 ('A petition for refund shall be filed with the department....'), and Section 40-2A-7(c)(3), Ala. Code 1975 (`The department shall either grant or deny a petition for refund....') [(emphasis added)]. Without a decision by the Department denying a petition for refund, there is nothing for the Division to review. This procedural requirement is also exemplified by Section 40-2A-7(c)(3), which, in requiring that a petition for refund be deemed denied within six months of the filing date, necessarily ends the Department's review period, thereby opening the door for review of the deemed denial by either the Division or the Circuit Court.
"The federal taxation system provides a two-tiered refund claim review system as well. Because the TBOR and the federal tax statutes are similar, I find federal court case law to be persuasive in my evaluation of the current case. State v. Gulf Oil Corp., 47 Ala. App. 434, 438, 256 So. 2d 172, 176 (Ala. Civ. App. 1971). The concept that a refund claim must first be filed with and administered by the Department is supported by public policy. `One object of such requirements [to first file a refund claim with the Commissioner] is to advise the appropriate officials of the demands or claims intended to be asserted, so as to insure an orderly administration of the revenue....' United States v. Felt & Tarrant Mfg. Co., 283 U.S. 269, 272 (1931) (citation omitted). See also United States v. Garbutt Oil Co., 302 U.S. 528, 532-33 (1938) (`[T]he
analogies of pleading must not be pressed to such an extent as to disregard the realities of administrative procedure [in tax refund cases].'). In cases involving the first stage of review by the Commissioner [of the Internal Revenue Service], the United States Supreme Court has vested the authority with the Commissioner, not the appellate entity, to waive any objection to a defectively pleaded refund claim, see United States v. Memphis Cotton Oil Co., 288...
