State Dept. of Rev. V. Union Tank Car Co., 2050652.

• Decision Date: 13 April 2007
• Docket Number: 2050652.
• Citation: 974 So.2d 1024
• Parties: STATE DEPARTMENT OF REVENUE v. UNION TANK CAR COMPANY.
• Court: Alabama Court of Civil Appeals

974 So.2d 1024

STATE DEPARTMENT OF REVENUE v. UNION TANK CAR COMPANY.

2050652.

Court of Civil Appeals of Alabama.

April 13, 2007.

Certiorari Denied June 15, 2007 Alabama Supreme Court 1061070.

Troy King, atty. gen., and Mark Griffin, asst. atty. gen., and asst. gen. counsel, Department of Revenue.

William B. Sellers and JoClaudia Moore of Balch & Bingham, LLP, Montgomery, for appellee.

PITTMAN, Judge.

The State Department of Revenue ("the Department") appeals from a summary judgment entered by the Montgomery Circuit Court in favor of Union Tank Car Company ("UTCC") in judicial-review proceedings concerning the correctness of an administrative determination that UTCC was not subject to Alabama income tax for the tax years 1994-1998.

The facts of this case are virtually undisputed. UTCC, a Delaware corporation with its corporate headquarters located in Illinois, is in the business of manufacturing and leasing specialty railcars to customers throughout the United States. UTCC had one Alabama-based lessee, Vulcan Materials Company ("Vulcan"), during the pertinent tax years. UTCC maintains regional sales offices and repair and service centers throughout the country, although none are located in Alabama. UTCC manufactures its railcars in Illinois and Texas, and its leasing agreements are all executed in Illinois.

The terms of UTCC's standard lease require that UTCC's lessees remit payment of a fixed monthly amount to UTCC in Illinois and arrange for a railroad carrier to pick up the leased railcars from UTCC's manufacturing facility and haul them to a location designated by the lessee. The lessee is also responsible for returning the railcars to UTCC after the lease term expires. UTCC has no control over where the leased railcars are used and does not track where the railcars travel throughout the United States; however, UTCC is responsible for maintaining and repairing the railcars. The repair and maintenance of its railcars would be performed at one of UTCC's repair facilities located at sites outside Alabama.

UTCC conducted no business, had no employees, and owned no property in Alabama during the 1994-1998 tax years. Some of UTCC's leased railcars were used to transport materials through Alabama and to destinations within Alabama. None of the railcars were used strictly intrastate. For the pertinent tax years, UTCC paid the Department an Alabama license tax pursuant to §§ 40-21-52 and 40-8-1(b)(5), Ala.Code 1975, in lieu of paying a property tax on the railcars that traveled in Alabama. The license tax remitted by UTCC was based on the market value of the railcars and the number of miles that the railcars traveled in Alabama.

The Department had previously assessed UTCC for the Alabama franchise tax for the tax years 1983-1986. UTCC had operated in substantially the same manner during those years as it had during the tax years 1994-1998. UTCC had appealed the franchise-tax assessment to the Department's Administrative Law Division, which held that UTCC was not doing business in Alabama and thus was not subject to the Alabama franchise tax. The Department did not seek judicial review of that order.

UTCC stopped filing Alabama corporate income tax returns after 1993, and, thus, it did not report any of its income to Alabama for the tax years 1994-1998. Following an audit, the Department determined that UTCC's leased railcars had been used by lessees to haul materials within and outside Alabama during the tax years 1994-1998; thus, according to the Department's auditors, UTCC's lease income was subject to Alabama income tax pursuant to the application of § 40-18-2(a)(2) and (a)(3), Ala.Code 1975.¹ The Department apportioned UTCC's lease income to Alabama based on the proportion of the miles that all of UTCC's leased railcars traveled in Alabama compared to the total miles the railcars traveled throughout the United States; based on that determination, the Department assessed UTCC taxes, interest, and penalties in the amount of $442,782.00.

UTCC appealed from that assessment to the Department's Administrative Law Division. The Department's administrative law judge ("ALJ") conducted a de novo hearing, and after considering the evidence, the ALJ entered a judgment declaring void the assessment against UTCC. The Department sought judicial review of the ALJ's decision in the Montgomery Circuit Court. UTCC filed a motion for a summary judgment, which was opposed by the Department; both parties filed evidentiary documents and briefs in connection with the summary-judgment motion. After a hearing, the circuit court adopted the ALJ's findings of fact and legal analysis and entered a summary judgment in favor of UTCC.

The ALJ (and, thereby, the circuit court) concluded that UTCC was not subject to income tax during the tax years 1994-1998 because (1) those cases decided by courts in other states deemed by the ALJ to be better reasoned indicated that UTCC was not subject to an income tax pursuant to § 40-18-2(a)(3), Ala.Code 1975, for the tax years 1994-1998; and (2) the Department had failed to present any evidence indicating that UTCC was qualified to do business in Alabama or was otherwise licensed to do business in Alabama during the tax years 1994-1998 such that UTCC could be said to be subject to income tax pursuant to § 40-18-2(a)(2), Ala.Code 1975.² The Department timely appealed from the circuit court's judgment to this court.

The circuit court's judgment in this case is accorded no presumption of correctness.

"`In reviewing the disposition of a motion for summary judgment, "[an appellate court] utilize[s] the same standard as the trial court in determining whether the evidence before [it] made out a genuine issue of material fact," Bussey v. John Deere Co., 531 So.2d 860, 862 (Ala.1988), and whether the movant was "entitled to a judgment as a matter of law." Wright v. Wright, 654 So.2d 542 (Ala. 1995); Rule 56(c), Ala. R. Civ. P. When the movant makes a prima facie showing that there is no genuine issue of material fact, the burden shifts to the nonmovant to present substantial evidence creating such an issue. Bass v. SouthTrust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989). Evidence is "substantial" if it is of "such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." Wright, 654 So.2d at 543 (quoting West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989)). Our review is further subject to the caveat that [an appellate court] must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant. Wilma Corp. v. Fleming Foods of Alabama, Inc., 613 So.2d 359 (Ala.1993); Hanners v. Balfour Guthrie, Inc., 564 So.2d 412, 413 (Ala.1990).'

"Hobson v. American Cast Iron Pipe Co., 690 So.2d 341, 344 (Ala.1997). It has also been observed that `where the facts are not in dispute and we are presented with pure questions of law, [the] standard of review is de novo.' State v. American Tobacco Co., 772 So.2d 417, 419 (Ala.2000) (citing Ex parte Graham, 702 So.2d 1215 (Ala. 1997), and Beavers v. County of Walker, 645 So.2d 1365 (Ala.1994))."

Carlisle v. Golden Rod Feed Mill, 883 So.2d 710, 711-12 (Ala.Civ.App.2003).

The Department first contends that UTCC was liable for income tax pursuant to § 40-18-2(a)(2), Ala.Code 1975, on the income UTCC derived from the lease of its railcars that traveled within and outside Alabama because, the Department argues, UTCC's payment of a license tax in accordance with § 40-21-52, Ala.Code 1975, licensed UTCC to transact business in Alabama.

"It is [an appellate court's] responsibility to give effect to the legislative intent whenever that intent is manifested." Bean Dredging, L.L.C. v. Alabama Dep't of Revenue, 855 So.2d 513, 517 (Ala.2003); see also State v. Union Tank Car Co., 281 Ala. 246, 248, 201 So.2d 402, 403 (1967). The commonly accepted definition of a term in a statute should be applied when a term is not defined in the statute. Bean Dredging, L.L.C., 855 So.2d at 517. "If the language of the statute is unambiguous, then there is no room for judicial construction and the clearly expressed intent of the legislature must be given effect." IMED Corp. v. Systems Eng'g Assocs. Corp., 602 So.2d 344, 346 (Ala.1992).

Section 40-18-2, Ala.Code 1975, provides:

"(a) In addition to all other taxes now imposed by law, there is hereby levied and imposed a tax on the taxable income, as defined in this chapter, which tax shall be assessed, collected, and paid annually at the rate specified herein and for each taxable year as hereinafter provided. Persons and subjects taxable under this chapter are:

"....

"(2) Every corporation ... licensed or qualified to transact business in Alabama."

Section 40-21-52, Ala.Code 1975, provides, in pertinent part:

"Each freight line or equipment company doing business, owning, operating, renting, leasing, or furnishing cars which are operated in this state shall, on or before March 1 each year, make and file with the Department of Revenue on a form or forms prescribed by the Department of Revenue a statement ... showing the number of miles run by all its cars over the line or lines of each separate railroad or railway in this state.... It shall be the duty of the Department of Revenue to examine the statement of each freight line or equipment company, and the reports of each railroad or railway company over whose lines such freight line or equipment moved, and from such statements and reports to compute the average number of cars within the state of each freight line or equipment company for the 12 months preceding October 1 of each year; for the average number of cars found to be in the state for such 12-month period, the reasonable value of such cars shall be computed, and the sum total value of the average number of cars shall be reduced to 30 percent...