State v. Robinson Land & Lumber Co. of Ala.

• Citation: 77 So.2d 641,262 Ala. 146
• Decision Date: 04 November 1954
• Docket Number: 1 Div. 572
• Parties: STATE of Alabama v. ROBINSON LAND & LUMBER COMPANY OF ALABAMA, Inc.
• Court: Supreme Court of Alabama

Page 641

77 So.2d 641

262 Ala. 146

STATE of Alabama v. ROBINSON LAND & LUMBER COMPANY OF ALABAMA, Inc.

1 Div. 572.

Supreme Court of Alabama.

Nov. 4, 1954.

Rehearing Denied Feb. 10, 1955.

Si Garrett, Atty. Gen., and H. Grady Tiller, Asst. Atty. Gen., for appellant.

Smith, Hand, Arendall & Bedsole, Mobile, for appellee.

CLAYTON, Justice.

This appeal by the state from an adverse ruling on demurrer concerns a certain formula used by the State Department of Revenue for computing corporation income taxes due the state under certain conditions. The question for our determination is whether this formula is in accordance with or runs counter to Section 390 of Title 51, Code of Alabama, 1940, which reads as follows ' § 390. Credit for taxes paid on income from sources without the state.--(a) For the purpose of ascertaining the income tax due under the provisions of this chapter, by residents of Alabama whose gross income as defined herein is derived from sources both within and without the State of Alabama, there shall be allowed a credit against the amount of tax found to be due by such resident, on account of income derived from without the State of Alabama, the amount of income tax actually paid by such resident to any state or territory on account of business transacted or property held without the State of Alabama. (b) In case the amount of tax actually paid by a resident of Alabama to another state or territory is in excess of the amount that would be due on the same income computed on the income tax rate in Alabama, then only such amount as would be due in this state on such taxable income shall be allowed as a credit. (c) If the amount of income tax actually paid by a resident of this state to any other state or territory on account of business transacted or property held, is less than the amount of tax that would be due, as computed on Alabama income tax rates, then the income tax levied herein shall be computed on the entire taxable income from sources from both within and without the state as defined herein, and the tax shall be paid less the credit allowed in this section for tax paid on income derived from without the state. (d) Before a resident of Alabama may claim the credit allowed under this section he shall file with his tax return a certificate showing amount of gross and net income derived from sources without this state together with the amount of tax paid or to be paid on such income. The words 'residents of Alabama' as used in this section shall include corporations organized and existing under the laws of the State of Alabama.'

Appellee is an Alabama corporation with operations in Alabama and Mississippi. Its corporation income tax return filed with the State of Alabama for the year 1949 showed an aggregate gross income of $179,243.89, of which $26,780.50 was gross income from operations within the State of Mississippi. After legal and proper deductions, on its Mississippi operations, its net income in that state was $20,656.62. But its aggregate operating or business expenses for the year amounted to $161,889.72, leaving its net earnings or taxable income from all sources for the year to be $17,354.17. The correctness of the foregoing figures is not questioned on this appeal. Extending these calculations a step further and using round numbers, it is seen that although appellee's net income in Mississippi for the year was $20,000, its aggregate net income for the year in Alabama and Mississippi together was only $17,000, from which, by simple arithmetic, it is apparent that its Alabama operations standing alone showed a net loss of approximately $3,000.

The Mississippi income tax rate on corporations is on a sliding scale, beginning at 1% of the first $4,000 and reaching 5% on the higher brackets. On its net income of $20,656.62 in that state, in the year 1949, appellee actually paid to the State of Mississippi income tax in the amount of $672.83. Appellee, on its income tax return to the State of Alabama for the year 1949, computed the tax at 3% on its aggregate total net income from all sources ($17,354.17) to be $520.63. It, then, computed its net income earned in the State of Mississippi ($20,656.62) at the Alabama tax rate of 3% in accordance with its version of the meaning of subsection (b) of section 390, and obtained the result of $619.70 as a credit against its income tax liability to the State of Alabama for the year. From this appellee determined that no income tax was due the State of Alabama for that year, for the reason that its Alabama income tax computed on its total aggregate net income for the year from all sources was less than the product of its income derived from business transacted in Mississippi multiplied by the Alabama tax rate.

The State Department of Revenue made an assessment against the taxpayer based upon its formula, or rule of thumb, as follows: It computed the taxpayer's income tax at the Alabama rate of 3% upon $17,354.17, the aggregate net income after lawful deductions and expenses, from all sources from within and without the state, and obtained a figure of $520.63. Up to this point its actions coincided with those of the taxpayer, but it then made a further computation whereby it converted taxpayer's gross income in Mississippi ($26,780.50) into a decimal fractional part of the taxpayer's aggregate gross income from all sources ($179,243.89), and obtained the fraction .14941. Multiplying this fraction by the $520.63, obtained above as tax on total net income from all sources, a figure of $77.79 was reached as a maximum allowable credit (on account of income tax paid to the State of Mississippi for the year) to be deducted from the taxpayer's Alabama income tax, based upon aggregate income from all sources. Upon the taxpayer's refusal to accede to this calculation, the State Department of Revenue made a final assessment against it of $442.84 plus interest, this being the remainder after subtracting $77.79 from $520.63. Taxpayer paid this under protest and filed its appeal by bill of complaint with copy of its tax return attached thereto in the Circuit Court of Mobile, in Equity, in accordance with Section 140, Title 51, Code of 1940. The State Department of Revenue, by demurrer, admitted the correctness of all the aforestated figures contained in appellee's tax return, but asserted that its own percentage formula and the assessment based thereon were a correct interpretation and application of Section 390 of Title 51 of the Code. The trial court ruled with the taxpayer and the state appeals.

This is a case of first impression in this jurisdiction.

In its brief filed in this cause, on appeal, the State Department of Revenue argues that in view of the fact that this particular section of our Income Tax Law, here involved, has not heretofore been before our appellate courts for review, the construction of that statute by the State Commissioner of Revenue should be accorded consideration in arriving at our decision in the instant case. And, in support of this proposition, he cites a number of authorities. Dixie Coaches, Inc. v. Ramsden, 238 Ala. 285, 190 So. 92; Birmingham Paper Co. v. Curry, 238 Ala. 138, 190 So. 86; State v. Tuscaloosa Building & Loan Ass'n, 230 Ala. 476, 161 So. 530, 99 A.L.R. 1019; Wetmore v. State, 55 Ala. 198; State v. Board of School Commissioners, 183 Ala. 554, 63 So. 76; Shepherd v. Sartain, 185 Ala. 439, 64 So. 57; State Board of Administration v. Jones, 212 Ala. 380, 102 So. 626; State v. H. M. Hobbie Grocery Co., 225 Ala. 151, 142 So. 46; State ex rel. Fowler v. Stone, 237 Ala. 78, 185 So. 404; Cole v. Gullatt, 241 Ala. 669, 4 So.2d 412; 42 Am.Jur., §§ 77-85, pp. 392-413; 42 Am.Jur., pp. 407, 408.

Appellee's position on the other hand, is that the statute is clear, no ambiguity exists therein; the legislative intent is plain and no occasion arises for any construction other than the usual meaning of the words in the clearly expressed language of the statute. State v. Praetorians, 226 Ala. 259, 146 So. 411; Holt v. Long, 234 Ala. 369, 174 So. 759; Bozeman v. State, 7 Ala.App. 151, 61 So. 604, certiorari denied Ex parte Bozeman, 183 Ala. 91, 63 So. 201; Ex parte Bozeman, 183 Ala. 91, 63 So. 201; Gibbs v. State, 29 Ala.App. 113, 192 So. 514, certiorari denied 238 Ala. 592, 192 So. 515; State v. Tuscaloosa Building & Loan Ass'n, 230 Ala. 476, 161 So. 530, 99 A.L.R. 1019, supra; May v. Head, 210 Ala. 112, 96 So. 869.

As the case is before us on demurrer, no testimony was taken, and no allegations appear in the pleadings in regard to the interpretation or construction given to this section of the statute by the State Commissioner of Revenue, this matter is not before us, as we do not take judicial notice of his decisions. But this aside, the law is clear that "When the language as used by the lawmakers is plain, it is the duty of the courts to obey; no discretion is left; and courts should not stray into bypaths or search for reasons outside of the plain letter of the law upon which to rely for the purpose of giving a different meaning or interpretation, for 'when the language is plain it should be considered to mean exactly what it says.'--State ex rel. Little v. Foster, 130 Ala. 163 (30 So. 477)." Ex Parte Bozeman, supra [183 Ala. 91, 63 So. 203]; Dixie Coaches, Inc. v. Ramsden, supra; State v. Tuscaloosa Building & Loan Ass'n, supra; State Board of Administration v. Jones, supra.

Argument is made that in view of the fact that much of our Income Tax Law, including section 390, supra, in part, was taken from the Federal Income Tax Law, we should follow the construction placed on the Federal law by the United States courts. In the case of State v. Flenner, 236 Ala. 228, 181 So. 786, 787, this court, speaking through Knight, J., made the following comment:

'While the construction placed upon a similar provision of the Federal Income Statute, or by the Courts of New York, Massachusetts, Wisconsin and Georgia, upon...