Texaco Refining and Marketing Co., Inc. v. Commissioner of Revenue Services

• Decision Date: 24 March 1987
• Citation: 202 Conn. 583,522 A.2d 771
• Court: Connecticut Supreme Court
• Parties: TEXACO REFINING AND MARKETING COMPANY, INC. v. COMMISSIONER OF REVENUE SERVICES.

Page 771

522 A.2d 771

202 Conn. 583

TEXACO REFINING AND MARKETING COMPANY, INC. v. COMMISSIONER OF REVENUE SERVICES.

Supreme Court of Connecticut.

Argued Feb. 5, 1987.

Decided March 24, 1987.

John W. Cannavino, Stamford, with whom were William H. Narwold, Hartford, Herbert W. Powell, pro hac vice, and, on the brief, Medina S. Vasily, Stamford, for appellant (plaintiff).

Edward T. Blair, Asst. Atty. Gen., with whom were Richard K. Greenberg, Asst. Atty. Gen., and, on the brief, Joseph I. Lieberman, Atty. Gen., for appellee (defendant).

Before PETERS, C.J., and ARTHUR H. HEALEY, SHEA, DUPONT and McKEEVER, JJ.

PETERS, Chief Justice.

The sole issue in this case, which comes to us by way of reservation, is whether moneys collected as a tax from customers are includable in the Connecticut gross earnings tax on the sale of petroleum products. ¹ The plaintiff, Getty Refining and Marketing Company, Inc., ² appealed to the Superior Court from a decision of the defendant commissioner holding that the plaintiff had underpaid the gross earnings tax imposed by General Statutes § 12-587 ³ for the years 1980 through 1984. The trial court granted a motion for reservation upon stipulated facts to determine the propriety of the defendant's computation of the plaintiff's gross earnings tax. We conclude that the reserved question ⁴ is to be answered in the affirmative.

The parties stipulated to the following facts. The plaintiff is a Delaware corporation authorized to do business in this state. On its invoices to Connecticut purchasers of its petroleum products, the plaintiff charged these purchasers separately for the sales price and for the 2 percent Connecticut gross earnings tax that it collected from them pursuant to General Statutes § 12-587. ⁵ In filing its quarterly gross earnings tax returns between December 31, 1980, and March 31, 1984, the plaintiff did not report as gross earnings the 2 percent which, in its invoices, it had labeled as a separate charge for the gross earnings tax.

Disagreeing with the plaintiff's exclusion of the 2 percent in its calculation of the gross earnings tax, the department of revenue services notified the plaintiff that it owed an additional gross earnings tax on the excluded 2 percent charge for the relevant tax years. ⁶ The plaintiff sought administrative relief from this ruling pursuant to General Statutes § 12-595 ⁷ but the defendant, after a hearing, upheld the department's conclusion that the plaintiff was liable for the additional tax, interest and penalties. The plaintiff paid this amount in full, under protest, as it was required to do by General Statutes § 12-600, ⁸ before commencing its appeal to the trial court pursuant to General Statutes § 12-597. ⁹

In the trial court, the parties jointly requested that the case be reserved for appellate advice on the stated question of law whether the gross earnings upon which § 12-587 levies a tax includes the two percent charge collected by the plaintiff taxpayer from its customers. The trial court granted this request, and, after transfer of the appeal to this court, the present proceedings ensued.

Before we reach the merits of the reserved question, three preliminary matters warrant brief clarification. First, because the statute authorizing reservations, General Statutes § 52-235, ¹⁰ does not require that a case be at the final judgment stage when the reservation is brought, this court has jurisdiction to decide the reserved question even though the case is here on an interlocutory appeal. Practice Book § 4147 (formerly § 3133) ¹¹; State v. Sanabria, 192 Conn. 671, 681-85, 474 A.2d 760 (1984); New Haven Metal & Heating Supply Co. v. Danaher, 128 Conn. 213, 218, 21 A.2d 383 (1941). Second, because this case is an appeal from an adverse ruling of the commissioner of revenue services, the plaintiff is entitled to a plenary review of its challenge of its tax assessment, and is not limited to an administrative appeal under the Uniform Administrative Procedure Act. General Statutes § 4-186 ¹²; Practice Book § 257(d)(3) ¹³; see Schlumberger Technology Corporation v. Dubno, 202 Conn. 412, 421, 521 A.2d 569 (1987); Xerox Corporation v. Board of Tax Review, 175 Conn. 301, 303, 397 A.2d 1367 (1978). Third, because the question posed by the reservation principally concerns the imposition of a tax, and not a claimed right to an exemption or a deduction, the taxing statute must be strictly construed against the taxing authority and in favor of the taxpayer. Schlumberger Technology Corporation v. Dubno, supra, 202 Conn. at 420-23, 521 A.2d 569; The B.F. Goodrich Co. v. Dubno, 196 Conn. 1, 6, 8-9, 490 A.2d 991 (1985).

The crucial question raised by the reservation is what meaning to attach to that portion of § 12-587 which imposes a 2 percent tax on "the amount of gross earnings from the sale of petroleum products within this state." We approach this question according to well established principles of statutory construction designed to further our fundamental objective of ascertaining and giving effect to the apparent intent of the legislature. State v. Kozlowski, 199 Conn. 667, 673, 509 A.2d 20 (1986); Hayes v. Smith, 194 Conn. 52, 57, 480 A.2d 425 (1984). In seeking to discern that intent, we look to the words of the statute itself, to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter. Dart & Bogue Co. v. Slosberg, 202 Conn. 566, 572, 522 A.2d 763 (1987); State v. Blasko, 202 Conn. 541, 553, 522 A.2d 753 (1987); Rhodes v. Hartford, 201 Conn. 89, 93, 513 A.2d 124 (1986).

Starting, as we must, with the language of the statute itself, we note that § 12-587 defines "gross earnings" in two alternative ways: "(1) in the case of a corporation, those earnings from the sale of petroleum products to which the sales factor is applied under subdivision (3) [now (b) ] of section 12-218 and (2) in the case of any other company, those earnings from such sales made within this state." Both parties have addressed their attention only to subsection (1). The sales factor of General Statutes § 12-218, ¹⁴ to which § 12- 587(1) refers, is one component of a three factor formula designed to apportion to Connecticut, for the purposes of the corporation business tax, a portion of the taxable income of multistate corporations whose income is derived, inter alia, from the sale of personal property. Schlumberger Technology Corporation v. Dubno, supra, 202 Conn. at 416, 521 A.2d 569. This factor is defined, in § 12-218, as "the part of the taxpayer's gross receipts from sales or other sources during the income year ... which is assignable to the state." The difficulty created by the cross-reference to § 12-218 is the statutory disparity between the coverage of the petroleum products tax and the corporation business tax. While § 12-587 purports to tax "gross earnings," the income that § 12-218 apportions to this state is a taxpayer's "net income."

In the face of this statutory conundrum, the parties have, not surprisingly, proffered alternate constructions of "gross earnings" in § 12-587. Their disagreement revolves around four issues. First, does the statutory definition of "gross earnings" in § 12-587 have a plain and unambiguous meaning that we must enforce? Second, if the statute requires construction beyond its plain meaning, what inferences should be drawn from its legislative history and the purpose it was intended to serve? Third, what insights do related statutes offer about the legislature's intention in its choice of language in this section? Fourth, to what extent does the statute authorize administrative elaboration of those provisions that cannot readily be applied literally?

The plaintiff's principal argument is that its tax liability is governed by the express language of § 12-587(1) which, it maintains, plainly and unambiguously precludes the inclusion in gross income of the 2 percent tax imposed upon it but collected from its customers. The plaintiff reads the definition of "gross earnings" in § 12-587(1) as containing two component parts, neither of which render this 2 percent charge taxable. Specifically, the plaintiff argues, moneys collected from consumers for taxes are plainly neither "earnings from the sale of petroleum products" nor do they fall within the "net income" to which the § 12-218 sales factor applies. We disagree.

The first half of the plaintiff's statutory argument, on which it relies in passing, cannot withstand independent analysis. What the legislature intended by defining "gross earnings" as "earnings from the sale of petroleum products" can hardly be deemed to be plain and unambiguous on its face. The heart of the disagreement between the parties is how to define the relevant "earnings."

The weightier part of the plaintiff's statutory argument is its insistence that we must read literally and apply strictly the statutory instruction that "gross earnings" are "those earnings ... to which the sales factor is applied " under § 12-218(b). (Emphasis added.) Because the sales factor is applied, by that statute, to net income, the plaintiff maintains that "gross earnings" under § 12-587 are limited to net income. Pursuing that syllogism, the plaintiff argues that its "gross earnings" do not include tax payments that are normally deductible in the calculation of net income. ¹⁵ The difficulty with this argument is that it proves too much. If "gross earnings" are indeed to be measured by "net income," expenses other than taxes would also be deductible from gross receipts in order to determine the basis upon which the § 12-587 tax is to be levied. To its credit, not even the plaintiff has pursued the logic of its position to this extreme. Nonetheless, the logical consequence of the plaintiff's position demonstrates that the...