Case Title: Oxx v. VT Dept. of Taxes

Citation: 

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 1992-09-01T00:00:00Z

Document:
NOTICE:  This opinion is subject to motions for reargument under V.R.A.P.
 40 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 90-176


 Gordon D. Oxx, Jr.                           Supreme Court
   and Carol P. Oxx
                                              On Appeal from
      v.                                      Windham Superior Court

 Vermont Department of Taxes                  September Term, 1992



 Ellen H. Maloney, J.

 Michael J. Hertz of Hertz and Wesley, Brattleboro, for plaintiffs-appellants

 Jeffrey L. Amestoy, Attorney General, and Danforth Cardozo, III, Special
    Assistant Attorney General, Montpelier, for defendant-appellee


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      MORSE, J.   Gordon and Carol Oxx, Vermont income taxpayers, appeal the
 superior court's decision affirming the Vermont Commissioner of Taxes'
 assessment of their personal income tax for 1986, claiming it was $13,404
 too high.  They challenge the assessment on two grounds:  (1) Vermont's
 personal income tax may not be applied to recapture of federal investment
 tax credit under 32 V.S.A. { 5822, and (2) if it can be so applied, the
 commissioner's application of { 5822 in this case violated the Equal
 Protection Clause of the Fourteenth Amendment to the United States
 Constitution and Chapter I, Article 7 of the Vermont Constitution.  We
 reverse, because the assessment was unconstitutional as applied.
        The Oxxes claimed a federal investment tax credit (FN1) of $6,422 on
 their 1983 federal income tax return, increasing their refund for that year
 by $6,422.  The Oxxes claimed an investment tax credit of $61,141 on their
 1984 federal return.  Because their adjusted gross income for 1984 was
 negative, the credit was carried back to 1982, increasing their 1982 refund
 by $61,141.  Thus, the Oxxes saved a total of $67,563 in federal income
 taxes over two tax years by applying the federal investment tax credit.  Due
 to several circumstances, however, the federal income tax savings did not
 translate into state income tax savings.
      The Oxxes were residents of Ohio until September 1983, when they
 became residents of Vermont.  They filed Ohio income tax returns through
 1983, but because Ohio did not calculate its state income tax as a
 percentage of the taxpayers' federal tax liability, they did not derive any
 Ohio income tax benefit from the federal investment tax credit.  The Oxxes
 also filed  Vermont income tax returns for 1983 and 1984.  Because the
 Oxxes had deductions available which exceeded their gross income, their
 income was negative for purposes of both federal and Vermont income taxes
 for both years.  For this reason, in neither year did they derive any
 benefit from the investment tax credit with regard to their Vermont income
 taxes, which is figured as a percentage of federal income tax liability,
 called a "piggyback."
      For their 1986 federal income tax return, the Oxxes were subject to
 recapture of the investment tax credit (FN2) in the amount of $50,585 claimed
 for the years 1983 and 1984.  The Oxxes computed their 1986 Vermont income
 tax liability without including the federal tax on recapture of their
 investment credit.  The Vermont Department of Taxes, however, included the
 recapture of investment credit in its computation of the Oxxes' 1986 Vermont
 income tax liability and assessed the Oxxes an additional $13,404 for that
 year.  This figure represents the difference between the tax paid by the
 Oxxes and the tax claimed by the Department.
                                     I.

      The commissioner properly interpreted the applicable law in requiring
 imposition of Vermont personal income tax on federal recapture of the
 federal investment tax credit.  For the 1986 tax year, 32 V.S.A. { 5822
 stated in relevant part:
         A tax is imposed for each calendar year . . . upon the
         Vermont income earned or received in that taxable year
         by every individual. . . .  The amount of this tax shall
         be measured by 26.5 percent of the federal income tax
         liability of the taxpayer for the taxable year, reduced
         by a percentage of the taxpayer's adjusted gross income
         for the taxable year which is not Vermont income . . . .

      Although the first sentence of { 5822 imposes a tax for each calendar
 year upon Vermont income earned or received during the calendar year, the
 second sentence establishes the measurement of Vermont tax liability as a
 percentage of federal income tax liability.  The two sentences are
 internally inconsistent in that Vermont income earned or received may not
 include an investment credit recapture, which in part determines the federal
 income tax liability in a particular year.  According to the taxpayers, the
 first sentence should control and the second sentence should not be followed
 literally.
       When two contemporaneous statutory provisions conflict, the more
 specific provision is given effect over the more general one.  State v.
 Teachout, 142 Vt. 69, 73,