Title: Director of Revenue v. Verisign, Inc.

State: delaware

Issuer: Delaware Supreme Court

Document:

IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
DIRECTOR OF REVENUE, 
§ 
 
§  
 
Defendant-Below, 
§  
 
Appellant/Cross-Appellee, 
§ No. 18, 2021 
 
§  
 
v. 
§ Court Below: Superior Court 
 
§ of the State of Delaware 
VERISIGN, INC. 
§   
 
§ C.A. No. N19C-08-093  
 
Plaintiff-Below, 
§ 
Appellee/Cross-Appellant 
§ 
 
Submitted: September 22, 2021 
Decided: 
November 29, 2021 
 
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and 
MONTGOMERY-REEVES, Justices, constituting the Court en banc. 
 
Upon appeal from the Superior Court. AFFIRMED IN PART, REVERSED IN 
PART 
 
Anthony J. Testa, Jr., Esquire (argued), Matthew M. Warren, Esquire, Michael B. 
Cooksey, Esquire, DELAWARE DEPARTMENT OF JUSTICE, Wilmington, 
Delaware; Tiffany R. Moseley, Esquire (argued), Steven S. Rosenthal, Esquire, 
LOEB & LOEB, Washington, D.C., for Appellant/Cross-Appellee Director of 
Revenue.  
 
Frank. J. Gallo, Esquire (argued), Kyle O. Sollie, Esquire, Sebastian C. Watt, 
Esquire, Benjamin P. Chapple, Esquire, REED SMITH LLP, Wilmington, 
Delaware, for Appellee/Cross-Appellant Verisign, Inc.  
 
 
 
 
2 
 
TRAYNOR, Justice: 
 
Verisign, Inc. claimed large net operating loss deductions on its 2015 and 
2016 Delaware income tax returns, which reduced its bill to zero in both years.  The 
Division of Revenue reviewed the returns and found that Verisign’s use of net 
operating losses violated a longstanding, but non-statutory, Division policy.  Under 
the policy, a corporate taxpayer that filed its federal tax returns with a consolidated 
group was prohibited from claiming a net operating loss deduction in Delaware that 
exceeded the consolidated net operating loss deduction on the federal return in which 
it participated.  The Division applied the policy, determined that Verisign had 
underreported its income, and assessed the company $1.7 million in unpaid taxes 
and fees.  
 
After Verisign’s administrative protest of the assessment was denied, it 
appealed to the Superior Court.  The Superior Court held that the policy violated the 
Uniformity Clause of Article VIII, § 1 of the Delaware Constitution—the provision 
requiring that “[a]ll taxes shall be uniform upon the same class of subjects”—and 
invalidated it.1  We agree with the Superior Court that the Division’s policy was 
invalid, but we affirm on alternate grounds.  We hold that the policy exceeded the 
authority granted to the Division by the General Assembly in 30 Del. C. §§ 1901–
1903.  As a result, we decline to reach Verisign’s constitutional claims.  
 
1 Verisign, Inc. v. Dir. of Rev., 2020 WL 7640107, at *1 (Del. Super. Ct. Dec. 17, 2020).  
3 
 
 
I 
 
A 
 
Each non-exempt corporation that does business in Delaware must “annually 
pay a tax of 8.7 percent on its taxable income” derived from in-state activities.2  The 
starting point for this calculation is the corporation’s federal taxable income 
determined by the Internal Revenue Code, 26 U.S.C. §§ 1–1564 (the “IRC”), which 
is then subject to Delaware-specific additions, subtractions, and apportionment.3  
The IRC defines “federal taxable income” as “gross income minus the deductions 
allowed[.]”4  One such deduction is for a net operating loss (or, “NOL”), which 
occurs when a filer has more deductions than income during a tax year.5  A taxpayer 
may carry forward a net operating loss for 20 years after incurring it.6  
 
2 30 Del. C. § 1902(a) (“Every domestic or foreign corporation that is not exempt . . . shall annually 
pay a tax of 8.7 percent on its taxable income, computed in accordance with § 1903 of this title, 
which shall be deemed to be its net income derived from business activities carried on and property 
located within the State during the income year.”).  
3 Id.; Id. § 1903(b) (“‘Taxable income’ subject to taxation under this chapter means the portion of 
the entire net income of a corporation which is allocated and apportioned to this State[.]”); Id. § 
1903(a)(“The ‘entire net income’ of a corporation for any income year means the amount of its 
federal taxable income for such year as computed for purposes of the federal income tax increased 
by [additions and eliminations].”).  
4 26 U.S.C. § 63(a).  
5 Id. § 172(a)–(a)(1) (“There shall be allowed as a deduction for the taxable year an amount equal 
to [] the aggregate of the net operating loss carryovers to such year[.]”); see also Versata Enter. v. 
Selectica, Inc., 5 A.3d 586, 589 (Del. 2010) (“NOLs are tax losses, realized and accumulated by a 
corporation, that can be used to shelter future (or immediate past) income from taxation. If taxable 
profit has been realized, the NOLs operate either to provide a refund of prior taxes paid or to reduce 
the amount of future income tax owed.”).  
6 26 U.S.C. § 172(b)(1)(A)(I). 
4 
 
Federal law allows affiliated corporations to file taxes together on a single 
consolidated return.7  Delaware law does not.  Instead, 30 Del. C. § 1903(a) (“Section 
1903(a)”) requires each corporate taxpayer to report “its taxable income,”8 and the 
Division of Revenue (the “Division”) asks each corporation that pays federal taxes 
on a consolidated basis “to calculate its stand-alone federal taxable income, 
including all deductions, in accordance with the IRC as if that corporation filed a 
separate company (non-consolidated) federal income tax return.”9   
Verisign, Inc. (“Verisign”) is an internet infrastructure company incorporated 
in Delaware and headquartered in Virginia.10  During the tax years at issue in this 
case, Verisign operated a secure data center in New Castle, Delaware.11  Along with 
its affiliate corporations, it participated in a single federal income tax return as the 
VeriSign, Inc. & Subsidiaries consolidated group (the “Verisign Group.”)12  Because 
Delaware does not accept consolidated returns, Verisign has filed standalone 
corporate income tax returns with the Division since 1995.13  
 
7 26 U.S.C. § 1501 (“An affiliated group of corporations shall, subject to the provisions of this 
chapter, have the privilege of making a consolidated return with respect to the income tax imposed 
by chapter 1 for the taxable year in lieu of separate returns.”).   
8 30 Del. C. § 1903(a) (“The ‘entire net income’ of a corporation for any income year means the 
amount of its federal taxable income for such year[.]”) (emphasis added).  
9 Pre-Trial Stip. ¶ 7, App. to Verisign’s Opening Br. and Answering Br. at B35 [hereinafter “B__”].  
10 Id. ¶ 1, B34; Compl. ¶¶ 1, 8.  
11 Compl. ¶ 6.  
12 Pre-Trial Stip. ¶ 3, B34.   
13 Id. ¶ 2, B34.   
5 
 
In 2015 and 2016, Verisign reported zero federal taxable income on a 
standalone basis.14  It did so after deducting net operating losses of $114.9 million 
in 2015 and $156.7 million in 2016.15  Because federal taxable income is the “starting 
point” for Delaware taxable income and Verisign had no significant state additions, 
it paid no Delaware income tax in either year.16  
The Division reviewed Verisign’s returns and determined that the company’s 
use of net operating loss deductions violated a longstanding Division policy (the 
“Policy”).  The Policy operated in two steps.17  First, it required each corporate 
taxpayer to report its net operating loss calculated under IRC § 172.18  Second, the 
Policy capped the taxpayer’s net operating loss at the size of the consolidated NOL 
deduction reported by its federal filing group and calculated under Treasury 
Regulation § 1.1502–21.19  The Policy exempted filers who completed a federal 
 
14 Id. ¶ 18, B38 (“Verisign completed its 2015 and 2016 Delaware corporate income tax return, 
form 1100, by reporting zero federal taxable income.”).  
15 Id. ¶¶ 15–16, B37–38. 
16 Ids.; Verisign Amended 2015 Form 1100, App. to Director’s Opening Br. at A133 [hereinafter 
“A__”]; Verisign Amended 2016 Form 1100, A142. 
17 The Division did not make a representation as to whether it continues to apply the Policy, and 
Verisign challenges the Division’s assessments for 2015 and 2016 only.  That said, on July 30, 
2021—during the pendency of this appeal—the General Assembly codified much of the Policy in 
30 Del. C. § 1903(a)(2)i.  Given this legislative activity, we refer to the Policy in the past tense 
and make no comment about the validity of the amended Section 1903.  We note that the amended 
Section 1903 does not codify the Policy’s exception for Delaware corporate taxpayers who filed a 
federal consolidated return exclusively with other Delaware corporate taxpayers.  
18 Johns Dep. 21:15–23, B61.  
19 Id.; 26 C.F.R. § 1.1502–21 (Net operating losses); Pre-Trial Stip. ¶ 8, B35.  
6 
 
consolidated return exclusively with other Delaware taxpayers.20  Verisign did not 
qualify for this exception.21   
During the tax years at issue here, the Policy was located in the Division’s 
internal manual for auditors,22 but the Division cannot explain how it got there or 
why it was enacted.23  All the Division has offered on this point is that the Policy 
“has been in place for at least 30 years and in any event longer than any current 
employee of the division can remember.”24  When asked about the authority for the 
Policy, the Division’s Rule 30(b)(6) witness testified that “[i]t’s not in the statute.”25       
The Division applied the Policy to Verisign and found that the company was 
not permitted to deduct net operating losses larger than $38.7 million in 2015 and 
$2.1 million in 2016, which were the consolidated net operating losses used by the 
Verisign Group in those years.26  Because Verisign exceeded the Policy’s deduction 
limit by more than $230 million, the Division found that the company had 
underreported its income and assessed it $1.7 million in tax and penalties.27  
 
20 Pre-Trial Stip. ¶ 9, B36. 
21 Id. ¶¶ 11, 26, B36, 41.  
22 BMF Audit & Reconciliation Sys. Detailed Instructions at 372, B123 (“If not all members file 
in Delaware, and taxpayer is attempting to utilize a previous NOL, [the Division] needs to ensure 
that the NOL amount does not exceed the consolidatred [sic] amount of the current year NOL.”); 
see also Pre-Trial Stip. ¶ 9, B36.    
23 Pre-Trial Stip. ¶ 35, B44.  
24 Id. (“[The Policy] has been in place for at least 30 years and in any event longer than any current 
employee of the Division can remember.”); Johns Dep. 54:16–55:22, B67–68:  
25 Johns Dep. 64:13–23, B69.  
26 Pre-Trial Stip. ¶ 23, B40.  
27 Id. ¶ 26, B41.    
7 
 
Verisign filed a protest, and the Director denied it on April 9, 2019.28  Verisign 
then petitioned the Tax Appeal Board and subsequently removed the petition to the 
Superior Court.29          
B 
 
In the Superior Court, the parties filed cross-motions for summary judgment 
based on stipulated facts.30  Verisign argued that the Division’s net operating loss 
Policy was not consistent with 30 Del. C. §§ 1901–1903.31  It also claimed that the 
Policy—even if valid under the Delaware Code—violated the Uniformity Clause of 
the Delaware Constitution and the Dormant and Foreign Commerce Clauses of the 
United States Constitution.32  The Division argued that the Policy was authorized by 
statute and denied any constitutional violations.33 
The Superior Court held that the Policy was invalid, struck the Division’s $1.7 
million assessment of Verisign, and determined that Verisign could continue to 
deduct the full value of its net operating losses calculated under IRC § 172.34  
Although the court found that the Policy complied with the Delaware Code’s 
corporate income tax statutes and did not violate the Dormant Commerce Clause, 
 
28 Id. ¶ 27, B41; Not. of Removal, A69; see 30 Del. C. § 523.  
29 Pre-Trial Stip. ¶ 28, B42. 
30 Verisign, 2020 WL 7640107, at *1. 
31 Id. at *5. 
32 Id. at *7, 10 n.127. 
33 Id. at *5, 7.  
34 Id. at *1, 11; Final Order, B1.  
8 
 
the court concluded that the Policy violated the Uniformity Clause of the Delaware 
Constitution.35  As mentioned, the relevant text of the Delaware Constitution is 
found in Section 1 of Article VIII and, in pertinent part, provides that “[a]ll taxes 
shall be uniform upon the same class of subjects[.]”36  The court held that the Policy 
was invalid because it treated a single class of taxpayers—Delaware corporate 
income tax filers—differently based on whether they filed federal taxes as a member 
of a consolidated group or individually.37  The court explained that this classification 
was not entitled to deference because it was made by an agency—the Division—and 
not the legislature.38   
C 
 
 
 
On July 30, 2021, the General Assembly enacted House Bill. No. 171.  Section 
Five of the legislation amends 30 Del. C. § 1903(a) to codify much of the Policy.39   
Although Section 1903(a) still taxes each corporation based on “its federal taxable 
income,” § 1903(a)(2)i now includes an explicit textual warrant for capping a filer’s 
net operating loss at the value of the consolidated NOL deduction claimed by its 
federal filing group.40  As amended, the statute allows for “[a] deduction for a net 
 
35 Verisign, 2020 WL 7640107, at *11.  The Superior Court did not reach the question of whether 
the Policy violated the Foreign Commerce Clause of the United States Constitution.  Id. at *10 
n.127. 
36 Del. Const. art. VIII, § 1.  
37 Verisign, 2020 WL 7640107 at *10–11.   
38 Id. at *10.  
39 30 Del. C. § 1903(a)(2)i. 
40 Id.  
9 
 
operating loss carryforward calculated in accordance with the [IRC], provided 
however that the deduction may not exceed that amount claimed on the federal return 
filed for the taxable year in which the taxpayer was included as a party.”41  Unlike 
the Policy, the amended statute does not have a carve-out for taxpayers who file a 
consolidated federal return exclusively with other Delaware taxpayers.  
II 
 
We review agency action “to determine whether [the agency] acted within its 
statutory authority[.]”42  We review questions of statutory interpretation de novo and 
do not defer to an agency’s interpretation of a statute.43  
III 
 
 
To withstand judicial review, a challenged agency action must comply with 
the Delaware Code.44  Thus, although Verisign attacks the Policy with three 
constitutional claims, the threshold question is whether the Policy was consistent 
with 30 Del. C. §§ 1901–1903 before the 2021 amendment.  We agree with 
Verisign’s lead argument below that the Policy contravened the plain language of 
Title 30 and was therefore invalid.45  We do not reach Verisign’s constitutional 
claims because “[i]t is the settled policy of this Court that a constitutional question 
 
41 Id.  
42 Sullivan v. Mayor of Town of Elsmere, 23 A.3d 128, 132 (Del. 2011) (internal citations omitted). 
43 Del. Dep’t of Natural Res. & Envtl. Control v. Sussex Cnty., 34 A.3d 1087, 1090 (Del. 2011).  
44 Sullivan, 23 A.3d at 132.   
45 See Compl. ¶ 5.  
10 
 
will not be decided unless its determination is essential to the disposition of the 
case.”46  
A 
 
 
In its Complaint, Verisign alleged that the Division “has erroneously 
determined that Verisign must compute its net operating losses . . . on a basis that 
consolidates Verisign with Verisign’s affiliates” in violation of Sections 1901–
1903.47  The Superior Court found that the Policy complied with the Delaware 
Code.48  We disagree.  We interpret Title 30—as it read before the 2021 
amendment—as requiring each corporate taxpayer to report income and deductions 
as a standalone entity, rather than on a consolidated basis.   
When interpreting a statute, our goal is “to ascertain and give effect to the 
intent of the legislators, as expressed in the statute.”49  If the plain statutory text 
admits only one reading, we apply it.50  If there is a legitimate ambiguity, we consult 
the canons of statutory construction and may consider legislative history.51  That 
 
46 Downs v. Jacobs, 272 A.2d 706, 708 (Del. 1970); see also Meso Scale Diagnostics, LLC. V. 
Roche Diagnostics GmbH, 247 A.3d 229, 251 n.115 (Del. 2021); Jean v. Nelson, 472 U.S. 846, 
854 (1985) (“Prior to reaching any constitutional questions, federal courts must consider 
nonconstitutional grounds for decision.”); Ashawander v. TVA, 297 U.S. 288, 347 (1936) 
(Brandeis, J., concurring) (“The Court will not pass upon a constitutional question although 
properly presented by the record, if there is also present some other ground upon which the case 
may be disposed of.”).  
47 Compl. ¶5(b); see Pre-Trial Stip. at 2, B30; Verisign, 2020 WL 7640107, at *5.  
48 Verisign, 2020 WL 7640107, at *5.  
49 Dewey Beach Ent., Inc. v. Bd. of Adjustment of Town of Dewey Beach, 1 A.3d 305, 307 (Del. 
2020); see also Spintz v. Div. of Fam. Servs., 228 A.3d 691, 698 (Del. 2020). 
50 In re Port of Wilmington Gantry Crane Litig., 238 A.3d 921, 927 (Del. 2020).  
51 Dewey Beach, 1 A.3d at 307.  
11 
 
said, “[t]he fact that the parties disagree about the meaning of a statute does not 
create ambiguity.”52  Here, “the text of [the] statute is clear [and] the Court need not 
go on to consider the act’s legislative history[.]”53   
Title 30 is hardly beach reading, but its provisions during the tax years at issue 
here established that each Delaware corporate taxpayer was required to report 
income and deductions on a single-entity basis.  Section 1902(a) mandated that 
“[e]very domestic or foreign corporation that is not exempt . . .  shall annually pay 
a tax . . . on its taxable income[.]”54  Section 1903(b) then provided that “‘[t]axable 
income’ subject to taxation under this chapter means the portion of entire net income 
of a corporation which is allocated and apportioned to this State[.]”55  Finally, 
Section 1903(a) defined the “‘entire net income’ of a corporation [as] the amount of 
its federal taxable income for such year as computed for the purposes of the federal 
income tax[.]”56  Thus, the operative provisions of Sections 1902 and 1903 obligated 
each eligible corporation to pay Delaware income tax as a singular entity.  They did 
not authorize the use of a consolidated deduction, which by definition takes into 
account the income and deductions of multiple entities.57 
 
52 Chase Alexa, LLC v. Kent Cnty. Levy Court, 991 A.2d 1148, 1151 (Del. 2010); see also Ins. 
Com’r of State of Del. v. Sun Life Assur. Co. of Can. (U.S.), 21 A.3d 15, 20 (Del. 2011).  
53 Port of Wilmington, 238 A.3d at 937.  
54 30 Del. C. § 1902(a) (emphasis added).  
55 Id. § 1903(b) (emphasis added).  
56 Id. § 1903(a) (emphasis added).  
57 See 26 C.F.R. § 1.1502–21(a) (defining consolidated net operating loss).  
12 
 
Even if Title 30 left room for doubt, the Division’s approach to every other 
component of taxable income confirms that Verisign’s reading is correct.  The 
Corporate Income Tax Instructions for 2015 provided, in pertinent part, that “[t]he 
starting point for Delaware corporate income taxes is Federal taxable income of the 
separate corporation, as if each corporation had filed a separate Federal corporate 
income tax return.”58  The Division linked this single-entity filing requirement 
directly to Section 1902(a).59  Accordingly, it instructed filers that “a corporation 
that files its federal income tax return as a member of a federal consolidated group 
[is required to] calculate its stand-alone federal taxable income, including all 
deductions, in accordance with the IRC[.]”60    
Consistent with this guidance, the Division required each corporate income 
taxpayer to submit a pro forma IRS Form 1120 detailing the filer’s federal taxable 
income calculation.61  If a corporation was a member of a federal consolidated group, 
it had to “furnish a spread sheet . . . reconciling the separate items of each member 
corporation to the consolidated totals.”62  IRS Form 1120 calculated federal taxable 
 
58 2015 Del. Corp. Income Tax Return Instructions at 3, A171.  The 2016 instructions are identical 
in this regard.  A178.   
59 See, e.g., Director’s Opening Br. at 14 (explaining that Section 1902(a) provides a “requirement 
that all Delaware corporate taxpayers file single entity returns[.]”).  
60 Pre-Trial Stip. ¶ 7, B35.   
61 2015 Del. Corp. Income Tax Instructions at 3, A171; Johns Dep. 19:14–22:24, B59–62; 
Corporate Income Tax Frequently Asked Questions, B81. 
62 2015 Del. Corp. Income Tax Instructions at 3, A171.  
13 
 
income through 29 lines of income and deductions.63  For the first 28 lines, the 
Division asked each filer to report a separate-company figure.64   
Only on line 29—where the taxpayer recorded its net operating loss computed 
under IRC § 172—did the Division apply the Policy and limit the filer to the 
consolidated net operating loss claimed on the federal return in which it 
participated.65  This limitation is calculated under Treas. Reg. § 1.1502–21, which 
provides that “the consolidated net operating loss deduction (or CNOL deduction) 
for any consolidated return year is the aggregate of the net operating loss carryovers 
and carrybacks to the year”66 including “[a]ny net operating losses [] of the members 
arising in separate return years.”67  This use of an “aggregate” deduction 
corresponding to the losses of multiple “members” was flatly inconsistent with 
Section 1902(a)’s mandate that each eligible corporation “shall annually pay a 
tax . . . on its taxable income[.]”  Put differently, refusing to allow a corporation to 
claim its actual standalone net operating loss deduction caused the corporation to 
pay taxes on an amount of income that was not its taxable income as defined by 
Section 1903(a). 
 
63 Verisign Amended 2015 Form 1120, A132.   
64 Johns Dep. 20:5–21:2, B60–61. 
65 Id. 21:3–21, B61. 
66 Pre-Trial Stip. ¶¶ 21–23, B40; 26 C.F.R. § 1.1502–21(a) (Net operating losses); Pre-Trial 
Stip. ¶ 8, B35.  
67 26 C.F.R. § 1.1502-21(a)(ii).  
14 
 
Finally, the Division did not apply the Policy when the corporate taxpayer was 
a member of a federal filing group of other Delaware taxpayers.68  The Division does 
not even attempt to direct the Court to statutory text supporting this carveout.  Nor 
can anyone at the Division recall how or why any part of the Policy was adopted.  
All the Division can offer on this point is that the Policy “has been in place for at 
least 30 years and in any event longer than any current employee of the division can 
remember.”69  The Division’s Rule 30(b)(6) witness commendably admitted that the 
Policy “[is] not in the statute.”70   
In our view, before the 2021 amendment, Sections 1901–1903 imposed a tax 
on each eligible corporation’s standalone taxable income.  The Division’s Policy 
manipulated this tax base by requiring only certain taxpayers to use a consolidated 
net operating loss deduction based on aggregate income and deductions reported by 
a group of multiple companies.  This violated the plain meaning of Sections 1901–
1903. 
 
 
 
68 BMF Audit & Reconciliation Sys. Detailed Instructions at 372, B123 (“If not all members file 
in Delaware, and taxpayer is attempting to utilize a previous NOL, [the Division] needs to ensure 
that the NOL amount does not exceed the consolidatred [sic] amount of the current year NOL.”); 
see also Pre-Trial Stip. ¶ 9, B36.    
69 Pre-Trial Stip. ¶ 35, B44 (“[The Policy] has been in place for at least 30 years and in any event 
longer than any current employee of the Division can remember.”); see also Johns Dep. 54:16–
55:22, B67–68.  
70 Johns Dep. 64:13–23, B69.  
15 
 
B 
 
The Division defends the statutory validity of its Policy with four principal 
arguments.  First, it contends that Section 1903(a) instructed corporate taxpayers to 
report their entire net income “as computed for federal purposes,” thus requiring 
each standalone filer to apply on its Delaware return whatever net operating loss was 
claimed on the federal return in which it participated.71  In the Division’s view, the 
statute “literally” required this approach, but only when the consolidated net 
operating loss was less than the standalone net operating loss.72  We cannot reconcile 
this interpretation of Section 1903(a) with the text of Section 1902(a), which 
provides that “[e]very [non-exempt] corporation . . . shall annually pay a tax . . . on 
its taxable income.”73  Nor can we square the Division’s proffered construction with 
its stipulated practice of requiring each taxpayer “to calculate its stand-alone federal 
taxable income, including all deductions, in accordance with the IRC as if that 
corporation filed a separate company (non-consolidated) federal income tax 
return.”74   
 
Second, the Division maintains that the net operating loss deduction is entirely 
discretionary, can be eliminated by the Division at any moment, and therefore can 
 
71 Director’s Opening Br. at 14.  
72 Id. at 15; Pre-Trial Stip. ¶ 8, B35.  
73 30 Del. C. § 1902(a).  
74 Pre-Trial Stip. ¶ 7, B35.   
16 
 
be applied as the Division sees fit.75  We disagree.  Section 1903(a) established a 
corporation’s “federal taxable income” as the starting point for its Delaware income 
tax liability, and under the IRC federal “taxable income” “means gross income 
minus the deductions allowed by this chapter[,]” which includes the net operating 
loss deduction in IRC § 172.76   
Third, the Division argued—and the Superior Court agreed—that the Superior 
Court’s 1985 decision in Cluett, Peabody & Co. v. Director of Revenue77 considered 
the Division’s interpretation of Section 1903 and approved it.78  Of course, we are 
not bound to follow Cluett and, in any case, distinguish it on its facts.  In Cluett, the 
taxpayer attempted to claim a net operating loss deduction but “the Division 
concluded that [the taxpayer’s] losses had previously been offset against the 
taxpayer’s taxable income[.]”79  Here, the Division concedes that Verisign had 
accumulated nearly $2.9 billion in net operating losses by 2014 and does not argue 
that these losses were exhausted before Verisign filed its 2015 and 2016 Delaware 
 
75 Director’s Opening Br. at 18.  
76 30 Del. C. § 1903(a); Id. § 1901(10); 26 U.S.C. § 63(a); Id. § 172(c).  The Division also cites a 
1962 decision of the Tax Appeal Board which concluded that “Delaware law grants only those 
deductions which are allowable in computing a corporation’s Federal taxable income for the 
particular year.”  Director’s Answering Br. and Reply Br. at 18–19.  This language does not support 
the Policy because Verisign claimed a net operating loss deduction in 2015 and 2016 that was 
concededly “allowable” under federal law.   
77 1985 Del. Super. LEXIS 1089, at *1 (Del. Super. Ct. Jan. 22, 1985).  
78 Director’s Answering Br. and Reply Br. at 17.  
79 Cluett, 1985 Del. Super. LEXIS 1089, at *4.  
17 
 
returns.80  Any statements in Cluett about Section 1903 therefore do not reach the 
precise issues raised in this case.  
Fourth, the Division claims that Verisign originally reported positive federal 
taxable income in 2015 and 2016 and that this undercuts its complaints about the 
Policy.81  But the parties stipulated that “Verisign completed its 2015 and 2016 
Delaware corporate income tax return, form 1100, by reporting zero federal taxable 
income.”82  They also stipulated to a chart showing that Verisign’s “taxable income” 
under IRC § 63 was zero in 2015 and 2016.83  The Superior Court considered the 
record in full and concluded that Verisign in 2015 “reduced its federal taxable 
income . . . to zero” and in 2016 “reduced its federal taxable income . . . to zero.”84  
Despite the confusion created by the Division’s attack on the facts to which it 
stipulated, we agree with the Superior Court: the record clearly establishes that 
Verisign attempted to deduct net operating losses that exceeded the amount 
permitted by the Division’s Policy, which is the critical issue in this litigation.      
 
80 Pre-Trial Stip. ¶ 13, B36–37.  
81 Director’s Answering Br. and Reply Br. at 21–25.  
82 Pre-Trial Stip. ¶ 17, B38.  
83 Id. ¶ 18, B38. And, for good measure, they stipulated that any reporting quirk of Verisign’s 
original filings was inconsequential “and in fact did reflect [] the same Delaware tax result” as if 
Verisign had reported zero in federal taxable income. Id. ¶ 18(a), B39.  The record shows that 
Verisign initially reported positive federal taxable income in 2015 and 2016 on line 1 of its 
Delaware returns and reduced it by taking standalone NOL deductions on line 2(g).  A135–136 
(2015), A144–145 (2016).  At some later point, Verisign prepared amended returns for both years 
showing the entire NOL deduction on line 29 of Form 1120 and $0 in federal taxable income on 
line 1 of the Delaware returns, although it is unclear if these amended statements were filed.  
A132–133 (2015), A141–142 (2016).   
84 Verisign, 2020 WL 7640107, at *3 
18 
 
C 
 
The Division concedes—as it must—“that under 30 Del. C. § 1903(b) the 
starting point of state taxable income is the corporation’s federal taxable income as 
computed under the Internal Revenue Code[.]”85  The parties stipulated to the 
Superior Court that Verisign’s 2015 and 2016 federal taxable income computed 
under the IRC was zero.86  The Division’s NOL Policy operated to manipulate 
Verisign’s federal taxable income by substituting a consolidated net operating loss 
figure for Verisign’s own, single-entity net operating loss.  This Policy exceeded the 
Director’s authority under 30 Del. C. §§ 1901–1903.   
IV 
The Superior Court found that the Division’s net operating loss Policy 
complied with Title 30.87  The court therefore considered Verisign’s constitutional 
claims.88  In a thoughtful and well-reasoned analysis, it held that the Policy violated 
the Uniformity Clause of the Delaware Constitution because it treated Delaware 
corporate taxpayers differently on the basis of their federal filing status.89  The court 
explained that, although we have deferred to tax classifications enacted by the 
 
85 Director’s Answering Br. and Reply Br. at 2. 
86 Pre-Trial Stip. ¶ 17, B38.  
87 Verisign, 2020 WL 7640107, at *7.  
88 Id. at *8–11.  
89 Id. at *10 (citing Burpulis v. Dir. of Rev., 498 A.2d 1082, 1087 (Del. 1985)).  
19 
 
General Assembly, this Court has not extended that deference to agency-level 
classifications.90   
We do not address the Uniformity Clause or Verisign’s claims under the 
United States Constitution because we have decided that the Division’s Policy 
violated Title 30.  Thus, our analysis of Verisign’s constitutional arguments would 
not change the disposition of this appeal.  As we explained in Downs v. Jacobs, “[i]t 
is the settled policy of this Court that a constitutional question will not be decided 
unless its determination is essential to the disposition of the case.”91   
V 
 
We hold that the Director of Revenue’s net operating loss Policy violated 30 
Del. C. §§ 1901–1903.  We therefore invalidate the Policy and strike the Division’s 
assessment of Verisign for the 2015 and 2016 tax years.  As a result, the Superior 
Court’s Final Order to this effect is affirmed.  
 
90 Verisign, 2020 WL 7640107, at *10 (citing Wilmington Med. Ctr. v. Bradford, 382 A.2d 1338, 
1344 (Del. 1978)).  
91 Downs, 272 A.2d at 708 (“We consider that policy of judicial restraint to be an important element 
in the orderly administration of justice.”); see also Meso Scale Diagnostics, 247 A.3d at 251 n.115; 
Jean, 472 U.S. at 854 (“Prior to reaching any constitutional questions, federal courts must consider 
nonconstitutional grounds for decision.”); Ashawander v. TVA, 297 U.S. at 347 (Brandeis, J., 
concurring) (“The Court will not pass upon a constitutional question although properly presented 
by the record, if there is also present some other ground upon which the case may be disposed 
of.”).