Opinion ID: 2629323
Heading Depth: 2
Heading Rank: 1

Heading: the plain language of section 59-10-106 is sufficiently broad to include franchise taxes measured by income

Text: ¶ 12 In undertaking statutory construction, [w]e look first to the plain language of a statute to determine its meaning. Only when there is ambiguity do we look further. J. Pochynok Co., Inc. v. Smedsrud, 2005 UT 39, ¶ 15, 116 P.3d 353. Moreover, [w]hen examining the plain language, we must assume that each term included in the [statute] was used advisedly. Carrier v. Salt Lake County, 2004 UT 98, ¶ 30, 104 P.3d 1208 (citation omitted). ¶ 13 Utah Code section 59-10-106 (2004) states: A resident individual shall be allowed a credit against the tax otherwise due under this chapter equal to the amount of the tax imposed on him for the taxable year by another state of the United States, the District of Columbia, or a possession of the United States, on income derived from sources therein which is also subject to tax under this chapter. The controversy in this case surrounds the definition of the term on income. The Tax Commission argues that there is a distinction in tax law between excise franchise taxes and taxes on income, even though both types of taxes may be measured by income. For example, Hellerstein divides taxes measured by income into two categories: (1) excise taxes on ... the privilege of doing, or the license to do, business in the state; and (2) taxes on net income derived from or attributable to the state. Jerome R. Hellerstein & Walter Hellerstein, State Taxation, ¶ 7.01 (3d ed.2000). Because excise and franchise taxes are distinct from taxes on income, the Tax Commission asserts that credits are not available for the former under section 59-10-106. ¶ 14 We do not find this distinction relevant to the case before us. The Tax Commission has failed to show that this distinction is recognized in any area apart from state taxation of income from federal obligations. In that area of the law such a distinction is sometimes warranted and useful to avoid rendering state legislation void. [5] But there is no reason why such a distinction should be recognized here. In fact, the United States Supreme Court rejected just such a distinction in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). Before Complete Auto, a state could not tax a foreign corporation for the `privilege' of doing business as measured by the apportioned net income, id. at 285, 97 S.Ct. 1076, because the Supreme Court had held it violated the Commerce Clause. See Spector Motor Serv., Inc. v. O'Connor, 340 U.S. 602, 603-04, 71 S.Ct. 508, 95 L.Ed. 573 (1951), overruled by Complete Auto, 430 U.S. 274, 97 S.Ct. 1076. At that time, however, states could impose a tax on the apportioned net income itself. In effect, the only difference between what was permissible and what was impermissible was the wording of the imposition statute. Complete Auto recognized that such a distinction has no relationship to economic realities, and accordingly discarded it. 430 U.S. at 279, 97 S.Ct. 1076. The substance of both types of taxes was the same, just as the substance of a franchise tax measured by income is the same as any other tax measured by income. ¶ 15 Rather than being restrictive, as the Tax Commission's interpretation suggests, we think that the clear language of section 59-10-106 is broad and inclusive. Had the Legislature intended a restrictive meaning it could have used the term of art income tax in place of the term on income. Unlike the term on income, a restrictive reading of the term of art income tax is supported by several cases where the term income tax is distinguished from taxes on other subjects, although measured by income. See J.M. & M.S. Browning Co. v. State Tax Comm'n, 107 Utah 457, 154 P.2d 993, 994 (1945); Chilivis v. Int'l Bus. Mach. Corp., 142 Ga.App. 160, 235 S.E.2d 626, 627 (1977); Aztar Ind. Gaming Corp. v. Dep't. of State Revenue, 806 N.E.2d 381, 385 (Ind.Tax 2004). ¶ 16 The term income tax, however, does not appear in section 59-10-106. We therefore are persuaded by the Maryland Court of Appeals, which stated, regarding Maryland's tax credit statute: [This section] does not require, as a condition for the tax credit, that the other jurisdiction's tax be an income tax in any particular form or be labeled `income tax' or be exclusively an `income tax.' It simply requires that there be `tax on income paid to another State. . . .' Under the plain language of the [statute], the taxpayers here have paid a `tax on income' . . . . Roach v. Comptroller of the Treasury, 327 Md. 438, 610 A.2d 754, 759 (1992) (quoting Md.Code Ann. Tax-Gen. § 10-703(a) (1988)). This reasoning is equally applicable here. ¶ 17 The Tax Commission's focus on the labels of the taxes as franchise, excise, or income taxes in determining whether or not these taxes are on income is misplaced. Unlike the statute at issue in Pauley v. Virginia Department of Taxation, 55 Va. Cir. 215 (Va. Cir. Ct.2001), one of only two cases [6] in which courts have disallowed tax credits claimed by shareholders in S corporations, the language of section 59-10-106 does not contain any restrictive labels, but only defines the group of applicable taxes with the term on income. [7] Because such a broad term is used, labels are not dispositive. [8] What is dispositive is the effect the tax has on the taxpayer. If the tax imposed by the state in which the corporation is doing business is measured by income, the taxpayer's individual income is, in effect, taxed. This same income is also taxed by Utah. However, the purpose of tax credit statutes is to avoid this type of double taxation. See Gray v. Franchise Tax Bd., 235 Cal.App.3d 36, 286 Cal.Rptr. 453, 455 (1991) (The purpose of a credit for taxes paid to another state on income derived in this state is the prevention of double taxation.); In Re Baker, 1990 N.Y. Tax LEXIS 715, at  (N.Y. Tax App.1990) ([T]he legislative purpose behind the enactment of the ... tax credit [is] to avoid double taxation of the same income.); Tarrant v. Dep't of Taxes, 169 Vt. 189, 733 A.2d 733, 741 (1999) (The purpose of affording taxpayers credit for income taxes paid in another state is to prevent or alleviate the burden of double taxation.). To adopt the strict, label-based definition of on income offered by the Tax Commission would frustrate the statutory purpose. [9]