Opinion ID: 1901651
Heading Depth: 2
Heading Rank: 2

Heading: Application of the Governing Statutes

Text: [¶ 17] There is no dispute that Atlantic charged-off the bad debts on its books and then received the federal and state income tax benefits resulting from the charge-offs. Further, there is no dispute that Atlantic is not, and never has been, a registered retailer for sales tax purposes, pursuant to 36 M.R.S. § 1754-B. Linnehan asserts that for purposes of obtaining the bad debt sales tax credit, Linnehan and Atlantic should be considered as one entity, as the Superior Court in Kennebec County concluded, because of (1) the near identity of corporate ownership and management, and (2) the definition of person in the tax code. [¶ 18] The tax code defines a retailer as a person who makes retail sales, 36 M.R.S. § 1752(10), but then defined a person to include any individual . . . corporation . . . or any other group or combination acting as a unit, and the plural as well as the singular number . . . . 36 M.R.S.A. § 1752(9) (1990), now similarly defined pursuant to 36 M.R.S. § 111(3). [3] [¶ 19] The purpose of the bad debt sales tax credit pursuant to 36 M.R.S. § 1811-A is to give a credit on a sales tax paid on a charge sale, the payment for which was not subsequently made. Tax Expenditure Review: Report of the Joint Standing Committee on Taxation 38 (Dec.1986). As a retailer, Linnehan pays the required sales tax on the purchase price of the vehicle. Linnehan also receives from Atlantic the full, although discounted, payment for the purchase price of the vehicle. Thus, Linnehan has no accounts receivable that may become uncollectible to generate a charge-off of a worthless account and a sales tax credit. Accordingly, Linnehan is not entitled to the bad debt tax credit unless it can benefit from Atlantic's charge-off of the bad debts. [¶ 20] The separate corporations have a purpose to benefit Linnehan and Atlantic; otherwise the businesses would not have created two separate and distinct corporations within the same ownership and management structure. When independent corporations are created in order to achieve some benefits, they must accept any accompanying detriments. Moline Props., Inc. v. Comm'r of Internal Revenue, 319 U.S. 436, 439, 63 S.Ct. 1132, 87 L.Ed. 1499 (1943); see also Taylor v. Standard Gas & Elec. Co., 306 U.S. 307, 322, 59 S.Ct. 543, 83 L.Ed. 669 (1939). Here, Linnehan and Atlantic enjoy corporate benefits including limited liability, separate liability for their separate acts, and the capacity for Atlantic to receive the income tax benefits from the charge-offs for bad debts. The separation of the retail corporation and the finance corporation is a business choice the Linnehan family has made. [¶ 21] The interpretation of the state tax code that corporations that choose to be separate corporations are separate persons is confirmed by application of our rule of construction that we will not treat any provision of a statute as surplusage when a reasonable construction of a statute can provide meaning to each provision. Home Builders Assoc. of Me., Inc. v. Town of Eliot, 2000 ME 82, ¶ 7, 750 A.2d 566, 570. Surplusage occurs when a construction of one provision of a statute renders another provision unnecessary or without meaning or force. Id. ¶ 8, 750 A.2d at 570. [¶ 22] Linnehan's interpretation of the statutory definition of person ignores the word other and would read all the individually named entities out of section 1752(9) or section 111(3), leaving a definition of person that would read any individual . . . or any . . . group or combination acting as a unit. Such an interpretation would be inconsistent with our rules of statutory construction. Those rules require that the word corporation within section 1752(9) or section 111(3) have a separate meaning. The reference in the law to other groups or combinations is a catch-all phrase, applying to any other possible organizational entities that may be identified; it is not a device to allow separate corporations to be treated as a single entity under the tax code when such single entity treatment suits their purpose. [¶ 23] Accordingly, Linnehan's interpretation of section 1752(9) is not supported by either a commonsense reading of the tax code or our rule of statutory construction that where possible we avoid treatment of statutory terms as mere surplusage.