Opinion ID: 1246676
Heading Depth: 1
Heading Rank: 6

Heading: Merrill Lynch.

Text: Inasmuch as the Merrill Lynch case was heard twice in the trial court, the record is more complete than that in Weaver. Upon rehearing, it was stipulated that Merrill Lynch allocated all its interest and dividend income for 1972 and 1973 to the state of its principal place of business, and that the Department reclassified this income from allocable to apportionable and assessed tax deficiencies. The parties further stipulated that the Department's position was published for the first time in instructions for the 1976 tax form, and that it was put in memorandum form for internal use by the Department by document dated September 24, 1975. The trial court rejected the Department's several contentions that .037, providing for allocation of income from interest and dividends, applies only to nonbusiness income, that the legislative intent manifestly favors this position, that interpretations of the Department carry great weight, and that any other construction would be meaningless. The court ruled that .037 and .040 were clear and unambiguous, that the General Assembly has not expressly or by implication distinguished between interest and dividends derived from business activities and such income derived from more passive investments, and that .041 provides for apportionment only for income not made allocable under .037. Accordingly, the income in question was allocable, and the trial court entered judgment for Merrill Lynch in the stipulated amount, $17,881.31, plus interest. We have already demonstrated that the Virginia statute makes no distinction between business income and nonbusiness income. In this respect, it differs from the provisions of the Uniform Act. We have also noted that when the Virginia income tax laws in 1971 were brought into conformity with the federal laws providing for federal income taxation, no substantive changes were made in the allocation and apportionment provisions of the Virginia statute. And we have shown that the history of the Virginia law, adopted in 1960, shows conclusively that the elimination of the distinction between business and nonbusiness income was done intentionally and not by oversight or to eliminate surplus language. The terms allocation and apportionment, as used in the Uniform Act, are unquestionably keyed to the business-nonbusiness distinction. These terms, however, which generally may be, as the Department says, words of art because of such usage, cannot be defined in Virginia upon the basis of a distinction that has been rejected. An unrestricted meaning is clearly required and, under .01(a), it will prevail. The Instructions for Schedule A of Form 500 for 1972, 1973, 1974, and 1975, introduced into evidence, provided that interest and dividends are allocable to the State where the principal place from which the trade or business of the corporation is directed or managed. It was stipulated that the first time any instruction to the contrary was published was in the Instructions for Schedule A of Form 500 for 1976. The Department's suggestion is unpersuasive that the change was unnecessary because multistate corporations must have known, from their familiarity with the Uniform Act, that interest and dividend income was apportionable. The legislative history, the wording of the statute, and at least a decade of consistent administration all plainly negate such a theory. In oral argument, counsel for the Department challenged the trial court's ruling that .041 permits apportionment only in cases not covered as allocable under .037. The Department contends that the word allocable in .041 should be construed to mean allocated, so that the exclusionary clause is limited to the income actually allocated under the preceding sections. The term classes of income found in the exclusionary clause refers, in the Department's view, to that portion of Merrill Lynch's interest and dividend income that shares the common attribute of being actually allocated under §§ .037 through .040. Moreover, the Department argues, a holding that classes is the key word that excludes interest and dividend income from apportionment conflicts with the provision of .040 requiring apportionment rather than allocation of such income of a subsidiary corporation. Finally, the Department urges us not to attach conclusive significance to the choice by the General Assembly of the word allocable rather than allocated because the General Assembly is somewhat imprecise in its choice of language in many revenue statutes. We find these arguments singularly unimpressive, and we reject them. There is no reason to believe that State Tax Commissioner Morrissett, who drafted the statute after changes in the method of taxing multistate corporations had been recommended, the committees of the General Assembly that studied the proposed legislation, and the General Assembly itself, which enacted the proposals into law, either did not know the difference between allocable and allocated or inadvertently selected the wrong word. There is a presumption that the General Assembly, especially in a matter of such unusual importance, knew its business and did exactly what it intended. See Greer v. Dillard, 213 Va. 477, 479, 193 S.E.2d 668, 670 (1973). This presumption has not been rebutted. The classes referred to in the exclusionary clause of .041 are those kinds of income explicitly listed in .037, .038, .039, and .040 which have the common attribute of being allocable, not allocated. As to the contention that construing classes to exclude interest and dividend income from apportionment conflicts with the .040 exception applying to subsidiary corporations, the exception is by definition inconsistent with the general rule otherwise applicable. We hold that the trial court did not err in ruling that the interest and dividend income of Merrill Lynch was allocable, and that the taxpayer was entitled to a refund of taxes erroneously assessed in the amount stipulated, plus interest. Record No. 780651, Affirmed. Record No. 781339, Reversed and final judgment. Record No. 790859, Affirmed.