Opinion ID: 4575069
Heading Depth: 3
Heading Rank: 1

Heading: Situs

Text: ¶ 25. VNT first argues that the term “situs” in Regulation § 1.5833-1 is synonymous with location. We disagree. The Regulation’s plain meaning, the presumption against superfluous language, and VNT’s own argument indicate that situs is a term of art referring to where intangible property is constitutionally subject to taxation. ¶ 26. Beginning with the plain text, the Regulation, phrased slightly differently, directs nonbusiness income to be allocated to the state of a business’s commercial domicile provided that the income-producing assets have neither a “location” nor a “situs.” Regulation § 1.5833-1(e). It is a basic presumption of statutory interpretation “that language is inserted in a statute advisedly.” Trombley v. Bellows Falls Union High Sch. Dist. No. 27, 160 Vt. 101, 104, 624 A.2d 857, 860 (1993). We accordingly “construe statutes to avoid rendering one part mere surplusage.” In re Jenness & Berrie, 2008 VT 117, ¶ 24, 185 Vt. 16, 968 A.2d 316. ¶ 27. Applying the presumption in this case, we must presume that the Department intended the words “location” and “situs” in the Regulation to carry different meanings. Otherwise, the parts of the Regulation referencing situs would be “mere surplusage.” Id. This presumption is confirmed by the fact that “location” and “situs” have different meanings. Whereas “location” refers to a physical position, see Location, Black’s Law Dictionary (11th ed. 2019), “situs” is “[t]he location or position (of something) for legal purposes,” Situs, Black’s Law Dictionary (11th ed. 2019). For taxation purposes specifically, “situs” is a term of art referring to where an intangible asset is constitutionally subject to taxation. See First Bank Stock Corp. v. 10 Minnesota, 301 U.S. 234, 237-38 (1937); Wheeling Steel Corp. v. Fox, 298 U.S. 193, 209-10 (1936). ¶ 28. “[D]ue process requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.” Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954). A state’s authority to tax is accordingly based on the “protection, opportunities and benefits [it] confers.” Allied-Signal, Inc. v. Dir., Div. of Taxation, 504 U.S. 768, 778 (1992) (quotation omitted). “The simple but controlling question is whether the state has given anything for which it can ask return.” ASARCO Inc. v. Idaho State Tax Comm’n, 458 U.S 307, 315 (1982) (quotation omitted). ¶ 29. Based on these constitutional principles, tangible property is exclusively subject to tax “within the territorial jurisdiction of the taxing state,” First Bank Stock Corp., 301 U.S. at 240, because the taxing state has provided “the benefit and protection of laws enabling the owner to enjoy the fruits of his ownership,” Curry v. McCanless, 307 U.S. 359, 364-65 (1939) (“The power of government and its agencies to possess and to exclude others from possessing tangibles, and thus to exclude them from enjoying rights in tangibles located within its territory, affords adequate basis for an exclusive taxing jurisdiction.”). ¶ 30. This rule, however, is “meaningless when applied to intangibles which, since they are without physical characteristics, can have no location in space.” First Bank Stock Corp., 301 U.S. at 240; see also McCanless, 307 U.S. at 365 (“Very different considerations, both theoretical and practical, apply to the taxation of intangibles, that is, rights which are not related to physical things.”). To determine where intangible property is subject to taxation, we indulge in a “metaphor,” Graves, 299 U.S. at 372, and assign such property a fictionalized tax situs for the purpose of “symbolizing . . . those considerations which are persuasive grounds for deciding that a particular place is appropriate for the imposition of [a] tax.” First Bank Stock Corp., 301 U.S. at 240-41; Wheeling Steel Corp., 298 U.S. at 209 (“[B]y reason of the absence of physical 11 characteristics [intangibles] have no situs in the physical sense, but have the situs attributable to them in legal conception.”). ¶ 31. Intangibles are generally subject to tax at the owner’s domicile. Graves, 299 U.S. at 371-72; see also Wheeling Steel Corp., 298 U.S. at 209 (“[W]e have held that a state may properly apply the rule mobilia sequuntur personam and treat [intangibles] as localized at the owner’s domicile for purposes of taxation.”). This is so because intangible rights “are but relationships between persons, natural or corporate,” and the power of government over them “can be made effective only through control over and protection afforded to those persons whose relationships are the origin of the rights.” McCanless, 307 U.S. at 366. ¶ 32. Despite “wide application” of the general principle that intangible property is subject to taxation at the owner’s domicile, “an important exception has been recognized.” Wheeling Steel Corp., 298 U.S. at 209. Intangibles acquire a business situs—“as distinguished from the legal domicil[e] of their owner,” First Bank Stock Corp., 301 U.S. at 238—“when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or property within the reach of the tax gatherer there.” McCanless, 307 U.S. at 367; Graves, 299 U.S. at 37172 (recognizing that intangibles are “taxable only at the domicile of the owner” unless they have acquired a “business situs” elsewhere). ¶ 33. By using the terms “location” and “situs” in Regulation § 1.5833-1, the Department clearly intended to distinguish between tangible and intangible assets and incorporate the abovementioned constitutional principles to determine where nonbusiness income is subject to taxation. The Regulation directs nonbusiness income derived from tangible assets—i.e., assets with a location—to be allocated to the state where the assets are located because, constitutionally speaking, tangible property is exclusively subject to taxation at its location “within the territorial jurisdiction of the taxing state.” First Bank Stock Corp., 301 U.S. at 240. The concept of location 12 is “meaningless,” however, when considering where intangible assets are subject to taxation. Id. The Regulation accordingly introduces the concept of “situs” to determine where nonbusiness income derived from intangible assets is subject to taxation and incorporates the constitutional rule that intangibles are “taxable only at the domicile of the owner” unless they have acquired a situs elsewhere. Graves, 299 U.S. at 371-72. ¶ 34. This reading of the Regulation—that “situs” is a term of art referring to where intangible property is constitutionally subject to taxation—is the only way that, under the Regulation, nonbusiness income derived from intangible assets could ever be allocated to a state other than a business’s commercial domicile, which is exactly the result that VNT advocates for. VNT argues the FCC licenses are allocated to New York, which is not the state of its commercial domicile. However, if—as VNT argues—the term situs in the Regulation is synonymous with location, then, under the Regulation, intangible assets would always be allocated to the state of commercial domicile because intangible assets, by definition, do not have a physical location. Wheeling Steel Corp., 298 U.S. at 209. Because the FCC licenses are intangible assets, and therefore have no location, the only way they could be allocated to New York is if they have acquired a situs there. Despite arguing that the word situs in the Regulation is synonymous with location, the result VNT seeks requires that situs be interpreted as a term of art.