Opinion ID: 2638758
Heading Depth: 1
Heading Rank: 1

Heading: Statutory Construction of Tax Laws

Text: First, Kroger contends that KDR does not have the statutory authority to disallow the interest expense as a business expense. Kroger notes that the principles and rules of statutory construction of tax laws place the burden on KDR to cite to clear and unequivocal terms within the tax statutes. The principles have been established by the court because of the general nature of the imposition and collection of taxes. Although courts have uniformly recognized that the power to levy taxes is inherent in the power to govern, the exercise of that power is dependent on the existence of legislation creating the tax. Nothing is taxable unless clearly within a taxing statute. Robbins-Leavenworth Floor Covering, Inc. v. Leavenworth Nat'l Bank & Trust Co., 229 Kan. 511, 512, 625 P.2d 494 (1981). Tax laws are statutory and do not exist apart from the statute and, as such, they must be strictly construed. American Home Life Ins. Co. v. Board of Shawnee County Comm'rs., 22 Kan. App.2d 18, 23, 913 P.2d 1211, rev. denied 258 Kan. 857 (1995). Where there is a reasonable doubt as to the meaning of a taxing statute, the statute will be construed most favorably to the taxpayer. Fleming Co. v. McDonald, 212 Kan. 11, Syl. ¶ 1, 509 P.2d 1162 (1973). KDR argues that K.S.A. 79-3272 and K.S.A. 79-3274 encompass expenses as a component of net income. Because corporations may earn income in their state of domicile as well as other states, many states, including Kansas, adopted the Uniform Division of Income for Tax Purposes Act (UDITPA), K.S.A. 79-3271 et seq. Neither the Kansas statutes nor the regulations of the KDR define a nonbusiness expense. However, K.S.A. 79-3272 provides that net business and nonbusiness income shall be allocated and apportioned according to UDITPA. The Multistate Tax Compact, K.S.A. 79-4301 et seq., adopted in Kansas in 1967, defines income tax as a tax imposed on or measured by an amount arrived at by deducting expenses from gross income. K.S.A. 79-4301, Art. II (4). Furthermore, K.S.A. 79-3274 provides that allocable nonbusiness income shall be limited to the total nonbusiness income received which is in excess of any related expenses which have been allowed as a deduction during the income year. Expenses, therefore, are a factor in the derivation of net income, and a statutory basis, implicit in the determination of net income, exists for making a determination regarding whether a multistate corporation may apportion certain expenses to the various states where it does business. Kroger apportioned part of its interest cost to its Kansas income based upon the UDITPA, the Internal Revenue Code, and its interpretation of the relevant Kansas tax statutes.