Opinion ID: 2197684
Heading Depth: 2
Heading Rank: 2

Heading: The Scope of the General Exemption Statute (GES)

Text: FWNC contends that the General Exemption Statute prevents the Legislature from using income from federal municipal bonds issued after March 11, 1959 and prior to January 1, 1990 in the determination of its tax liability under the FIT. [5] The Department argues that the Legislature intended the GES to apply to only income and property taxes on the bonds and therefore does not preclude the State from including FWNC's bonds and the income from those bonds in the determination of its tax liability under the FIT. Thus, the scope of the GES is at issue. In construing the GES, the first focus is upon the statutory language itself. The GES, as written when FWNC's municipal bonds were issued, reads as follows: All bonds issued after March 11, 1959, ... issued in the state of Indiana by or in the name of any county, township, city, incorporated town, school corporation, state educational institution or state supported institution of higher learning, or any other political, municipal, public, or quasi-public corporation or body ..., the interest thereon, the proceeds received by a holder from the sale of such obligations to the extent of the holder's cost of acquisition, or proceeds received upon redemption prior to maturity, or proceeds received at maturity, and the receipt of such interest and proceeds, shall be exempt from taxation in the state of Indiana for all purposes except the state inheritance tax. In 1990, the Legislature amended the GES to explicitly except the FIT from its purview. IND. CODE ANN. § 6-8-5-1 (West Supp. 1994). FWNC argues that the addition of this amendment shows that the Legislature originally intended the GES to exempt federal and municipal bonds from the calculation of the FIT. Additionally, FWNC claims that the phrases and the receipt of such interest and proceeds and for all purposes indicate that the Legislature intended to exempt the municipal bonds from all state taxation, direct or indirect. The Department, on the other hand, argues that the amendment merely served to clarify the Legislature's true intention that the GES was only intended to apply to direct taxes. It also argues in the alternative that interpreting the GES to apply to the FIT would contradict the FIT's clear language that interest from both federal and municipal bonds be included in the calculation. [6] The primary task when construing statutes is to determine and implement the intent of the Legislature. Superior Const. Co. v. Carr (1990), Ind., 564 N.E.2d 281. Tax exemption statutes must be construed strictly against the one claiming the exemption. Gross Income Tax Division v. National Bank & Trust Co. (1948), 226 Ind. 293, 79 N.E.2d 651. The first guide in determining the intent of the Legislature is the language of the statute itself. State ex rel. Roberts v. Graham et al. (1953), 231 Ind. 680, 110 N.E.2d 855. When harmonizing two ostensibly conflicting statutes, the law has held that [w]here there is a conflict between statutes, the more recent statute is controlling and a specific provision prevails over a general provision relating to the same subject matter. Houtchens v. Lane (1965), 246 Ind. 540, 545-46, 206 N.E.2d 131, 134, reh'g denied. It is evident that the Legislature never intended the GES to preclude using tax exempt bond income from the calculation of the FIT. Only by a crabbed reading of the statute might one read the statute to entail that the Legislature not only intended to exempt the bonds and their income from all state taxation, direct or indirect, but also to exempt the bonds from any federal taxation, direct or indirect. Taken to its logical conclusion, such an interpretation would lead to the absurdity that the State was somehow promising exemptions that were not in its power to give. We do not believe the Legislature ever intended such an interpretation. As we have stated in the past, a statute must be reasonably and fairly interpreted so as to give it efficient operation, and to give effect if possible to the expressed intent of the legislature. It should not be wantonly narrowed, limited or emasculated and rendered ineffective, absurd or nugatory. State v. Griffin (1948), 226 Ind. 279, 284, 79 N.E.2d 537, 540. Additionally, in spite of FWNC's assertion that the the receipt of such interest and proceeds phrase demonstrates a legislative intent to apply the GES to indirect taxes such as the FIT, we believe that such a construction is precisely the kind of mistake to be avoided in construing a statute. FWNC's claims of retroactivity lack force and support when one considers both the nature of the FIT and a reasonable interpretation of the GES. As we construe the statutes, the FIT only uses current bond income to measure the taxpayer's liability. Because the tax is levied on the franchise and not the bonds and their income, there is no retroactivity. Therefore, we hold the only reasonable harmonization of the two statutes is that the GES must read to only exempt the bonds from direct taxation, and not from the FIT.