Opinion ID: 1208714
Heading Depth: 1
Heading Rank: 1

Heading: Taxation of Directory Revenues.

Text: Taxpayer first contends that the tax appeal court's determination that its directory revenues were subject to PSC tax was incorrect because such tax is imposed only on gross income as defined in HRS § 239-2(6) and such definition does not encompass directory revenues. The Director, on the other hand, asserts that the PSC tax is applicable to directory revenues since the activities from which those revenues were derived constitute part of Taxpayer's public utility business. In rejecting Taxpayer's argument, the tax court made, among others, the following conclusions of Law: 2. Taking all of the sections of Chapter 239, Hawaii Revised Statutes, together and using the plain meaning of section 239-2(6), Hawaii Revised Statutes, the public service company tax is imposed on gross income from the public service company business which includes public utility business. 3. The words gross income imply income from any and all sources, and as used in Chapter 239, the words are concerned with gross income that has its source in public utility business. Hawaii Consolidated Railway Company v. Borthwick, 34 Haw. 269 (1937). 4. Directories are a necessary part of the service of the Hawaiian Telephone Company to its customers and revenues from the directories and the street address directory are includible in gross income from the public utility business. District of Columbia v. Chesapeake & Potomac Telephone Company, 179 F.2d 814 (1950); San Francisco Oakland Terminal Rys. v. Johnson, 291 P. 197 (1930); California Fireproof Storage Co. v. Brundige, 199 Cal. 185, 248 P. 669, 671, 47 A.L.R. 811. The fundamental objective in construction of statutes is to ascertain and give effect to the intention of the legislature. See, e.g., Keller v. Thompson, 56 Haw. 183, 189, 532 P.2d 664 (1975); In re Taxes, Hawaiian Pineapple Company, 45 Haw. 167, 177, 363 P.2d 990, 996 (1961). The intention of the legislature is to be obtained primarily from the language contained in the statute itself. See In re Castro, 44 Haw. 455, 458, 355 P.2d 46, 49 (1960); Territory v. Fasi, 40 Haw. 478, 484 (1954); County of Kauai v. McGonagle, 33 Haw. 915, 920 (1936). Accordingly, a basic tenet of statutory interpretation is that where the language of the law in question is plain and unambiguous, construction by this court is inappropriate and our duty is only to give effect to the law according to its plain and obvious meaning. See, e.g., In re Estate of Spencer, 60 Haw. 497, ___, 591 P.2d 611, 613 (1979); In re Palk, 56 Haw. 492, 497, 542 P.2d 361, 364 (1975). On the other hand, where the language of a statute is ambiguous or of doubtful meaning, or where literal construction of the statute would produce an absurd or unjust result, clearly inconsistent with the purposes and policies the statute was designed to promote, judicial construction and interpretation are warranted and also the court may resort to extrinsic aids to construction. State v. Ogata, 58 Haw. 514, 518, 572 P.2d 1222 (1977); County of Kauai v. McGonagle, supra . Moreover, with respect to revenue statutes in particular, a special rule of construction is applicable. As stated by this court in Frear v. Wilder, 25 Haw. 603 (1920): It is a cardinal rule of construction that a statute imposing taxes is to be construed strictly against the government and in favor of the taxpayers and that no person and no property is to be included within its scope unless placed there by clear language of the statute. (Sutherland Statutory Construction p. 462; Black's Federal Income Taxes, Sec. 27.) In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government and in favor of the citizen. Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211. 25 Haw. at 607 (citations omitted); also cited in In re Taxes, Hawaiian Pineapple Company, supra at 189, 363 P.2d at 1002, and Hawaiian Trust Company v. Borthwick, 35 Haw. 429, 435-36 (1940). See also In re Tax Appeal of Aloha Motors, Inc., 56 Haw. 321, 326, 536 P.2d 91, 94 (1975); Honolulu Star Bulletin, Ltd. v. Burns, 50 Haw. 603, 604, 446 P.2d 171, 176 (1968); In re Excise Tax of Robert Hind, Ltd., 34 Haw. 40, 42 (1936); In re Assessment of Taxes, C. Brewer & Company, 15 Haw. 29, 38 (1903); Castle & Cooke v. Luce, 5 Haw. 321, 324 (1885). It is important to note, however, that the rule of strict construction with regard to taxing statutes should only be resorted to as an aid to construction when an ambiguity or doubt is apparent on the face of the statute, and then only after other possible extrinsic aids of construction available to resolve the ambiguity have been exhausted, Bishop Trust Company v. Burns, 46 Haw. 375, 399-400, 381 P.2d 687, 701 (1963). See In re Taxes, Hawaiian Pineapple Company, supra at 193, 363 P.2d at 1004; Hawaiian Trust Company v. Borthwick, supra at 436-37; Apokaa Sugar Company v. Wilder, 21 Haw. 571, 576 (1913). In light of the above principles, we must now examine the statute in controversy. HRS § 239-2(6) provides in pertinent part: (6) Gross income means the gross income from public service company business as follows: ..... (B) Gross income from the transportation of passengers or freight, or the conveyance or transmission of telephone or telegraph messages, or the furnishing of facilities for the transmission of intelligence by electricity, by land or water or air.... Although, as pointed out by the tax court, the term gross income has been construed so expansively as to include income for any and all sources, see Hawaii Consolidated Railway v. Borthwick, 34 Haw. 269, 273 (1934), the definition set forth in Chapter 239 is more narrow in scope than its common law counterpart. Between the two, the latter must prevail. The legislature has a broad power to define terms for a particular legislative purpose, and the courts, as a general rule of construction, are bound to follow legislative definitions of terms rather than commonly accepted dictionary, judicial or scientific definitions. State v. Kantner, 53 Haw. 327, 329, 493 P.2d 306, 308, cert. denied, 409 U.S. 948, 93 S.Ct. 287, 34 L.Ed.2d 218 (1972). See also Bailey's Bakery v. Borthwick, 38 Haw. 16, 28 (1948); Akai v. Lewis, 37 Haw. 374, 379 (1946). Hence, the resolution of the tax question presented here hinges on a determination of whether the phrase gross income from ... the conveyance or transmission of telephone messages . . or the furnishing of facilities for the transmission of intelligence by electricity includes, or can be reasonably construed to include, Hawaiian Telephone's directory revenues. [5] In determining that Taxpayer's directory revenues were includible in gross income for PSC tax purposes, the tax court relied on the decisions in District of Columbia v. Chesapeake & Potomac Telephone Company, 86 U.S.App.D.C. 124, 179 F.2d 814 (D.C. Cir.1950); San Francisco-Oakland Terminal Rys. v. Johnson, 120 Cal. 138, 291 P. 197 (1930); and California Fireproof Storage Company v. Brundige, 199 Cal. 185, 248 P. 669 (1926). However, after reviewing those cases, we believe that they are distinguishable from the case at hand and, therefore, offer little support for the conclusion reached. In District of Columbia v. Chesapeake & Potomac Telephone Company, supra , the federal appeals court was asked to review a decision of a board of tax appeal involving the taxation of gross receipts derived from the taxpayer-telephone company's 1) sale of advertising space and black letter listings in its classified directory; 2) sale of street address directories; 3) sale of directories to out-of-state telephone companies; and 4) sale of directory covers, pursuant to a District of Columbia public utilities franchise statute. The particular statute involved in that appeal provided in part that telephone companies ... shall make affidavit ... as to the amount of its or their gross earnings or gross receipts . . for the preceding year [and each] telephone company shall pay to the collector of taxes of the District of Columbia per annum 4 per centum on such gross receipts, from the sale of public utility commodities and services. D.C.Code § 47-1701 (1940) (emphasis added). Although the court did in fact hold, inter alia, that the telephone company's revenues from the sale of directory advertising constituted gross receipts from the sale of a public utilities service or commodity and as such were subject to the franchise tax, the statutory phrase public utilities commodities and services is markedly different from the operative language of HRS § 239-2(6)(B). Whereas the former is rather comprehensive and amenable to broad judicial interpretation, HRS § 239-2(6)(B), in contrast, appears to be quite restrictive, clearly confining its application to specific types of activities, to wit: the conveyance or transmission of telephone messages and the furnishing of facilities for the transmission of messages by electricity. The second case cited by the tax court was San Francisco-Oakland Terminal Rys. v. Johnson, supra. In that case, the Supreme Court of California was asked to decide, inter alia, whether receipts from the sale of food, magazines, papers and tobacco in commissaries on board ferryboats owned by an electric railway company were subject to taxation under a provision of the state constitution. Reasoning that, because the ferryboats were a necessary and constituent part of the railway company's property used in conducting its public utility, and since the commissaries on said ferryboats were for the use and convenience of its passengers and the revenues received therefrom were exclusively from the passengers using said ferryboats, the court ultimately found that the receipts in question were taxable. 210 Cal. at 154, 291 P. at 203. Again, however, we do not believe that the tax court's reliance on that case was justified since the question involved therein  whether the receipts from taxpayer's ferryboat commissaries were derived from the operation of property exclusively used by taxpayer in its railway business  has little relevance to the issue before this court. In California Fireproof Storage Company v. Brundige, supra , the last of the three cases relied upon by the tax court, the Supreme Court of California was asked to determine whether it was proper for the state railroad commission to assume jurisdiction over a complaint against a telephone company involving, among other things, rates for advertising in telephone directories. In its decision compelling the railroad commission to take and exercise jurisdiction over the subject matter of the complaint, the court stated: In the development of this form of public service telephone companies have found it practicable and profitable to diminish the cost and increase the profits of operation by making use of its directories as a means and form of advertising available to its subscribers. The activities of these companies in this direction have taken on two forms: First, that of the insertion of advertising matter in connection with its classified list; second, in the printing in the alphabetical list of its subscribers the names of those who are willing to pay for such preference in boldface type, or, in other words, in a better and clearer type than that employed in printing the names of subscribers not paying extra for such preferment. Granting the right of these public service corporations to employ this instrumentality for such profitable purposes, we cannot do other than regard its use for such purposes as a mere incident in the operation of its public service over which the regulating body ought to have full control. 199 Cal. at 188-89, 248 P. at 671. The tax question presently confronting this court is, at best, only remotely related to the issue of whether directory advertising is a proper subject of public utilities regulation, and therefore, we find the decision in California Fireproof Storage Company to be unpersuasive. In addition to the cases cited by the court below, the Director of Taxation also directs our attention to Commonwealth v. Bell Telephone Company, 12 Pa. D. & C. 617 (1929), and 2 O. Pond, Law of Public Utilities § 679, at 1332 (4th ed. 1932). The court in Commonwealth v. Bell Telephone Company did in fact decide that taxpayer's receipts from its directory advertising sales were subject to a state franchise tax pertaining to telephone and telegraph companies. We note, however, that like the tax statute involved in District of Columbia v. Chesapeake & Potomac Telephone Company, discussed supra, the statutory provision at issue in that case was, by its own terms, broad in scope and susceptible to liberal interpretation. [6] As the court explained: It will be noted that the defendant shall pay a tax of 8 mills upon the gross receipts of said corporation received from telegraph and telephone business. There are many definitions of the term business, but we think the one controlling us is that contained in the opinion of Mr. Justice Brown in Com. v. Brush Electric Light Co., 204 Pa. 249, 252, 53 A. 1096, in which it is stated: ... The tax is not paid upon the gross receipts from electric lighting, but upon the gross receipts from the business of the company... . It is taxed on what it does. The statute imposes the tax not upon a portion of its receipts  those derived from a particular commodity it supplies to the public  but upon all of its receipts from its general business conducted under its franchises.       ... The statute does not restrict the taxation to receipts from the transmission of telephone messages, but expressly taxes telephone business derived from the complete business of the corporation. 12 Pa. D. & C. at 622-24. Because of the stark contrast between the statutory provision involved in that case and HRS § 239-2(6), we do not feel compelled to reach the same conclusion as did the Pennsylvania court. Neither Taxpayer nor this court disputes that the publication and the distribution of telephone directories are necessary adjuncts to carrying on a telephone company business and that, this being the case, the manner in which these activities are carried out should be subject to some degree of government regulation. [7] Nevertheless, we believe that questions pertaining to the desirability and need to regulate public service companies, such as Hawaiian Telephone, and the various functions they perform within the scope of their respective public service business, exist wholly apart from the question of whether certain revenues derived by these companies should be subject to state taxation. Stated differently, it does not follow, absent specific statutory authority, that revenues earned by public service companies should be taxable under Chapter 239 merely because the activities from which they were generated are part of or incident to public service company business. In conclusion, we agree with Taxpayer that the Tax Appeal Court erred insofar as it held that the directory revenues were includible in gross income under the PSC tax law. Reading the words of HRS § 239-2(6) according to their ordinary and popular meaning, as we must, see In re Tax Appeal of Pacific Marine & Supply Company, 55 Haw. 572, 577, 524 P.2d 890, 894 (1974); Hawaiian Beaches, Inc. v. Kondo, 52 Haw. 279, 281, 474 P.2d 538, 540 (1970), this court is of the opinion that Hawaiian Telephone's directory revenues can by no stretch of the imagination be characterized as income from the ... conveyance or transmission of telephone ... messages, or the furnishing of facilities for the transmission of intelligence by electricity. Furthermore, it would not, in the case at bar, be proper for this court to venture beyond the plain language of the statute to determine whether it can be reasonably construed to include the receipts in controversy, since we fail to discern any ambiguity in the language employed by the legislature and since we are not convinced that a literal application of the statutory definition would lead to an absurd or unjust result. Quite to the contrary, the consequence of our decision  that revenues derived from certain commercial activities engaged in by a public service company will be deemed beyond the reach of the public service company tax law  appears to have been contemplated by the legislature itself. HRS § 239-4 (1976) provides in pertinent part: In case any public service company carries on lines of business other than its public service company business, the receipts therefrom shall not be subject to tax under this chapter, but the same tax liabilities shall attach to such public service company on account of such other lines of business as would exist if no public service company business were done. Furthermore, we note that the effect of our decision will not be to completely insulate Taxpayer's directory revenues from taxation altogether, because, as Hawaiian Telephone concedes, such revenues will still be susceptible to taxation at four percent under the general excise tax law. [8] Therefore, inasmuch as the tax court erred in determining that directory revenues were includible in gross income for PSC tax purposes, the judgment of the same is reversed.