Court Opinion

ID: 9945770
Source: CourtListenerOpinion
Date Created: 2024-02-28 16:04:27.219178+00
Date Added: 2024-06-11T14:25:39.990820
License: Public Domain

FIRST DISTRICT COURT OF APPEAL
                 STATE OF FLORIDA
                  _____________________________

                         No. 1D2022-2096
                  _____________________________

FLORIDA DEPARTMENT OF
REVENUE,

    Appellant,

    v.

VERIZON COMMUNICATIONS INC.
& AFFILIATES,

    Appellee.

                  _____________________________

On appeal from the Circuit Court for Leon County.
J. Layne Smith, Judge.

                        February 28, 2024

OSTERHAUS, C.J.

    The Florida Department of Revenue appeals the circuit court’s
entry of partial summary judgment in favor of Appellee Verizon
Communications Inc. The Department argues that the circuit
court erred in its interpretation of section 220.13(1)(b)1., Florida
Statutes, affecting the calculation of certain income tax deductions
in Verizon’s favor. We agree with the circuit court and affirm.
                                  I.

    This dispute deals with complex corporate income tax issues.
In 1971, the Florida Legislature added Chapter 220 to the Florida
Statutes imposing a corporate income tax in Florida. Ch. 71-984,
Laws of Fla. This income tax was designed to heavily mirror the
federal income tax laws. See § 220.02(3), Fla. Stat. (1972); Dep’t of
Revenue v. Am. Tel. & Tel. Co., 431 So. 2d 1025, 1027 (Fla. 1st DCA
1983) (chapter 220 “enabl[es] Florida taxpayers to ‘piggyback’ on
the provisions of the IRC”). Simply described, Florida calculates
corporate income taxes beginning with a company’s federal income
and makes certain adjustments to determine the “adjusted federal
income.” See §§ 220.12-.13, Fla. Stat. The taxpayer and the
Department then determine what portion of this adjusted federal
income is taxable as income earned from activity in Florida. See §
220.15, Fla. Stat.

     Sometimes, a company incurs more losses in a given year than
its operating income. These losses are known as net operating
losses (NOLs). 1 These operating losses (whether federal or Florida
specific) may be used to lower the amount of tax owed on certain
years’ tax returns. See 26 U.S.C. § 172; § 220.13(1)(b)1.a., Fla. Stat.
Relevant in this case, federal and state law treat NOLs a little
differently when a major company acquires smaller companies
that have high losses and thus a high amount of NOLs. Both
federal and Florida law limit the amount of NOLs the acquiring
company can deduct from its tax return each year. And this case
involves a disagreement as to how the Florida-specific NOL
limitation should be calculated.

                                  II.

     This case arose from the Department’s audit of Verizon’s
2011-2013 corporate income tax returns. In 2017, the Department
issued Verizon a Notice of Proposed Assessment indicating that,
based on its audit, Verizon was due a refund for certain taxes over-

    1 A net operating loss is formally defined as the excess of
deductions allowed under the Internal Revenue Code over gross
income. 26 U.S.C. § 172.

                                  2
paid between 2005 and 2013. Verizon agreed it was due a refund,
but disputed the amount it was owed. It filed a protest raising two
issues. This appeal involves one of those issues, the Department’s
method for calculating NOL limitations for state tax purposes.

     Relevant background facts here are that Verizon acquired
MCI, Inc. in 2006 and Terremark Worldwide, Inc. in 2011. The
parties stipulate that when Verizon acquired MCI, MCI had
accumulated over $15 billion in federal NOLs and $267 million in
Florida NOLs. When Terremark was acquired, it had accumulated
over $308 million in federal NOLs and over $238 million in Florida
NOLs. The parties agreed that the annual deduction limit for
using these companies’ NOLs each year on Verizon’s federal tax
returns is $241 million for MCI and about $128 million for
Terremark. They do not agree, however, on the annual deduction
limit for state tax purposes. The Department rejected Verizon’s
request to utilize the same deduction limit as the federal amount
for state tax purposes in favor of a Department-created
methodology for calculating NOL deduction limits.

    Verizon filed a complaint in circuit court on the issue. It
contended that the proper reading of section 220.13(1)(b)1., Florida
Statutes, is that the Florida NOL limitation is the equivalent
amount of the federal NOL limitation. The Department countered
that limiting language within the statute restricts the Florida
NOL deduction limitation under a proportional calculation
methodology that it created. The circuit court agreed with
Verizon’s interpretation and the Department now appeals.

                                III.

     “A trial court’s order granting final summary judgment is
reviewed de novo.” Crapo v. Univ. Cove Partners, Ltd., 298 So. 3d
697, 700 (Fla. 1st DCA 2020). “An issue of statutory interpretation
is also reviewed de novo.” Id. (citing Coastal Creek Condo. Ass’n v.
Fla. Tr. Servs. LLC, 275 So. 3d 836, 838 (Fla. 1st DCA 2019)). This
court also reviews de novo an administrative agency’s
interpretation of a statute. Art. V, § 21, Fla. Const.

                                 3
     The parties dispute the interpretation of § 220.13(1)(b)1. as to
how deductions for net operating loss are determined under
Florida law. This section reads in relevant part:

    1. There shall be subtracted from such taxable income:

         a. The net operating loss deduction allowable for
         federal income tax purposes under s. 172 of the
         Internal Revenue Code for the taxable year, . . .

    However, a net operating loss . . . shall never be carried
    back as a deduction to a prior taxable year, but all
    deductions attributable to such losses shall be deemed net
    operating loss carryovers . . . and treated in the same
    manner, to the same extent, and for the same time periods
    as are prescribed for such carryovers in ss. 172 . . . of the
    Internal Revenue Code.

§ 220.13(1)(b)1., Fla. Stat. (2013).

     “In interpreting the statutes, we follow the ‘supremacy-of-text
principle’—namely, the principle that ‘[t]he words of a governing
text are of paramount concern, and what they convey, in their
context, is what the text means.’” Dozier v. Duval Cnty. Sch. Bd.,
312 So. 3d 187, 192 (Fla. 1st DCA 2021) (quoting Ham v. Portfolio
Recovery Assocs., LLC, 308 So. 3d 942, 946 (Fla. 2020)). “A statute
that is clear and unambiguous on its face requires no construction
and should be applied in a manner consistent with its plain
meaning.” Id. (quoting Geico Indem. Co. v. Accident & Inj. Clinic,
Inc., 290 So. 3d 980, 983 (Fla. 5th DCA 2019)). Additionally,
“judges must ‘exhaust all the textual and structural clues’ that
bear on the meaning of a disputed text.” Conage v. United States,
346 So. 3d 594, 598 (Fla. 2022) (quoting Alachua Cnty. v. Watson,
333 So. 3d 162, 169 (Fla. 2022)).

     Verizon’s argument relies upon a straight-forward reading of
the statute and we agree with it. Section 220.13(1)(b)1. establishes
a NOL-deduction methodology that subtracts from taxable income
“[t]he net operating loss deduction allowable for federal income tax
purposes under s. 172 of the Internal Revenue Code for the taxable
year. . . . treated in the same manner, to the same extent, and for

                                  4
the same time periods as are prescribed for such carryovers.” Since
the annual NOL deduction “allowable for federal income tax
purposes” is $241 million in the case of the MCI NOLs, so is the
deduction limit corresponding to these NOLs for state tax
purposes. The Department’s rule confirms the mirror federal and
state deduction amounts:

    Florida piggybacks the federal provisions in s. 382, I.R.C.,
    which is incorporated by reference in Rule 12C-1.0511,
    F.A.C., concerning the limitation on the use of any NOL
    carryforward of an acquired corporation. In computing
    the Florida corporate income tax, a deduction for the NOL
    carryover will be allowed to the extent of the amount
    allowed for federal purposes, provided that the deduction
    does not exceed the total amount of the Florida NOL
    carryover available in such taxable year.

Fla. Admin. Code R. 12C-1.013(15)(j) (emphasis added). And so,
both the statute’s text and the rule support the circuit court’s
conclusion that the annual NOL deduction limit amount for state
tax purposes is the same amount as under federal law.

     Conversely, we decline the Department’s invitation to accept
its more attenuated interpretation of § 220.13(1)(b)1. that annual
NOL deductions must utilize a calculation that divides the federal
limitation by the total federal NOLs for a company, then multiplies
this number by the total Florida NOLs for that company. The
upshot here is that the Department would limit Verizon’s
deduction in the case of the MCI NOLs, for example, to about $4
million annually. Under this approach, similar to the federal tax
outcome, Verizon would not be able to obtain the full value of its
MCI-related NOL deductions for state tax purposes before the
twenty-year carryover period ends. 2 The Department supports its

    2 The Department makes much of the difference between the

parties’ methodologies by highlighting the limits of Verizon’s MCI-
related NOL usage for federal tax purposes. With an annual
federal deduction limit for MCI’s NOLs of $241 million per year, it
would take Verizon approximately 65 years to deduct the full
amount of the MCI NOLs. And given the twenty-year legal limit
on carryovers, Verizon wouldn’t come close to receiving the full

                                 5
argument with the statutory language requiring that NOL
carryovers be “treated in the same manner, to the same extent,
and for the same time periods.” § 220.13(1)(b)1., Fla. Stat. But we
read this language together with the rest of the provision to
require and reinforce our conclusion that, except for the express
rejection of carrybacks, Florida’s annual NOL deduction limit
tracks the amount of the federal limit and can be similarly
deducted each year.
                               III.

    For the foregoing reasons, the judgment of the circuit court is
AFFIRMED.

KELSEY and M.K. THOMAS, JJ., concur.

                 _____________________________

    Not final until disposition of any timely and
    authorized motion under Fla. R. App. P. 9.330 or
    9.331.
               _____________________________

Ashley Moody, Attorney General, and Timothy E. Dennis, Chief
Assistant Attorney General, and Clifton Cox, Office of the Attorney
General, Revenue Litigation Bureau, Tallahassee, for Appellant.

Michael J. Bowen and Peter O. Larsen of Akerman LLP,
Jacksonville; and Kristen M. Fiore of Akerman LLP, Tallahassee,
for Appellee.

value of these deductions on its federal taxes. Along the lines of
this federal outcome, the Department advocates a proportional
formula so that Verizon would similarly not be able to obtain the
full value of its MCI-related NOL deductions for state tax
purposes.

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