Court Opinion

ID: 9680712
Source: CourtListenerOpinion
Date Created: 2023-08-24 07:37:14.15858+00
Date Added: 2024-06-11T18:17:30.068323
License: Public Domain

Annabelle Clinton Imber, Justice, dissenting. I cannot agree ice, majority’s holding that the language in subsections (f) and (g) of Ark. Code Ann. § 86-51-805 is ambiguous. A cardinal principle of statutory construction is that we look first at the plain language of the statute and give the words their plain and ordinary meaning. See ERC Contr. Yard & Sales v. Robertson, 335 Ark. 63, 977 S.W.2d 212 (1998); Ford Motor Credit Co. v. Ellison, 334 Ark. 357, 974 S.W.2d 464 (1998). Section 26-51-805 (f) simply states that the “separate net income” of each corporation in the affiliated group is to be included in the “consolidated net income” when computing the “consolidated taxable income” of the affiliated group of corporations. Therefore, the key question is whether the term “separate net income” refers to income after deductions or income before deductions. If that term refers to income after deductions, the deductions must be made prior to consolidation. The term “net income” has been defined previously by this court in Morley v. Remmel, 215 Ark. 434, 221 S.W.2d 51 (1949), as “the gross income of a taxpayer, less the deductions and exemptions allowed by law.” More significantly, the General Assembly has defined “net income” as “the adjusted gross income of a taxpayer less the deductions allowed by this act.” Ark. Code Ann. § 26-51-403(a) (Repl. 1997).1 Based upon these definitions and the plain language of the statute, it is quite clear that deductions are to be made separately from each corporation’s income before the incomes of the several affiliated corporations are consolidated and taxed. The meaning of the term “separate net income” is, thus, not ambiguous. It has been clearly defined by the legislature, and we should adhere to that manifestation of legislative intent. After all, the goal of statutory construction is to give effect to the intent of the legislature. ERC Contr. Yard & Sales v. Robertson, supra. Nonetheless, the majority suggests that the definition of “net income” at Ark. Code Ann. § 26-51-403(a) “does not resolve the question as to what deductions are to be allowed, or whether the ‘taxpayer’ is the corporation that files a consolidated return, or each affiliated company that joins in the consolidated return.” Again, the majority ignores the plain language of the statute. “Net income” refers to income after all deductions allowed by law.2 Under section 26-51-805(f), it is the “separate net income” of each corporation in the affiliated group that is included in the “consolidated net income” of the affiliated group filing a consolidated tax return.3 The plain language in section 26-51-805(f) could not be clearer. There is simply no ambiguity. The majority then posits that Ark. Code Ann. § 26-51-805(f) and Ark. Code Ann. § 26-51-805(g), which states that “[t]his section is based upon the concept of fifing federal consolidated income tax returns,” appear to be inconsistent. According to the majority, section 26-51-805(g) requires that charitable contribution deductions for a corporation filing an Arkansas consolidated income tax return be calculated in the same way that the Internal Revenue Service calculates such deductions, which is at the consolidated level. However, the legislature did not expressly adopt the pertinent provisions of the federal tax code as it has done in other tax statutes. See, e.g., Ark. Code Ann. § 26-51-419 (stating: “Section 170 of the Internal Revenue Code of 1986, as in effect on January 1, 1999, regarding deductions of charitable contributions, is hereby adopted for the purpose of computing Arkansas income tax liability.”) (Emphasis added); Ark. Code Ann. § 26-51-404 (b)(l)-(3), (11)—(21), (24) (stating that various provisions of the Internal Revenue Code of 1986 are either “adopted” or “hereby adopted”). If the legislature had intended to adopt the federal method of calculation in this situation it would have done so by expressly adopting specific provisions of the federal tax code. As the majority points out, it is a rule of statutory construction that statutes should be construed so that meaning and effect are given to every word in the statute if possible. Kildow v. Baldwin Piano & Organ, 333 Ark. 335, 969 S.W.2d 190 (1998). Therefore, the last sentence of Ark. Code Ann. § 26-51-805(g) must construed so as to give it meaning and effect. As previously stated, that sentence does not manifest an express adoption of a federal tax code provision. Rather, it says that section 26-51-805 is “based upon the concept of filing federal consolidated income tax returns.” The concept of filing federal consolidated returns is not limited to the ability of taxpayers to take deductions after the incomes of various affiliated corporations are consolidated. In fact, one of the primary advantages of filing a federal consolidated income tax return is the ability to use the losses of one or more members of the affiliated group to reduce the taxable income of other group members. 14A Fletcher Cyclopedia of the Law of Private Corporations, Taxation § 6970.187 (1991). That advantage remains, regardless of how or when deductions are calculated. “The privilege of making a [federal] consolidated return does not have anything to do with specific items of income or deduction, but only with the form of the return and the grouping of gains and losses.” 47B C.J.S. Internal Revenue § 1049 (1999). Consequendy, Ark. Code Ann. § 26-51-805 is still “based on the concept of filing federal consolidated income tax returns,” even though the legislature did not expressly adopt the federal method of calculating deductions. Finally, the majority suggests that because the Department calculates net operating losses at the consolidated level, consistent with the federal method of calculation, “the same rules should be applied to deductions for charitable contributions as are applied to net operating losses.” I have only one response to that assertion. The Department’s treatment of net operating losses is not at issue in this case. The resolution of that issue remains for another day. The trial court properly ruled that Ark. Code Ann. § 26-51-805 mandates that corporations filing Arkansas consolidated income tax returns must compute their charitable contribution deductions at the individual corporation level before the affiliated corporations consolidate their income. In order to reverse that ruling, the majority completely ignores the plain language of the statute, especially the words “separate net income or loss of each corporation which is entided to be included in the affiliated group.” Ark. Code Ann. § 26-51-805(f). The majority also attempts to create an inconsistency or ambiguity where none exists. Finally, the majority interprets the phrase “based upon the concept” to mean “adopt” in order to superimpose federal law in a wholesale manner onto the income tax laws of the State of Arkansas.4  For these reasons, I respectfully dissent.   “[Tjhis act” in Ark. Code Ann. § 26-51-403(a) refers to the Arkansas Income Tax Act, codified at Ark. Code. Ann. §§ 26-51-101 — 26-51-1903 (Repl. 1997 and Supp. 1999).    Deductions for charitable contributions are allowed by Ark. Code Ann. § 26-51-419 (Repl. 1997).    The filing of a federal consolidated tax return on behalf of affiliated corporations does not make the group the taxpayer; the individual corporations remain the taxpayer. Helvering v. Morgan’s, Inc., 293 U.S. 121 (1935).    It should be noted that, in addition to net operating loss deductions and deductions for charitable contributions, Treasury Regulation 1.1502-12 contains a laundry list of modifications to the separate taxable income of each member of the group. 26 C.F.R. § 1.1502.12 (a)-(r) (1999). Likewise, consolidated taxable income is determined by taking into account not only those items noted by the majority (the separate taxable income of each member of the group; any consolidated net operating loss deduction; and any consolidated charitable contributions deduction), but also several other deductions. 26 C.F.R. § 1.1502-11 (a)(l)-(8) (1999).