Court Opinion

ID: 9522753
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:32:04.809781+00
Date Added: 2024-06-11T13:03:50.568899
License: Public Domain

Johnson, J.,
¶ 13. dissenting. The fundamental inquiry at the heart of statutory interpretation is to ascertain the plain meaning of a statute’s words in light of its legislative purpose. Today, the majority ignores this tenet of judicial review in favor of an approach that first infuses ambiguity into an unambiguous statute and then tasks this Court with rewriting the tax-exemption provision under 32 V.S.A. §9603(24) to ease the burden that compliance with the deadline imposes on taxpayers. Because I agree with the trial court that a transfer of property to a limited liability company (LLC) 319 days after the LLC’s articles of organization were filed cannot possibly meet the exemption’s requirement that the transfer occur “at the time of [the LLC’s] formation,” I respectfully dissent.
¶ 14. On May 21, 2007, 319 days after the articles of organization were filed and the certificate of existence was issued, the two organizers and members of Polly’s Properties, LLC transferred two real estate parcels to the LLC. These transfers also served as the LLC’s initial capital. Notwithstanding this fact, the Department of Taxes determined that the property transfers were not exempt because the transfers were not made “at the time of [the LLC’s] formation” pursuant to 32 V.S.A. § 9603(24). According to the Department, the date of formation was the date that the LLC was organized by filing the articles of organization with the *165Secretary of State.6 Taxpayer appealed, unsuccessfully, first to the Commissioner of Taxes and then to the Chittenden Superior Court. This appeal followed.
¶ 15. In an appeal from an administrative body, we employ the same standard of review as applied in the intermediate appeal. Tarrant v. Dep’t of Taxes, 169 Vt. 189, 195, 733 A.2d 733, 738 (1999). “We will not set aside the Commissioner’s findings of fact unless clearly erroneous.” Id. With regard to conclusions of law, we accord deference to the Commissioner’s construction of tax statutes “where it represents a permissible construction of the statute.” Id. (citing Brattleboro Tennis Club, Inc. v. Dep’t of Taxes, 166 Vt. 604, 604, 691 A.2d 1062, 1063 (1997) (mem.)); see also Burlington Elec. Dep’t v. Dep’t of Taxes, 154 Vt. 332, 337, 576 A.2d 450, 453 (1990) (“Absent compelling indication of error, the interpretation of a statute by the administrative body responsible for its execution will be sustained on appeal.” (quotation omitted)).
¶ 16. The majority ignores our familiar tools of statutory interpretation, which dictate that we first look to the plain meaning of a statute. See Dep’t of Taxes v. Murphy, 2005 VT 84, ¶ 5, 178 Vt. 269, 883 A.2d 779 (noting that inquiry begins with language of statute, and “[i]f the statute’s plain language resolves the conflict without doing violence to the legislative scheme we are bound to follow it” (quotation omitted)). Plain meaning, however, *166cannot be ascertained simply by plucking out a word or phrase from a statute and divining its meaning in isolation. See Munson v. City of S. Burlington, 162 Vt. 506, 509, 648 A.2d 867, 869 (1994) (“It is a well-established canon of statutory construction that statutes relating to the same subject matter should be construed together and read in pari materia, if at all possible.”). Thus, even conceding that the 32 V.S.A. § 9603(24)’s reference to “formation” is somewhat ambiguous, resolution of that ambiguity is accomplished by looking to the relevant LLC statutes, not by making up a definition from whole cloth. See In re Estate of Cote, 2004 VT 17, ¶ 10, 176 Vt. 293, 848 A.2d 264 (noting that when statute has conflicting, yet equally plausible interpretations, “we must ascertain legislative intent through consideration of the entire statute, including its subject matter, effects and consequences, as well as the reason and spirit of the law”).
¶ 17. The relevant statutes here include both the tax-exemption statutes as well as the statutes governing LLCs. Because each set of statutes is relevant to the question of when an LLC is formed, but neither gives a definitive answer, the statutes should be construed in pari materia. See Munson, 162 Vt. at 509, 648 A.2d at 869. Section 9603(24) governs the tax exemption for transfers to LLCs and provides, in relevant part, a tax exemption for
[transfers made to a limited liability company at the time of its formation pursuant to which no gain or loss is recognized under the Internal Revenue Code, except where the commissioner finds that a major purpose of such transaction is to avoid the property transfer tax.
(Emphasis added.) The most relevant LLC statute, which governs the legal beginning of an LLC, uses somewhat different terminology and provides that
[ujnless a delayed effective date is specified, the existence of a limited liability company begins when the articles of organization are filed.
11 V.S.A. § 3022(b) (emphases added).7
*167¶ 18. Despite taxpayer’s arguments, there is no discernible distinction between an LLC’s “beginning,” which according to 11 V.S.A. § 3022(b) is the date the articles of organization are filed, and an LLC’s “formation” for purposes of the tax-exemption statute. Thus, looking at these two sets of statutes in pari materia, it is entirely reasonable for the Department to read the word “formation” as synonymous with “beginning” and “organization.” See Farmers Prod. Credit Ass’n of S. Burlington v. State, 144 Vt. 581, 584-85, 481 A.2d 18, 20 (1984) (in construing exemption of property transfers to “federal instrumentalities,” we noted that term “instrumentalities” was not defined in statute, but in light of statute’s purpose to raise revenue, we found that Department’s strict construction of grounds for exemption was reasonably related to this purpose). In the absence of any other fixed date denominated in the statutes, the Department’s construction harmonizes the tax-exemption statute with the LLC statutes.
¶ 19. Notwithstanding this reasonable and straightforward approach to interpretation of the statute, the majority opts instead to pluck the word “formation” from the tax-exemption statute and hold that the term is ambiguous and must refer to a point after the articles of organization are filed with the Secretary of State. Ante, ¶ 9. Although no statute identifies when this mythical point occurs, the majority credits taxpayer’s argument that capitalization should be the event that triggers formation. Beyond broad policy arguments, there is simply no justification for this interpretation, as the statute is neither ambiguous nor would construing the statute according to its plain meaning lead to an absurd result.
¶ 20. Moreover, the Department has a legitimate interest in an interpretation that adopts a fixed date for administration of the exemption, rather than the amorphous concept of formation that the majority adopts. This bright-line rule provides a deadline and removes the need for the Department to decide and judge which events in the life of any given LLC amount to formation. Although a statutory deadline cuts off an otherwise allowable application based on a certain date, and not on the individual merit of the claim, such a deadline applies equally to both the taxpayer who *168purposefully ignored it and the taxpayer who, through his own good-faith interpretation of the statute, honestly thought he had complied with the deadline constraints. In other words, a clear deadline both furthers administrative convenience and is fair across the board. See TD Banknorth, N.A. v. Dep’t of Taxes, 2008 VT 120, ¶ 16 n.6, 185 Vt. 45, 967 A.2d 1148 (noting that “the Department has a legitimate interest in administrative efficiency and the fluid processing of tax returns” and refusing to credit “cramped” construction of statute that would greatly limit Department’s ability to quickly process refund requests (quotation omitted)); Farmers Prod. Credit Ass’n, 144 Vt. at 585, 481 A.2d at 20 (“The purpose of the property transfer tax statutes is to raise revenue. . . . [Exemptions from taxation are to be strictly construed, and ... no claim of exemption should be allowed unless shown to be within the necessary scope of the statute.” (quotations omitted)).8
¶21. The majority’s reliance on the Internal Revenue Code (IRC) to support its construction of § 9603(24) is similarly misplaced. Ante, ¶¶ 8-9. Although § 9603(24) does contain a reference to the Internal Revenue Code (IRC), I agree with the State that this reference modifies only the phrase it immediately follows. Thus, the IRC is relevant only in ascertaining the quality of the transaction, i.e., whether a “gain or loss is recognized,” and has no bearing on the definition of formation. 32 V.S.A. § 9603(24). Such an interpretation is in keeping with the rest of the statutory scheme, a scheme that has made explicit reference to the IRC where it is applicable. See TD Banknorth, 2008 VT 120, ¶ 15 (refusing to credit taxpayer’s statutory interpretation argument where to do so would involve pulling out particular phrase for its literal meaning at expense of purpose of entire provision). Beyond the reference to the IRC, the majority can point to no other provision in the statutory scheme that supports a legislative intent to exempt such a wide swath of property transfers. See Ins. Co. *169of Pa. v. Johnson, 2009 VT 92, ¶ 22, 186 Vt. 435, 987 A.2d 276 (refusing to credit statutory interpretation that would require the court to “look beyond the plain language of the statute and ultimately find that the Legislature intended to exclude umbrella policies despite the fact that it clearly outlined the type of coverage that triggers the statute’s application” (quotations omitted)); In re M.W., 2007 VT 90, ¶ 9, 182 Vt. 580, 933 A.2d 243 (mem.) (refusing to credit alternative interpretation of statute and concluding that where “intent of the Legislature is clear from the plain language used ... we therefore must enforce the statute as written”); State v. DeRosa, 161 Vt. 78, 80, 633 A.2d 277, 279 (1993) (“[W]e presume the Legislature used the language [in the statute] advisedly.”).
¶22. To bolster its rejection of the Department of Taxes’ interpretation of formation, the majority credits, without discussion, taxpayer’s argument that without the ninety-day grace period, compliance with § 9603(24) “is logically impossible.” Ante, ¶ 6. I disagree.9 We have long adhered to the rule that “statutes should not be construed to produce absurd or illogical consequences.” Rhodes v. Town of Georgia, 166 Vt. 153, 157, 688 A.2d 1309, 1311 (1997); accord, e.g., TD Banknorth, 2008 VT 120, ¶ 32 (“A presumption obtains against a . . . construction that would lead to . . . absurd results.” (quotations omitted)). If this statute were truly incapable of implementation, as written, or the statute failed in its essential purpose, we would have some authority to solve taxpayer’s problem. See Rhodes, 166 Vt. at 157, 688 A.2d at 1311 (noting that, to invoke impossibility rule, party “must dem*170onstrate why this Court should not construe the statute in its ordinary sense or why the consequences of such construction will cause hardship or constitute impossibility”). But our standard under this prudential rule is very limited and does not ordinarily extend to making choices, among many available, to solve the problem. There is simply no way to construe the statute to allow a transfer that occurred 319 days after an LLC’s articles of organization were filed without reading the words “at the time of formation” out of the statute. See Colwell v. Allstate Ins. Co., 2003 VT 5, ¶ 15, 175 Vt. 61, 819 A.2d 727 (recognizing that though statute at hand “does not fully address the problem” Legislature intended to address, “in view of the number of choices available to solve the problem . . . this is an inappropriate case for the Court to fashion the particular remedy [appellants] seek” because to do so would place Court in the position of making policy choices best left to Legislature).
¶23. It is true that the Department’s adoption of a policy to modify the meaning of “formation” to include qualifying transactions made within ninety days of an LLC’s filing date gives credence to taxpayer’s and amici’s view that it is logistically difficult to comply with the literal words of the statute. The Department’s policy was intended to ease that burden for taxpayers, while still adhering to a reasonable timeframe in which formation and transfer could occur. To be sure, the statutes require a taxpayer to undertake advanced planning to ensure that the transfers occur simultaneously with the filing of the articles of organization. Compliance, however, is not impossible. See Rhodes, 166 Vt. at 157-58, 688 A.2d at 1311 (rejecting party’s interpretation of a statute where it “did not demonstrate . . . that the statute imposes an impossible mandate”). The statutes permit an LLC organizer to delay the effective date of organization for up to ninety days from the date on which the articles of organization are filed. 11 V.S.A. § 3026(e). An LLC organizer also has the ability to reserve a name for a period of 120 days and renew that reservation for two successive 120-day periods. Id. § 3006(b) & (c). Added together, these provisions allow an organizer a total of 450 days in which to coordinate the timing of LLC formation with a property transfer. These devices, though perhaps viewed as cumbersome by some, allow an organizer to comply with 32 V.S.A. *171§ 960S(24)’s requirement that the transfer of properties be contemporaneous with formation.10
¶ 24. Therefore, we are not faced with a situation in which we are compelled to disregard the plain meaning of a statute because the result would thwart both common sense and legislative purpose. In TD Banknorth, for instance, we addressed whether a parent company’s creation of several holding companies was done for the purpose of avoiding tax liability. Taxpayer there argued that, under the plain meaning of the applicable statute, creation of the companies was entirely allowable and that these companies should therefore not be disregarded for taxation purposes. We rejected such a reading of the statute and concluded that the Legislature could not have intended to create “a means through which taxpayers could almost completely avoid payment of the bank franchise tax by the creation of shell corporations that have no economic substance and whose sole purpose is to minimize taxes.” 2008 VT 120, ¶ 32. Indeed, such an interpretation, which would allow taxpayers to use the literal meaning of tax statutes as a vehicle for tax avoidance, stands in direct contrast to the revenue-generating purpose of tax statutes. See In re Adoption of B.L.V.B., 160 Vt. 368, 373, 628 A.2d 1271, 1274 (1993) (rejecting construction of adoption statute that would terminate parental rights of biological parent who intended to continue raising child with help of partner because “[s]uch a narrow construction would produce the unreasonable and irrational result of defeating adoptions that are otherwise indisputably in the best interests of children”).
¶ 25. Here, there is no insurmountable hurdle to compliance. In contrast to the situation we addressed in TD Banknorth, it is not absurd to assume that the Legislature intended to disallow exemptions for transfers that occur months and even years after the articles of organization are filed. Rather, such a construction supports the purpose behind any deadline — the reasonable administration of the law.
*172¶ 26. The outcome of finding an absurd result where none exists leaves this Court with the task of cobbling together some sort of fix, a task better suited to the legislative branch. Indeed, though the majority cites several policy reasons for adopting the date of capitalization as the date of formation, ante, ¶¶ 9-10, there is at least one case that has forwarded a different theory of when formation occurs. See Northshire Bookstore Props., LLC v. Dep’t of Taxes, No. 10-24-07 Bncv, 2008 WL 4281974 (Vt. Super. Ct. Mar. 27, 2008) (rejecting taxpayer’s argument that “time of formation” referred to date on which LLC’s operating agreement was finalized). Because there is likely to be more than one way to effectuate the Legislature’s intent, it is beyond this Court’s power to make the choice. See Colwell, 2003 VT 5, ¶ 15.
¶ 27. Admittedly, the difficulty the Court confronts in this case is that there is no apparent problem with the quality of the transaction. If taxpayer had complied with the statutory deadline, very likely it would not have been subject to the transfer tax for all of the public policy reasons that support nontaxation of this type of transfer. This case is only about reasonable deadlines, and, though the imposition of the deadline may inflict a harsh result, the majority’s proposed remedy is to distort the statute to fix its problem, which was always a problem of its own creation.
¶ 28. I respectfully dissent. I am authorized to state that Justice Dooley joins in this dissent.

 Because of the Department’s longstanding interpretation of “formation” to mean the time an LLC’s articles of organization are filed, the ninety-day grace period attaches to this organization date, mitigating the somewhat difficult statutory requirement that the transfer of property occur simultaneously with an LLC’s formation. See Vt. Dep’t of Taxes, Technical Bulletin, TB-39 (Oct. 5, 2007), available at http://www.state.vt.us/tax/pdf.word.excel/legal/tb/TB39.pdf. The bulletin formally adopted the following Department practice, which was already in existence:
Interpreted strictly, “at the time of formation” would mean simultaneous with filing of the articles of organization (for an LLC), issuance of a certificate of incorporation (for a corporation) or registration of the business name (for a partnership). However, it has been the Department’s practice to treat otherwise-qualifying transfers made within ninety days of formation [of] the transferee as exempt. The ninety-day grace period recognizes that some of the acts involved in commencing a business are undertaken sequentially and allows a sufficient amount of time for an orderly start-up of the new LLC, corporation or partnership. Transfers made outside of this grace period do not qualify for exemption.
Id. at 2.

 In addition, with regal’d to the filing requirements with the Secretary of State, 11 V.S.A. § 3026(d) provides that “[a] document accepted for filing by the secretary of state is effective: (1) on the date it is filed, as evidenced by the secretary of state maintaining a record of the date and time of the filing; (2) at the time specified in the document as its effective time; or (3) on the date and at the time *167specified in the document if the document specifies a delayed effective date and time.” Upon receipt of this document and at the person’s request, the Secretary of State issues a “certificate of existence or authorization” setting forth the date of organization. Id. § 3028(b)(2).

 Moreover, if the Legislature intended that any transfer of real estate to an LLC was to be exempt from the transfer tax, no matter when that transfer occurred, it had the opportunity to announce this broader rule. Indeed, the exemption for property transfers to corporations was amended from an open-ended, nondate specific exemption to one that contains identical “at the time of formation language.” See 1975, No. 225 (Adj. Sess.), § 6 (replacing 32 V.S.A. § 9603(ll)’s earlier exemption for transfers “made to a corporation for no consideration other than not less than eighty percent of its then issued and outstanding capital stock” with exemption for transfers “made to a corporation at the time of its formation”).

 The majority focuses on the Department’s practice of allowing a ninety-day window for tax-exempt property transfers and concludes that, because a sixty or 120-day window may also have been justified, the Department has rewritten the statute “with no reference whatsoever to any underlying legislative purpose or justification.” Ante, ¶ 7. The focus on the grace period, however, is misplaced. Indeed, the outcome of this case does not depend on the existence of or justification behind the ninety-day grace period because even without the grace period, 319 days after the articles of organization are filed cannot be within the timeframe of eligibility for the tax exemption. Moreover, taxpayer raised only two arguments below and on appeal: (1) a statutory construction argument over the meaning of the phrase “at the time of formation” and (2) an argument over whether the imposition of the ninety-day grace period in this case amounted to an impermissible retroactive application of the law. The question of whether the Department went through the proper rulemaking procedure to implement the ninety-day grace period was notably not raised by the parties and was therefore not a dispute between them.

Further, the majority’s statement that the Department has acknowledged that literal compliance with the statute is impossible finds no support. See ante, ¶ 5. Indeed, in its initial decision, the Department explicitly noted that, even without the ninety-day grace period, “the taxpayer here would be in exactly the same situation.” The Department went on to list the statutory provisions available to taxpayer, noting that “taxpayer failed to utilize these provisions to structure its transactions so that the property transfers would occur in tandem with the LLC’s formation.”