Summary
In Trunkline, tax assessments were made against an account carried on the books of companies as "deferred Federal income taxes" and were carried under the requirements of the Federal Power Commission. As in the case sub judice, the appellants there were allowed to pay less federal income tax during the earlier part of the period in which they were taking depreciation for certain assets and to pay larger taxes during the remaining part of such period.
Summary of this case from Gencorp, Inc. v. State Tax Com'nOpinion
No. 41417.
April 11, 1960.
1. Taxation — franchise tax — foreign corporation — basis of valuation — statutes — words "reserves other than for definite known fixed liabilities which do not enhance value of assets" construed.
Under franchise tax statute providing that in computing capital, surplus and undivided profits there should be included all true reserves, including all reserves other than for definite known fixed liabilities which do not enhance value of assets, words "other than" have identical meaning as the word "except". Secs. 9314, 9317, Code 1942.
2. Taxation — statutes — exception under tax statute — claiming benefit of exception — proof required of claimant.
For any one claiming benefit of an exception under tax statute proof must be clear that the one claiming benefit of exception comes clearly within the same.
3. Taxation — franchise tax — foreign corporations — basis of valuation — "deferred federal income tax accounts" as true reserve to be included in computing capital, surplus and undivided profits.
Under franchise tax statute requiring that in computing capital, surplus and undivided profits there must be included all true reserves, including all reserves other than for definite known fixed liabilities which do not enhance value of assets, deferred federal income tax accounts, carried on books pursuant to requirements of Federal Power Commission were required to be included, since the accounts were available at all times for use of corporation and were not for definite known fixed liabilities. Secs. 9314, 9317, Code 1942.
Headnotes as approved by McGehee, C.J.
APPEAL from the Chancery Court of Hinds County; S.V. ROBERTSON, JR., Chancellor.
L.F. Cadenhead, John Brendell, Houston, Texas; Charles S. Tindall, Greenville; Ralph B. Avery, Jackson, for appellants.
I. The franchise tax statutes cannot be applied to appellant except in the light of accepted accounting practices. Secs. 167, 168, Internal Revenue Code; Secs. 9313, 9314, 9318 (Franchise Statutes) Code 1942.
II. The testimony of the expert witnesses was properly admitted. Craig v. Southern Bell Tel. T. Co., 208 Miss. 881, 45 So.2d 732; Singing River Tire Shop v. Stone (Miss.), 21 So.2d 580; State Tax Comm. v. Mississippi P. L. Co., 194 Miss. 260, 11 So.2d 828; 20 Am. Jur. 647, 653, 697; 50 Am. Jur. 263-265, 438.
III. The uncontradicted expert testimony was conclusive of the issue and binding upon the trial court. Kramer Services, Inc. v. Wilkins, 184 Miss. 483, 186 So. 625; 32 C.J.S., Sec. 569 p. 389.
IV. Under no theory can the account in question be a part of the value of capital, surplus or undivided profits within the meaning of the Mississippi Franchise Tax Statute. Secs. 167, 168, Internal Revenue Code.
V. The trial court erred when it based its decision on the four words "definite known fixed liability" from Section 9317, out of context. Secs. 9313, 9314, 9317, 9318 (Franchise Statutes) Code 1942.
John E. Stone, Jackson, for appellee.
I. The words "fixed liabilities" have been judicially defined. Adams v. Fragiacomo, 71 Miss. 417, 15 So. 798; Board of Supervisors v. Stephens, 177 P. 261; Clark v. State, 198 Miss. 88, 21 So.2d 296; Commercial Casualty Ins. Co. v. State Board of Tax Appeals, 194 A. 390; Harper v. Adams, 141 Miss. 806, 106 So. 354; In re Katz, S. H., 6 F.2d 581; National Commercial Title Mortgage Guaranty Co. v. City of Newark, 11 A.2d 759; New Jersey Ins. Co. v. State Board of Tax Appeals, 195 A. 719; Oklahoma Cotton Growers' Assn. v. Groff, 275 P. 1032; State v. Lee, 196 Miss. 311, 17 So.2d 277; State v. Roell, 192 Miss. 886, 7 So.2d 867; State ex rel. v. United States F. G. Co., 157 Miss. 740, 128 So. 502; Texas Co. v. Wheeless, 185 Miss. 799, 187 So. 880; Universal Life Ins. Co. v. Catchings, 169 Miss. 26, 152 So. 817; U.S. Constitution, Commerce and Due Process Clauses; Secs. 157, 158, Internal Revenue Code, Sec. 4663, Code 1906; Chap. 2, Title 37, Code 1942; Sec. 9317, Code 1942; Chap. 412, Sec. 2, Laws 1956.
II. The use of words "definite" and "known" indicate a legislative intent that the words "fixed liabilities" are not used in a technical sense. Evans v. City of Jackson, 202 Miss. 9, 30 So.2d 315; Morgan v. State ex rel. 208 Miss. 185, 44 So.2d 45; Sec. 702, Code 1942; Webster's New International Dictionary Unabridged (2d ed.), word "definite"; 11 Words Phrases 107, 601, words "definitely", "definite"; 23 Words Phrases 606, words "known existing liabilities".
III. Appellants' evidence is insufficient to justify a reversal of this case. Craig v. Southern Bell Tel. T. Co., 208 Miss. 881, 45 So.2d 732; Kramer Service, Inc. v. Wilkins, 184 Miss. 483, 186 So. 625; Singing River Tire Shop v. Stone (Miss.), 21 So.2d 580; State v. Roell, supra; 50 Am. Jur., Sec. 322 p. 313; Vol. 24 Federal Register, No. 38 p. 1401, Feb. 25, 1959.
APPELLANTS IN REPLY.
I. Legislative intent is determined from consideration of the statute as a whole and not from small segregated portions considered apart from the rest of the statute. Craig v. Mississippi P. L. Co., 182 Miss. 299, 180 So. 604; Hansborough v. State, 193 Miss. 461, 10 So.2d 171; Johnson v. Reeves Co., 112 Miss. 227, 72 So. 925; Mississippi Cottenseed Products Co. v. Stone, 184 Miss. 409, 184 So. 428; Roseberry v. Norsworthy, 135 Miss. 845, 100 So. 514; 50 Am. Jur., Secs. 259, 260 p. 252; 82 C.J.S., Sec. 345 p. 694.
II. Only the value of capital used, invested or employed in this state, is taxed by our corporate Franchise Tax Statute. Secs. 9312-9340, Code 1942.
III. Appellant's account for deferred federal income taxes is no part of the value of its capital used, invested or employed in Mississippi.
IV. Appellants' account for deferred federal income taxes is a reserve ". . . for definite known fixed liabilities which do not enhance the value of assets . . ." within the meaning of the Franchise Tax Act.
V. Appellee's brief completely ignores the case of State Tax Commission v. Mississippi Power Light Company, 194 Miss. 260, 11 So.2d 828. Sec. 9314, Code 1942.
VI. A. Appellee has confused the issue in this case. The sole issue involved in this case is whether an account for deferred federal income taxes appearing on the books of appellant must be included as a part of the value of appellant's capital used, invested or employed in the State of Mississippi, for the purpose of computation of the franchise tax due in the State of Mississippi under the applicable statutes, including Sections 9314, 9317 and 9318 of the Mississippi Code of 1942.
B. It is improper to determine the legislative intent in the Mississippi Franchise Tax Statute from legislative intent expressed in other statutes enacted for different purposes. Adams v. Fragiacomo, 71 Miss. 417; Hansbiro v. State, 193 Miss. 461, 10 So.2d 171; Harper v. Adams, 141 Miss. 806, 106 So. 354; State ex rel. United States F. G. Co., 175 Miss. 740, 128 So. 502; Universal Life Ins. Co. v. Catchings, 169 Miss. 26, 152 So. 187; 1 Kester on Accounting, Theory and Practice 27, "fixing liability"; W.A. Paton's Accountants' Handbook (3rd ed.), term "fixed liabilities"; Webster's New International Dictionary Unabridged (2d ed.), definition of "fixed liability".
C. The record shows that appellants' liabilities for deferred income taxes are both definite and known. M.L. Virden Lumber Co. v. Stone, 203 Miss. 251, 33 So.2d 841; Stone v. W.G. Nelson Exploration Co., 211 Miss. 199, 51 So.2d 279; Secs. 10110, 10112, Code 1942.
D. Last week the Securities and Exchange Commission reached a decision squarely in accord with appellants' position in this case. Release, Securities Exchange Comm., Feb. 29, 1960.
This appeal is from a decree by the Chancery Court of Hinds County in favor of the appellee, State Tax Commission, sustaining an additional franchise tax assessment against the appellant, Trunkline Gas Company, for the years 1955, 1956 and 1957 and against the appellant, Tennessee Gas Transmission Company, for the year 1957, and which two causes were consolidated in the trial court and there is only one appeal here under a stipulation that the decision rendered in one of the cases may likewise be made applicable to the other.
The additional franchise tax assessments were made as hereinbefore stated for the years mentioned respectively, and against an account carried on the books of the two companies respectively as "deferred federal income taxes", and which accounts were carried on the books of the said corporations under the requirements of the federal power commission. The appellants were allowed to pay less federal income tax during the earlier part of the period in which they were taking depreciation for certain assets and to pay larger taxes during the remaining part of such period.
The additional taxes were imposed under the provision of Sections 9314 and 9317, Mississippi Code of 1942 as recompiled, and which statutes provides, among other things that "* * *; provided, that in computing capital, surplus and undivided profits, there shall be included all true reserves, including all reserves other than for definite known fixed liabilities which do not enhance the value of assets."
(Hn 1) In the provision that taxes be levied against "all true reserves, including all reserves other than * * *", we construe the words "other than" to have the identical meaning as the word "except", (Hn 2) and it is well settled that when anyone is claiming the benefit of an exception under a statute, the proof must be clear that the one claiming the benefit of an exception comes clearly within the same. Neither do we think that these accounts were "for definite known fixed liabilities which do not enhance the value of assets."
(Hn 3) The two expert witnesses who testified on behalf of the appellants conceded that this money represented by the account for deferred federal income taxes was available for the use of the corporation at all times, and it is evident that in order for the taxpayer to be liable for any income taxes at all during the latter part of the taxable period in question it was necessary that the taxpayer should be making money. It was therefore not for definite known fixed liabilities.
In the case of Monaghan v. Pontotoc Electric Power Association, 116 So.2d 827, not yet reported in Mississippi Reports, it was held that exemptions or exceptions from a tax statute are to be construed most favorably to the State. By analogy this case is persuasive in support of the conclusion that we have reached. We think that the decree of the chancery court sustaining the additional assessments was correct and that the same should be and is affirmed.
Affirmed.
All Justices concur except Roberds and Arrington, JJ., who took no part.