Opinion
Opinion No. 26511.
Heard May 28, 2008 .
Filed June 30, 2008.
Appeal from Richland County, Daniel F. Pieper, Circuit Court Judge.
REVERSEDMilton G. Kimpson, Joe S. Dusenbury, Jr., and Harry A Hancock, of Columbia, for appellant.
John C. von Lehe, Jr. and Andrea St. Amand, both of Nelson Mullins Riley Scarborough, LLP, of Charleston, for respondent.
This appeal involves a carry-forward of the economic impact zone investment tax credit (hereinafter "EIZ credit"). This is a tax credit allowed for qualified manufacturing and productive equipment property placed in service during the tax year as provided in S.C. Code Ann. § 12-14-60 (Supp. 2007). The trial court found the carry-forward could be claimed by the taxpayer in the 1997 tax year. We reverse.
This section provides in pertinent part:
(A)(1) There is allowed an economic impact zone investment tax credit against the tax imposed pursuant to Chapter 6 of this title for any taxable year in which the taxpayer places in service economic impact zone qualified manufacturing and productive equipment property.
FACTS
Section 12-14-60 allowing the EIZ credit was first enacted in 1995. In 1997, the legislature added subsection (D) which allows the taxpayer to carry forward unused credit for ten years from the close of the tax year in which the credit was earned. This amendment was enacted by 1997 S.C. Act No. 151, § 8, which specifies that the carry-forward provision is "effective for tax years beginning after 1996." The specific issue here is whether the carry-forward provision applies only to creditsearned after 1996, or whether the carry-forward provision may be applied against the taxpayer's liability in tax years beginning after 1996.
The facts here are uncontested. Respondent (SCANA) is a yearly calendar taxpayer. In 1996, it placed property in service that generated an EIZ credit of $29,575,619. After applying the tax credit against its tax liability for 1996, SCANA had $15,323,257 of unused credit remaining. In 1997, SCANA sought to carry forward this amount of credit pursuant to § 12-16-60(D). Appellant (Department) denied the credit because it was not generated in a tax year after 1996.
The Administrative Law Court (ALC) agreed with Department's interpretation of § 12-14-60(D) and found the carry-forward credit was properly denied because it was earned in 1996, and therefore does not qualify as being earned in a tax year "beginning after 1996" as required. On appeal, the circuit court reversed and held that the carry-forward may be used in tax years after 1996, and therefore SCANA was allowed to claim it to offset its tax liability in 1997.
The other issue raised was the effective date of the original § 12-14-60 allowing the EIZ credit. This issue is not on appeal.
ISSUE
In what year may the carry-forward provision be applied?
DISCUSSION
As enacted in 1997, subsection (D) provided:
Unused credit allowed pursuant to this section may be carried forward for ten years from the close of the tax year in which the credit was earned.
As noted above, the legislature provided that this provision "is effective for tax years beginning after 1996."
The circuit court found that under the "effective" language in the enacting legislation, SCANA may take the carry-forward credit for credit earned in 1996 because: 1) the statute would not be effective until 1998 otherwise since the credit would have to be earned in 1997; 2) use of the past tense "was earned" indicates earned before the effective date of the carry-forward provision; and 3) a 2005 amendment to subsection (D), by distinction, indicates that the legislature's intent in enacting the original provision was to allow the carry-forward credit to be taken in 1997.
Department argues, to the contrary, that a plain reading of the statute indicates the carry-forward credit applies only to credit actually earned after 1996. It points to the following: the statute refers to credit that "was earned" implying earned after the effective date; the statute is effective in 1997 because the carry-forward credit may be earned in 1997; the 2005 amendment clarifies what the legislature meant in the original enactment.
We find neither side of the argument persuasive and conclude the effective date language of the carry-forward provision is ambiguous. Further, an analysis of the 2005 amendment is not helpful. This amendment re-designated subsection (D) as (D)(1), and added subsection (D)(2) which allows an extension under certain circumstances of the ten-year period for carry-forward credit. This amendment was enacted as part of 2005 S.C. Act No. 113 which provides:
At oral argument before this Court, counsel for SCANA emphasized the "was earned" language in subsection (D) as support for finding the carry-forward's applicability in 1997. We note, however, that a carry-forward by definition applies to credits earned in the past and we glean no significance from the use of the past tense in this context.
This section provides:
(2) In the case of credit unused within the initial ten-year period, a taxpayer may continue to carry forward unused credits for use in any subsequent tax years if the taxpayer: [setting forth conditions that must be met]
[T]he provisions of Section 12-14-60(D)(2) of the 1976 Code, as amended by this act, apply for credits earned in taxable years beginning after 1996.
(emphasis added). The circuit court found that by specifying "credits earned," the legislature signaled its intent that the original subsection (D) was different, therefore the original carry-forward did not require that the credits be earned after 1996. Department argues, on the other hand, that the amendment clarifies the legislature's intent that the credits be earned after 1996.
Again, we find neither argument persuasive. A legislative amendment may indicate a change from the original or may indicate a clarification of the original. Compare Stuckey v. State Budget and Control Bd., 339 S.C. 397, 529 S.E.2d 706 (2000) (subsequent statutory amendment may be interpreted as clarifying original legislative intent) and Key Corp. Capital, Inc. v. County of Beaufort, 373 S.C. 55, 644 S.E.2d 675 (2007) (it will be presumed in adopting an amendment to a statute that the legislature intended some change in existing law). In the absence of other indicia of legislative intent, the amendment is not dispositive.
Because we find the effective date of subsection (D) ambiguous, we resort to statutory rules of construction to resolve the issue. In cases involving a tax deduction, any ambiguity is resolved against the taxpayer. M. Lowenstein Sons, Inc. v. South Carolina Tax Comm'n, 277 S.C. 561, 290 S.E.2d 812 (1982); Davis Mech. Contractors, Inc. v. Wasson, 268 S.C. 26, 231 S.E.2d 300 (1977); C.W. Matthews Contracting Co. v. South Carolina Tax Comm'n, 267 S.C. 548, 230 S.E.2d 223 (1976);Southern Soya Corp. v. Wasson, 252 S.C. 484, 167 S.E.2d 311 (1969). Here, the allowance of a tax credit is analogous to a tax deduction since both are a matter of legislative grace. Accordingly, we resolve the ambiguity here against the taxpayer and find Department properly disallowed the carry-forward credit for EIZ credit earned in 1996.
This is contrary to the general rule that where substantial doubt exists as to the construction of tax statutes, the doubt must be resolved against the government. South Carolina Nat'l Bank v. South Carolina Tax Comm'n, 297 S.C. 279, 376 S.E.2d 512 (1989) (taxpayer should receive the benefit in cases of doubt); Cooper River Bridge, Inc. v. South Carolina Tax Comm'n, 182 S.C. 72, 188 S.E. 508 (1936); Columbia Ry. Gas Elec. Co. v. Carter, 127 S.C. 473, 121 S.E. 377 (1924); State v. Charron, 351 S.C. 319, 569 S.E.2d 388 (Ct.App. 2002) ( quoting Cooper River, supra).
We note the rule of construction in other jurisdictions is that because a tax credit is a matter of grace, it is strictly construed against the taxpayer. See Texasgulf, Inc. v. C.I.R., 172 F.3d 209 (2d Cir. 1999); Team Specialty Prods., Inc. v. New Mexico Taxation and Rev. Dep't, 107 P.3d 4 (N.M. 2004); MacFarlane v. Utah State Tax Comm'n, 143 P.3d 1116 (Utah 2006); Midland Fin. Corp. v. Wisconsin Dep't of Rev., 341 N.W.2d 397 (Wis. 1983).
REVERSED.
BEATTY, J., and Acting Justice James W. Johnson, Jr., concur. TOAL, C.J., dissenting in a separate opinion in which PLEICONES, J., concurs.
I respectfully dissent and would affirm the circuit court's decision. The only proposition which is needed to resolve the instant case is this: in the 1997 tax year, S.C. Code Ann. § 12-14-60 (D) allowed unused economic impact zone investment credit to be carried forward beyond the close of the tax year in which the credit was earned.
The majority correctly notes that SCANA earned an economic impact zone investment credit in 1996, of which it was not able to take full advantage in the tax year 1996. When SCANA prepared its tax information for the tax year 1997, the statutory law in effect provided that unused EIZ credit could be carried forward "ten years from the close of the tax year in which the credit was earned." S.C. Code Ann. § 12-14-60 (D) (Supp. 2007). That SCANA was justified in claiming the unused portion of its previously earned credit seems to me to follow rather directly from a straight-forward application of the statute. Thus, although I agree that the majority accurately summarizes the law of ambiguities as it pertains to tax law, I can discern no reasonable ambiguity here.
I would find that the Department of Revenue's proposed alternate interpretation of how this tax credit operated in tax years 1996, 1997, and 1998 is an unreasonable interpretation grafted into a statute and effective date provision in which no ambiguity exists. For the foregoing reasons, I respectfully dissent.