Centex International, Inc. v. South Carolina Department of Revenue

Chief Justice TOAL.

I respectfully dissent. In my view the ALC erred in concluding that Appellant’s corporate affiliates were not eligible to claim infrastructure tax credits pursuant to section 12-6-3420 of the South Carolina Code. I would reverse and remand.

Section 12-6-3420 provides, in pertinent part:

(A) A corporation may claim a credit for the construction or improvement of an infrastructure project against taxes due under Section 12-6-530 or Section 12-11-20 for:
*152(1) expenses paid or accrued by the taxpayer;
(2) contributions made to a governmental entity; or
(3) contributions made to a qualified private entity in the case of water or sewer lines and their related facilities in areas served by a private water and sewer company.

S.C.Code Ann. § 12-6-3420 (Supp.2012).

In my view, section 12-6-3420 requires a corporation claim the credit on its corporate tax return, which must reflect permitted infrastructure related expenses or contributions by “the taxpayer.” The Department argues that “the taxpayer” refers exclusively to the “corporation” mentioned in subsection (A).13 I disagree. The term “taxpayer” is statutorily defined, *153“unless otherwise required by context,” to mean an individual, trust, estate, partnership, association, company, corporation, or any other entity subject to taxation. See S.C.Code Ann. § 12-6-30(1). In my view, the current context — the General Assembly’s intent to encourage and reward infrastructure investment — does not demand limiting the statutory definition of “taxpayer.” Moreover, in my opinion, the General Assembly’s use of the word “the,” preceding “taxpayer,” does not evince an intent for that term to only denote corporation. Said another way, the General Assembly could have consistently used the term “corporation,” rather than taxpayer. For example, and as Appellant notes, the statute would have then provided:

A) A corporation may claim a credit for the construction or improvement of an infrastructure project against taxes due under Section 12-6-530 or Section 12-11-20 for: (1) expenses paid or accrued by the taxpayer corporation;

However, the General Assembly did not provide such limiting language. See Brown v. Martin, 203 S.C. 84, 88, 26 S.E.2d 317, 318 (1943) (“The General Assembly has power to prescribe legal definitions of its own language, and such definitions are generally binding upon the Courts, and should prevail.” (citation omitted)); see Bell Finance Co., Inc. v. S.C. Dept. of Consumer Affairs, 297 S.C. 111, 114, 374 S.E.2d 918, 920 (Ct.App.1988) (“Where the statute, however, contains *154words that are statutorily defined, the statutory definitions should generally be followed in interpreting the statute.”); see also Introini v. S.C. Nat’l Guard, 828 F.Supp. 391, 396-97 (D.S.C.1993) (finding legislative definitions controlling).

In my opinion, section 12-6-3420 is not ambiguous, and the clear and plain meaning of the language allows Appellant to claim a credit for infrastructure expenses accrued by Centex Homes, the statutorily defined “taxpayer.”

The Department relies heavily on the general rule that tax credits and exemptions are a matter of legislative grace, and thus, strictly construed against the taxpayer. See, e.g., C.W. Matthews Contracting Co., Inc. v. S.C. Tax Comm’n, 267 S.C. 548, 230 S.E.2d 223 (1976) (“However, [Southern Soya Corp. v. Wasson, 252 S.C. 484, 167 S.E.2d 311 (1969) ], and Chronicle Publishers, [Inc. v. S.C. Tax Comm’n, 244 S.C. 192, 136 S.E.2d 261 (1964) ] recognize a principle that applies in the present case: that a deduction is a matter of legislative grace; and that a statute allowing a deduction, if ambiguous, is construed strictly against the taxpayer.”). However, this policy does not place a thumb on the scale of the Department, and simply means that “constitutional and statutory language will not be strained or liberally construed in the taxpayer’s favor,” and this Court will not seek an interpretation in the Department’s favor “where the plain and unambiguous language leaves no room for construction.” CFRE, LLC v. Greenville Cnty. Assessor, 395 S.C. 67, 74-75, 716 S.E.2d 877, 881 (2011) (citing Se.-Kusan, Inc. v. S.C. Tax Comm’n, 276 S.C. 487, 489, 280 S.E.2d 57, 58 (1981)). In fact, it is “[ojnly when the literal application of the statute produces an absurd result will we consider a different meaning.” CFRE, 395 S.C. at 75, 716 S.E.2d at 881 (citation omitted). In my opinion, allowing Appellant to claim the infrastructure tax credit is not an absurd result given the General Assembly’s clear intent.14

*155The cardinal rule of statutory construction is to ascertain and effectuate the intent of the legislature. See Charleston Cnty. Sch. Dist. v. State Budget & Control Bd., 313 S.C. 1, 5, 437 S.E.2d 6, 8 (1993) (citing Bankers Trust of S.C. v. Bruce, 275 S.C. 35, 37-38, 267 S.E.2d 424, 425 (1980)). In my view, the statute is clearly intended to encourage and reward infrastructure investment in South Carolina, and the Department and ALC articulate an interpretation which frustrates the General Assembly’s intent.

Additionally, in my opinion, the pass-through provisions of section 12-6-3310 allow the general partnership in this case to pass through the tax credit earned in section 12-6-3420 to Appellant. Section 12-6-3310 provides in pertinent part:

(B)(1) Unless specifically prohibited, an “S” corporation, limited liability company taxed as a partnership, or partnership that qualifies for a credit pursuant to this article may pass through the credit earned to each shareholder of the “S” corporation, member of the limited liability company, or partner of the partnership.

S.C.Code Ann. § 12-6-3310 (Supp.2012) (emphasis added). In my opinion, as discussed supra, because the expenses Centex Homes incurred qualify for the credit, the general partnership should be allowed to “pass through” this credit to its three corporate partners — wholly owned subsidiaries of Appellant. In my opinion, the “unless specifically prohibited” language in section 12-6-3310 is significant. There is no statutory provision specifically prohibiting a corporation from claiming a tax credit generated by a partnership the corporation controls, nor is there a provision explicitly preventing the partnership from passing this credit back to the entity’s partners.

*156For the foregoing reasons, I would reverse the ALC’s decision.

KITTREDGE, J., concurs.

. In my opinion, the Department’s argument regarding the definition of "taxpayer” differs significantly, and notably, from prior interpretations. For example, in Media General Communications, Incorporated v. South Carolina Department of Revenue, 388 S.C. 138, 694 S.E.2d 525 (2010), three associated corporations (the corporations) challenged the accounting procedure the Department utilized in calculating the corporations' South Carolina income tax. That case centered on section 12-6-2320 of the South Carolina Code, which provides in pertinent part:

(A) If the allocation and apportionment provisions of this chapter do not fairly represent the extent of the taxpayer’s business activity in this State, the taxpayer may petition for, or [the Department] may require, in respect to all or any part of the taxpayer’s business activity, if reasonable:
(4) the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income.

S.C.Code Ann. § 12-6-2320(4).

The Department initially issued tax assessments for the corporations utilizing the separate entity apportionment method (the SEA method), the Department’s standard method for apportioning income among multi-state, related business entities. Id. at 142, 694 S.E.2d at 526-27 ("South Carolina's statutory apportionment methodology as utilized in the Department's assessments ... results in income taxes and license fees ... in the amount of $3,758,320.”). The corporations filed a protest requesting the Department use the combined entity apportionment method (the CEA method). The CEA method's details are not pertinent to the instant case, but resulted in a significantly lower tax burden of $863,179. Id. at 142, 694 S.E.2d at 527. The Department determined that the CEA method fairly represented the corporations' business activities, but denied the corporations' petition on the ground that the Department did not have the authority to require use of the CEA method. Id. at 143, 694 S.E.2d at 527. The ALC reversed, finding that the allowance of the use of "any other method” as provided by section 12-6-2320(4) encompassed [the CEA method]. Id. The Department appealed, and advanced an argument rooted firmly in the statutory definition of "taxpayer:”

*153The Department ... argues section 12-6-2320(A)(4) should not be construed to allow [the CEA method] based on the legislative intent expressed in the corporate tax statutes requiring the filing of tax returns by a single entity. Specifically, the South Carolina Code defines “taxpayer” as including “an individual, trust, estate, partnership, association, company, corporation, or any other entity subject to the tax imposed by this chapter or required to file a return.” S.C.Code Ann. § 12-6-30(1) (2000). The Department notes the definition refers to a single corporation as a taxpayer and thus to separate filing requirements for each entity. Consequently, this definition must be used for the meaning of "taxpayer” as it appears in section 12-6-2320(A) and it limits the statute’s application to a separate entity.

Id. at 148-49, 694 S.E.2d at 530 (finding that the ALC was not required to defer to an interpretation contrary to the plain language of the statute (emphasis in original)). However, in the instant case, the Department asks the Court to ignore the statutory definition of taxpayer to achieve their now intended result, one at odds with the General Assembly’s intent.

. The Department argues that the term "taxpayer” is limited to the corporation mentioned in section 12-6-3420, and that if this Court relies on the statutory definition of "taxpayer,” the "absurdity arises that subsections (A)(2) and (A)(3) remain devoid of a reference to any type of entity, leaving a relation back to the corporation as the only proper conclusion.” According to the Department, to "argue that expenditures under these two subsections should be made by corporations only, but qualifying expenses under subsection (A)(1) opens the *155infrastructure credit to all forms of taxpayers is patently illogical.” However, subsections (A)(2) and (A)(3) also do not contain the word "taxpayer” as used in subsection (A)(1). Thus, the Department actually advances the argument subsections (A)(2) and (A)(3) both relate back to the term "taxpayer” in subsection (A)(l), and taken together, all three subsections relate back to the term corporation, a single corporation, as found in section (A)’s first paragraph. In my opinion, it is just as plausible that the General Assembly intended taxpayer’s applicable statutory definition to control subsections (A)(2) and (A)(3). Thus, in my view, there are competing and conceivable interpretations of the import of the term taxpayer in section 12-6-3420, and the Department fails to demonstrate any absurd result.