Opinion
49061, 49086.
ARGUED FEBRUARY 12, 1974.
DECIDED APRIL 22, 1974. REHEARING DENIED JULY 11, 1974.
Income tax. Fulton Superior Court. Before Judge Tidwell.
Arthur K. Bolton, Attorney General, H. Perry Michael, Lauren O. Buckland, Assistant Attorneys General, for appellant.
Troutman, Sanders, Lockerman Ashmore, Carl E. Sanders, Dale M. Schwartz, for appellee.
The Revenue Commissioner's permissions for the plaintiff taxpayer and its affiliated corporations to file consolidated returns, were, both under the law and their specific terms, only tentative, subject to the commissioner's audit to determine the appropriate type of return. The taxpayer having failed to establish that its taxes were erroneously or illegally collected, and prove its correct tax liability, its action for refund should have been resolved in the commissioner's favor on motion for summary judgment.
ARGUED FEBRUARY 12, 1974 — DECIDED APRIL 22, 1974 — REHEARING DENIED JULY 11, 1974 — CERT. APPLIED FOR.
Plaintiff, Gable Industries, Inc., a Maine corporation domesticated in Georgia, is the successor in interest to Fuqua National, Inc. (Fuqua Industries, Inc., until 1967), a Georgia corporation with principal offices and place of business in Augusta, by virtue of a merger in 1971.
Fuqua Industries, Inc., was primarily engaged in the business of owning and operating a television station in Augusta, Georgia; it derived substantially all of its income from sources within this state, consisting primarily from providing services in Georgia pursuant to contracts accepted and paid for in this state, and nearly all of its assets, property, business, and employees were located within this state.
Claussen's, Inc., a wholesale bakery business, was a wholly-owned Georgia subsidiary corporation of Fuqua Industries, Inc., with its principal place of business in Augusta. It owned and operated several plants in this state and did most of its business within this state.
Rentavision of Brunswick, Inc., another Georgia corporation and subsidiary of Fuqua Industries, Inc., owned and operated a cable television business entirely within this state, with all income derived from within the state.
On August 18, 1964, the Georgia Department of Revenue granted "tentative permission" to Fuqua Industries, Inc., and its subsidiary, Claussen's, Inc., to file consolidated corporate income tax returns beginning with the fiscal year ended June 30, 1964, "conditionable [sic] upon findings revealed in future audits." On September 20, 1966, similar "tentative permission" was granted to Fuqua Industries, Inc., and its subsidiary, Rentavision of Brunswick, Inc., beginning with the fiscal year ended June 30, 1966. The latter permission stated as follows: "This tentative permission is subject to audit by a representative of this department within the period provided by the statute of limitation and in the event such audit reveals that this method does not reflect the true income attributable to the state of Georgia, this department reserves the right to revoke the permission hereby granted. This tentative permission is also subject to the provision that net operating losses sustained by each member of the group filing a consolidated return shall apply against that member's income in accordance with the provisions of Section 92-3109(m) of the Georgia Income Tax Act. When the net operating loss of the member corporation has been exhausted, the available taxable income must then be included in the applicable consolidated return."
Fuqua Industries, Inc. (and subsequently Fuqua National, Inc.) filed consolidated returns in 1965 with Claussen's Inc.; in 1966 and 1967 with Claussen's, Inc., and Rentavision of Brunswick, Inc.; and in 1968 with Claussen's Bakery Products, Inc., for which permission to file a consolidated return had neither been sought nor granted. After audits of the affairs of Fuqua National, Inc., and its aforesaid subsidiaries, the State Revenue Commissioner determined that the corporations were separate businesses; that Fuqua had apportioned income derived in Georgia to other states; that Fuqua had deducted the losses of Claussen's, Inc., and Rentavision from its income; that the three corporations did not meet the requirements for filing a single return, i.e., they did not constitute a unitary business; that separate returns should have been filed; and that his predecessor in office had been without authority to grant the "tentative permissions," which he revoked, issuing assessments for tax deficiencies and interest against Fuqua National, Inc. That corporation paid the tax assessments under protest in 1970, and filed separate claims for refunds for each of the aforesaid four years, which claims the department denied.
The plaintiff successor corporation brought this action against the State Revenue Commissioner for refund of the said taxes. Both parties moved for summary judgment. The showing on the motions was that the corporations filed consolidated federal returns during these same periods; that the corporations' affairs would have been conducted in a radically different manner if it had been known that the tentative permissions could be revoked (as indicated by the commissioner's letters); that it was the commissioner's practice to automatically grant requests for permission to file consolidated corporate income tax returns, subject to revocation of the permission when it was determined that the net effect was to lower the overall taxes paid, or offset profits of one corporation against losses of another, or that the corporations were not in the same type of business (unitary).
The trial judge granted the plaintiff's motion as to its fiscal years 1965, 1966, and 1967, and granted the defendant commissioner's motion as to fiscal year 1968, reserving the right for the defendant to determine the correctness of the plaintiff's returns for all tax years in question even upon a consolidated return basis.
The defendant commissioner appeals from the denial of his motion for summary judgment as to fiscal years 1965, 1966, and 1967, and the plaintiff corporation cross appeals from the denial of its motion for summary judgment as to fiscal year 1968, the order having been certified for immediate review.
The plaintiff taxpayer bases its claim upon the contention that the qualifying phrase (which we have italicized) in the provision of Code Ann. § 92-3202, "The income of two or more corporations shall not be included in a single return except with the expressed consent of the Commissioner," which was added by Ga. L. 1941, pp. 210, 219 (as amended by Ga. L. 1943, p. 109), gave it the right to file a consolidated income tax return, having obtained the alleged "expressed consent of the Commissioner."
The above statute provides for the inclusion (with consent) of the income of two or more corporations in a single return, and does not use the term consolidated return. Although there was a limited right to file consolidated federal income tax returns during the period in question, there was no Georgia statute making such specific provision in effect during the periods in question. On February 14, 1969, the Attorney General rendered an opinion (Opinions of the Attorney General, No. 69-77) that the right to file consolidated income tax returns was not granted by Code Ann. § 92-3202. Although this opinion is not binding on the courts, we adopt it as a correct statement of the law as of the periods in question, and quote from it as follows:
"This is in reply to your recent letter requesting my opinion as to whether the 1941 amendment (Ga. Laws 1941, pp. 210, 219) to Code Ann. § 92-3202 confers the right to file a `consolidated income tax return' on corporations affiliated by common ownership or control.
"If by a `consolidated income tax return' is meant one prepared on the basis that each member of a group of corporations owned or controlled by the same interests is not a taxable entity but is merely a part of a taxable entity, then, in my opinion, neither the 1941 amendment nor any other provision of the Georgia Income Tax Act (Code Ann. Chs. 92-30, 92-31, 92-32, 93 [sic]-33), for that matter, creates such a right. Such a right would result in a reduction of the aggregate liability of the group in years in which some, but not all, of its members sustained a net loss, for each member sustaining a net loss would, in effect, be allowed to offset its net loss against the net income of those members having net income. If the General Assembly had intended such a result, it would have made provision for it in clear and unmistakable language, for it is said that a statute levying a tax will not be extended by implication beyond the clear import of its terms. Gould v. Gould, 245 U.S. 151, 153, 62 L.Ed. 211, 213, 38 S.Ct. 53 (1917).
"It should be noted that the only change the act of 1941 (Ga. L. 1941, pp. 210, 219) made in Code Ann. § 92-3202 was to add the words `except with the expressed consent of the Commissioner' to the second sentence of that Section. Prior to 1941, the second sentence read, `The income of two or more corporations shall not be included in a single return.'
"In arriving at the conclusions expressed herein, I have not been unmindful of the fact that, for federal income tax purposes, Congress has granted the right of filing a consolidated return to certain affiliated corporations. I. R. C. (1954) §§ 1501 to 1505. However, in 1941, that right did not extend to corporations generally, it having been limited to railroad corporations in 1934. 8A Mertens, Law of Federal Income Taxation, § 46.02, p. 9. Although it was extended to corporations generally for purposes of the excess profits tax in 1940, it was not until 1942, after the 1941 amendment, that it was restored to corporations generally for Federal income tax purposes. Id. at 10.
"Moreover, assuming arguendo that the General Assembly, by amending Code Ann. § 92-3202, intended to grant the right to file a consolidated return to certain corporate taxpayers, to which corporations did it grant the right? Nowhere in the Code, in § 92-3202 or in any other section relating to income taxation, can anything be found which attempts to answer this question. Certainly, the General Assembly did not intend that just any group of corporations, no matter what the relationship between its members, should have the right. Congress expressly limited the right to an affiliated group of corporations, I. R. C. (1954) § 1501, and then undertook to define `an affiliated group' I. R. C. (1954) § 1504. Congress, furthermore, directed the Secretary of the Treasury or his delegate to prescribe regulations governing the filing of a consolidated return and the manner of computing the affiliated group's liability. I. R. C. (1954) § 1504.
"To understand the import of the amendment to Code Ann. § 92-3202, one must consider it together with Code Ann. § 92-3113 (6), which was also added by the act of 1941. The obvious purpose of Code Ann. § 92-3113 (6) is to provide the State Revenue Commissioner with the means of preventing tax evasion by contracts or other arrangements between a parent and a subsidiary or between other corporations affiliated by stock ownership or control which do not act at arms length in dealing with one another.
"A common method of evasion employed by such taxpayers is for one member of the group subject to taxation in a particular state to shift or divert a part of its income to some other member which does no business in the state and is, consequently, not subject to taxation by that state. For example, a corporation is organized to engage in manufacturing in a state that either has no income tax law or has low rates. The goods manufactured by it are then distributed by one or more affiliated corporations, created for that purpose, in states that tax net income or tax it at a higher rate than the state of manufacture. By arranging for the selling corporations to buy from the manufacturing corporation at artificially high prices, those owning or controlling the affiliated group are able to bleed off some of the income that, if the parties were acting at arms length, would be either subject to taxation or subject to taxation at high rates. For a collection of cases dealing with the effect of transactions between affiliated corporations in this context, see 130 A.L.R. 1183, 1217.
"Although the State Revenue Commissioner might have sufficient authority to prevent evasion without the benefit of Code Ann. §§ 92-3113(6) and 92-3209, both of which have the same broad purpose of preventing tax evasion, these Sections were apparently adopted to remove any doubt about the matter. Therefore, considering the amendment to Code Ann. § 92-3202 against this backdrop, it seems certain that the General Assembly, by adopting this amendment, has not given to corporate taxpayers for Georgia income tax purposes the right which Congress has given them, through enactment of I. R. C. (1954) §§ 1501 to 1505, for federal income tax purposes. What it has done is to make certain that the Commissioner can require corporate taxpayers to furnish him, in consolidated form if he should deem that helpful, any information that would enable him to discharge his duty of determining the true net income of each corporation belonging to a group owned or controlled by the same interest. See Burroughs Adding Machine Co. v. Wisconsin Tax Commission, 237 Wis. 423, 297 N.W. 574 (1941); Curtis Companies, Inc. v. Wisconsin Tax Commission, 214 Wis. 85, 251 N.W. 497, 92 A.L.R. 1065 (1933)."
Code Ann. § 92-3102 (b, 10, i), added by Ga. L. 1969, pp. 114, 115, provides as follows: "If two or more corporations file Federal income tax returns on a consolidated basis, and in the event that all of such corporations derive all of their income from sources within Georgia, they must file consolidated returns for Georgia income tax purposes. Affiliated corporations which file a consolidated Federal income tax return, but derive income from sources without this state must file separate income tax returns with Georgia, unless they have prior approval or have been requested to file a consolidated return by the Department of Revenue." Hence, even under the present law, the plaintiff and its subsidiaries, which do not all derive all of their income from sources within Georgia, must file separate Georgia income tax returns unless they have the prior approval of or request by the Department of Revenue to file a consolidated return.
The permissions granted by the previous commissioner for the filing of consolidated returns, then, purported to grant a privilege not authorized by law. Furthermore, they were revocable by their terms and therefore the taxpayer could not claim to have an unconditional right thereto, even if the law had made provision therefor. Under the provisions of Code Ann. § 92-3302 (as amended by Ga. L. 1960, pp. 1005, 1007) and § 92-3303 (as amended by Ga. L. 1965, pp. 276, 277), the commissioner can assess any deficiencies he determines exist within three years after the return was filed. As provided in Art. VII, Sec. I, Par. I of the Constitution of 1945 (Code Ann. § 2-5401), "The power to tax corporations ... shall not be surrendered or suspended by any contract, or grant to which the State shall be a party." The commissioner cannot be estopped by previous administrative action taken, when he determines that such actions will reduce the tax liability of the corporations. Cf., State Revenue Commission v. National Biscuit Co., 179 Ga. 90, 100 ( 175 S.E. 368).
In a suit for the refund of income taxes, the taxpayer must (1) establish that the taxes were erroneously or illegally collected (Code Ann. § 92-8436; Ga. L. 1937-38, Ex. Sess., pp. 77, 94; 1945, pp. 272, 274; 1955, pp. 455, 458; 1971, p. 378; 1973, p. 507), and (2) prove (if not plead) his true and correct tax liability. Cf., Oxford v. Shuman, 106 Ga. App. 73, 77 (2b) ( 126 S.E.2d 522). In the case sub judice, the taxpayer has shown neither of the above with respect to any or all of the tax years in question; therefore, for the years 1965, 1966 and 1967, the denial of the commissioner's motion for summary judgment and the grant of the taxpayer's motion for summary judgment were errors. With respect to the year 1968, the grant of the commissioner's motion for summary judgment was correct.
Judgment reversed in the main appeal, affirmed in the cross appeal. Bell, C. J., Eberhardt, P. J., Pannell, P. J., and Clark, J., concur. Deen, Quillian and Webb, JJ., dissent.
The "tentative permission" for Fuqua to join Claussen's, Inc. in its return began with the return for the fiscal year July 1, 1963 through June 30, 1964, inclusive. It thus also covered the fiscal year of July 1, 1964 through June 30, 1965, which is the first year in dispute here. Thereafter, by a letter dated September 20, 1966, "tentative permission" was given to file a joint return with Rentavision of Brunswick, Inc., which by implication (and express mention in the letter requesting such permission) also included Claussen's Inc.
This second letter specifically states, as the first letter did not, that the permission is conditioned on the department's right to revoke "in the event such audit reveals that this method does not reflect the true income attributable to the State of Georgia," and other conditions regarding net operating losses. In my opinion it is obvious that the second letter places the burden on the taxpayer to substantiate its position in a manner which the first letter did not do, and that the first permission, which affected Claussen's Inc. and the year ending June 30, 1965, was sufficiently broad that the taxpayer could bona fide rely upon it and make a proper return thereunder.
I would therefore affirm the trial court as to the 1965 return, but agree to the judgment of reversal as to the remaining years, though not for all the reasons assigned in the opinion.
I am authorized to state that Judges Quillian and Webb concur in this dissent.