Opinion
No. 75-127
Decided October 9, 1975. Opinion modified and as modified petition for rehearing denied November 20, 1975. Certiorari denied January 12, 1976.
Claiming a right under changing taxation statutes to carry back loss to prior tax years, bank brought action to review director of revenue's decision denying it a refund of a tax paid.
Reversed
1. TAXATION — Bank — Taxed — General Corporation Tax Law — Carry Back — Loss — Permissible — Prior Years — Franchise Tax Law. A bank that is now taxed under general corporation tax law and which sustained a net operating loss in 1970 may carry back that loss to the prior tax years when it was taxed under the so-called franchise tax law.
Appeal from the District Court of Jefferson County, Honorable Winston W. Wolvington, Judge.
Bradley, Campbell Carney, Tim L. Campbell, John G. Brand, for plaintiff-appellant.
J. D. MacFarlane, Attorney General, Edward G. Donovan, Solicitor General, Chris J. Eliopulos, Special Assistant Attorney General, for defendant-appellee. Division I.
Appellant, Golden State Bank, appeals from the trial court's decision affirming a determination by the Director of the Department of Revenue denying its claim for a refund. We reverse.
[1] The issue is whether a bank, taxed under 1969 Perm. Supp., C.R.S. 1963, 138-1-35, which sustains a net operating loss in 1970, may carry back that loss to prior tax years, pursuant to 1965 Perm. Supp., C.R.S. 1963, 138-1-59, at a time when the bank was taxed under 1965 Perm. Supp., C.R.S. 1963, 138-1-55. The Department denied appellant's claim for the refund on the ground that the "Colorado Income Tax act contains no provision which authorizes an income tax operating loss, occuring [sic] in 1970, to be carried back to reduce the income of the Petitioner Bank computed under section 138-1-55."
The following facts were stipulated in the trial court: Appellant is a state-chartered commercial bank with its principal place of business in Golden, Colorado. For the taxable years 1967, 1968, and 1969, appellant filed Colorado state corporation income tax returns pursuant to 1965 Perm. Supp., C.R.S. 1963, 138-1-1 et seq. (now § 39-22-101 et seq., C.R.S. 1973). Computation of the appellant's taxes for these years was determined under 1965 Perm. Supp., C.R.S. 1963, 138-1-55. Effective April 1, 1970, Colo. Sess. Laws 1970, ch. 97, repealed 138-1-55 for all taxable years beginning after December 31, 1969. As a result of the repeal of this section, all national and state-chartered banks, whose taxes had previously been computed under 138-1-55, became subject to the preexisting general corporate tax imposed under 1969 Perm. Supp., C.R.S. 1963, 138-1-35 (now § 39-22-301, C.R.S. 1973).
Thereafter, for the taxable year 1970, appellant filed its Colorado tax return with the Colorado Department of Revenue pursuant to 138-1-35. Having operating losses for that year, it carried those losses back to the years 1967, 1968, and 1969, and, using those losses as deductions in recomputing the amount of taxes due for those years, claimed a refund of income taxes paid for those years, pursuant to the carry-back provisions of 1965 Perm. Supp., C.R.S. 1963, 138-1-59 (now § 39-22-504, C.R.S. 1973). The claim for refund for each of these taxable years was denied by the Department of Revenue. Appellant filed a protest and a hearing was held before the Department of Revenue which denied appellant's claim for refund.
The Department argues that since the tax imposed under former section 138-1-55 has been characterized as a franchise tax, see, e.g., Tradesmens National Bank v. Oklahoma Tax Commission, 309 U.S. 560, 60 S. Ct. 688, 84 L.Ed. 947, a bank taxed under that section could not have carried back a net operating loss pursuant to section 59, which provides that "the amount of the net operating loss that may be carried forward and carried back for Colorado income tax purposes shall be. . . ." 1965 Perm. Supp., C.R.S. 1963, 138-1-59(1). (emphasis added) We do not agree.
"The nature of a tax must be determined by its operation rather than by particular descriptive language that may have been applied to it." Educational Films Corp. v. Ward, 282 U.S. 379, 51 S. Ct. 170, 75 L.Ed. 400; (emphasis added) see also Walker v. Bedford, 93 Colo. 400, 26 P.2d 1051. Thus, whether or not former section 55 is characterized as a franchise tax or income tax, the availability of section 59 to a bank taxed under former section 55 is to be determined on the basis of the legislative intent. The fundamental rule of statutory construction is that "the legislative intent is to be ascertained and given effect, if possible." Alvarez v. District Court, 186 Colo. 37, 525 P.2d 1131; People v. Marques, 184 Colo. 262, 520 P.2d 113.
See, e.g., Granite National Bank v. State Tax Commission, 30 Utah 2d 351, 517 P.2d 1310, where the court found a similar statute, although characterized as a franchise tax, to be "in effect an income tax."
The Department concedes that section 59 applies to the bank now that it is taxed under section 35, but argues that section 59 was not applicable when the bank was taxed under section 55, and that therefore it may not carry back the losses to reduce the bank's income as computed under section 55, but may only carry forward those losses as was done when section 59 was first effective. Section 59 provides: "No net operating loss shall be carried back to a taxable year which ends prior to the effective date of this article. . . ." 1965 Perm. Supp., C.R.S. 1963, 138-1-59(2).
The Department's position is, in essence, that the effective date of section 59 for banks is the date of the repeal of section 55, i.e., the date when banks become taxed under section 35. If it is correct in this premise, its denial of the claims for refunds was correct, since a statute will not be given retrospective construction so as to affect past transactions, unless such intent be clearly and unequivocally expressed. California Co. v. Colorado, 141 Colo. 288, 348 P.2d 382; see also Edelstein v. Carlile, 33 Colo. 54, 78 P. 680.
Therefore, we view the question of whether section 59 was available to a bank taxed under former section 55 as dispositive of the case. The differences in the taxes imposed by sections 55 and 35, discussed more fully below, are not of such a nature as to prevent the continued application of section 59 to the bank, if the bank could have availed itself of section 59 when it was taxed under former section 55.
Section 55 provided:
"(2) Every bank . . . shall annually pay to this state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, computed in the manner provided in subsection (5) of this section. . . ."
. . . .
"(5) The net income of an organization subject to the tax imposed by this section shall be determined in the manner provided in sections 138-1-37 and 138-1-38, relating to corporations, except that income from government and municipal securities shall be included in such net income." 1965 Perm. Supp., C.R.S. 1963, 138-1-55(2) and (5). (emphasis added)
Section 37 has no relevance here because it only provides for the allocation of income between domestic and foreign activities. Section 38 provides:
"(1) The net income of a corporation means the corporation's federal taxable income, as defined in the internal revenue code, for the taxable year, with the modifications specified in this section."
"(2) There shall be added to federal taxable income the modifications enumerated in subsections . . . (2) (d) of section 138-1-10. . . ."
"(3) There shall be subtracted from federal taxable income the modifications enumerated in paragraphs . . . (h) . . . of section 138-1-10(3). . . ." C.R.S. 1963, 138-1-38(1), (2) and (3). (emphasis added)
Thus, a bank's income subject to tax was the bank's federal taxable income, plus "the federal net operating loss deduction," 1965 Perm. Supp., C.R.S. 1963, 138-1-10(2)(d), minus "the net operating loss deduction allowed under section 138-1-59." 1965 Perm. Supp., C.R.S. 1963, 138-1-10(3)(h).
We find the statutory intent clear. A bank computed its net taxable income under section 38, which is the same provision used to compute the net taxable income of other corporations. Section 38 provides for a net operating loss deduction allowed under section 59. Section 59(1) permits the deduction, properly allocated, "in the same manner that it is allowed under the internal revenue code." The Internal Revenue Code mandates that the net operating loss first be carried back, and only if there is any excess not absorbed by the income in prior years, shall it be carried forward. 26 U.S.C. § 172(b). The only difference in the method by which a bank and a corporation computed net income subject to tax is the exception in section 55(5) relating to income from government and municipal securities. Nowhere in section 55 is section 59 excluded. Thus, we conclude that section 59 was available to banks taxed under former section 55.
Since the net operating loss is a deduction in the computation of taxable net income, section 59 was not applicable to banks under subsection (7) of former section 55 which provided: "Except as to the manner of computing the net income subject to tax, each [organization] shall be subject to all other provisions of this article applicable to such other corporations." (emphasis added)
Furthermore, since section 59 was applicable to both sections 55 and 35, the differences between section 55 and section 35 are not material to the issue of whether a net operating loss under section 59 should be permitted to carry back and reduce the taxable income in prior years. Colo. Sess. Laws 1970, ch. 97, affected article 1 of title 138 in only one respect, it repealed section 55; it amended nothing. By virtue of this repeal, banks, both national and state, became subject to section 35 which provision establishes taxes on all domestic corporations and foreign corporations doing business in Colorado. The rate of taxation under section 55 was 6%, under section 35 it was and is 5%. Thus, if a carry-back to the prior year is permitted, rather than a carryover, the appellant may save an additional sum equal to 1% times the loss deduction. The legislature is presumed to have knowledge of the existing laws on the taxation of corporations. See Board of County Commissioners v. Lunney, 46 Colo. 403, 104 P. 945. If, on repeal of section 55, the legislature had intended to prevent this savings, it could have done so.
Section 55(3) also exempted national and state banks from all property taxes of the state, or any subdivision thereof, except taxes upon their real property. In the absence of a federal statute, the state could impose no tax on a national bank. Union Bank Trust Co. v. Phelps, 288 U.S. 181, 53 S. Ct. 321, 77 L.Ed. 687. Colorado adopted section 55 pursuant to the authority granted in 12 U.S.C. § 548, and, as required by that federal statute, section 55 taxed national and state banks on a nondiscriminatory basis. The exemption, and the exception to it, resulted from 12 U.S.C. § 548, which required that only the methods and types of tax enumerated in the statute, none of which permitted general property taxes to be imposed except on real property, could be adopted.
Pub.L. 91-156 § 1 (Dec. 24, 1969), amended 12 U.S.C. § 548, broadened the state's power to tax national banks, and resulted in the repeal of Section 55.
The final difference between the taxes imposed by section 55 and section 35 was that, under section 55, banks had to include income from government and municipal securities in their net income. See 1965 Perm. Supp., C.R.S. 1963, 138-1-55(5). The Department asserts that it was this difference, in fact, that caused the "bookkeeping loss" incurred by appellant in 1970 which appellant seeks to carry back.
There is nothing in the record to support this assertion, and the trial court made no findings in this regard. In any event, as we noted above, the legislature is presumed to have knowledge of existing laws and, had it been its intent, it could have expressly prevented a carry-back due to a bank's losses incurred under section 35 as a result of this change. Further, if the legislature's intent in this regard is in doubt or ambiguous, the statute is to be construed in favor of the taxpayer. Colorado v. Estate of Fisch, 153 Colo. 525, 387 P.2d 282.
Judgment reversed and cause remanded to the trial court with directions to remand the cause to the Director of the Department of Revenue for determination of the amount of the refund due and entry of an order thereon.
JUDGE COYTE and JUDGE ENOCH concur.