MacFarlane v. Utah State Tax Commission, 2006 UT 18

Summary

The Supreme Court of Utah considered whether Utah residents who were shareholders in S corporations could claim credits under Utah Code section 59-10-106 for corporate franchise taxes paid by those corporations to Texas and California. The court held that the statutory phrase "on income" includes taxes measured by or calculated according to income, regardless of whether they are labeled franchise or excise taxes. The court affirmed summary judgment for the taxpayers and reversed the Utah State Tax Commission's decisions.

Holdings

1. The phrase 'on income' in Utah Code section 59-10-106 includes taxes measured by or calculated according to income, even when those taxes are labeled franchise or excise taxes. Utah resident shareholders may therefore claim credits for their pro rata shares of the qualifying corporate franchise taxes paid to Texas and California.
2. Although tax-credit statutes may generally be strictly construed against taxpayers, that rule is a secondary interpretive consideration and cannot be applied to defeat clear statutory language or manifest legislative intent.

Questions Presented

1. Whether Utah Code section 59-10-106 permits shareholders of S corporations to claim credits against Utah individual income tax for their pro rata shares of franchise taxes paid by the corporations to other states when those taxes are measured by income.
2. Whether the rule strictly construing tax credits against the taxpayer precludes the claimed credits.

Disposition

other