ABB C-E Nuclear Power, Inc., Respondent v. Director of Revenue, Appellant.

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court. Opinion Missouri Court of Appeals Western District Case Style: ABB C-E Nuclear Power, Inc., Respondent v. Director of Revenue, Appellant. Case Number: WD65820 Handdown Date: 06/30/2006 Appeal From: Administrative Hearing Commission, Hon. Karen Winn Counsel for Appellant: James Robert Layton Counsel for Respondent: John Paul Barried Opinion Summary: The director of revenue appeals the decision of the administrative hearing commission, who concluded that the gain on the deemed sale of assets of ABB C-E Nuclear Power, Inc., (ABB) is non-business income under the multistate tax compact, section 32.200, art. IV.1, RSMo 2000. Resolution of this case requires construing a state revenue law, which is within the exclusive appellate jurisdiction of the Supreme Court of Missouri. TRANSFERRED TO THE SUPREME COURT OF MISSOURI. Division holds: In April 2000, ABB's parent company, Asea Brown Boveri, Inc., (Asea) sold all of ABB's stock to a third party. On its federal income tax return, Asea elected, under internal revenue code section 338(h)(10), to treat the sale of ABB not as a sale of stock, but rather as a "deemed" sale of all the assets of ABB followed by "deemed liquidation" of ABB. For its tax year ended April 28, 2000, on its Missouri corporate income tax return, ABB reported the gain from the deemed sale of assets as non-business income. The commission concluded the gain was non-business income and granted summary judgment in favor of ABB and against the director. Supreme Court of Missouri precedent has decided how to characterize taxable income to a parent company selling a subsidiary. But this case involves construing a state revenue law to determine how to characterize the taxable income to a subsidiary when the selling parent elects to treat the transaction as a deemed sale of assets rather than a stock sale. In the absence of Supreme Court of Missouri precedent to apply, this case requires construction of the term

"business income" in the multistate tax compact, which we lack jurisdiction to do. The case is hereby transferred to the Supreme Court of Missouri pursuant to article V, section 11 of the Missouri constitution. Citation: Opinion Author: Ronald R. Holliger, Presiding Judge Opinion Vote: TRANSFERRED TO THE SUPREME COURT OF MISSOURI. Lowenstein and Ulrich, J.J., concur. Opinion: The Director of Revenue appeals the decision of the Administrative Hearing Commission (AHC), who concluded that the gain on the deemed sale of assets of ABB C-E Nuclear Power, Inc., (ABB) is non-business income under the Multistate Tax Compact, Section 32.200, art. IV.1 (Mo. Rev. Stat. 2000). Resolution of this case requires construing a state revenue law, which is within the exclusive appellate jurisdiction of the Missouri Supreme Court. Mo. Const. art. V Section 3; Dow Chem. Co. v. Dir. of Revenue, 787 S.W.2d 276, 278 (Mo. banc 1990). Because we have no jurisdiction to hear an appeal involving the construction of a state revenue law, this appeal is transferred. Facts In April 2000, ABB's parent company, Asea Brown Boveri, Inc., (Asea) sold all of ABB's stock to a third party. ABB is a Delaware corporation with its commercial domicile in Connecticut, doing business and paying taxes in Missouri. Asea is neither a Missouri taxpayer nor a party to these proceedings. On its federal income tax return, Asea elected, under Internal Revenue Code section 338(h)(10), to treat the sale of ABB not as a sale of stock, but rather as a "deemed" sale of all the assets of ABB followed by "deemed liquidation" of ABB. The result of the election is that Asea, the selling parent, does not declare the gain from the sale; ABB, the sold company, declares the gain. For its tax year ended April 28, 2000, on its Missouri Corporate Income Tax return, ABB reported the gain from the deemed sale of assets as non-business income. In October 2002, the Director of Revenue issued ABB a Notice of Deficiency, recharacterizing the gain as business income subject to apportionment under the Multistate Tax Compact. ABB appealed to the AHC, and the AHC granted summary judgment in favor of ABB, concluding the gain was non-business income. The Director appeals. Discussion

The Missouri Supreme Court has exclusive appellate jurisdiction in all cases involving "the construction of the revenue laws of this state." Mo. Const. art. V, Section 3; Dow Chem., 787 S.W.2d at 278. The Director contends that this case involves the application of a revenue law, rather than construction of a revenue law, because our Supreme Court has already construed the applicable law so as to govern the outcome of this case. The Director argues that Williams Cos. v. Director of Revenue, 799 S.W.2d 602 (Mo. banc 1990), and its predecessors resolve this dispute herein. We disagree. Williams decided that when a parent company sells all the stock of a subsidiary, and the parent company and subsidiary are part of the same "unitary business," then the sale of stock constitutes "business income" to the selling parent for purposes of the Multistate Tax Compact. Id. at 607. In Dow Chemical Co. v. Director of Revenue, 787 S.W.2d 276, 286 (Mo. banc 1990), our Supreme Court likewise affirmed that capital gain to the parent company selling stock of a subsidiary is business income taxable to the parent. But Dow did not expressly decide whether the stock sale was "business income," because the taxpayer did not dispute that the stock sale constituted business income. Id. at 278. The Supreme Court had previously determined that a parent company's sale of a subsidiary's stock was not business income where the subsidiaries were discreet business enterprises, not involved in the unitary business of the parent. James v. Int'l Tel. & Tel. Corp., 654 S.W.2d 865, 869-70 (Mo. banc 1983). This case does not involve characterization of the gain for the selling parent company. The question here is whether, when the selling parent elects under federal tax law to treat the sale of stock as a deemed sale of assets by the subsidiary, the subsidiary's resultant gain is "business income." The parties cite cases resolving this question in other states, but not in Missouri. In the absence of Missouri Supreme Court precedent to apply, this case requires construction of the term "business income" in the Multistate Tax Compact, which we lack jurisdiction to do. The case is hereby transferred to the Supreme Court of Missouri pursuant to article V section eleven of the Missouri Constitution. Separate Opinion: None This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.