                 IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                  February 23, 2010 Session

   DANA CORPORATION v. LOREN L. CHUMLEY, Commissioner of
Revenue, State of Tennessee

                 Appeal from the Chancery Court for Davidson County
                     No. 04-3225-III   Ellen H. Lyle, Chancellor


                   No. M2009-00888-COA-R3-CV - Filed May 28, 2010


This appeal involves the denial of a claim for job tax credits by the Commissioner of
Revenue. The taxpayer asserts that it qualifies for the credits pursuant to Tenn. Code Ann.
§ 67-4-2109(c)(2)(A). The trial court determined that the taxpayer, as a successor to the
entity that originally earned the credits, is barred by Tenn. Code Ann. § 67-4-2109(e)(1) from
utilizing the remaining credits for the years at issue. The taxpayer appeals. We affirm.


       Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                             Affirmed; Case Remanded

J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which H ERSCHEL P. F RANKS,
P.J. and R ICHARD H. D INKINS, J., joined.

Charles A. Trost, Brett R. Carter, and Christopher A. Wilson, Nashville, Tennessee, for the
appellant, Dana Corporation.

Robert E. Cooper, Jr., Attorney General & Reporter; Michael E. Moore, Solicitor General;
and Jonathan N. Wike, Assistant Attorney General, for the appellee, Commissioner of
Revenue, State of Tennessee.1

                                            OPINION

                                       I. BACKGROUND



       1
          When the suit was originally filed, Loren L. Chumley was the Commissioner of Revenue. Reagan
Farr is the current Commissioner.
      Dana Corporation (“Dana”) is a Virginia corporation properly qualified to do business
in Tennessee, with its principal office located in Toledo, Ohio. Dana and its affiliates are
engaged in the manufacture of automobile parts and supplies.

       Plumley Companies, Inc. (“PCI”), was headquartered in Paris, Tennessee, and was
engaged in the manufacture and distribution of extruded and molded rubber and silicone
sealing products, primarily for automotive applications. PCI, employing more than 1,600
people, had manufacturing facilities in Paris and McKenzie, Tennessee, as well as other
locations, and a sales office in Troy, Michigan.

        Between 1992 and 1993, PCI made an investment of $2,016,708 in its manufacturing
facilities located in Tennessee. PCI filed with the Tennessee Department of Revenue a
business plan reflecting an increase of 109 net new full-time jobs in order to earn a job tax
credit in the amount of $218,000. PCI subsequently used portions of the job tax credit to
offset its franchise tax liability by separate offsets of $18,079, $17,374, $18,079, and
$18,079. The final franchise and excise tax return filed by PCI was for the short period
ending January 31, 1995.

       On February 1, 1995, Dana acquired PCI’s stock, which it contributed to a Dana
subsidiary created for the purpose of acquiring PCI. The Dana subsidiary then merged with
PCI. The surviving entity was called Plumley, Inc. (“Plumley”). On January 1, 1997, Dana
merged with Plumley, with the surviving entity being Dana. Following the merger, the
manufacturing operations formerly owned by PCI remained as a division of Dana.

       Dana claimed a job tax credit based on its acquisition of PCI on its franchise and
excise tax returns for the years 2001 and 2002. By two notices of outstanding franchise and
excise tax liability, each dated November 7, 2003, the Commissioner of Revenue
(“Commissioner”) disallowed Dana’s claim in the total amount of $182,287.06 for the tax
years 2001 and 2002. By check dated February 5, 2004, Dana paid the full amount of the
franchise and excise tax liability, plus interest, for the tax years 2001 and 2002. On April 14,
2004, Dana filed a claim seeking a refund. The claim was subsequently denied.

        In November 2004, Dana initiated this lawsuit, asserting that it had created job tax
credits through its acquisition of PCI.2 In an amended complaint filed in May 2008, Dana


        2
         The basis for the refund claim in Dana’s original complaint was essentially the same as that argued
by the taxpayer in Weyerhaeuser Co. v. Chumley, No. M2005-00212-COA-R3-CV, 2007 WL 2580025
(Tenn. Ct. App. M.S., Sept. 7, 2007), namely, that a taxpayer company can create the required “net new full-
time employee jobs[s],” pursuant to Tenn. Code Ann. § 67-4-2109(c)(2)(A), through acquisition rather than
through the original hiring of the employees.

                                                    -2-
no longer contended that it was entitled to tax credits as a result of its acquisition of PCI, but
maintained that it was entitled to use the remaining carryover job tax credits generated by
PCI. In its second amended complaint, filed in November 2008, Dana requested that it be
refunded $36,158.

        In December 2008, both parties filed motions for summary judgment. Following a
hearing, the trial court awarded summary judgment in favor of the Commissioner, holding
that Tenn. Code Ann. § 67-4-2109(e)(1) (Supp. 2002) bars successor entities from taking the
credit for the years at issue. Dana filed a timely notice of appeal from this ruling.

        In a separate ruling that did not override the trial court’s denial of Dana’s refund
claim, the court determined that Dana would not be barred as a successor entity based solely
on Tenn. Code Ann. § 67-4-2109(c)(2)(A). In this separate ruling, the trial court applied this
court’s reasoning in Little Six Corp. v. Johnson, No. 01-A-01-9806-CH-00285, 1999 WL
336308 (Tenn. Ct. App., M.S., May 28, 1999). In Little Six, this court found that credits
generated by an entity may be used by its successors in interest. In the instant case, the trial
court noted that Tenn. Code Ann. § 67-4-2109(c)(2)(E) provides that any unused tax credits
incurred for a period before July 1, 1999, may be carried forward “subject to the limitations
established by prior law.” The court found that the law relating to the job tax credit
carryforward in effect on the date of the merger was Tenn. Code Ann. § 67-4-908, and that
the language of that provision did not explicitly prohibit the carryforward of unused job tax
credits by a successor merged corporation. Thus, the trial court concluded that, should Tenn.
Code Ann. §67-4-2109(c)(2)(E) control, Little Six dictates that Dana would be entitled to a
refund.


                                           II. ISSUE

       The issue presented for our review is as follows:

       Whether the trial court correctly held that Tenn. Code Ann. § 67-4-2109(e)(1)
       (Supp. 2002) bars Dana from taking a job tax credit against its Tennessee
       franchise and excise tax liability for the years 2000 and 2001, where Dana’s
       only means of claiming the credit is as a successor to PCI, which was the
       company that created the net new jobs on which the claim was based.

The Commissioner requests that this court review the trial court’s decision on the separate
issue decided in reliance upon Little Six and hold that Tenn. Code Ann. § 67-4-2109(c)(2)(A)
bars Dana’s refund claim independently of Tenn. Code Ann. § 67-4-2109(e)(1).



                                               -3-
                              III. STANDARD OF REVIEW

       “Issues of statutory interpretation are questions of law which this Court reviews de
novo, with no presumption of correctness attached to the determination of the trial court.”
Nissan N. Am., Inc. v. Haislip, 155 S.W.3d 104, 106 (Tenn. Ct. App. 2004) (citing State v.
Morrow, 75 S.W.3d 919, 921 (Tenn. 2002)). “[W]hen there is no conflict in the evidence as
to any material fact . . ., the question on appeal is one of law, and [the] scope of review is de
novo with no presumption of correctness. . . .” Union Carbide Corp. v. Huddleston, 854
S.W.2d 87, 91 (Tenn. 1993) (citing Estate of Adkins v. White Consol. Indus.,788 S.W.2d 815,
817 (Tenn. Ct. App. 1989)).

      As noted in Gate Bluegrass Precast, Inc. v. Chumley, No. M2007-00250-COA-R3-
CV, 2008 WL 695867 (Tenn. Ct. App. W.S., Mar. 14, 2008),

       [t]he rules governing statutory construction are well-established. When
       interpreting a statute, the court is to “ascertain and give effect to the legislative
       intent without unduly restricting or expanding a statute’s coverage beyond its
       intended scope.” We must ascertain the intent of the legislature from the
       natural and ordinary meaning of the statutory language and in context of the
       entire statute, without forcing a construction that would limit or expand its
       scope. When the language of a statute is clear, we must utilize the plain,
       accepted meaning of the words used by the legislature to ascertain the statute’s
       purpose and application. If the wording is ambiguous, however, we must look
       to the entire statutory scheme and at the legislative history to ascertain the
       legislature’s intent and purpose. We must construe statutes in their entirety,
       assuming that the legislature chose the words of the statute purposely, and that
       the words chosen “convey some intent and have a meaning and a purpose”
       when considered within the context of the entire statute.

       The court must construe tax statutes liberally against the taxing authority. Tax
       exemptions, however, are construed strictly against the taxpayer, who must
       carry the burden of demonstrating an entitlement to the exemption. Tax
       exemptions will not be implied. Rather, there is a presumption against
       exemption, “and any well founded doubt defeats a claimed exemption.”

Id. at *2 (citations omitted) (emphasis added).




                                                -4-
                                    IV. DISCUSSION

        The statute that grants a job tax credit against a taxpayer’s franchise and excise tax
liability and governs the tax years in question, 2001 and 2002, states, in relevant part:

       (c)(2)(A) A job tax credit of two thousand dollars ($2,000) for each net new
       full-time employee job shall be allowed against a taxpayer’s franchise and/or
       excise tax liability for that year; provided, that:

              (i) The job filled is for a position newly created in Tennessee,
              and, for at least ninety (90) days prior to being filled by the
              taxpayer, did not exist in Tennessee as a job position of the
              taxpayer or of another business entity;
              (ii) The job position was filled during the tax year and was in
              existence at the end of the tax year;
              (iii) The taxpayer has met the required capital investment in the
              qualified business enterprise;
              (iv) The credit shall first apply in the tax year in which the
              qualified business enterprise increases net full-time employment
              by twenty-five (25) or more jobs, and in those subsequent fiscal
              years in which further net increases occur above the level of
              employment established when the credit was last taken; and
              (v) The new full-time employee jobs are filled prior to January
              1, 2008.

                                            ***

       (E) Any unused job tax credit incurred for a tax year beginning prior to July
       1, 1999, may be carried forward for fifteen (15) years after the fiscal year in
       which the credit originated, subject to the limitations established by prior law.
       Any unused job tax credit incurred for a tax year beginning on or after July 1,
       1999, may be carried forward for fifteen (15) years after the tax year in which
       the credit originated.

                                            ***

       (e)(1) Each taxpayer is considered a separate entity; therefore, in the case of
       mergers, consolidations, and like transactions, no tax credit incurred by the
       predecessor taxpayer shall be allowed as a deduction on the tax return filed by
       the successor taxpayer. With the exception set forth in subdivision (e)(2), a

                                              -5-
       credit carryforward may be taken only by the taxpayer that generated it.

       (2) Notwithstanding the provisions contained in subdivision (e)(1), when a
       taxpayer merges out of existence and into a successor taxpayer that has no
       income, expenses, assets, liabilities, equity or net worth, any qualified
       Tennessee credit carryover of the predecessor that merged out of existence
       shall be available for carryover on the return of the surviving successor’
       provided, that the time limitations for the carryover have not expired.

Tenn. Code Ann. § 67-4-2109 (Supp. 2002).

       When the General Assembly completely revised the job tax credit statute in 1999, it
inserted, among other things, section 67-4-2109(e)(1), which expressly prohibited successor
use of carryovers. 1999 Pub. Acts, Ch. 406 deleted the prior provision contained in Tenn.
Code Ann. § 67-4-908 (1998), which did not contain the express prohibition against
successor use of the credits. Chapter 406 expressly provided that it “shall apply to tax years
beginning on or after July 1, 1999.” Dana’s claim for a refund is based on job tax credits
asserted for the tax years 2001 and 2002. Clearly, those tax years began after July 1, 1999.
Thus, under the language of 1999 Pub. Acts, Ch. 406, and Tenn. Code Ann. § 67-4-
2109(e)(1), after July 1, 1999, no job tax credit was available to taxpayers claiming the credit
as successor entities.

       Dana admits the language of Tenn. Code Ann. § 67-4-2109(e)(1) clearly excludes
successor entities. There is no dispute that PCI – not Dana – generated the credits by
creating the jobs. Accordingly, Tenn. Code Ann. § 67-4-2109(e)(1) specifically prohibits
Dana from claiming the remaining job tax credits as a successor to PCI. Even if Tenn. Code
Ann. § 67-4-2109(c)(2)(A) would have permitted Dana to take the job tax credit against its
tax liability for the years preceding 1999, any prior availability of the credit would not
continue into the years in which Tenn. Code Ann. § 67-4-2109(e)(1) was in effect.

       In our view, the trial court did not apply Tenn. Code Ann. § 67-4-2109(e)(1)
retroactively. While Dana argues that section (e)(1) was not part of the pre-1999 law and
cannot be the basis for limiting job tax credits generated under pre-1999 law, the version of
the tax law to be applied when determining a taxpayer’s liability is the tax law in effect
during the period for which the tax is being paid. See Associated P’ship I, Inc. v.
Huddleston, 889 S.W.2d 190, 195 (Tenn. 1994); Gate Bluegrass Precast, Inc. v. Chumley,
No. M2007-00250-COA-R3-CV, 2008 WL 695867, at *3 (Tenn. Ct. App. W.S., Mar. 14,
2008) (noting “[T]he Code applicable to this dispute is the Code as it existed during the tax
period at issue.”). A taxpayer’s tax liability for any particular period includes the application
of any credit that is available under the version of the statute in effect for that period. Thus,

                                               -6-
whether or not a particular credit is available depends entirely on the version of the law in
effect for the tax period for which the taxpayer’s tax liability is being determined. “[T]ax
credits are, for all practical intents, ‘a matter of legislative grace,’ which the Legislature ‘may
grant or deny in any manner it sees fit; . . . and the scope, application, and terms of eligibility
are entirely for the Legislature to establish.’” State Bldg. & Constr. Trades Council of
California v. Duncan, 162 Cal. App. 4th 289, 323 (Cal. Ct. App. 2008) (quoting Gen. Motors
Corp. v. Franchise Tax Bd., 139 P.3d 1183 (Cal. 2006)).

         Furthermore, as noted in Penn-Dixie Cement Corp. v. Kizer, 250 S.W.2d 904 (Tenn.
1952),

         it has been repeatedly held in this State that the Constitution, Art. I, Sec. 20,
         forbidding retrospective laws, means only that no retrospective law which
         impairs the obligation of a contract or divests or impairs vested rights shall be
         passed. . . . As the Act neither impairs the obligation of contracts, nor affects
         vested rights, it does not fall within the inhibition of either the State or
         National Constitutions.

Id. at 908. The statutory provisions at issue do not involve contractual obligations, as the
General Assembly expressed no intention to bind the State contractually. See Baker v.
Arizona Dept. of Revenue, 105 P.3d 1180, 1184 (Ariz. Ct. App. 2005) (stating “[A]bsent
some clear indication that the legislature intends to bind itself contractually, the presumption
is that ‘a law is not intended to create private contractual or vested rights but merely declares
a policy to be pursued until the legislature shall ordain otherwise.’”) (quoting Nat’l R.R.
Passenger Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66, 105 S.Ct. 1441
(1985)). We further note that Dana’s acquisition of PCI in 1995 did not create a vested right
to the credits contained in former section 67-4-908 that survived the replacement of that
section by 1999 Pub. Acts, Ch. 406. A taxpayer has no vested right in unused credits the
availability of which has been repealed. Capital Fin. Corp. v. Comm’r of Taxation and
Finance, 639 N.Y.S.2d 501, 503 (N.Y. App. Div. 1996). As stated in Garofolo, Curtiss,
Lambert & MacLean, Inc. v. Commonwealth, 648 A.2d 1329 (Pa. Commw. Ct. 1994), “[a]
tax deduction is not a vested right of the taxpayer. The . . . carry-forward deduction is a
creature of the legislature, subject to repeal, suspension or reinstatement by the legislature,
so long as it does not act in an arbitrary and unreasonable manner.” 648 A.2d at 1334. “[A]
taxpayer has no vested rights in a taxing statute; hence, he or she has no vested right in the
continuance of particular tax laws.” 16A C.J.S. Constitutional Law § 394; see also Penn-
Dixie Cement Corp., 250 S.W.2d at 909 (stating “an income tax law is not unconstitutional
merely because of its retrospective operation, especially where such laws only affect
deductions that may be taken from income, which are matters of legislative favor . . . .” and
“[t]he state was not cut off from . . . changing its method of . . . excise taxation.”).

                                                -7-
Accordingly, even if one were to assume that Dana would have been entitled to PCI’s unused
credits under the law as it existed prior to 1999, that eligibility was eliminated by the 1999
Pub. Acts, Ch. 406, and any unused credits were lost. King v. Campbell County, 217 S.W.3d
862, 869 (Ky. Ct. App. 2006) (repeal of tax credit does not violate constitutional prohibition
against retroactive impairment of “vested” rights); Rivers v. State, 490 S.E.2d 261, 263 (S.C.
1997) (finding “case law from the United States Supreme Court and courts throughout the
country makes clear that taxpayers have no vested interest in tax laws remaining
unchanged”).

        Dana also argues that rather than focusing on the provision set forth in section (e)(1),
the court should rely on the language of the revised job tax credit set forth in Tenn. Code
Ann. § 67-4-2109(c)(2)(E) that provides “[a]ny unused job tax credit incurred in a tax year
beginning prior to July 1, 1999, may be carried forward for fifteen (15) years after the fiscal
year in which the credit originated, subject to the limitations established by prior law.”
(Emphasis added). By this language, Dana asserts that the Legislature intended for the law
regarding carryover credits in effect prior to the enactment of the amended statute to continue
applying to job tax credits incurred prior to the 1999 amendment. Thus, Dana claims that the
law in effect during the tax years at issue in this case specifically incorporated “prior law”
as the law applicable to determine how the job tax credits incurred prior to July 1, 1999, are
to be carried forward and applied in subsequent periods. Dana relies on the fact that this
“prior law” does not provide for a limitation on the ability of a successor entity to claim job
tax credits.

       We do not find Dana’s argument concerning “prior law” persuasive. We agree with
the Commissioner that the phrase “limitations established by prior law” refers to the
provisions in Tenn. Code Ann. § 67-4-908(c)(2)(E) and (F) (1998), which limited the dollar
amounts of the credit for each tax year. The 1999 revision sets forth in § 67-4-2109(c)(2)(E)
the limits on the dollar amount for credits and carryovers for tax years after July 1, 1999.
Under the 1999 revision, the dollar amount for credits earned after July 1, 1999, is
determined according to the percentages set forth in § 67-4-2109(c)(2)(F), while the dollar
amount for credits earned before July 1, 1999, is determined according to “the limitations
established by prior law,” namely the formula set forth in Tenn. Code Ann. § 67-4-
908(c)(2)(F)(1998).

       For the reasons discussed, we find that Dana has not met its burden to demonstrate an
entitlement to the carryover credits. The trial court did not err in determining that Tenn.
Code Ann. § 67-4-2109(e)(1) bars Dana from using the job tax credits created by PCI.




                                              -8-
                                      Little Six Ruling

        Dana also relies on this court’s decision in Little Six Corp. v. Johnson, No., 01-A-01-
9806-CH-00285, 1999 WL 336308 (Tenn. Ct. App. M.S., May 28, 1999), in support of its
claim to the carryover credit. The trial court agreed with Dana that under the statutory
analysis in Little Six, a decision released shortly before section 67-4-2109(e)(1) was added
to the Code, the statutory language of Tenn. Code Ann. § 67-4-2109(c)(2)(A) would allow
Dana to take the credit. The trial court held, however, that because § 67-4-2109(e)(1)
absolutely bars Dana’s claim, its decision as to the Little Six argument did not result in an
award of summary judgment to Dana. We concur in the trial court’s ruling that section 67-4-
2109(e)(1) bars Dana’s claim; we further agree with the court that its decision based on
section 67-4-2109(e)(1) renders its alternative decision on the Little Six analysis moot. Now
that the subsection has been added, it is no longer necessary to analyze the statutory language
to determine whether it implies that successor entities through merger are entitled to
carryover credits. Tenn. Code Ann. § 67-4-2109(e)(1) expressly holds that such entities are
not entitled to the credit and renders any other statutory language extraneous to this issue.
Accordingly, as we do not find it necessary to resolve the issue of whether the trial court
erred in its separate ruling based on Little Six, we will not discuss it here.


                                      Attorney’s Fees

        The Commissioner seeks to recover attorney’s fees and expenses incurred in this
litigation pursuant to Tenn. Code Ann. § 67-1-1803(d). Tennessee follows the American
Rule with regard to attorney’s fees, which provides that, absent a statute or agreement to the
contrary, each litigant is responsible for paying its own attorney’s fees and litigation
expenses. State v. Brown & Williamson Tobacco Corp., 18 S.W.3d 186, 194 (Tenn. 2000).
However, the General Assembly enacted a statute that mandates an award of reasonable
attorney’s fees and expenses to the prevailing party in tax litigation pursuant to Tenn. Code
Ann. § 67-1-1803. The relevant portion of the statute provides:

       The court shall award to the prevailing party reasonable attorneys’ fees and
       expenses of litigation up to twenty percent (20%) of the amount assessed or
       denied, including interest after payment. For purposes of this subsection (d),
       attorneys’ fees shall not exceed fees calculated on the basis of reasonable
       hourly rates multiplied by a reasonable number of hours expended in the case
       and shall not be calculated by application of any premium, enhancement, or
       contingency.

Tenn. Code Ann. § 67-1-1803(d). It is up to the trial court to set the amount of fees within

                                              -9-
the guidelines set forth in the statute. Carson Creek Vacation Resorts, Inc. v. State, Dept.
of Revenue, 865 S.W.2d 1, 2 (Tenn. 1993).

        The Commissioner prevailed on the matters in controversy; therefore, the
Commissioner is entitled to an award of attorney’s fees and expenses arising from this
litigation, which includes her fees and expenses in the trial court and on appeal. See Carson
Creek, 865 S.W.2d at 2. We therefore remand to the trial court for a proper determination
of the fees and expenses the Commissioner is entitled to recover pursuant to Tenn. Code
Ann. § 67-1-1803(d).


                                   V. CONCLUSION

        The decision of the trial court disallowing the credits and denying the refund claim
is affirmed. This case is remanded to the trial court for an award of attorney’s fees to the
Commissioner as required by Tenn. Code Ann. § 67-1-1803(d), and for assessment of costs
below. Costs of the appeal are assessed against the appellant, Dana Corporation.




                                                   _________________________________
                                                   JOHN W. McCLARTY, JUDGE




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