                  IN THE SUPREME COURT OF TENNESSEE
                             AT NASHVILLE
                                   June 2, 2015 Session

      VODAFONE AMERICAS HOLDINGS, INC. & SUBSIDIARIES V.
        RICHARD H. ROBERTS, COMMISSIONER OF REVENUE,
                     STATE OF TENNESSEE

          Appeal by Permission from the Court of Appeals, Middle Section
                      Chancery Court for Davidson County
                    No. 071860-IV    Russell T. Perkins, Judge


              No. M2013-00947-SC-R11-CV – FILED MARCH 23, 2016


JEFFREY S. BIVINS, J., concurring in part and dissenting in part.

       I agree with much of the analysis in the majority opinion. Indeed, although in my
mind it presents a close question, I can agree with the majority that the taxpayer’s
calculation of franchise and excise taxes under the statutory apportionment formula does
not “fairly represent the extent of the taxpayer’s business activity” in Tennessee. See
Tenn. Code Ann. § 67-4-2014(a) (2015). However, where I must part company with the
majority is on the issue of the Commissioner’s compliance with the Tennessee
Department of Revenue’s (“Department”) own regulation applicable in this case. See
Tenn. Comp. R. & Regs. 1320-06-01-.35(1)(a)(4) (“the variance regulation”).

        I begin with the critical premise that “[t]he standard statutory apportionment
formula is presumed to be correct, and the party seeking to employ an alternate method
has the burden of showing that the statutory method is inappropriate.” Am. Tel. & Tel.
Co. v. Huddleston, 880 S.W.2d 682, 691 (Tenn. Ct. App. 1994) (hereinafter “AT&T”)
(citing Donald M. Drake Co. v. Dep’t of Revenue, 500 P.2d 1041, 1043-44 (Or. 1972);
Donovan Constr. Co. v. Mich., Dep’t of Treasury, Revenue Div., 337 N.W.2d 297, 300
(Mich. Ct. App. 1983)). Moreover, the variance provision “is to be interpreted narrowly
in order to carry out the purpose of uniform apportionment under the act.” Id. at 691-92
(citing Donald M. Drake Co., 500 P.2d at 1044). Indeed, “[t]here is a strong presumption
in favor of the normal apportionment formula and against the applicability of the relief


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provision.” Id. at 692 (citing Roger Dean Enters., Inc. v. State, Dep’t of Revenue, 387
So. 2d 358, 363 (Fla. 1980)).1
       With these principles in mind, I note importantly that the Commissioner’s variance
letter makes no attempt whatsoever to demonstrate his compliance with the variance
regulation. In fact, the letter is devoid of even a mention of the variance regulation.
        Moreover, the majority states the following in its opinion:
                We agree with the Commissioner that the subject variance is applied
        in a “limited and specific” case. In its argument, Vodafone catastrophizes
        that the Commissioner will impose similar variances on the entire
        telecommunication industry, effectuating industry-wide change in tax
        policy. As pointed out by the trial court below, however, this is sheer
        speculation. There is no evidence in the record of other similar variances,
        or even of whether other multistate telecommunications corporations share
        the characteristics that motivated the Commissioner to impose a variance
        on Vodafone. Moreover, as discussed below, the franchise and excise tax
        statutes have been amended to address this type of situation. Vodafone’s
        argument is without any basis in the record before us.

This approach incorrectly places the burden of proof upon the taxpayer. The
Commissioner is imposing the variance. This is not a case in which the taxpayer is
seeking the variance.
        Additionally, as the majority correctly points out, the Department did not adopt the
model regulation in its entirety. Whereas the Multistate Tax Commission’s model
regulation allows the variance authority to extend to industry-wide exceptions to the
statutory apportionment provisions, Tennessee did not adopt this provision. See
Multistate Tax Comm’n Allocation and Apportionment Regs., Reg. IV. 18(a); Tenn.
Comp. R. & Regs. 1320-06-01-.35(1)(a)(4). The Commissioner should not be able to
ignore his own regulation that is intentionally more limited than the model regulation.
While I certainly realize that the variance imposed upon Vodafone in this case technically
applies only to Vodafone, to deny that the imposition of this variance on this taxpayer in
this industry is tantamount to imposing an industry-wide variance is to leave our common


1
        The majority claims that AT&T “is not helpful in deciding this appeal.” For support of this
proposition, the majority notes that AT&T is factually different from the instant case in that AT&T
involved a request from the taxpayer to require the Commissioner to grant a variance, as opposed to the
Commissioner’s imposing a variance at his initiative here. Indeed, that case is factually different.
However, the same legal principles set forth above should apply to the Commissioner in this case, just as
they applied to the taxpayer in AT&T.
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sense at the door. See State ex rel. Maner v. Leech, 588 S.W.2d 534, 540 (Tenn. 1979)
(“[S]tatutes must be construed with the saving grace of common sense.” (internal
quotation marks omitted)).2
         Finally, the variance regulation provides, “[Tennessee Code Annotated sections
67-4-2014 and 67-4-2112] may be invoked only in specific cases where unusual fact
situations (which ordinarily will be unique and nonrecurring) produce incongruous results
under the apportionment and allocation provisions contained in the Franchise and Excise
Tax Laws.” Tenn. Comp. R. & Regs. 1320-06-01-.35(1)(a)(4). The majority spends very
little time addressing the important issue of whether the Commissioner’s variance in this
case extends beyond his limits to issue variances “only in specific cases where unusual
fact situations (which ordinarily will be unique and nonrecurring) produce incongruous
results.” Id. Rather, the majority relies heavily on the term “ordinarily” as effectively a
blanket extension of the Commissioner’s variance authority. Given that the industry-
wide language was not adopted in Tennessee, the “unusual fact situations” language of
the regulation then should require the Commissioner, as the party with the burden of
proof, to demonstrate that this was not an industry-wide practice. See id.; AT&T, 880
S.W.2d at 691.
        While this case might present a situation that is “ordinarily . . . nonrecurring,”
there is no basis to demonstrate why there should be an exception to the requirement that
it be “ordinarily . . . unique.” See Tenn. Comp. R. & Regs. 1320-06-01-.35(1)(a)(4).
Once again, the Commissioner did not even attempt to satisfy this requirement in his
variance letter. Also, on multiple occasions at oral argument, counsel for the
Commissioner was asked what facts in this case satisfied the variance requirement that
this situation is “unique.” At no point did counsel answer the questions other than to take
the position, in essence, that “unique” under the variance is not the same as the general
use of the word “unique.” Yet, he offered no other working definition of the word. See
State v. Flemming, 19 S.W.3d 195, 197 (Tenn. 2000) (“We determine legislative intent
from the natural and ordinary meaning of the statutory language within the context of the
entire statute without any forced or subtle construction that would extend or limit the
statute’s meaning.” (citing State v. Butler, 980 S.W.2d 359, 362 (Tenn. 1998))). Given
this situation, I simply cannot agree with the majority’s conclusory determination that
this case presents an exception to the “ordinarily . . . unique” requirement of the variance




2
        “Generally, rules and regulations promulgated pursuant to statutory directive and not inconsistent
with such statutes have the force of law.” Kogan v. Tenn. Bd. of Dentistry, No. M2003-00291-COA-R3-
CV, 2003 WL 23093863, at *5 (Tenn. Ct. App. Dec. 30, 2003) (citing Houck v. Minton, 212 S.W.2d 891
(Tenn. 1948); Parkridge Hosp., Inc. v. Califano, 625 F.2d 719 (6th Cir. 1980)).
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regulation because the Commissioner has provided no factual basis to support such a
conclusion.
       I certainly recognize the unfairness that would occur if, in fact, portions of
Vodafone’s Tennessee revenue were to become “phantom” income that would go
untaxed in any state. I also clearly recognize that Vodafone is wearing no white hat in
this case. I am loath to conclude that Tennessee may not be able to tax proceeds
appropriately that may “fairly represent the extent of the taxpayer’s business activity” in
Tennessee. Tenn. Code Ann. § 67-4-2014(a). However, I will not agree to a “forced”
interpretation of the variance regulation to avoid this result. See Flemming, 19 S.W.3d at
197. In short, I cannot conclude that the Commissioner has carried his burden or that the
regulation allows the result reached by the majority. For these reasons, I respectfully
dissent.


                                          _________________________________
                                          JEFFREY S. BIVINS, JUSTICE




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