on September 22, 2008.
This issue introduces a new column in State Tax Notes. Before we turn to the topic of this first installment, let me offer a few words about what I hope to achieve through this column. I have been a tax attorney, later a tax teacher, all my professional life. I pursue tax law, as opposed to some other kind of law, because I believe in the general primacy of statutes (and regulations promulgated under them) over judge-made common law. I do so both as a matter of policy — the superior democratic pedigree of statutes and regulations over judge-made rules1 — and as a matter of contemporary reality. Common law predominated at the inception of Anglo-American law, but we now live in what Judge Guido Calabresi has called the "age of statutes."2 "More than a century has passed since legislative enactments displaced case law as the principal starting points for legal reasoning."3 That being so, especially in an area as pervasively statutory as tax, little exceeds in importance honing one's skills in interpreting texts, including statutes, the constitutions that enable and limit statutes, and the administrative regulations that complement or implement statutes.
I recently wrote an article4 for State Tax Notes focusing on the constitutional and statutory construction5 aspects of the U.S. Supreme Court's recent decision in Kentucky v. Davis.6 This column will extend the inquiry to other aspects of interpretive approaches to the statutes, constitutions, and regulations that frame state and local taxation. The word "matters" in the column title "Interpretation Matters" I mean both as a noun to signify topics to be explored and as a verb to underline the importance of the interpretational exercise.
From that point of view, I turn to the topic of this first installment of the column. Among the most frequently encountered devices or explanations of interpreting legal texts is "plain meaning." Decisions beyond number have recited that when the text is clear, there is nothing to construe, and the statute, regulation, or constitutional provision will be applied according to its plain meaning. That approach is often reasonable, and the frequency of its assertion may seem soothing. But these waters are not always as placid as they appear. The plain-meaning doctrine is sometimes problematic as applied to state and local taxation. It is sometimes overused or abused by the courts.
Below, I examine that proposition through three perspectives. Part I describes the plain-meaning doctrine and explains why judges are attracted to it. Part II analyzes the problems that can occur from uncritical use of plain meaning, especially when clarity is alleged to reside in the bare words of the statute abstracted from context and policy. Part II also considers a recent use tax case as an example of dubious application of the plain-meaning technique. Part III offers practical suggestions for practitioners in advancing and opposing plain-meaning arguments in state and local tax controversies.
I. The Plain-Meaning Doctrine
A prominent treatise stated: "The hard truth of the matter is that American courts have no intelligible, generally accepted, and consistently applied theory of statutory interpretation."7 Nonetheless, there are a number of "generally accepted concrete rules of statutory construction. One is the rule that when the text of a statute is clear, that is the end of the matter."8 Numerous state tax cases have invoked the plain-meaning principle,9 as have many federal cases.10
A manifestation of that rule is that the various canons of construction usually will be inoperable if the statutory text is clear. For instance, a majority of the states recognize the canon that, when reasonably possible, tax statutes are construed in favor of the taxpayer.11 However, almost without exception, the courts hold that that canon does not apply when the meaning of the tax statute is unambiguous.12
The plain-meaning rule has considerable appeal under a democratic system of government, or indeed any system of government that aspires to fairness. "Tax laws, like other laws, are made to be obeyed. They should therefore be intelligible to those who are expected to obey them."13 The assertion of plain meaning also has political benefits for the judge. Adherence to the legislature's expressed will evinces judicial restraint, always a becoming mantle for a judge to wrap around herself.14 Also, plain meaning can help deflect criticism when the outcome of the case may be unpopular. The tacit message from the judge is "don't blame me. I may not like the result any more than you do, but I have to apply the statute the legislature wrote. Blame the legislature." Especially for elected judges, the benefits of couching an opinion in plain language terms can be considerable.
II. Abuse of Plain Meaning
A. In General
The plain-meaning approach is useful only if the court adopts a sufficiently broad angle of vision. Looking at a few words in the statute in isolation can yield an interpretation that seems plain but actually is a distortion. "In expounding a statute, we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy."15
Focusing too narrowly ignores context, that is, the setting of the sentence within a statutory subsection, of the subsection within a section, of the section within a statute, and of the statute within a framework of statutes that may be in pari materia. As both state16 and federal courts17 have acknowledged, reading statutory words out of their context is the road to spurious interpretation.
Focusing too narrowly also can ignore purpose. The approach of the U.S. Supreme Court in the last century has been described as "the soft plain-meaning rule,"18 under which "a plain meaning can be overcome by compelling evidence of a contrary legislative intent, and so the interpreter must always check plain meaning against legislative background."19 Several state courts also take this tack in tax cases.20 A literalistic emphasis on a few words in isolation can produce an interpretation contrary to the legislative intention or purpose that animated enactment of the statute.
B. An Example
The problems that can arise from uncritical use of the plain-meaning doctrine are illustrated by Sparks Nugget,21 decided by the supreme court of my home state, Nevada. Sparks Nugget has significant revenue implications for states with legal casino gaming,22 and its substantive aspects have been discussed in previous articles in State Tax Notes.23 In this column, I want to emphasize the interpretive methods used in the case, particularly the use (or misuse) of the plain-meaning technique.
Sparks Nugget is a casino-hotel-resort. It buys food to serve to patrons. After preparation, some of the food is sold in the Nugget's restaurants while some is given away to the casino's gambling patrons as complimentary meals (comps). The state tax department maintained that the Nugget was liable for use tax on the comped meals. The trial court agreed with the state. The Nevada Supreme Court reversed, with one judge dissenting.24
Sparks Nugget involved both statutory and state constitutional provisions. Although there are differences between those two types of texts,25 the majority subjected their interpretation to the same principles. Article 10, section 3(A) of the Nevada Constitution provides: "the legislature shall provide by law for . . . the exemption of food for human consumption from any tax upon the sale, storage, use or consumption of tangible personal property." Section 3(A) does not define food for human consumption, but it does exclude from the exemption "prepared food intended for human consumption."26
Both the Sparks Nugget majority and the dissent found the language of the constitutional provision to be "plain and unambiguous" — only in opposite directions. The majority offered that "food for human consumption" plainly and unambiguously supported the Nugget,27 while the dissent maintained that "prepared food intended for immediate consumption" plainly and unambiguously supported the state.28
One expects differing views from adverse parties. But when different judges read the same provision as pointing plainly and unambiguously in contrary directions, the provision might not really be plain and unambiguous. Indeed, the Nevada Supreme Court had made a similar observation nearly a decade earlier,29 an observation that the Sparks Nugget court might have done well to heed.
Perhaps evincing less than complete confidence in their plain-meaning arguments, both the majority and the dissent offered other arguments as well. The majority offered a contextual argument, noting that the use tax is designed to reach otherwise taxable items that had escaped sales taxation by the state (for example, because they had been bought outside the state). The food in issue in the case had not so escaped — instead it was intentionally excluded from the sales and use tax net by a constitutional exemption. Subjecting the food to use taxation, therefore, would be out of keeping with the backstop role of the use tax in the context of the overall tax structure.30 The dissent did not respond to that argument.
The dissent argued that the Legislature intended to subject that sort of prepared food to taxation.31 It also asserted the canon that exemptions from taxation should be read narrowly.32 The majority countered the canon by saying that construction must not be so narrow that the exemption itself is vitiated.33 That back-and-forth about the canon left it singularly unhelpful in illuminating the path to the right decision of the case. Standing behind its plain-meaning assertion, the majority refused to engage with the dissent's legislative intent argument.34
Thus is revealed the problem created by misuse of the plain-meaning approach in Sparks Nugget. Both the majority and the dissent made spurious, mutually refuting claims of textual clarity, and the existence of those claims inhibited serious analysis of the dimensions on which the case should have turned: the majority's context argument and the dissent's legislative intent argument.
III. Implications for Practice
In light of the foregoing, what lessons can the tax adviser or advocate draw as to advancing or opposing plain-meaning arguments in state and local tax cases? From the perspective of a proponent, if a plain-meaning argument can be enlisted in support of one's position, should it be made? Typically yes, unless it is too much of a stretch. For the reasons suggested in Part I, most judges are drawn to plain-meaning arguments, and what meanings will be found to be plain by a court sometimes will be surprising.35 However, in my view, an implausible plain-meaning argument is better omitted. Experienced advocates know that their personal credibility is among their most precious assets, both for the case at hand and future cases. That asset should not be devalued by advancing arguments that stand little chance of being accepted.36
From the perspective of an opponent, what are the possible responses to a plain-meaning argument offered by the other side? There are at least four. First, as in Sparks Nugget, it may be possible to describe a counter plain-meaning argument — that is, a way in which the relevant text can be said to be clear but in the other direction.
Second, plain meaning often can be opposed by broadening or narrowing the angle of vision. As we have seen, context controls. But what are the boundaries of the relevant context? One meaning may be suggested from looking at a narrow context (the sentence, paragraph, or subsection), while another meaning may be suggested by defining context more broadly (to embrace the whole section or multiple sections read together as an integrated or related "supertext").
Third, as seen in the Sparks Nugget dissent, plain meaning may sometimes be opposed by purpose. That attack should be launched only after careful research. Legislative intent or purpose is more compelling to some judges; statutory language is more compelling to others. The inclinations of the judge before whom the advocate will appear in the case must be investigated.
Fourth, it is widely accepted — even by textualist judges37 — that the words of a statute should not be given literal effect if they would produce an absurd result. Absurdity has a fluid quality, ranging (depending on the judge) from logical impossibility at the strictest to bad policy at the loosest.38 Since policy arguments usually can be enlisted on both sides of a dispute worth litigating, a more or less plausible absurd-results argument will often be possible when it becomes necessary to oppose a plain-meaning argument.
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Interpretation Matters is a new column by Steve R. Johnson, the E.L. Wiegand professor and associate dean for Faculty Development and Research, William S. Boyd School of Law, University of Nevada, Las Vegas. He can be contacted at email@example.com.
1See, e.g., Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 865 (1984).
2 Guido Calabresi, A Common Law for the Age of Statutes (1982).
3 Mary Ann Glendon, "Comment," in A Matter of Interpretation: Federal Courts and the Law 95 (1997).
4 Steve R. Johnson, "What Davis Means for Constitutional and Statutory Interpretation," State Tax Notes, June 16, 2008, p. 877, Doc 2008-11842, or 2008 STT 117-3.
5 In an earlier day, a distinction was sometimes made between interpretation and construction, the former staying closer to the statutory text and the latter roaming more freely. E.g., Francis Lieber, Legal and Political Hermeneutics, pp. 113-117 and 134-140 (2d ed. 1839). That distinction is echoed on rare occasion in modern state taxation cases. E.g., Enron Oil & Gas Co. v. Department of Revenue and Taxation, 820 P.2d 977, 982 (Wyo. 1991). Despite such occasional examples, interpretation and construction are used these days essentially as synonyms. In this column, I will follow that modern practice.
6Department of Revenue v. Davis, 128 S. Ct. 1801 (2008).
7 Henry M. Hart Jr. and Albert M. Sacks, The Legal Process 1169 (William N. Eskridge Jr. and Philip P. Frickey eds., 1994).
8 Antonin Scalia, "Common-Law Courts in a Civil-Law System: The Role of United States Federal Courts in Interpreting the Constitution and Laws," in A Matter of Interpretation: Federal Courts and the Law 16 (1997).
9E.g., Director of Tax'n v. Kansas Krude Oil Reclaiming Co., 691 P.2d 1303, 1307 (1984); Duke Power Co. v. South Car. Tax Comm'n, 354 S.E.2d 902, 903 (S.C. 1987).
10E.g., Ratzlaf v. United States, 510 U.S. 135, 147-148 (1994).
11E.g., Atlantic Gulf Communities Corp. v. City of Port St. Lucie, 764 So. 3d 14, 19 (Fla. App. 1999); Lancaster County Bd. of Equalization v. Condev West, Inc., 581 N.W.2d 452, 458-459 (Neb. App. 1998). That canon will be explored in a later installment of this column. (For the decision in Atlantic Gulf, see Doc 1999-9917 or 1999 STT 52-9.)
12E.g., National Transportation, Inc. v. Howlett, 345 N.E.2d 767, 770 (Ill. App. 1976); Redford Opportunity House v. Township of Redford, 2004 WL 1103769, at *2 (Mich. App. 2004) (unpublished op.); State Tax Comm'n v. Edmondson, 196 So. 2d 873, 875 (Miss. 1967). (For the opinion in Redford Opportunity House, see Doc 2004-10878 or 2004 STT 101-11.)
13Hawaiian Trust Co. v. Borthwick, 35 Haw. 429, 1940 WL 7562, at *5 (Haw. 1940) (quoting Philadelphia Storage Battery Co. v. Lederer, 21 F.2d 320, 321-322 (E.D. Pa. 1927)).
14 That is hardly a recent revelation. Dean Landis remarked three generations ago: "Judges are rarely willing to admit their role as actual lawgivers, and such admissions as are wrung from their unwilling lips lie in the field of common and not statute law." James M. Landis, "A Note on 'Statutory Interpretation,'" 43 Harv. L. Rev. 886, 891 (1930).
15United States v. Boisdore's Heirs, 49 U.S. (8 How.) 113, 122 (1850).
16E.g., National Paving Co. v. Director, Div. of Tax'n, 3 N.J. Tax 133, 139 (1981) ("No other definition makes any logical sense in the context of the statute."), aff'd, 4 N.J. Tax (Super. Ct. App. Div. 1982).
17E.g., O'Gilvie v. United States, 519 U.S. 79, 95 (1996); Brown v. Gardner, 513 U.S. 115, 118 (1994); United Sav. Ass'n v. Timbers of Inwood Forest Assoc., 484 U.S. 365, 371 (1988).
18 William N. Eskridge, Jr., Philip B. Frickey, and Elizabeth Garrett, Legislation and Statutory Interpretation 231 (2d ed. 2006).
19Id. at 232.
20See, e.g., In re Director of Prop. Valuation, 161 P.3d 755, 761 (Kan. 2007) (per curiam) (identifying ascertaining the intent of the Legislature as the first rule of statutory construction).
21Sparks Nugget, Inc. v. State of Nevada ex rel Nevada Dep't of Tax'n, 179 P.3d 570 (Nev. 2008) (per curiam), reh. denied, No. 45755 (July 16, 2008). (For the decision, see Doc 2008-6931 or 2008 STT 63-15.)
22 Nevada is facing use tax refund claims of over $90 million involving the same issue as Sparks Nugget. Las Vegas Review-Journal, Apr. 15, 2008, p. 7B. Similar issues have also been litigated in Indiana and New Jersey. Horseshoe Hammond, LLC v. Indiana Dep't of State Revenue, 865 N.E.2d 725 (Ind. Tax 2007), rev. denied, 878 N.E.2d 207 (Ind. 2007); Boardwalk Regency Corp. v. Director, Div. of Tax'n, 17 N.J. Tax 331 (1998), rev'd & remanded, 18 N.J. Tax 328 (Super. Ct. App. Div. 1999). (For the decision in Horseshoe Hammond, see Doc 2007-11131 or 2007 STT 90-8.)
23 Jennifer Carr and Cara Griffith, "Possible Outcomes of Nevada's Complimentary Meals Case," State Tax Notes, May 5, 2008, p. 407, Doc 2008-9392, or 2008 STT 88-18; Andrew W. Swain and Jennifer E. Gauger, "Casino 'Comps' — Are Freebies Really Free?," State Tax Notes, July 14, 2008, p. 95, Doc 2008-13854, or 2008 STT 136-2.
24 An effort to legislatively overturn Sparks Nugget failed. That prompted the sole dissenter to concur in denial of the state's motion for rehearing and to accept the majority's view of what constitutes a use taxable event.
25See, e.g., Scalia, supra note 8, at 37-41.
26 Nev. Const. Art. 10, section 3(A)(2)(a).
27 179 P.3d at 572; see also id. at 576 n.31 (referring to the constitutional provision's "plain meaning").
28Id. at 577-78 (Douglas, J., dissenting).
29Nevada Power Co. v. Haggerty, 989 P.2d 870, 878 (1999) ("The fact that the dissent views the [key statutory term] differently than the majority is ample evidence that reasonable minds can disagree over the definition . . . in the context of this statute.").
30 179 P.3d, at 575.
31Id. at 578.
32Id. at 577.
33Id. at 574 (quoting Dawley, Inc. v. Indiana Dep't of State Revenue, 605 N.E.2d, 1222, 1225 (Ind. T.C. 1992)).
34 179 P.3d, at 576 n.31 ("given the Constitution's plain meaning, well-established tenets of statutory construction preclude the dissent's consideration of legislative intent").
35 "The 'plain meaning' of a statute is sometimes in the eye of the reviewing court." James P. Fuller, Adam S. Halpern, and Timothy J. Fitzgibbon, "Swallows Holding: IRS 'Interpretive' Regulations Entitled to Chevron Deference; Tax Court Reversed," Int'l Tax J., July-August 2008, pp. 15, 18.
36 Some degree of caution should be inspired by the fact that "every statute that comes into litigation is to some degree 'ambiguous.'" Scalia, supra note 8, at 28.
37E.g., Green v. Bock Laundry Mach. Co., 490 U.S. 504, 529 (Scalia, J., concurring in the judgment).
38E.g., Wells v. Anderson, 659 P.2d 833, 835 (Kan. App. 1983). ("It is a general rule that statutes should be construed to avoid unreasonable results.")