Brenton R. Stewart and Mary M. Stewart, appellants.
Nebraska Department of Revenue, an agency of the State of Nebraska, and Leonard J. Sloup, in his official capacity as acting tax Commissioner, appellees.
Administrative Law: Judgments: Appeal and
Error. A judgment or final order rendered by a district court
in a judicial review pursuant to the Administrative Procedure
Act may be reversed, vacated, or modified by an appellate
court for errors appearing on the record.
__:__: __. When reviewing an order of a district court under
the Administrative Procedure Act for errors appearing on the
record, the inquiry is whether the decision conforms to the
law, is supported by competent evidence, and is neither
arbitrary, capricious, nor unreasonable.
Administrative Law: Statutes: Appeal and
Error. To the extent that the meaning and interpretation of
statutes and regulations are involved, questions of law are
presented, in connection with which an appellate court has an
obligation to reach an independent conclusion irrespective of
the decision made by the court below.
Statutes: Appeal and Error. Statutory
language is to be given its plain and ordinary meaning, and
an appellate court will not resort to interpretation to
ascertain the meaning of statutory words which are plain,
direct, and unambiguous.
Statutes. It is not within the province of the courts to read
a meaning into a statute that is not there or to read
anything direct and plain out of a statute.
Statutes: Legislature: Intent. In order for
a court to inquire into a statute's legislative history,
the statute in question must be open to construction, and a
statute is open to construction when its terms require
interpretation or may reasonably be considered ambiguous.
Neb. 1011] 7. Statutes. If
the language of a statute is clear, the words of such statute
are the end of any judicial inquiry regarding its meaning.
Statutes: Legislature: Intent. The intent of
the Legislature may be found through its omission of words
from a statute as well as its inclusion of words in a
Statutes: Legislature: Presumptions. The
Legislature is presumed to know the general condition
surrounding the subject matter of the legislative enactment,
and it is presumed to know and contemplate the legal effect
that accompanies the language it employs to make effective
from the District Court for Lancaster County: Jeffre
Cheuvront, District Judge, Retired.
A. Oldemeyer and Andre R. Barry, of Cline, Williams, Wright,
Johnson & Oldfather, L.L.R, for appellants.
Douglas J. Peterson, Attorney General, and L. Jay Bartel for
Heavican, C.J., Wright, Miller-Lerman, Cassel, Kelch, and
taxpayers sold their capital stock of a corporation and, in
order to qualify for a special capital gains election,
structured the transaction to comply with
the literal terms of a definitional statute. The disallowance
of the election was upheld below. In this appeal, we must
decide whether either the "economic substance"
doctrine or the "sham transaction" doctrine
provided a basis to disallow the taxpayers' election.
Because the statute is not open to interpretation and the
plain language demonstrates that the Legislature intended to
confer [294 Neb. 1012] this tax benefit, the answer is no. We
reverse, and remand with directions the contrary decision
determining a resident taxpayer's liability for state
income tax, the Nebraska Revenue Act of 1967 allows the
taxpayer to make one election during his or her lifetime to
exclude from federal adjusted gross income those capital
gains from the sale of "capital stock of a corporation
acquired by the individual (a) on account of employment by
such corporation or (b) while employed by such
corporation." This exclusion is known as the special
capital gains election.
R. Stewart and Mary M. Stewart, both residents of Nebraska,
attempted to make this election regarding their sales of
capital stock in Pioneer Aerial Applicators, Inc. (Pioneer),
to Aurora Cooperative Elevator Company (Buyer).
February 26, 2010, the Stewarts and the one other shareholder
of Pioneer (collectively the Sellers) signed a contract to
sell their combined shares of Pioneer to Buyer. The contract
closing date was scheduled for March 1. Throughout this
appeal, all of the parties before us have asserted that the
closing date-March 1-is the relevant date. We limit our
structure of the sale was critical to the tax exclusion.
Without additional shareholders, the sale was not eligible
for the special capital gains election because, otherwise,
Pioneer was not a qualified corporation. A qualified
corporation is one that
at the time of the first sale or exchange for which the
election is made, [has] (i) at least five shareholders and
(ii) at least two shareholders or groups of shareholders [294
Neb. 1013] who are not related to each other and each of
which owns at least ten percent of the capital
the agreement was made, Pioneer had only three shareholders.
Thus, it did not meet element (i) of the definition. Prior to
the closing date, Mary was to sell one share of stock to each
of three officers of Buyer. This was to be done so that
Pioneer was a qualified corporation for the underlying stock
purchase with Buyer.
purchase agreement explicitly laid out the restructuring
intended to make the Sellers' sale to Buyer eligible for
the special capital gains election:
Ownership of Stock at Closing. It is the intention
of the parties to structure the transaction in a manner that
complies with the requirements of Neb. Rev. Stat.
§§ 77-2715.08 and 77-2715.09 (R.R.S. 2009) in order
to permit Sellers to subtract the capital gain from the sale
of the Stock from their federal adjusted income pursuant to
Neb Rev Stat. § 77-2715.9 [sic] (R.R.S. 2009)
and exclude such gain from Nebraska income tax. Accordingly,
at least three (3) days prior to the Closing, Mary [M.]
Stewart agrees to transfer One (1) share of the Pioneer Stock
to each of [three officers of Buyer] in exchange for
non-recourse notes in an amount equal to .011% of the Stock
Purchase Price, which notes shall be due and payable at the
Closing; secured by a first lien in the Pioneer Stock so
transferred; and be subject to the terms of this Agreement
February 26, 2010, pursuant to the plan in the purchase
agreement, Mary entered into separate agreements for the
sales of stocks with the three officers, and Pioneer issued
new stock certificates for the four of them to reflect the
sale. At closing, on March 1, the Sellers and the officers