JEFFERSON ALLEN ET AL.
COMMISSIONER OF REVENUE SERVICES
October 13, 2016
J. Krisch, with whom was Leslie E. Grodd, for the appellants
Patrick T. Ring, assistant attorney general, with whom were
Matthew J. Budzik, assistant attorney general, and, on the
brief, George Jepsen, attorney general, for the appellee
Palmer, Zarella, Eveleigh, McDonald and Robinson, Js.
plaintiffs, Jefferson Allen and Evita Allen,
appeal from the trial court's award of
summary judgment upholding the decision of the defendant, the
Commissioner of Revenue Services, denying their request for a
tax refund for the taxable years 2002, 2006, and 2007. In
this appeal, the plaintiffs claim that the trial court
improperly concluded that: (1) it lacked subject matter
jurisdiction with respect to the plaintiffs' claim for a
refund for the taxable year 2002 on the basis of the three
year limitation period to file an income tax refund pursuant
to General Statutes § 12-732 (a); (2) §
12-711(b)-18 of the Regulations of Connecticut State Agencies
permitted the defendant to tax the plaintiffs' income
derived from the exercise of options because the options were
granted as compensation for performing services within the
state; and (3) it is constitutional to impose a tax on income
derived from the exercise of nonqualified stock
options by a nonresident who was granted the
options as compensation for performing services within the
state. We disagree with each of the plaintiffs claims.
Because the form of the trial court's judgment with
respect to the plaintiffs' claim relating to the taxable
year 2002 was improper, we reverse the trial court's
award of summary judgment with respect to that taxable year
and remand the case with direction to render judgment
dismissing that claim. We affirm the judgment of the trial
court in all other respects.
following undisputed facts and procedural history are
relevant to this appeal. From 1990 to 2001, Jefferson
Allen served as president and chief financial
officer of Tosco, Inc. (Tosco). During this period, Allen was
domiciled in and performed services solely within
Connecticut. As part of his compensation while employed with
Tosco, he was awarded nonqualified stock
options. In 2002, while the plaintiffs were
residing outside of Connecticut, Allen exercised the options
he was granted by Tosco, resulting in $7, 633, 027 of income.
The plaintiffs filed a Connecticut nonresident and part year
resident income tax return reporting income from exercising
these options in 2002 and paid the applicable tax.
period of nonresidency from 2002 to 2004, the plaintiffs
returned to Connecticut in 2005. From January 1, 2005 to
August 31, 2005, Allen served as the chief executive officer
of Premcor, Inc. (Premcor), and performed services solely
within Connecticut. As part of his compensation for
performing services for Premcor, Allen was awarded
nonqualified stock options. The plaintiffs again moved out of
Connecticut and resided outside the state in 2006 and 2007.
In 2006, Allen exercised certain stock options he had earned
performing services for Premcor, resulting in $43, 360, 812
of income. In 2007, Allen again exercised certain stock
options that were earned as compensation for performing
services for Premcor, resulting in $2, 247, 745 of income.
The plaintiffs timely filed their tax returns and paid the
applicable tax for the taxable years 2007 and 2008.
October, 2009, the plaintiffs filed amended returns for the
taxable years 2002, 2006, and 2007, claiming refunds for the
income tax that the plaintiffs had paid in each of those
years. The plaintiffs' claims for a refund were denied.
In 2013, the Appellate Division of the Department of Revenue
Services affirmed the denial. The defendant thereafter issued
a final determination denying the plaintiffs' claims for
to General Statutes § 12-730,  the plaintiffs timely filed
an appeal from the defendant's determination in the
Superior Court. The parties filed cross motions for summary
judgment on stipulated facts, which the trial court granted
in favor of the defendant. This appeal followed. Additional
facts and procedural history will be set forth as necessary.
we address the issue of whether the trial court properly
concluded that it lacked subject matter jurisdiction
regarding the plaintiffs' claim for a refund for the
taxable year 2002 because they filed their claim after the
lapse of the three year statute of limitations for such a
claim pursuant to § 12-732 (a) (1). The plaintiffs
concede that their request for a refund was filed after the
lapse of the three year period. Nevertheless, relying principally
upon Williams v. Commission on Human Rights
& Opportunities, 257 Conn. 258, 777 A.2d 645 (2001),
the plaintiffs argue that the three year statute of
limitations is not jurisdictional and, therefore, should be
equitably tolled. In response, the defendant claims that the
statute of limitations, because it forms part of a statutory
scheme that waives sovereign immunity, is jurisdictional and
should not be tolled. We agree with the defendant.
following additional facts and procedural history are
relevant to the resolution of this issue. The defendant
commenced an audit of the plaintiffs' taxable year 2005
income tax return in July 2006. In March 2007, the defendant
expanded the audit to include the taxable years 2001 through
2004. Around this same time, the plaintiffs filed a
Connecticut nonresident and part year resident return
reporting income from 2002 and paid the applicable tax. In
October 2009, the plaintiffs filed amended returns for the
taxable year 2002, claiming a refund for the income tax that
the plaintiffs had paid. In October, 2012, the plaintiffs
claim for a refund for the taxable year 2002 was disallowed.
The defendant denied the request for a refund on the grounds
that, pursuant to § 12-732 (a) (1),  the claim for a
refund was untimely. The trial court affirmed the
determination of the defendant, concluding that it lacked
subject matter jurisdiction to consider the plaintiffs'
standard of review with respect to a trial court
determination regarding subject matter jurisdiction is well
settled. ‘‘A determination regarding a trial
court's subject matter jurisdiction is a question of law.
When . . . the trial court draws conclusions of law, our
review is plenary and we must decide whether its conclusions
are legally and logically correct and find support in the
facts that appear in the record.'' (Internal
quotation marks omitted.) Citibank, N.A. v.
Lindland, 310 Conn. 147, 161, 75 A.3d 651 (2013).
principle that the state cannot be sued without its consent,
or sovereign immunity, is well established under our case
law. . . . It has deep roots in this state and our legal
system in general, finding its origin in ancient common law.
. . . Not only have we recognized the state's immunity as
an entity, but [w]e have also recognized that because the
state can act only through its officers and agents, a suit
against a state officer concerning a matter in which the
officer represents the state is, in effect, against the
state.'' (Internal quotation marks omitted.)
DaimlerChrysler Corp. v. Law, 284 Conn.
701, 711, 937 A.2d 675 (2007). The principle of sovereign
immunity implicates the subject matter jurisdiction of the
court. Id.; see also Giannoni v.
Commissioner of Transportation, 322 Conn. 344, 349,
141 A.3d 784 (2016) (‘‘sovereign immunity
implicates [a court's] subject matter
jurisdiction'' [internal quotation marks omitted]);
Chief Information Officer v. Computers Plus
Center, Inc., 310 Conn. 60, 79, 74 A.3d 1242 (2013)
(same); Nelson v. Dettmer, 305 Conn. 654,
660, 46 A.3d 916 (2012) (same); Miller v.
Egan, 265 Conn. 301, 313, 828 A.2d 549 (2003)
principles governing statutory waivers of sovereign immunity
are well established. ‘‘[A] litigant that seeks
to overcome the presumption of sovereign immunity [pursuant
to a statutory waiver] must show that . . . the legislature,
either expressly or by force of a necessary implication,
statutorily waived the state's sovereign immunity . . . .
In making this determination, [a court shall be guided by]
the well established principle that statutes in derogation of
sovereign immunity should be strictly construed. . . . [When]
there is any doubt about their meaning or intent they are
given the effect which makes the least rather than the most
change in sovereign immunity. . . . Furthermore, because such
statutes are in derogation of the common law, [a]ny statutory
waiver of immunity must be narrowly construed . . . and its
scope must be confined strictly to the extent the statute
provides.'' (Citation omitted; internal quotation
marks omitted.) Housatonic Railroad Co. v.
Commissioner of Revenue Services, 301 Conn. 268,
288-89, 21 A.3d 759 (2011). ‘‘Whether the
legislature has waived the state's sovereign immunity
raises a question of statutory interpretation.''
Id. As such, we are guided by the principles of
General Statutes § 1-2z.
appeal is a two step process. With respect to a claim for a
refund for income taxes, the plaintiff must first timely file
a claim with the defendant. General Statutes § 12-732
(a) (1); see Federal Deposit Ins. Corp. v.
Crystal, 251 Conn. 748, 759, 741 A.2d 956 (1999).
Section 12-732 (a) (1), in establishing an administrative
claim for a refund, is not itself an express or implicit
waiver of sovereign immunity. See DaimlerChrysler Corp.
v. Law, supra, 284 Conn. 715 (noting that sales
and use tax refund statute, General Statutes § 12-425 is
not waiver of sovereign immunity). The applicable appeal
statute, § 12-730, does, however, statutorily waive
sovereign immunity. Id. Compliance with the refund
statute is a condition precedent to availing oneself of the
limited statutory waiver of sovereign immunity provided by
the appeal statute. See Federal Deposit Ins. Corp.
v. Crystal, supra, 760 (noting that corporate
tax refund statute ‘‘establishes an
administrative request for a refund as the prescribed avenue
of relief that the [plaintiff was] required to follow in
order to take advantage of the state's limited waiver of
its sovereign immunity'' [internal quotation marks
firmly rooted principles of sovereign immunity demand strict
compliance with the procedures set forth in the relevant
statutes. In determining the scope of the statutory waiver of
sovereign immunity, we are mindful that the underlying refund
claim may impose ‘‘a monetary obligation on the
sovereign, and thus it is essential for its requirements to
be satisfied.'' (Internal quotation marks omitted.)
Housatonic Railroad Co. v. Commissioner of
Revenue Services, supra, 301 Conn. 289, quoting
DaimlerChrysler Corp. v. Law, supra, 284
Conn. 716. In DaimlerChrysler Corp., we reasoned
that the plaintiff had failed to fall within the ambit of the
relevant appeal statute because, inter alia, the plaintiff
invoked the relevant sales and use refund statute, §
12-425, ‘‘independent of the statutory
prerequisites for its application . . . and without the
ability to satisfy those prerequisites.''
DaimlerChrysler Corp. v. Law, supra,
716-17. Accordingly, the plaintiff in that case
did ‘‘not fall within the class of persons
entitled to a refund pursuant to § 12-425 for whom the
legislature waived sovereign immunity.''
also addressed this issue in the context of corporate taxes
in Federal Deposit Ins. Corp. v. Crystal,
supra, 251 Conn. 759-60. In that case, we staed:
‘‘There is no question . . . that if [the
plaintiff] were seeking . . . a refund of . . . corporation
business taxes that the banks had allegedly overpaid for the
years in question . . . failure to follow the procedures set
forth in [General Statutes] § 12-225 (b)
(1) would deprive the court of subject
matter jurisdiction over such a claim.'' (Footnotes
added.) Id., 759. We noted that the statute
‘‘establishes an administrative request for a
refund as the prescribed avenue of relief that the [plaintiff
was] required to follow in order to take advantage of the
state's limited waiver of its sovereign
immunity.'' Id., 750. ‘‘We have
frequently held that where a statute has established a
procedure to redress a particular wrong a person must follow
the specified remedy and may not institute a proceeding that
might have been permissible in the absence of such a
statutory procedure. Norwich v. Lebanon,
200 Conn. 697, 708, 513 A.2d 77 (1986). When an adequate
administrative remedy exists at law, a litigant must exhaust
it before the Superior Court will obtain jurisdiction over an
independent action on the matter. . . . Owner-Operators
Independent Drivers Assn. of America v. State,
209 Conn. 679, 686-87, 553 A.2d 1104 (1989). Thus,
intertwined principles of sovereign immunity and exhaustion
of administrative remedies would require that any claim for a
refund of taxes allegedly overpaid . . . be preceded by a
timely amended return and claim for such a refund pursuant to
§ 12-225. Id., 686.'' (Internal
quotation marks omitted.) Federal Deposit Ins. Corp.
v. Crystal, supra, 760. While the statute
discussed in Federal Deposit Ins. Corp. v.
Crystal, supra, 760, § 12-225 (b) (1),
implicated corporate taxes, both §§ 12-225 (b) (1)
and 12-732 (a) (1) permit claims for refunds within only a
prescribed three year period. In addition, both statutes
provide that ‘‘[f]ailure to file a claim within
the time prescribed in this section constitutes a waiver of
any demand against the state on account of
overpayment.'' General Statutes §§ 12-225
(b) (1) and 12-732 (a) (1).
short, the refund statute and the appeal statute set forth
precise procedures a taxpayer must follow in order to invoke
the jurisdiction of the trial court to review their
claim. In the present case, the plaintiffs
failed to comply with the requirements of § 12-732 (a)
(1). Because the plaintiffs failed to comply with the
statutory prerequisites for their administrative refund claim
for the 2002 taxable year, the trial court was without
subject matter jurisdiction to consider that claim.
address the plaintiffs' claims with respect to taxable
years 2006 and 2007. The plaintiffs claim that the income
derived from the exercise of the Premcor options by Allen in
2006 and 2007 is not properly taxable under §
12-711(b)-18 (a) of the regulations. Specifically, the
plaintiffs claim that § 12-711(b)-18 (a) requires a
taxpayer to be performing services in Connecticut at the time
of exercising the options, as well as at the time the options
were awarded, in order for the income derived therefrom to be
subject to taxation. The defendant contends that §
12-711(b)-18 (a) requires only that the taxpayer have been
performing services in Connecticut at the time the options
were granted. The plaintiffs further claim that taxation of
the income derived from the exercise of the Premcor options
violates the due process clause of the federal constitution.
We disagree with the plaintiffs.
following additional facts and procedural history are
relevant to the resolution of these issues. In October 2009,
the plaintiffs filed amended returns for the taxable years
2006 and 2007, claiming refunds for the income tax that the
plaintiffs had paid for both of those years. The defendant
denied the plaintiffs' claims for a refund for taxable
years 2006 and 2007 on the grounds that the Premcor options
were granted as compensation for services Allen performed in
Connecticut and, therefore, the income was properly reported
as income from Connecticut sources. In 2013, the Appellate
Division of the Department of Revenue Services affirmed the
denial. The defendant thereafter issued a final determination
denying the plaintiffs' claims for refunds. The
plaintiffs timely appealed to the trial court, which affirmed
the decision of the defendant and rejected the
plaintiffs' constitutional claim.
resolution of this issue first requires a discussion of the
legal framework applicable to the state and federal taxation
of nonqualified stock options. General Statutes § 12-700
(b) authorizes the taxation of income ‘‘derived
from or connected with sources within this state of each
nonresident . . . .'' The tax upon nonresidents is
determined by the application of a formula that includes the
nonresident's ‘‘Connecticut adjusted gross
income derived from or connected with sources within this
state . . . .'' General Statutes § 12-700 (b).
While the terms ‘‘adjusted gross income''
and ‘‘Connecticut adjusted gross income''
are defined by statute; see General Statutes § 12-701
(a) (19) and (20); the legislature delegated to the
defendant ability to define the term ‘‘
‘derived from or connected with sources within this
state' . . . .'' General Statutes § 12-701
(c). Pursuant to this statutory authority, the defendant has
promulgated a regulation that addresses nonqualified stock
options that provides in relevant part as follows:
‘‘Connecticut adjusted gross income derived from
or connected with sources within this state includes . . .
income recognized under section 83 of the Internal Revenue
Code in connection with a nonqualified stock option if,
during the period beginning with the first day of the taxable
year of the optionee during which such option was granted and