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Interpreting State Tax Exemptions, Deductions, and Credits

Modern tax statutes serve many purposes beyond simply raising revenue, and the contours of such statutes are shaped by numerous (and sometimes conflicting) economic, social, and political objectives. Legislatures choose a variety of structural mechanisms to advance these policy goals, including exemptions, deductions, and credits. Sometimes these features are drafted with less than meticulous precision. Other times, business practices have evolved since enactment of the provisions. In either event, revenue agencies and courts are frequently required to interpret these provisions.This installment of “Interpretation Matters” concerns one principle of such interpretation: the canon that exemptions, deductions, and credits are construed strictly against the taxpayer. Part I describes the canon. Part II suggests ways by which taxpayers attempt to counter it.