text:
    DEPARTMENT OF REVENUE of the State of Colorado; and Michael Hartman, in his official capacity as the Executive Director of the Department of Revenue of the State of Colorado, Petitioners/Cross-Respondents, v. AGILENT TECHNOLOGIES, INC., Respondent/Cross-Petitioner.
    Supreme Court Case No. 17SC840
    Supreme Court of Colorado.
    May 28, 2019
    Attorneys for Petitioners/Cross-Respondents: Philip J. Weiser, Attorney General, Terence C. Gill, First Assistant Attorney General, Noah C. Patterson, Senior Assistant Attorney General, Denver, Colorado
    Attorneys for Respondent/Cross-Petitioner: Silverstein & Pomerantz LLP Neil I. Pomerantz, Denver, Colorado, Morrison & Foerster LLP, Craig B. Fields, Irwin M. Slomka, New York, New York
    Attorneys for Amicus Curiae Council on State Taxation: Holland & Hart LLP, Christina F. Gomez, Jonathan S. Bender, Denver, Colorado
    Attorney for Amici Curiae Professors David Gamage, Hayes Holderness, and Darien Shanske : Isaac L. Lodico, Denver, Colorado
    En Banc
   JUSTICE GABRIEL delivered the Opinion of the Court.

¶1 This case principally requires us to decide two questions. First, we must determine whether the Colorado Department of Revenue and Michael Hartman, in his official capacity as the Executive Director of the Department (the "Director" and collectively with the Department, the "Department"), can require Agilent Technologies, Inc. ("Agilent") to include its holding company, Agilent Technologies World Trade, Inc. ("World Trade"), in its Colorado combined income tax returns for the tax years 2000-07. Second, if the answer to that question is no, then we must consider whether the Department may nevertheless allocate World Trade's gross income to Agilent in order to avoid abuse and to clearly reflect income.

¶2 As to the first question, we now conclude that sections 39-22-303(11) - (12), C.R.S. (2018), do not authorize the Department to require Agilent to include World Trade in its combined tax returns for the tax years at issue because World Trade is not an includable C corporation within the meaning of those provisions. As to the second question, we likewise conclude that the Department may not allocate World Trade's income to Agilent under section 39-22-303(6) because (1) that section has been superseded by section 39-22-303(11) as a vehicle for requiring combined reporting for affiliated C corporations and (2) even if section 39-22-303(6) could apply, on the undisputed facts presented here, no allocation would be necessary to avoid abuse or clearly reflect income.

¶3 Accordingly, we conclude that the district court properly granted summary judgment in Agilent's favor, and we therefore affirm the judgment of the division below.

I. Facts and Procedural History

¶4 Agilent is a Delaware corporation headquartered in California, and it is the parent company of a worldwide family of affiliated corporations that develops and manufactures bio-analytic and electro-analytic devices. Agilent maintains research and development and manufacturing sites in Colorado and is thus subject to Colorado corporate income tax.

¶5 World Trade is a Delaware corporation and a wholly owned subsidiary of Agilent. During the time period at issue, World Trade did not own any real or tangible personal property and did not have any employees or payroll of its own. Rather, World Trade served as a holding company, and, as pertinent here, it owned the stock of four foreign subsidiaries that operated exclusively outside of the United States. World Trade earned substantial dividends on its shares in the above-noted subsidiaries, and it is the tax treatment of these dividends that has given rise to the dispute that is now before us.

¶6 For the tax periods beginning June 3, 2000, and ending October 31, 2007, Agilent filed separate company Colorado corporate income tax returns and did not include World Trade in its Colorado corporate tax returns for those periods, notwithstanding the fact that, for federal income tax purposes, each of the above-noted foreign subsidiaries of World Trade made so-called "check-the-box" elections to be treated as disregarded entities (and therefore as divisions of World Trade) for federal income tax purposes.

¶7 The Department subsequently audited Agilent's corporate tax returns and in August 2010 issued notices of tax deficiencies for the periods at issue. As pertinent here, these notices required Agilent to file Colorado combined corporate income tax returns for the periods at issue and to include World Trade in those returns. These notices also advised Agilent that the Department had assessed tax, interest, and penalties against it totaling $13,345,601.

¶8 Agilent protested this assessment, but the Director upheld it, and in 2014, the Department issued a "Notice of Final Determination and Assessment and Demand for Payment," which included additional interest and brought the assessment to $13,720,507.

¶9 Agilent then filed a proceeding in the Denver district court challenging the Department's determination. The parties subsequently cross-moved for summary judgment, and the court ultimately granted summary judgment in favor of Agilent and against the Department.

¶10 As pertinent here, the court rejected Agilent's contentions that (1) the Department was required to respect the foreign subsidiaries' check-the-box elections and similarly treat World Trade and the four subsidiaries as a single C corporation for Colorado income tax purposes and, therefore, (2) more than 80% of World Trade's property and payroll fell outside of the United States, thus precluding the Department, under section 39-22-303(8), from requiring World Trade's inclusion in Agilent's combined return. The court further rejected Agilent's contention that World Trade did not satisfy at least three of the six factors set forth in section 39-22-303(11)(a), as required to mandate inclusion in a Colorado combined return.

¶11 The court proceeded to determine, however, that World Trade did not meet the definition of an includable C corporation for purposes of section 39-22-303(12)(c). The court based this conclusion on the facts that (1) World Trade was a holding company with no property or payroll of its own in the United States and (2) the Department's own regulation, Colo. Code Regs. section 201-2:39-22-303.12(c) (2019), provided that such a corporation could not be included in a combined return. The court further rejected the Department's alternative argument that the inclusion of World Trade's income in Agilent's combined return was warranted under section 39-22-303(6). In reaching this conclusion, the court again turned to the Department's regulations, this time Colo. Code Regs. section 201-2:39-22-303.6 (2019), which provides, in substance, that section 39-22-303(6) is not a vehicle for combining income of affiliated corporations and cannot be used to circumvent the combined reporting requirements set forth in sections 39-22-303(8) - (12).

¶12 The Department appealed, Agilent cross-appealed, and in a unanimous, published opinion, a division of the court of appeals affirmed. Agilent Techs., Inc. v. Dep't of Revenue , 2017 COA 137, --- P.3d ----. As pertinent here, the division agreed with the district court that the foreign subsidiaries' check-the-box elections did not preclude the Department from requiring World Trade's inclusion in Agilent's Colorado combined returns. Id. at ¶¶ 27-31. Like the district court, however, the division further concluded that World Trade, as an entity without property or payroll of its own in the United States, was not an "includable C corporation" under section 39-22-303(12)(c) and the applicable regulation. Id . at ¶¶ 18-26. And the division concluded that section 39-22-303(6) did not provide the Department with an alternative basis for taxing World Trade's income because, on the undisputed facts presented, Agilent's formation of World Trade did not constitute "abuse" within the meaning of that provision. Id . at ¶¶ 33-38. In light of these determinations, the division affirmed the district court's judgment and declined to reach Agilent's contention that that court had erred in holding that World Trade satisfied at least three of the six factors set forth in section 39-22-303(11)(a). Id. at ¶¶ 44-46.

¶13 The Department petitioned this court for certiorari review, and Agilent cross-petitioned, requesting that we review those of its arguments that the division had rejected. We granted both parties' petitions.

II. Analysis

¶14 The Department principally contends that under sections 39-22-303(11) - (12), the Department can require Agilent to include World Trade in its Colorado combined tax returns. The Department further contends that even if it may not do so under those provisions, pursuant to section 39-22-303(6), it may nevertheless allocate World Trade's gross income to Agilent in order to avoid abuse and to clearly reflect income. We begin by setting forth our standard of review and the pertinent principles of statutory construction. We then address the Department's various statutory and policy arguments, and we reject each of those arguments in turn. As a result, we need not consider the two issues that Agilent raised in its cross-petition.

A. Standard of Review and Principles of Statutory Construction

¶15 This case requires us to review the district court's entry of summary judgment in Agilent's favor. We review a grant of summary judgment de novo. Hardegger v. Clark , 2017 CO 96, ¶ 13, 403 P.3d 176, 180. When, as here, the material facts are undisputed, summary judgment is proper only when the pleadings and supporting documents show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Id. ; C.R.C.P. 56(c). In considering whether summary judgment is proper, a court grants the nonmoving party the benefit of all favorable inferences that may reasonably be drawn from the undisputed facts and resolves all doubts against the moving party. Hardegger , ¶ 13, 403 P.3d at 180. In responding to a properly supported summary judgment motion, however, the nonmoving party may not rest on mere allegations or demands in its pleadings but rather must provide specific facts demonstrating a genuine issue for trial. Id.

¶16 We also review questions of statutory interpretation de novo. UMB Bank, N.A. v. Landmark Towers Ass'n , 2017 CO 107, ¶ 22, 408 P.3d 836, 840. In construing a statute, our goal is to effectuate the legislature's intent. Oakwood Holdings, LLC v. Mortg. Invs. Enter. LLC , 2018 CO 12, ¶ 12, 410 P.3d 1249, 1252. In seeking to do so, "we look to the entire statutory scheme in order to give consistent, harmonious, and sensible effect to all of its parts, and we apply words and phrases in accordance with their plain and ordinary meanings." UMB Bank, ¶ 22, 408 P.3d at 840. We must avoid constructions that would render any words or phrases superfluous or that would lead to illogical or absurd results. Am. Fam. Mut. Ins. Co. v. Barriga , 2018 CO 42, ¶ 8, 418 P.3d 1181, 1183. In addition, we must respect the legislature's choice of language, and we will not add words to a statute or subtract words from it. Oakwood Holdings , ¶ 12, 410 P.3d at 1252. If the statutory language is clear, we apply it as written and need not resort to other rules of statutory construction. Id. In addition, we may consider an agency's interpretation of a statute, but we are not bound by the agency's interpretation, and we will not defer to that interpretation if it is contrary to the statute's plain language. BP Am. Prod. Co. v. Colo. Dep't of Revenue , 2016 CO 23, ¶ 15, 369 P.3d 281, 285.

B. Sections 39-22-303(11) - (12)

¶17 Section 39-22-303(11)(a) delineates what has come to be known as the "three-of-six test":

In the case of an affiliated group of C corporations, the executive director may require, or the taxpayer may file, a combined report, but such report shall only include those members of an affiliated group of C corporations as to which any three of [a list of six enumerated] facts have been in existence in the tax year and the two preceding tax years[.]

(Emphasis added.)

¶18 Section 39-22-303(12)(a) defines "affiliated group" to mean "one or more chains of includable C corporations connected through stock ownership with a common parent C corporation which is an includable C corporation if [certain stock ownership requirements are satisfied]." (Emphasis added.)

¶19 And section 39-22-303(12)(c), in turn, defines "includable C corporations" as "any C corporation which has more than twenty percent of the C corporation's property and payroll as determined by factoring pursuant to section 24-60-1301, C.R.S., assigned to locations inside the United States."

¶20 Read together, these provisions allow the Director to require a Colorado combined return of "an affiliated group of C corporations," and in such circumstances, chains of includable corporations that meet the three-of-six test must be included in the combined return.

¶21 The first question that we must decide, then, is whether World Trade is an includable C corporation such that, subject to satisfaction of the three-of-six test, the Director may require that any chain of which it is a part be included in a combined return. We conclude that it is not such a corporation.

¶22 As noted above, an includable C corporation is a C corporation that has more than twenty percent of its property and payroll as determined by factoring pursuant to section 24-60-1301 assigned to locations inside the United States.

¶23 Here, World Trade has no property or payroll as determined by the requisite factoring inside the United States. Accordingly, World Trade is not part of a chain of includable corporations, whether or not it meets the three-of-six test, and therefore the director may not require that it be included in Agilent's combined return under 39-22-303(11)(a).

¶24 Our conclusion in this regard is supported by Colo. Code Regs. section 201-2:39-22-303.12(c), entitled "Corporations without property and payroll factors," which the Department promulgated in 1994. That regulation provides, in pertinent part, "Since corporations that have no property or payroll factors of their own cannot have twenty percent or more of their factors assigned to locations in the United States, such corporations, by definition, cannot be included in a combined report." In our view, this regulation is directly on point because it unambiguously provides that if a corporation has no property or payroll of its own, then it may not be included in a combined return. World Trade does not have any property or payroll of its own. Accordingly, the regulation prohibits the inclusion of World Trade in Agilent's return. See Rags Over the Ark. River, Inc. v. Colo. Parks & Wildlife Bd. , 2015 COA 11M, ¶ 25, 360 P.3d 186, 191 (noting that an administrative agency is bound by the regulations that it enacts).

¶25 In so concluding, we are unpersuaded by the Department's assertion that the aforementioned regulation is inapplicable because it was intended to apply solely to foreign sales corporations. The regulation does not express any such limitation, and when the language of a regulation is clear and unambiguous, we must apply it as written. See Dawson v. Exec. Dir. of Colo. Dep't of Corrs. , 2014 COA 69, ¶ 8, 345 P.3d 969, 970 (noting that courts construe administrative rules and regulations in the same manner as statutes and that when the language of a regulation is clear and unambiguous, courts do not resort to rules of construction).

¶26 Moreover, we deem as significant the fact that when the Department adopted a regulation that mirrored the argument that it is making before us, the legislature rejected the Department's position. Specifically, in 1990, the Department promulgated a prior version of Colo. Code Regs. section 201-2:39-22-303.12(c) (1990), that provided, in pertinent part, "A corporation without property and payroll, which functions through the use of personnel services and/or property of an includible corporation, shall also be considered an includible corporation." The Office of Legislative Legal Services ("OLLS"), however, reviewed this regulation and determined that it

conflict[ed] with the definition of "includible corporations" as set forth in section 39-22-303(12)(c), C.R.S. The regulation[ ] allow[ed] corporations with no property or personnel to be considered includible corporations even though such corporations [did] not satisfy the statutory requirements of having more than twenty percent of its property and payroll located within the United States.

Memorandum from Sharon L. Eubanks, OLLS, to the General Assembly's Committee on Legal Services 2 (Nov. 7, 1990). The General Assembly accepted the OLLS's conclusion and voted against extending the regulation, thus allowing it to expire on June 1, 1991.

¶27 Notwithstanding the foregoing, the Department contends, based on its view of the available legislative history, that section 39-22-303(11) was never intended to apply to wholly domestic corporations. Regardless of what the Department believes the legislature may or must have intended, however, in our view, the statutory language and the Department's regulations are clear and unambiguous, and we must therefore follow them without the need to resort to other tools of statutory construction. See, e.g. , Oakwood Holdings , ¶ 12, 410 P.3d at 1252 (noting that if the statutory language is clear, then the court must apply it as written and need not resort to other rules of statutory construction); UMB Bank , ¶ 22, 408 P.3d at 840 (explaining that, in construing a statute "we apply words and phrases in accordance with their plain and ordinary meanings").

¶28 We likewise are unpersuaded by the Department's assertion that section 39-22-303(12)(a) applies and requires the inclusion of World Trade in Agilent's Colorado combined returns because World Trade, in fact, had domestic property (because it used tangible property of Agilent, including computers, printers, and other equipment). As noted above, a corporation's property and payroll are determined under factoring formulas for apportioning business income, including a formula for apportioning the property factor. Like the division below, however, Dep't of Revenue , ¶ 25, we conclude that the record does not show how, if at all, World Trade came to use this property. Accordingly, we discern no error in the district court's determination that World Trade had no property factors.

¶29 For these reasons, we conclude that sections 39-22-303(11) - (12) do not authorize the Department to require Agilent to file a combined report that includes World Trade, and we need not consider whether World Trade may also be excluded under the test set forth in section 39-22-303(8). We thus proceed to consider the Department's alternative argument under section 39-22-303(6).

C. Section 39-22-303(6)

¶30 As noted above, the Department alternatively argues that under section 39-22-303(6), it may allocate World Trade's income to Agilent to avoid abuse and to clearly reflect income. Again, we are not persuaded.

¶31 As an initial matter, we note that the Department's own regulations again undermine its argument. Specifically, Colo. Code Regs. section 201-2:39-22-303.6 provides, "Even though subsection 39-22-303(6), C.R.S. has been superseded by subsection 39-22-303(11), C.R.S., as a vehicle for requiring combined reporting for affiliated C corporations, subsection 39-22-303(6) is still available for use by the Department of Revenue or by the taxpayer for determining Colorado taxable income by use of [described methodologies]."

¶32 Accordingly, although section 39-22-303(6) retains some vitality, section 39-22-303(11), not section 39-22-303(6), is the provision that determines when combined reporting may be required. To conclude otherwise would render section 39-22-303(11) meaningless because the Department could always override the result dictated by the objective tests set forth therein merely by making a subjective determination that such an override is necessary to avoid abuse and to clearly reflect income. We cannot countenance such a result. See Am. Fam. Mut. Ins. Co. , ¶ 8, 418 P.3d at 1183 (requiring that we avoid constructions that would render any words or phrases superfluous or that would lead to illogical or absurd results).

¶33 Even if section 39-22-303(6) could apply, however, we conclude that it is inapplicable on the undisputed facts now before us.

¶34 Section 39-22-303(6) provides:

In the case of two or more C corporations, whether domestic or foreign, owned or controlled directly or indirectly by the same interests, the executive director may, to avoid abuse, on a fair and impartial basis, distribute or allocate the gross income and deductions between or among such C corporations in order to clearly reflect income.

¶35 By its plain terms, this provision allows the Director to distribute or allocate income only if doing so is necessary to avoid abuse and to clearly reflect income.

¶36 Although the phrase "to avoid abuse" is not defined, the Department contends that in the tax context, "abuse" is a broad concept and exists whenever a taxpayer reduces its tax liability by ordering its affairs so as to comply with the text of the statute while contradicting the statute's intent. The Department further contends that "[s]ubsection (6) does not require the taxpayer itself to engage in abuse, but empowers the Department 'to avoid abuse' generally." In the Department's view, then, a corporate structure may constitute abuse even if that structure serves a legitimate business purpose. We are not persuaded.

¶37 Here, the Department's own evidence showed that Agilent formed World Trade for legitimate non-tax-related purposes and that Agilent's doing so did not constitute abuse. For example, Sarah Roberts, an expert designated by the Department, testified that she had no evidence that World Trade was not set up for legitimate business purposes. Similarly, when asked if World Trade was a sham, Benjamin F. Miller, another expert designated by the Department, testified, "It's not a sham. It is certainly a normal and traditional way to do things to isolate ownership interest."

¶38 Thus, the Department's own evidence precludes a finding that an allocation of income to Agilent is necessary to avoid abuse.

¶39 Finally, even were we to accept the Department's broad definition of "abuse," no evidence presented in this case supports the Department's suggestion that Agilent and World Trade ordered their affairs so as to comply with the text of the pertinent statutes while contradicting the legislative intent behind those statutes. To the contrary, we perceive the Department's construction of the statutes and regulations at issue to be inconsistent with the clear and unambiguous language of those provisions, and for the reasons set forth above, we cannot adopt such a construction. See Am. Fam. Mut. Ins. Co. , ¶ 8, 418 P.3d at 1183.

¶40 Accordingly, we conclude that section 39-22-303(6) does not provide the Department with an alternative method of requiring Agilent to file a combined report that includes World Trade.

D. The Department's Policy Arguments

¶41 Notwithstanding the plain language of the pertinent statutes and of its own regulations, the Department contends that construing the provisions at issue as we have done will lead to absurd results and a parade of horribles because a taxpayer could always shield income from Colorado taxation simply by creating a holding company. For several reasons, we are not persuaded.

¶42 First, to the extent that the Department disagrees with the plain language of the pertinent statutes, its remedy is with the legislature and not this court because we must apply statutory language as written. Oakwood Holdings , ¶ 12, 410 P.3d at 1252.

¶43 Second, as the Department's own expert witness recognized, the formation of a holding company is a "normal and traditional way to do things," and we therefore do not agree with the Department's apparent premise that the creation of a holding company, in and of itself and with no evidence that the company was created to avoid Colorado taxation, constitutes "abuse" within the meaning of the pertinent provision.

¶44 Third, although the Department posits that a parade of horribles will follow the statutory interpretation that we have adopted today, it has offered no evidence to support such dire predictions, and we have seen none.

¶45 Accordingly, we conclude, on the undisputed facts of this case, that sections 39-22-303(11) - (12) do not authorize the Department to require Agilent to include World Trade in its Colorado combined returns for the tax years at issue and that section 39-22-303(6) does not afford the Department an alternative means of allocating World Trade's income to Agilent.

E. Other Issues

¶46 For the foregoing reasons, we conclude that the district court properly granted summary judgment in favor of Agilent and against the Department, and we need not address the issues concerning World Trade's check-the-box election and the three-of-six test that Agilent raised in its cross-petition.

III. Conclusion

¶47 Because the plain and unambiguous language of the pertinent statutory provisions and associated regulations demonstrate that the Department may not compel Agilent to include World Trade in its combined return or otherwise to include World Trade's income in that return, we conclude that the district court properly granted summary judgment in Agilent's favor and against the Department.

¶48 Accordingly, we affirm the judgment of the division below.

      Specifically, we granted certiorari to review the following issues:
      1. Whether a holding company that has no foreign property, payroll, or operations is exempt from Colorado taxation under the "Water's Edge" exemption (C.R.S. § 39-22-303(8), (12)(c), 2017).
      2. Whether section 39-22-303(6) authorizes the Department to allocate a domestic holding company's income to its corporate parent to "clearly reflect" the parent's income and "avoid abuse."
      3. Whether the principles of federal conformity require that the federal "check-the-box" elections made by World Trade's subsidiaries be followed for Colorado income tax purposes, resulting in World Trade being excluded from Agilent's Colorado combined returns under Section 303(8) because, as a result of those elections, more than 80% of World Trade's property and payroll is located outside the United States.
      4. Whether World Trade [should] be excluded from Agilent's combined returns because at least three of the six factors required for combination under Section 303(11)(a) are not satisfied.

      In reaching this conclusion, we acknowledge that toward the end of the recently concluded legislative session, and after we heard oral argument in this case, the General Assembly passed Senate Bill 19-233, which had been introduced the week before our oral argument. If this bill is eventually signed by the Governor, it would amend section 39-22-303 to enact into law the interpretation of that statute that the Department has asked us to read into the current statute. Because this bill, if enacted, would not become effective until August 2, 2019, and because its text makes clear that the amendments change prior law, the bill has no bearing on our analysis here.

      Section 24-60-1301, art. IV, C.R.S. (2018), sets forth certain factoring formulas for apportioning business income. The property factor is a fraction, the numerator of which is the average value of the taxpayer's real and tangible personal property owned or rented and used in Colorado during the pertinent tax period and the denominator of which is the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the tax period. § 24-60-1301, art. IV, § 10.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    TOWN OF BRECKENRIDGE, Petitioner v. EGENCIA, LLC; Expedia, Inc.; Hotels.com GP, LLC; Hotwire, Inc.; Internetwork Publishing Corporation d/b/a Lodging.com ; Lowestfare.com, Inc.; Orbitz, Inc.; Orbitz, LLC; Priceline.com, Incorporated; Site59.com, LLC; Travelnow.com, LP; Travelport, Inc. f/k/a Cendant Travel Distribution Services Group, Inc.; Travelscape, LLC.; Travelweb, LLC.; and Trip Network, Inc. d/b/a Cheaptickets.com, Respondents.
    Supreme Court Case No. 18SC186
    Supreme Court of Colorado.
    May 28, 2019
    Attorneys for Petitioner: Lewis Roca Rothgerber Christie LLP, Michael Plachy, Amy Danielle Wills, Joy Allen Woller, Thomas M. Rogers III, Denver, Colorado
    Attorneys for Respondents: Connelly Law, LLC, Sean Connelly, Denver, Colorado
    Attorneys for Amicus Curiae American Society of Travel Advisors: Blain Myhre LLC, Blain David Myhre, Denver, Colorado
    Attorneys for Amici Curiae Colorado Association of SkiTowns and Colorado Hotel and Lodging Association: Richard B. Benenson, Justin L. Cohen, Brownstein Hyatt Farber & Schreck LLP, Denver, Colorado
    Attorneys for Amicus Curiae Colorado Department of Revenue Philip J. Weiser, Attorney General, Scott R. Bauer, Senior Assistant Attorney General, Russell D. Johnson, Assistant Solicitor General, Denver, Colorado
    En Banc
   PER CURIAM.

¶1 Justice Boatright, Justice Hood and Justice Gabriel are of the opinion that the judgment of the court of appeals should be affirmed; whereas Chief Justice Coats, Justice Márquez, and Justice Samour are of the opinion that it should be reversed. Justice Hart does not participate.

¶2 Because the court is equally divided, the judgment of the court of appeals is affirmed by operation of law C.A.R. 35(b).

JUSTICE HART does not participate.


text:
    DEPARTMENT OF REVENUE of the State of Colorado; and Michael Hartman, in his official capacity as the Executive Director of the Department of Revenue of the State of Colorado, Petitioners, v. ORACLE CORPORATION and subsidiaries, Respondent.
    Supreme Court Case No. 18SC3
    Supreme Court of Colorado.
    May 28, 2019
    Attorneys for Petitioners: Philip J. Weiser, Attorney General, Terence C. Gill, First Assistant Attorney General, Noah C. Patterson, Senior Assistant Attorney General, Denver, Colorado
    Attorneys for Respondent: Silverstein & Pomerantz LLP, Neil I. Pomerantz, Mark E. Medina, Michelle Bush, Denver, Colorado
    Attorneys for Amicus Curiae Colorado Association of Commerce and Industry: The Poe Law Office LLC, Alan Poe, Rachel Poe, Centennial, Colorado
    Attorneys for Amicus Curiae Council on State Taxation: Holland & Hart LLP, Christina F. Gomez, Jonathan S. Bender, Denver, Colorado
    Attorneys for Amicus Curiae Multistate Tax Commission: Ruegsegger Simons Smith & Stern, LLC, Anthony E. Derwinski, Jeffrey C. Staudenmayer, Denver, Colorado, Bruce Fort, Washington, District of Columbia
    Attorney for Amici Curiae Professors David Gamage, Hayes Holderness, and Darien Shanske : Isaac L. Lodico, Denver, Colorado
    En Banc
   JUSTICE GABRIEL delivered the Opinion of the Court.

¶1 This case, like Department of Revenue v. Agilent Technologies, Inc. , 2019 CO 41, 441 P.3d 1012, which we are also announcing today, principally requires us to decide two questions. First, we must determine whether the Colorado Department of Revenue and Michael Hartman, in his official capacity as the Executive Director of the Department (the "Director" and collectively with the Department, the "Department"), can require Oracle Corporation ("Oracle") to include its holding company, Oracle Japan Holding, Inc. ("OJH"), in its Colorado combined income tax return for the tax year ending May 31, 2000. Second, if the answer to that question is no, then we must consider whether the Department may nevertheless allocate OJH's gain from the sale of shares that it held in Oracle Corporation Japan ("Oracle Japan") to Oracle in order to avoid abuse and to clearly reflect income.

¶2 For the reasons set forth in Agilent Technologies , we conclude that the pertinent statutory provisions and regulations do not permit the Department either to require Oracle to include OJH in its combined tax return for the tax year at issue or to allocate OJH's capital gains income to Oracle. Accordingly, we conclude that the district court properly granted summary judgment in Oracle's favor, and we therefore affirm the judgment of the division below.

I. Facts and Procedural History

¶3 Oracle is a Delaware corporation headquartered in California, and it is the parent of a worldwide group of affiliated corporations.

¶4 OJH is a Delaware corporation and a wholly-owned subsidiary of Oracle. Oracle formed OJH in 1991, pursuant to the terms of a loan secured by Oracle from Nippon Steel, an unaffiliated Japanese entity. During the time period at issue, OJH owned no real or tangible personal property, had no payroll, and conducted no activities of any kind in Colorado. Rather, it existed solely as a holding company.

¶5 As pertinent here, during the period at issue, OJH held stock in Oracle Japan, and in April 2000, it sold 8.7 million shares of that stock on the Tokyo Stock Exchange, realizing capital gains of approximately $ 6.4 billion. The tax treatment of these gains is at the center of the dispute now before us.

¶6 Oracle filed a Colorado combined return for the tax year at issue, but it did not include OJH in this return. Thereafter, the Department conducted an audit of Oracle's tax returns for periods including the period involved here and issued an assessment that Oracle owed Colorado income tax based on the OJH gain.

¶7 Oracle protested this assessment, but the Department upheld it and issued a final notice and assessment. Oracle then petitioned the district court for relief, the parties subsequently filed cross-motions for summary judgment, and the district court ultimately granted summary judgment in favor of Oracle and against the Department.

¶8 In so ruling, the court first found that the Department's own regulation, Colo. Code Regs. section 201-2:39-22-303.12(c) (2019), made clear that corporations that have no property or payroll of their own cannot have twenty percent or more of their factors in the United States, as required for inclusion by sections 3-22-303(11)-(12), C.R.S. (2018), and therefore the Department could not require Oracle to include OJH in its Colorado combined return.

¶9 The court then proceeded to address the Department's alternative argument that OJH, in fact, had property in the United States because it had to have used Oracle's property to fulfill its corporate formalities and this property should be considered in determining whether OJH was an includable C corporation within the meaning of the pertinent statutes. The court rejected this argument based both on the above-noted regulation and on the fact that the Department "has made an insufficient showing on this issue." Specifically, the court concluded that "OJH's theoretical use of Oracle's property does not create a disputed issue of fact with respect to the [pertinent] calculation [of OJH's real and tangible personal property]."

¶10 Last, the court considered and rejected the Department's contention that even if OJH is not an includable C corporation under the pertinent statutes, section 39-22-303(6) nonetheless authorized the Department to require Oracle to include OJH's gain in its income in order to avoid abuse or clearly reflect income. In support of its conclusion, the court found that the Department's argument was contrary to its own regulation, Colo. Code Regs. section 201-2:39-22-303.6 (2019), which provides, in substance, that section 39-22-303(11) superseded section 39-22-303(6) as a vehicle for requiring combined reporting for affiliated C corporations. Thus, the Department could not use section 39-22-303(6) as an alternative method to include OJH in Oracle's combined return. The court further found that the purpose of section 39-22-303(6) is to address abuse leading to tax avoidance, and even if that provision could apply here, nothing in the record suggested any such abuse. The court thus observed:

There is nothing in the record to indicate that Oracle's formation of OJH was an attempt to avoid paying state income taxes on the sale of Oracle Japan stock. To the contrary, OJH was formed pursuant to the terms of a loan secured by Oracle from Nippon Steel, an unaffiliated Japanese entity. Since its formation in 1991, OJH held stock in Oracle Japan before selling a portion of its shares in 2000 and realizing the gain at issue here. Even if the statute had not been superseded, there is no evidence of abuse to warrant the Department transferring OJH's income to Oracle.

¶11 The Department appealed, and, in a split, published opinion, a division of the court of appeals affirmed the district court's judgment. Oracle Corp. v. Dep't of Revenue , 2017 COA 152, --- P.3d ----.

¶12 As pertinent here, the division unanimously concluded that on the undisputed facts of this case, OJH was not an includable C corporation within the plain meaning of section 39-22-303(12)(c) and therefore sections 39-22-303(11) - (12) did not authorize the Department to require Oracle to include OJH in its combined Colorado tax return. Id. at ¶¶ 16-44 ; accord id. at ¶ 71 n.1 (Berger, J., dissenting). This conclusion, the division reasoned, was supported by the Department's own regulation, Colo. Code Regs. section 201-2:39-22-303.12(c), which provides, in part, "Since corporations that have no property or payroll factors of their own cannot have twenty percent or more of their factors assigned to locations in the United States, such corporations, by definition, cannot be included in a combined report." Oracle Corp. , ¶ 24.

¶13 Having concluded that OJH is not an includable C corporation under section 39-22-303(12)(c), the division proceeded to consider the Department's argument that section 39-22-303(6) could be applied as an alternative basis for including income of OJH in Oracle's tax return. Id. at ¶¶ 47-55. On this issue, the division split.

¶14 The majority rejected the Department's contentions, agreeing with the district court's above-quoted ruling both legally and factually. Id. at ¶ 49. The majority thus observed:

On the one hand, the record supports the district court's analysis that Oracle formed OJH for a reasonable business purpose, at the behest of an independent third party. On the other hand, the Department does not cite any evidence of corruption, impropriety, or deceit in Oracle's use of OJH. The Department's assertions that "Oracle treats Oracle Japan as a direct subsidiary," OJH "is merely a vehicle for Oracle's ownership of Oracle Japan," and a loan of the OJH Gain to another Oracle subsidiary "has been outstanding for over 15 years with no interest or principal paid" do not show corruption, impropriety, or deceit.

Id. at ¶ 60.

¶15 Accordingly, the majority affirmed the district court's judgment in favor of Oracle.

¶16 Judge Berger dissented from the portion of the majority's opinion concerning section 39-22-303(6). In his view, the term "abuse," as used in that provision, should be construed at least as expansively as the federal courts have construed tax abuse. Id. at ¶ 77. Judge Berger noted that federal courts have construed the concept of tax abuse broadly to include four related concepts: (1) the "sham transaction doctrine"; (2) the "economic substance doctrine"; (3) the "substance over form doctrine"; and (4) the "step transaction doctrine." Id. at ¶ 76. Judge Berger viewed the economic substance doctrine as the most pertinent here. Id. at ¶ 79. He explained that under that doctrine, courts will only accept a corporation's tax treatment of a transaction if the corporation "had a non-tax business purpose for the transaction and the transaction meaningfully improved the corporation's economic position apart from reducing its tax liability." Id. at ¶ 76. Applying that doctrine here, Judge Berger would have concluded that the capital gains realized by OJH were, in economic substance, realized by Oracle. Id. at ¶ 80. Accordingly, in his view, section 39-22-303(6) authorized the Department to reallocate that income to Oracle and to require Oracle to include that income in its consolidated Colorado income tax return. Id.

¶17 In so concluding, Judge Berger noted that he was not suggesting that OJH was formed for illegitimate purposes. Id. at ¶ 81. Indeed, he agreed that the record demonstrated the opposite. Id. He did not, however, perceive the pertinent statute or the economic substance doctrine to be limited to situations in which the device used to reduce taxes was somehow itself illegitimate or a sham. Id.

¶18 Nor did Judge Berger see any inconsistency between section 39-22-303(6), on the one hand, and sections 39-22-303(8), (11)(a), and (12)(c) and Colo. Code Regs. section 201-2:39-22-303.6, on the other. Id. at ¶¶ 82-83. In his view, the regulation conflicted with the plain language of section 39-22-303(6), and therefore the court was not required to apply it. Id. at ¶ 82. And with respect to sections 39-22-303(8), (11)(a), and (12)(c), Judge Berger did not see those provisions as overriding the Department's authority under section 39-22-303(6) to reallocate income to avoid abuse. Id. at ¶ 83.

¶19 Judge Berger therefore would have reversed the entry of summary judgment for Oracle and directed the entry of summary judgment for the Department. Id. at ¶ 85.

¶20 The Department petitioned this court for certiorari review, and we granted that petition.

II. Analysis

¶21 The Department makes the same arguments here that it made in Agilent Technologies , which we also announce today. Specifically, it contends that the division erred in concluding that sections 39-22-303(11) - (12), particularly when read in conjunction with section 39-22-303(8), did not authorize the Department to require Oracle to include OJH in its consolidated Colorado tax return. Even if those provisions could be read to preclude the Department from doing so, however, the Department alternatively contends that under section 39-22-303(6), it was nevertheless authorized to reallocate OJH's capital gains income to Oracle because such a reallocation was necessary to avoid abuse and to clearly reflect Oracle's income.

¶22 In Agilent Technologies , we fully considered and rejected the same legal arguments that the Department is making here. First, we concluded that sections 39-22-303(11) - (12) did not authorize the Department to require the corporate parent there at issue to include its holding company in its combined tax returns because the holding company was not an includable C corporation within the meaning of those provisions.

Agilent Techs. , ¶¶ 2, 17-29. Second, we determined that section 39-22-303(6) did not authorize the Department to allocate the holding company's income to the parent corporation because (1) that section has been superseded by section 39-22-303(11) as a vehicle for requiring combined reporting for affiliated C corporations and (2) even if section 39-22-303(6) could apply, on the undisputed facts presented there, no allocation would be necessary to avoid abuse or clearly reflect income. Id. at ¶¶ 2, 30-40.

¶23 We reach the same result here. In particular, for the reasons discussed at length in Agilent Technologies , we conclude that sections 39-22-303(11) - (12) did not authorize the Department to require Oracle to include OJH in its combined tax return for the tax period at issue because OJH was not an includable C corporation within the meaning of those provisions. We further conclude, also for the reasons set forth in Agilent Technologies , that section 39-22-303(6) did not authorize the Department to allocate OJH's capital gains to Oracle because (1) that section has been superseded by section 39-22-303(11) as a vehicle for requiring combined reporting for affiliated C corporations and (2) even if section 39-22-303(6) could apply, on the undisputed facts presented here, no allocation would be necessary to avoid abuse or clearly reflect income. Indeed, as the district court found, with ample record support, "Even if [ section 39-22-303(6) ] had not been superseded, there is no evidence of abuse to warrant the Department transferring OJH's income to Oracle."

III. Conclusion

¶24 Because the plain and unambiguous language of the pertinent statutory provisions and associated regulations demonstrate that the Department may not compel Oracle to include OJH in its combined return or otherwise to include OJH's income in that return, we conclude that the district court properly granted summary judgment in Oracle's favor and against the Department.

¶25 Accordingly, we affirm the judgment of the division below.

      Specifically, we granted certiorari to review the following issues:
      1. Whether a holding company that has no foreign property, payroll, or operations is exempt from Colorado taxation under the "Water's Edge" exemption, § 39-22-303(8), (12)(c), C.R.S.
      2. Whether section 39-22-303(6) authorizes the Department to allocate a domestic holding company's income to its corporate parent to "clearly reflect" the parent's income and "avoid abuse."

      As we did in Agilent Technologies , ¶ 3 n.2, we acknowledge that toward the end of the recently concluded legislative session, and after we heard oral argument in this case, the General Assembly passed Senate Bill 19-233, which had been introduced the week before our oral argument and which, if signed by the Governor, would amend section 39-22-303 to enact into law the interpretation of that statute that the Department has asked us to read into the current statute. For the reasons set forth in Agilent Technologies , this bill has no bearing on our analysis here.


text:
    STATE of Hawai'i, Plaintiff-Appellee, v. Dominick OBERLE, Defendant-Appellant
    NO. CAAP-18-0000626
    Intermediate Court of Appeals of Hawai'i.
    June 7, 2019
    SUMMARY DISPOSITION ORDER
    Affirmed.


text:
    Francis P. KAHAWAIOLAA, Plaintiff-Appellant, v. HAWAIIAN SUN INVESTMENTS, INC., a Hawaii Domestic Corporation, Ronald J. Blanset and Janice M. Blanset, Defendants-Appellees
    NO. CAAP-17-0000317
    Intermediate Court of Appeals of Hawai'i.
    June 6, 2019
    SUMMARY DISPOSITION ORDER
    Vacate. Remand.


author: Per Curiam:

text:
    In the MATTER OF Pamela J. THOMPSON, Respondent.
    No. 120,818
    Supreme Court of Kansas.
    Opinion filed May 31, 2019.
    Matthew D. Franzenburg, Deputy Disciplinary Administrator, argued the cause, and Stanton A. Hazlett, Disciplinary Administrator, was with him on the formal complaint for the petitioner.
    John J. Ambrosio, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Topeka, argued the cause, and Pamela J. Thompson, respondent, argued the cause pro se.
    ORIGINAL PROCEEDING IN DISCIPLINE
   Per Curiam:

This is an original proceeding in discipline filed by the office of the Disciplinary Administrator against the respondent, Pamela J. Thompson, of Wichita, an attorney admitted to the practice of law in Kansas in 1985.

On October 3, 2018, the office of the Disciplinary Administrator filed a formal complaint against the respondent alleging violations of the Kansas Rules of Professional Conduct (KRPC). The respondent filed a timely answer to the complaint on October 16, 2018. A hearing was held on the complaint before a panel of the Kansas Board for Discipline of Attorneys on December 4, 2018, where the respondent was personally present and was represented by counsel. The hearing panel determined the respondent violated KRPC 1.15 (2019 Kan. S. Ct. R. 334) (safekeeping property); 8.4(c) (2019 Kan. S. Ct. R. 387) (engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation); and 8.4(d) (engaging in conduct prejudicial to the administration of justice).

After the hearing, the panel made the following findings of fact and conclusions of law, together with its recommendation to this court:

"Findings of Fact
....
"DA12768
"8. In late 2015, the respondent hired Qualified Plan Solutions (hereinafter 'QPS') to provide administrative services for 401(k) retirement accounts pursuant to a retirement plan established for the respondent and her employees. The respondent was the plan's administrator and trustee. The respondent and her employees, Jackie Brewster and Lora Manny, chose to participate in the plan. By participating, the respondent and her employees agreed to have a portion of their compensation deferred from their paychecks and deposited into the plan account. According to the plan, the respondent was to deposit the salary deferrals into the 401(k) retirement account within seven days. In November, 2015, the respondent approved and signed the plan as the administrator and trustee. The plan went into effect January 1, 2016.
"9. Beginning January 1, 2016, the respondent withheld funds from her paycheck and from her employees' paychecks. The respondent, however, did not deposit the salary deferrals as required by the plan. The respondent timely deposited the salary deferrals on only one occasion in 2016.
a. The respondent failed to deposit any salary deferrals from January 22, 2016, through July 8, 2016. On July 20, 2016, the respondent made a deposit in an effort to make the 401(k) accounts current.
b. The respondent failed to deposit any salary deferrals from July 22, 2016, through December 23, 2016.
"10. On February 7, 2017, Ms. Brewster and Ms. Manny noticed that their 401(k) accounts were underfunded. In 2016, the respondent withheld $ 1,653.08 from Ms. Brewster's paychecks in 2016, but deposited less than $ 800.
"11. Ms. Manny called Seth Asher, her financial advisor. The respondent overheard Ms. Manny's phone call with Mr. Asher. The respondent said to Ms. Manny, 'don't involve him in this, you'll get me in trouble.'
"12. On February 8, 2017, Ms. Manny contacted the Kansas Department of Labor regarding the underfunding of the 401(k) accounts. Within an hour of Ms. Manny's phone call, a Kansas Department of Labor employee called the respondent by telephone.
"13. At some point in time, the respondent contacted her accountant, Sandra Worsham who is also the respondent's cousin, for assistance in resolving the issue with the salary deferrals. Ms. Worsham was able to determine what the respondent needed to deposit to become current.
"14. In addition to contacting Ms. Worsham, in February, 2017, the respondent also contacted Nick Nowak of QPS to assist the respondent with calculating the amount of the deposit the respondent needed to make to bring the accounts current. The amount included both the salary deferrals and the interest lost as a result of the late payments.
"15. In mid-February, 2017, the respondent deposited funds in the three 401(k) accounts and brought them current, using a portion of the money converted as described in ¶¶ 21-32, below.
"16. On February 16, 2017, the respondent told Ms. Brewster and Ms. Manny that she had failed to deposit the amounts which had been withheld from their paychecks into their 401(k) accounts. The respondent apologized to her employees.
"17. Ms. Brewster told the respondent that her husband was an accountant and he wanted to talk to the respondent about the 401(k) issue. The respondent told Ms. Brewster that if that happened, Ms. Brewster would no longer be working in the respondent's office.
"18. On February 17, 2017, Ms. Brewster filed a complaint with the disciplinary administrator's office against the respondent. During the disciplinary investigation, the respondent admitted that she failed to make timely payments to the 401(k) accounts.
"19. In order to ensure that the respondent does not again fail to make the proper deposits, the respondent made arrangements with Ms. Worsham to visit the respondent's office at least once a month to assist in all accounting matters relating to the 401(k) accounts.
"20. On March 10, 2017, Ms. Worsham signed a verification that the respondent had deposited the proper amounts in the 401(k) accounts.
"DA12872
"21 During the investigation of DA12768, Ms. Manny advised the disciplinary administrator's auditor, Larry Pfannenstiel, that the respondent paid herself fees in two estate cases without first obtaining a court order. Ms. Manny also told Mr. Pfannenstiel that the two estate files were missing from the office.
"Estate of E.I.
"22. The respondent drafted E.I.'s will. In the will, the respondent named herself as the successor executor. Following E.I.'s death, on October 27, 2016, a court appointed the respondent to serve as the executor for the estate of E.I. The respondent also served as the attorney for the estate.
"23. The estate had a total value of $ 72,102.35. While the estate of E.I. was pending, and during the period of one week, the respondent converted $ 30,365.85 of the estate proceeds, as follows:
a. Check 1001, dated February 14, 2017, was made payable to Pamela Thompson, in the amount of 4,865.85. In the memo line, the respondent wrote 'attorney fees.' The respondent deposited the funds into her operating account. The respondent, however, never sought nor received court approval to pay herself attorney fees from the estate account.
b. Check 1002, dated February 16, 2017, was made payable to Pamela Thompson, in the amount of $ 8,250. In the memo line, the respondent wrote '... ordered.' The respondent deposited the funds into her operating account. The court did not order this disbursement from the estate account.
c. Check 1003, dated February 16, 2017, was made payable to Pamela Thompson, in the amount of $ 17,250. In the memo line, the respondent wrote 'to Trust for distribution.' The respondent deposited this check into her attorney trust account on February 17, 2017. On February 21, the respondent wrote herself a check out of her trust account in the amount of $ 17,250 and in the memo line wrote 'attorney fees.' The respondent never sought nor received court approval to pay herself attorney fees from the estate account.
The respondent improperly used these funds for payment of payroll and other expenses related to her law office. Specifically, the respondent used a portion of the funds converted to make the deposits necessary to bring her 401(k) account current and to bring her employees' accounts current. See ¶ 15, above.
"24. On May 10, 2017, the respondent replaced $ 25,500 of the funds she converted by depositing funds into E.I.'s estate account.
"25. On May 26, 2017, while the investigation into DA12768 was pending, the respondent self-reported the misconduct in the E.I. probate estate and another probate estate. See ¶¶ 28-32, below. The respondent admitted that while serving as attorney and executor for the estates of two of her clients, she transferred money from her clients' estate accounts to her accounts, without proper authority to do so.
"26. On June 28, 2017, the respondent replaced the $ 4,865.85 of the funds she converted by depositing funds into E.I.'s estate account.
"27. On July 7, 2017, the respondent withdrew as counsel and executor in E.I.'s estate case. On July 12, 2017, the respondent closed the account and provided the proceeds to the new administrator of the estate.
"28. In the E.I. probate estate, an order admitting will to probate and issuing letters testamentary under the Kansas Simplified Estates Act was filed on October 27, 2016, and the inventory and valuation and the amended inventory and valuation listing the decedent's property were untimely filed in court on June 14, 2017, and June 26, 2017, respectively. This is after conversion and repayment of estate funds.
"Estate of B.W.
"29. The respondent drafted B.W.'s will. Following B.W.'s death, on March 31, 2016, as attorney for B.W.'s estate, the respondent filed a petition to probate B.W.'s will. That same day, the two individuals named in the will each declined to serve as executor and requested that the respondent be appointed to serve as the administrator. The court granted the request and appointed the respondent to serve as the administrator C.T.A. for the estate of B.W.
"30. The estate had a total value of $ 58,462.85 and consisted of refunds and assets from the liquidation of multiple stocks. While the estate of B.W. was pending, and during the course of several months, the respondent converted $ 57,000 of the estate proceeds, as follows:
a. Check 1002, dated July 7, 2016, was made payable to Pamela Thompson, in the amount of $ 3,000. In the memo line, the respondent wrote 'fees.' The respondent deposited the funds into her operating account. The respondent, however, never sought nor received court approval to pay herself attorney fees from the estate account.
b. Check 1003, dated September 16, 2016, was made payable to Pamela Thompson, in the amount of $ 3,500. In the memo line, the respondent again wrote 'fees.' The respondent deposited the funds into her operating account. The respondent, however, never sought nor received court approval to pay herself attorney fees from the estate account.
c. Check 1004, dated November 11, 2016, was made payable to Pamela Thompson, in the amount of $ 3,500. In the memo line, the respondent wrote 'executor.' The respondent deposited the proceeds into her operating account. Again, the respondent never sought nor received court approval to pay herself executor fees from the estate account.
d. Check 1006, dated January 6, 2016, was made payable to Pamela Thompson, in the amount of $ 28,500. (Even though the check is dated January 6, 2016, it is clear that the check was written in 2017, as B.W. did not pass away until March, 2016.) In the memo line, the respondent wrote 'to trust account.' The respondent deposited the funds into her trust account on January 9, 2017, and withdrew the funds on January 13, 2017. The respondent asserted that she deposited the funds in her operating account.
e. Check 1007, dated February 13, 2017, was made payable to Pamela Thompson, in the amount [of] $ 18,500. In the memo line, the respondent wrote 'to trust for disbursements.' The respondent deposited this check into her attorney trust account and shortly thereafter transferred the funds to her operating account.
The respondent improperly used these funds for payment of payroll and expenses related to her law office. Specifically, the respondent used a portion of the funds converted to make the deposits necessary to bring her 401(k) account current and to bring her employees' accounts current. See ¶ 15, above.
"31. The respondent replaced the funds she took from B.W.'s estate account. At the hearing on this matter, the respondent testified that she borrowed money from a bank and from friends to pay the two estates back.
a. On June 28, 2017, the respondent replaced $ 42,000 by depositing funds into B.W.'s estate account.
b. On July 20, 2017, the respondent replaced $ 5,000 by depositing funds into B.W.'s estate account.
c. According to the respondent, on January 18, 2018, the respondent replaced $ 9,500 by depositing funds into B.W.'s estate account. The bank records introduced into evidence do not include January, 2018.
d. On October 31, 2018, the respondent replaced the final $ 500 of the funds she converted by depositing the funds into B.W.'s estate account.
"32. On May 30, 2018, the respondent filed a motion to withdraw as executor and attorney in B.W.'s estate case. The court granted the motion and appointed an administrator in the respondent's place.
"33. In the B.W. estate, an order admitting will to probate and issuing letters of administration cum testamento annexo was filed on March 31, 2016, and the inventory and valuation and the amended inventory and valuation listing the decedent's property were both untimely filed in court on September 7, 2017. This was after conversion and repayment of estate funds.
"34. The respondent claimed that she earned certain fees in the two estate cases. While the respondent testified that she provided her time statements in the two estate cases to the disciplinary investigator, there is no documentary evidence before the hearing panel to establish that what she earned coincided with what she stated she had earned. While this would have more significance had she retained some portion of the money as fees, the lack of evidence leaves the hearing panel wondering whether the respondent's statements in her July 17, 2017, letter provided during the disciplinary investigation are truthful:
'3. I [sic ] February 26, 2017, I billed the estate for my work completed to that point in the amount of $ 4,865.85, and wrote a check to myself in that amount. I intended to seek approval from the Court for that payment.
....
'3. On July 7, 2016, I wrote a check for fees in the amount of $ 3,000.00. On September 19, 2016, I wrote a check for fees in the amount of $ 3,500.00. On November 15, 2016, I wrote a check in the amount of $ 3,500.00 for fees. These were based on time spent working on the estate. I intended to seek approval of the court as interim fees.'
The hearing panel reviewed the estate files and found the estates to be simple and straightforward. The hearing panel questions the veracity of the respondent's statements in her July 7, 2017, letter based on the amount of claimed fees in relation to the complexity of the estates, the amount of work completed to date, and the total value of each estate. The respondent's claimed fee in the E.I. estate constitutes 6.7% of the estate ($ 4,865.85 divided by $ 72,102.35). The respondent's fee did not include costs associated with the final settlement of the estate. Additionally, the respondent's fee in the B.W. estate constitutes 17% of the estate ($ 10,000 divided by $ 58,462.85). Again, the respondent's interim $ 10,000 fee did not include fees associated with the final settlement of the estate.
"Conclusions of Law
"35. In the parties' amended joint stipulation, the respondent admitted that she violated KRPC 1.15, KRPC 8.4(c), and KRPC 8.4(d). Based upon the stipulation and the above findings of fact, the hearing panel concludes as a matter of law that the respondent violated KRPC 1.15 (safekeeping property) and KRPC 8.4 (professional misconduct), as detailed below.
" KRPC 1.15
"36. Lawyers must keep the property of their clients and third parties safe. See KRPC 1.15. In this case, the respondent failed to properly safeguard the estate funds when she converted the funds to her own purposes. The hearing panel concludes that the respondent failed to safeguard property in violation of KRPC 1.15.
" KRPC 8.4(c)
"37. 'It is professional misconduct for a lawyer to ... engage in conduct involving dishonesty, fraud, deceit or misrepresentation.' KRPC 8.4(c). The respondent engaged in conduct that involved dishonesty when she withheld funds from her employees' paychecks but did not deposit those funds into the 401(k) accounts. The respondent wrote herself eight checks drawn on two estate accounts and converted a total of $ 87,365.85 of estate property. The respondent used those funds for her own purposes, including making payroll and funding her own 401(k) account. The hearing panel concludes that the respondent repeatedly violated KRPC 8.4(c).
" KRPC 8.4(d)
"38. 'It is professional misconduct for a lawyer to ... engage in conduct that is prejudicial to the administration of justice.' KRPC 8.4(d). The respondent engaged in conduct that was prejudicial to the administration of justice when she paid herself for attorney fees without seeking and obtaining court approval for the payment of fees. As such, the hearing panel concludes that the respondent violated KRPC 8.4(d).
"American Bar Association Standards for Imposing Lawyer Sanctions
"39. In making this recommendation for discipline, the hearing panel considered the factors outlined by the American Bar Association in its Standards for Imposing Lawyer Sanctions (hereinafter 'Standards'). Pursuant to Standard 3, the factors to be considered are the duty violated, the lawyer's mental state, the potential or actual injury caused by the lawyer's misconduct, and the existence of aggravating or mitigating factors.
"40. Duty Violated . The respondent violated her duty to her clients and third parties to properly safeguard property, the respondent violated her duty to the public to maintain her personal integrity, and the respondent violated her duty to the legal system to refrain [from] engaging in acts that are prejudicial to the administration of justice.
"41. Mental State . The respondent knowingly and intentionally violated her duties.
"42. Injury . As a result of the respondent's misconduct, the respondent caused potential injury to her employees, potential injury to the heirs of the two estates, and actual injury to the legal profession.
"Aggravating and Mitigating Factors
"43. Aggravating circumstances are any considerations or factors that may justify an increase in the degree of discipline to be imposed. In reaching its recommendation for discipline, the hearing panel, in this case, found the following aggravating factors present:
a. Dishonest or Selfish Motive . The respondent's misconduct was motivated by dishonesty and selfishness. It is dishonest to take another's property without proper authority. The respondent testified that she knew taking the money was wrong. She took the funds as her income was not sufficient to pay bills. She then borrowed money from family and friends to repay the estates. Given further testimony, it is clear that the respondent and her husband had sufficient joint resources to pay expenses to begin with or, subsequently, to repay the estates without borrowing money from family and friends. Additionally, taking funds from an estate to pay your bills is selfish. Accordingly, the hearing panel concludes that the respondent's misconduct was motivated by dishonesty and selfishness.
b. A Pattern of Misconduct . The respondent repeatedly failed to deposit salary deferrals to the 401(k) accounts. The respondent wrote eight checks drawn on two estate accounts and converted $ 87,365.85 to her own use. As such, the respondent engaged in a pattern of misconduct.
c. Submission of False Evidence, False Statements, or Other Deceptive Practices During the Disciplinary Process . The respondent stipulated to the facts included in ¶ 17 above. However, at the hearing on this case, the respondent told a different story. The respondent testified that she knew that Ms. Brewster's husband had previously threatened someone and when Ms. Brewster said that her husband wanted to talk to the respondent, the respondent took that statement as a threat. The disciplinary administrator relied on the respondent's stipulation and was not in a position to dispute the respondent's altered version of the stipulated facts. The hearing panel finds that the respondent's testimony contrary to the stipulation is deceptive.
d. Vulnerability of Victim . The respondent's employees and the two estates were vulnerable to the respondent's misconduct.
e. Substantial Experience in the Practice of Law . The Kansas Supreme Court admitted the respondent to practice law in the State of Kansas in 1985. At the time of the misconduct, the respondent has been practicing law for more than 30 years. The letters in support of the respondent indicate that she has been a good and effective attorney for her clients.
f. Illegal Conduct, Including that Involving the Use of Controlled Substances . The respondent converted money that was entrusted to her. Specifically, the respondent took $ 87,365.85 from two estate accounts without authorization. The respondent's actions appear to satisfy the elements of theft. See K.S.A. [2018 Supp.] 21-5801(a)(1). Based on the amount of money taken from each estate, the respondent's conduct could be classified as two counts of theft, level 7 nonperson felonies. See [2018 Supp.] K.S.A. 21-5801(b)(2). Additionally, the respondent withheld funds from her employees' paychecks and failed to deposit those funds into the 401(k) account for an extended period of time. Retaining her salary deferrals could also constitute theft.
"44. Mitigating circumstances are any considerations or factors that may justify a reduction in the degree of discipline to be imposed. In reaching its recommendation for discipline, the hearing panel, in this case, found the following mitigating circumstances present:
a. Absence of a Prior Disciplinary Record . The respondent has practiced law for 33 years and has not previously been disciplined.
b. Personal or Emotional Problems if Such Misfortunes Have Contributed to Violation of the Kansas Rules of Professional Conduct . The respondent suffers from depression and anxiety. This was caused in part [by] a number of real stressors in her life beginning with the respondent's father's dementia and his resulting anger, in turn causing anxiety between her parents and her husband; conflict with employees in her office; two distressing incidents with dear friends (described below), and thereafter her mother's stroke in August, 2017, leaving the respondent as a caregiver to her father. Additionally, the respondent previously suffered from acute stress disorder after discovering a good friend suffering from a grave medical condition. A few days later, the respondent's good friend died. Also, in July 2016, one of the respondent's long-time friends was diagnosed with a terminal condition. While the respondent suffers from personal and emotional problems, it is difficult to link the problems to the dishonest conduct in this case. The respondent presented the testimony of Renee Fields, LSCSW. Ms. Fields testified that the respondent was in a fog when she failed to properly fund the 401(k) accounts and that she was also in a fog each time she wrote the checks out of the estate accounts and the respondent's emotional problems caused the misconduct. The hearing panel questioned Ms. Fields about the link between the personal and emotional problems and the misconduct. Ms. Fields testified that based on her experience in the field she 'knew' that the personal and emotional problems caused the misconduct. Ms. Fields also testified that the respondent's condition and anxiety made exercising judgment a problem and the respondent did not see her choices. The hearing panel did not accept this testimony. The hearing panel concludes that the respondent failed to present sufficient evidence to establish that the respondent's personal and emotional problems contributed to or caused the respondent's repeated dishonest conduct. While the hearing panel agrees that the respondent had significant stress, depression and anxiety in 2016 and 2017, the hearing panel cannot overlook the respondent's testimony, which was received prior to Ms. Fields' testimony, that the respondent knew her conduct was wrong.
c. Timely Good Faith Effort to Make Restitution or to Rectify Consequences of Misconduct . The respondent has repaid the salary deferrals and interest into the employees' 401(k) accounts. Additionally, the respondent repaid the $ 87,365.85 to the estates.
d. The Present and Past Attitude of the Attorney as Shown by His or Her Cooperation During the Hearing and His or Her Full and Free Acknowledgment of the Transgressions. The respondent fully cooperated with the disciplinary process. Additionally, the respondent admitted the facts that gave rise to the violations.
e. Previous Good Character and Reputation in the Community Including Any Letters from Clients, Friends and Lawyers in Support of the Character and General Reputation of the Attorney . The respondent is an active and productive member of the bar of Wichita, Kansas. The respondent also enjoys the respect of her peers and generally possesses a good character and reputation as evidenced by several letters received by the hearing panel.
"Additionally, the respondent's pastor, George Skramstrand, testified that he has known the respondent since 1991 and that he has counseled her as to her recent struggles, depression, and anxiety. He testified that she has 'owned her actions' and is remorseful and understands the magnitude of her actions.
"The Honorable James Burgess, appearing under subpoena, has known the respondent for a considerable period of time as a former judge in the juvenile department in Sedgwick County, Kansas. He trusted her work and honest opinion and noted the compassion she displayed for clients. She was also previously trusted to serve as a pro tem judge. Judge Burgess also testified that her conduct as charged in this case is inconsistent with the person he has known the respondent to be.
"45. In addition to the above-cited factors, the hearing panel has thoroughly examined and considered the following Standards:
'4.11 Disbarment is generally appropriate when a lawyer knowingly converts client property and causes injury or potential injury to a client.
'4.12 Suspension is generally appropriate when a lawyer knows or should know that he is dealing improperly with client property and causes injury or potential injury to a client.
'5.1 Disbarment is generally appropriate when:
(a) a lawyer engages in serious criminal conduct a necessary element of which includes intentional interference with the administration of justice, false swearing, misrepresentation, fraud, extortion, misappropriation, or theft; or the sale, distribution or importation of controlled substances; or the intentional killing of another; or an attempt or conspiracy or solicitation of another to commit any of these offenses;
(b) a lawyer engages in any other intentional conduct involving dishonesty, fraud, deceit, or misrepresentation that serious adversely reflects on the lawyer's fitness to practice.
'7.1 Disbarment is generally appropriate when a lawyer knowingly engages in conduct that is a violation of a duty owed as a professional with the intent to obtain a benefit for the lawyer or another, and causes serious or potentially serious injury to a client, the public, or the legal system.
'7.2 Suspension is generally appropriate when a lawyer knowingly engages in conduct that is a violation of a duty owed as a professional, and causes injury or potential injury to a client, the public, or the legal system.'
"Recommendation
"46. The disciplinary administrator recommended that the respondent be disbarred. The respondent testified that a period of suspension was appropriate in this case and counsel for the respondent recommended that the hearing panel recommend that she be suspended for a period of one year.
"47. The facts detailed above establish that the respondent engaged in a pattern of dishonest conduct. The serious nature of the respondent's misconduct warrants disbarment. Additionally, the ABA Standards clearly support disbarment in this case. However, the facts detailed above, also establish that the respondent made all four of her victims whole. Accordingly, based upon the findings of fact, conclusions of law, and the Standards listed above, a majority of the hearing panel recommends that the respondent be indefinitely suspended.
"48. Costs are assessed against the respondent in an amount to be certified by the Office of the Disciplinary Administrator.
....
"CONCURRING AND DISSENTING OPINION
"I concur in the findings of fact, the conclusions of law, and the consideration of the ABA Standards. I respectfully dissent as to the recommendation. Disbarment is the appropriate discipline in this case.
"By the testimony presented and exhibits introduced, the respondent has enjoyed a productive and well-respected legal career since 1985. The respondent has made significant contributions to her church, community, and the legal profession. The respondent has weathered the challenges of private practice for over 33 years without complaint and incident and enjoyed the privileges of representing clients in an excellent manner.
"It is clear that in 2016 and 2017, the respondent suffered from depression and anxiety resulting from a number of significant stressors in her life as detailed by the majority opinion. However her legal business also began to suffer cash flow issues during this time frame. The pattern of misconduct began in response to those financial issues. The respondent withheld 401k contributions from her employee's checks, yet failed to timely deposit the salary deferrals in most months of 2016 and early 2017. The funds were instead used for the respondent's own purposes.
"Additionally, the respondent knowingly and intentionally and without court authority wrote herself eight checks drawn on two estate accounts for a total of $ 87,365.85. She was a fiduciary in these estates. She then personally used these funds and wrote numerous words such as 'attorney fees,' 'ordered,' 'to trust for distribution,' 'fees,' 'executor,' 'to trust account,' 'to trust for disbursement,' on the check memos to apparently justify or mask her deeds. Moreover, the respondent testified that she knew her conduct was wrong.
"There was no inventory or accounting timely filed with the district court by the respondent which demonstrated the initial deposits of assets in the two estates, nor showed the disbursements of funds to the respondent or her repayment.
"Perhaps the most confounding fact is that the respondent testified that she had sufficient joint assets with her husband to secure financing to avert the conduct which has occurred in this case.
"The respondent cooperated with the disciplinary administrator's office and has fully repaid her obligations. She demonstrated genuine remorse and regret at the hearing. The respondent acknowledged her conduct and has done all she can do to 'right her wrongs,' yet notwithstanding, I find that Standards 5.11 and 7.1 provide that the appropriate discipline, given all the facts and consideration of mitigating and aggravating evidence, is disbarment."

DISCUSSION

In a disciplinary proceeding, this court considers the evidence, the findings of the disciplinary panel, and the arguments of the parties and determines whether violations of KRPC exist and, if they do, the discipline that should be imposed. Attorney misconduct must be established by clear and convincing evidence. In re Foster , 292 Kan. 940, 945, 258 P.3d 375 (2011) ; see Supreme Court Rule 211(f) (2019 Kan. S. Ct. R. 257). Clear and convincing evidence is " 'evidence that causes the factfinder to believe that "the truth of the facts asserted is highly probable." ' " In re Lober , 288 Kan. 498, 505, 204 P.3d 610 (2009) (quoting In re Dennis , 286 Kan. 708, 725, 188 P.3d 1 [2008] ).

The respondent was given adequate notice of the formal complaint to which she filed an answer. The respondent was also given adequate notice of the hearing before the panel and the hearing before this court. She did not file exceptions to the hearing panel's final hearing report.

With no exceptions before us, the panel's findings of fact are deemed admitted. Supreme Court Rule 212(c), (d) (2019 Kan. S. Ct. R. 261). Furthermore, the facts before the hearing panel establish by clear and convincing evidence the charged misconduct in violation of KRPC 1.15 (2019 Kan. S. Ct. R. 334) (safekeeping property); 8.4(c) (2019 Kan. S. Ct. R. 387) (engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation); and 8.4(d) (engaging in conduct prejudicial to the administration of justice). The evidence also supports the panel's conclusions of law. We therefore adopt the panel's findings and conclusions.

The only remaining issue before us is the appropriate discipline for the respondent's violations. At the hearing before this court, the office of the Disciplinary Administrator continued to recommend that the respondent be disbarred. The respondent and her counsel requested suspension for one year.

This court is not bound by the recommendations made by the Disciplinary Administrator or the hearing panel. Supreme Court Rule 212(f). But, in this case, we agree with the Disciplinary Administrator and the concurring and dissenting hearing panel member. Respondent's misconduct was too serious, and her initial efforts to avoid detection of it too plain, to persuade us that she should receive a lesser sanction.

CONCLUSION AND DISCIPLINE

IT IS THEREFORE ORDERED that Pamela J. Thompson be and she is hereby disciplined by disbarment in accordance with Supreme Court Rule 203(a)(1) (2019 Kan. S. Ct. R. 240), effective on the date of the filing of this opinion.

IT IS FURTHER ORDERED that the costs of these proceedings be assessed to the respondent and that this opinion be published in the official Kansas Reports.


text:
    STATE of Kansas, Appellee, v. Cameron Lee JOHNSON, Appellant.
    No. 117,788
    Supreme Court of Kansas.
    Opinion filed May 31, 2019.
    Kai Tate Mann, of Kansas Appellate Defender Office, argued the cause and was on the brief for appellant.
    Natalie Chalmers, assistant solicitor general, argued the cause, and Derek Schmidt, attorney general, was with her on the brief for appellee.
   The opinion of the court was delivered by Beier, J.:

This case comes to us on direct appeal from Cameron Lee Johnson's no contest plea to felony murder, aggravated kidnapping, aggravated assault, and criminal possession of a firearm. The district court sentenced Johnson to life without parole for at least 25 years and 272 months for aggravated kidnapping, to run consecutive to the life sentence. Johnson raises three issues on direct appeal, concerning the imposition of consecutive sentences, restitution, and the imposition of lifetime postrelease supervision following a hard-25 life sentence. We also note another ambiguity in Johnson's sentence as pronounced.

FACTUAL AND PROCEDURAL BACKGROUND

Johnson pleaded no contest to felony murder, aggravated kidnapping, aggravated assault, and criminal possession of a firearm. At his plea hearing, both the district court and county attorney referenced Johnson's numerous other criminal cases. The district court swore Johnson in before confirming with Johnson that he had read and understood each and every part of the acknowledgement of rights and entry of plea that he had signed. Johnson requested and was given additional time to discuss the acknowledgment with his mother and his attorney. The district court then confirmed Johnson understood the court was not bound by the plea agreement. The court took Johnson's no contest pleas for each of the four offenses charged.

The district court then said, "[T]he Court is aware of the facts of the case based on the Probable Cause Affidavit, but just to be safe, for the record, would you provide a factual basis for the Court, please." The State did so, reciting facts including that the victim was kidnapped when she was taken by force or fear from the vehicle she had been in to a vacant lot where she was shot numerous times. The State also referenced Johnson's confession, which the district court was familiar with from a codefendant's case. None of these statements drew any objection from Johnson's counsel.

The court responded: "Based on the information provided by Mr. Johnson ... and [the State ,] the Court will find that there's a factual basis for the plea and find that the plea was knowingly and voluntarily entered into." (Emphasis added.) Johnson's counsel again did not object.

At sentencing, the district court handed down a Hard 25 life sentence for felony murder; the judge made inconsistent references to whether the sentence included the possibility of parole after 25 years or required lifetime postrelease supervision.

"For the offense of first-degree murder, felony murder, an off-grid offense, the Court is sentencing you to life in prison. Lifetime post-release. That is the requirement, correct, Mr. Grillot?
"Mr. Grillot: Yes, Your Honor.
"The Court: Lifetime post-release. You'll be eligible for parole after 25 years."

Johnson also received 272 months for aggravated kidnapping, to be served consecutively to the Hard 25; 12 months on aggravated assault, to be served concurrently with the Hard 25 and 272 months; and 8 months on criminal possession, to be served concurrently to the aggravated assault sentence but consecutively to the Hard 25 and 272 months on the other counts. The district court rejected Johnson's request, which the State joined, to run all sentences concurrent, explaining:

"This was a crime of extreme violence that the victim was subject to. I heard your statement that you gave the police at the preliminary hearing. It is clear to the Court that the final moments of this young lady's life were very cold, and you showed no mercy. As a consequence, the Court can show no mercy to you.
"So the first-degree murder count and the aggravated kidnapping count will run consecutive to one another and not concurrent."

Johnson's counsel again did not object to or otherwise take issue with the district court's statements.

The judge also addressed restitution at sentencing: "Restitution will be ordered. If they can't agree on the amount, you'll have to pay that." The court later reiterated, "[A]ny restitution is not waived."

The journal entry of judgment reflected that the court imposed lifetime postrelease supervision. It also indicated restitution was "TBD" or "to be determined" at a later time. A subsequent nunc pro tunc still listed restitution as "TBD" and purported to change the criminal possession sentence to run concurrent to the sentences on the three other counts.

No restitution amount was ever set by the district court.

We ordered the parties to show cause on whether this court has jurisdiction, because the open issue on restitution raised a preliminary question about whether the district court had entered a final judgment. We noted the parties' responses and concluded that we have jurisdiction.

ANALYSIS

Lack of Preservation of Consecutive Sentencing Issue

Litigants generally are precluded from raising an issue on appeal when they failed to raise the issue in the district court. We have recognized exceptions that allow a party to raise an issue, including a constitutional issue, for the first time on appeal: (1) the newly asserted theory involves "only a question of law arising on proved or admitted facts and the issue is finally determinative of the case"; (2) "resolution of the question is necessary to serve the ends of justice or to prevent denial of fundamental rights"; and (3) the district court reached the right result for the wrong reason. Trotter v. State , 288 Kan. 112, 124-25, 200 P.3d 1236 (2009).

In addition, certain issues, such as subject matter jurisdiction or an illegal sentence, can be raised at any time regardless of whether the issue was presented to the district court. Trotter , 288 Kan. at 125, 200 P.3d 1236 (subject matter jurisdiction); State v. Rogers , 297 Kan. 83, 93, 298 P.3d 325 (2013) (illegal sentence can be raised for first time on appeal, by court sua sponte).

For those issues that cannot be raised at any time, we require a litigant to explain why the issue is properly raised for the first time on appeal. State v. Daniel , 307 Kan. 428, 430, 410 P.3d 877 (2018) ; Supreme Court Rule 6.02(a)(5) (2019 Kan. S. Ct. R. 35) ("If the issue was not raised below, there must be an explanation why the issue is properly before the court."). And, even then, some issues remain beyond our review when not preserved by a timely objection. E.g., State v. Solis , 305 Kan. 55, 63-64, 378 P.3d 532 (2016) (rejecting argument that ends of justice allowed consideration of evidentiary issue raised on appeal that was not objected to contemporaneously).

Johnson argues here that the district court judge abused his discretion, either by making an error of fact or acting unreasonably, when he chose to sentence Johnson to consecutive terms on his felony murder and aggravated kidnapping convictions. Johnson now believes the judge relied on facts outside the record in this case, namely Johnson's confession admitted in a codefendant's case and the probable cause affidavit.

Johnson did not raise this argument below. His counsel did not object when the confession or probable cause affidavit were mentioned during his plea hearing; nor did counsel object during sentencing when the judge referenced Johnson's statement to the police in explaining why he declined to follow the consecutive recommendation in the plea agreement. Johnson's failure to raise the issue of reliance on facts outside the record in the district court, compounded by his failure to explain why we should apply an exception to consider it for the first time on appeal, places the merits of the issue beyond our review.

Jurisdiction to Impose Restitution

Johnson argues the district court lacks subject matter jurisdiction to enter a restitution order based on our decision in State v. Charles , 298 Kan. 993, 318 P.3d 997 (2014). The district court's jurisdiction to order restitution involves questions of law over which we exercise unlimited review. State v. Hall , 298 Kan. 978, 982-83, 319 P.3d 506 (2014) ; see also Charles , 298 Kan. at 1002, 318 P.3d 997.

A sentencing court loses jurisdiction to modify a sentence except to correct arithmetic or clerical errors after a legal sentence has been pronounced from the bench. Hall , 298 Kan. at 983, 319 P.3d 506 ; see K.S.A. 2018 Supp. 21-6820(i). Restitution is part of a sentence. 298 Kan. at 983, 319 P.3d 506. Subject matter jurisdiction persists if a district court bifurcates or continues a sentencing hearing to address restitution at a later date. 298 Kan. at 986-87, 319 P.3d 506.

We made clear in Hall and Charles that future sentencing judges would be expected to make "an explicit and specific order of continuance for the purpose of determining the amount of restitution or whatever other aspect of sentencing remains incomplete." Hall , 298 Kan. at 987, 319 P.3d 506 ; see also Charles , 298 Kan. 993, 1002, 318 P.3d 997 ("a district judge should expressly enter an order of continuance"). The failure to do so would deprive the court of subject matter jurisdiction to impose restitution after a sentencing hearing concluded. See Charles , 298 Kan. at 1002-03, 318 P.3d 997 ; see also State v. Frierson , 298 Kan. 1005, 1020-21, 319 P.3d 515 (2014).

Johnson's sentencing hearing was held in December 2016, long after the filing of the Hall and Charles opinions in February 2014. The judge said he would order restitution but failed to explicitly bifurcate or continue the proceeding. The district court's failure to follow the procedure we mandated in Hall and Charles deprived the district court of jurisdiction to set restitution later.

One further note on restitution bears mention: The State has urged us to allow restitution to be awarded if we remand for other reasons. Because we decline to remand this case, we do not address the merits of the State's argument on this point.

We vacate the portion of the journal entry and subsequent nunc pro tunc order indicating restitution remains "TBD."

Illegal Sentence Aspects Requiring Correction Without Remand

Whether a sentence is illegal is an issue of law subject to unlimited review. State v. Alford , 308 Kan. 1336, 1338, 429 P.3d 197 (2018). An illegal sentence may be corrected at any time, K.S.A. 2018 Supp. 22-3504(1) ; and we have the authority to correct an illegal sentence sua sponte. See Rogers , 297 Kan. at 93, 298 P.3d 325.

A sentence is illegal when it is imposed by a court without jurisdiction, fails to "conform to the applicable statutory provision, either in character or punishment," or "is ambiguous with respect to the time and manner in which it is to be served at the time it is pronounced." K.S.A. 2018 Supp. 22-3504(3). Here, Johnson questions whether the postrelease term failed to conform to the applicable statutory provision or was ambiguous with respect to the time and manner in which it was to be served. In addition, as mentioned above, we have detected another ambiguity in Johnson's sentence for criminal possession that requires our attention.

The State agrees with Johnson that his off-grid sentence permits parole eligibility after 25 years have been served, not lifetime postrelease supervision. See K.S.A. 2018 Supp. 22-3717(b)(2) ; K.S.A. 2018 Supp. 21-6620(b)(1) ; see also State v. Ruiz-Ascencio , 307 Kan. 138, 146, 406 P.3d 900 (2017) ; State v. Phillips , 295 Kan. 929, 950, 287 P.3d 245 (2012). The judge's inconsistent statements on this point at sentencing made this aspect of Johnson's sentence ambiguous and illegal. The State concedes this issue and suggests the remedy is to vacate the order of lifetime postrelease supervision rather than remand the case for resentencing. See Phillips , 295 Kan. at 949-50, 287 P.3d 245 (sentence is illegal when court lacked jurisdiction). We agree. We vacate Johnson's lifetime postrelease supervision term imposed at sentencing. Whether parole eligibility will eventually become an actuality is not for us to decide.

The other ambiguity in the sentence not raised by the parties arises from the judge's pronouncement that the criminal possession sentence would run concurrent with the aggravated assault sentence but consecutive to the sentences for the felony murder and aggravated kidnapping convictions. This is not possible if, as the judge also pronounced, the aggravated assault sentence is to run concurrent with the sentence for the felony murder and aggravated kidnapping convictions.

Ordinarily this ambiguity would require a remand to clarify and correct. But, in this particular case, we know from another portion of the record on appeal exactly what the judge intended. He attempted to fix the problem of the ambiguous pronouncement by issuing the nunc pro tunc order making the sentence on the criminal possession concurrent with the terms for the three other counts.

This approach does not qualify as a strictly proper use for a nunc pro tunc order; the judge's error was substantive and thus not typically amenable to correction through the nunc pro tunc procedure. See State v. Smith , 309 Kan. ----, 369 P.3d 343 (No. 113,828, this day decided), slip op. at 2 ; State v. Mebane , 278 Kan. 131, 136, 91 P.3d 1175 (2004) (nunc pro tunc order is used to correct clerical errors, errors arising from oversight, omission). Nevertheless, it is obvious that this was the judge's intention and we see nothing to be gained by remanding for him to tell us or the parties what is already known. We therefore hold that no further action is required to correct the criminal possession sentence to make it concurrent with the three other sentences.

CONCLUSION

We affirm Johnson's consecutive sentences on his convictions for felony murder and aggravated kidnapping. We vacate the portions of the district court's judgment and nunc pro tunc order indicating restitution will be imposed at a later date and imposing postrelease supervision on Johnson's Hard 25 life sentence. We affirm the district court's order that Johnson's criminal possession sentence be served concurrently with his sentences for felony murder, aggravated kidnapping, and aggravated assault.

Luckert, J., not participating.

Michael J. Malone, Senior Judge, assigned.

      REPORTER'S NOTE: Senior Judge Malone was appointed to hear case No. 117,788 vice Justice Luckert under the authority vested in the Supreme Court by K.S.A. 20-2616.