FSM SUPREME COURT TRIAL DIVISION
CIVIL ACTION NO. 2015-1012

STATE OF CHUUK,
Plaintiff,

vs.

FEDERATED STATES OF MICRONESIA,
Defendant.
__________________________________________

ORDER GRANTING PARTIAL SUMMARY JUDGMENT; DENYING RECONSIDERATION; AND MAKING APPELLATE RULE 5(a) STATEMENT

Larry Wentworth
Associate Justice

Hearing:  August 1, 2018
Decided:  September 4, 2018
Reconsideration Hearing:  October 18, 2018
Reconsideration Decided:  October 23, 2018

APPEARANCES:

For the Plaintiff:	Sabino S. Asor, Esq.
Chuuk Attorney General
Office of the Attorney General
P.O. Box 1050
Weno, Chuuk FM 96942

For the Defendant:	Craig D. Reffner, Esq.
Jonathan D. Buckner, Esq.
Assistant Attorneys General
FSM Department of Justice
P.O. Box PS-105
Palikir, Pohnpei FM 96941

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HEADNOTES

Business Organizations - Corporations; Taxation
Title 54, chapter 3, the Corporate Income Tax Act of 2004, is the FSM’s tax regime for major corporations, which are defined as those corporations that are not principally engaged in business in the Federated States of Micronesia as a bank, that were formed after January 1, 2005, and whose shareholders’ equity or paid in capital is $1 million or more, or whose control group has a shareholders’ equity or paid in capital of $10 million or more, or that are Title 37 captive insurance companies.  These, otherwise foreign, entities incorporate in, and pay income taxes to, the FSM on their world-wide taxable revenue.  Chuuk v. FSM, 22 FSM R. 85, 89 (Chk. 2018).

Civil Procedure - Default and Default Judgments; Civil Procedure - Discovery
A default judgment can be entered against a defendant for discovery abuse, but such a remedy is available only when the party, against whom the default judgment is sought, has disobeyed a court order to provide discovery, and even then, courts have traditionally administered justice with mercy and allowed the non-complying party a second chance to comply with the discovery rules and the court orders made under them.  Chuuk v. FSM, 22 FSM R. 85, 89-90 (Chk. 2018).

Civil Procedure - Default and Default Judgments; Civil Procedure - Discovery
The court will not enter a default judgment as a discovery sanction when, not only has the defendant not disobeyed a court order compelling discovery (as no such order was sought or issued), but it also responded to the plaintiff’s document production request and provided (quite tardily) what appear to be the requested documents, which the plaintiff has not indicated to be not responsive to its request, or incomplete, or otherwise deficient or unsatisfactory.  Chuuk v. FSM, 22 FSM R. 85, 90 (Chk. 2018).

Civil Procedure - Summary Judgment
When the dispute is a legal issue, not a factual issue, the court can conclude that there are no material facts genuinely in dispute.  Chuuk v. FSM, 22 FSM R. 85, 90 (Chk. 2018).

Federalism - National/State Power; Taxation
The Constitution expressly grants the FSM national government the power to tax income, and the further provides that not less than 50% of the tax revenues be paid into the treasury of the state where collected.  Chuuk v. FSM, 22 FSM R. 85, 90 (Chk. 2018).

Federalism - National/State Power; Taxation
The Constitution’s framers intended that at least half of all income taxes and import taxes received by the national government would be paid to the states.  Chuuk v. FSM, 22 FSM R. 85, 90-91 (Chk. 2018).

Federalism - National/State Power; Taxation
The Constitution’s framers contemplated and created a system wherein (at least) half of the income tax money received by the national government would go into one or another state treasury.  Chuuk v. FSM, 22 FSM R. 85, 91 (Chk. 2018).

Taxation
The revenue collected under Title 54, chapter 3 is from an income tax.  These Title 54, chapter 3 major corporations’ income taxes are paid to the FSM national government because these business entities, although they earn their revenue elsewhere in the world, are incorporated in the FSM.  Chuuk v. FSM, 22 FSM R. 85, 91 (Chk. 2018).

Taxation
While the FSM’s gross revenue tax (Title 54, chapter 1, subchapter IV) is imposed on the gross income that a business derived, or was presumed to have derived, from sources within the FSM, and not on revenue from sources elsewhere in the world, the major corporations that pay Title 54, chapter 3 income taxes, are generally exempt from the gross revenue tax, 54 F.S.M.C. 323, since they do not conduct business within the FSM, but are subject to taxation on income regardless of the location of the business activity that generated that income.  Chuuk v. FSM, 22 FSM R. 85, 91 (Chk. 2018).

Federalism - National/State Power; Taxation
The state share of a major corporation’s income tax should be paid into state treasury of the state of incorporation and this share is determined after the Micronesia Registrar Advisor has first taken its percentage of the corporate income taxes paid by the major corporations it induced to incorporate in the FSM - the state’s 50% share should be calculated from the net amount "collected" by the national government, that is, 50% of the amount of tax levied after the Registration Advisor’s percentage is deducted.  Chuuk v. FSM, 22 FSM R. 85, 92 (Chk. 2018).

Civil Procedure - Motions - Unopposed
If a party fails to file a response to a motion, it usually will not be allowed to argue that motion orally.  Chuuk v. FSM, 22 FSM R. 85, 92 (Chk. 2018).

Taxation - Constitutionality
The constitutional command that all national taxes be "imposed uniformly" is not a prerequisite for revenue-sharing only.  It commands Congress impose all taxes uniformly.  Chuuk v. FSM, 22 FSM R. 85, 93 (Chk. 2018).

Taxation - Constitutionality
The major corporation income tax complies with the constitutional command that national taxes be "uniformly imposed."  Chuuk v. FSM, 22 FSM R. 85, 93 (Chk. 2018).

Taxation - Constitutionality
The FSM major corporation income tax rate is a national tax - a tax imposed by the national government pursuant to the national government’s constitutional power to tax income.  Chuuk v. FSM, 22 FSM R. 85, 93 (Chk. 2018).

Taxation - Constitutionality
The national government has the power to impose only two types of taxes - that based on imports and that on income.  Chuuk v. FSM, 22 FSM R. 85, 93 (Chk. 2018).

Federalism - National/State Power; Taxation
National government revenues derived from constitutional provisions other than its authority to tax income and imports, are not (with one exception) constitutionally subjected to revenue-sharing.  Chuuk v. FSM, 22 FSM R. 85, 93 (Chk. 2018).

Business Organizations - Corporations
For a number of years after the FSM’s creation, and after the end of the Trust Territory government’s authority, the national government was the only entity that registered and dissolved corporations until the states gradually developed that ability, and even now, it is still possible to get a corporate charter from the national government.  Chuuk v. FSM, 22 FSM R. 85, 94 (Chk. 2018).

Appellate Review - Decisions Reviewable - Interlocutory
When the court is of the opinion that its order involves one or more controlling questions of law about which there is substantial ground for difference of opinion and that an immediate appeal from its interlocutory order may materially advance the litigation’s ultimate termination and enters a statement to that effect, any party may, within ten days of the amended order’s date of entry, petition the appellate division for permission to appeal the interlocutory order.  Chuuk v. FSM, 22 FSM R. 85, 94 (Chk. 2018).

Appellate Review - Decisions Reviewable - Interlocutory
The parties have ten days from the entry of an appropriate order with the prescribed statement to petition the appellate division for permission to appeal an interlocutory order.  Chuuk v. FSM, 22 FSM R. 85, 95 (Chk. 2018).

Appellate Review - Decisions Reviewable - Interlocutory
The appellate division is prohibited from extending the time to petition for permission to pursue an interlocutory appeal, and the trial court cannot extend the time either.  Chuuk v. FSM, 22 FSM R. 85, 95 (Chk. 2018).

Appellate Review - Decisions Reviewable - Interlocutory
A trial court can reconsider an interlocutory matter and then re-enter its order with the prescribed statement to start a new ten-day period running in which to petition for permission to appeal.  Chuuk v. FSM, 22 FSM R. 85, 95 (Chk. 2018).

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COURT’S OPINION

LARRY WENTWORTH, Associate Justice:

Too long has this case lain dormant.  The court, when it (finally) realized that this case had been reassigned to it, set a status conference, at which counsel for the defendant Federated States of Micronesia and for the (as it became apparent) former defendant, the Micronesia Registrar Advisor, appeared telephonically.  Plaintiff’s counsel was unavailable.

The conference made the court aware 1) that the Micronesia Registrar Advisor was not now a party since the plaintiff’s amended complaint, unlike the original complaint, made no claims against it and did not name it as a party-defendant; and 2) that the plaintiff had a pending motion, filed June 5, 2017, seeking either a partial summary judgment or a default judgment, to which the FSM had, on July 10, 2017, filed an opposition.  The court now turns to that motion.

I.  Procedural Posture

Chuuk, in its amended complaint, seeks a judgment that it is entitled to 50% of the Title 54, chapter 3 corporate income taxes collected in Chuuk; an injunction prohibiting the FSM from obligating those tax revenues collected in fiscal year 2016 without paying Chuuk its share; and an order that the Department of Finance provide an accounting of the Title 54, chapter 3 tax revenue for fiscal year 2016 and thereafter.

First, the FSM moved to dismiss Chuuk’s complaint because, in its view, its claim was a nonjusticiable political question and because Congress was an indispensable party that had not been joined.  The court denied that motion because a dispute about the constitutionally mandated 50% could not be a nonjusticiable political question since Congress had no discretion in the matter1 and because Congress was not an indispensable party since Chuuk did not seek more than that 50%.  Chuuk v. FSM, 20 FSM R. 373, 376-77 (Chk. 2016).

Chuuk now moves for (partial) summary judgment on the issue of its entitlement to a share of the corporate income taxes "collected in" Chuuk, or, alternatively, for a default judgment to that effect because (at least when the motion was filed) the FSM had not responded to its discovery request.

II.  Statutory Background

Title 54, chapter 3 was enacted as the Corporate Income Tax Act of 2004.  54 F.S.M.C. 311.  It is the FSM’s tax regime for major corporations, which are defined as those corporations that are "not principally engaged in business in the Federated States of Micronesia as a bank," that were formed after January 1, 2005, and whose shareholders’ equity or paid in capital is $1 million or more, or whose control group has a shareholders’ equity or paid in capital of $10 million or more, or that are Title 37 captive insurance companies.  54 F.S.M.C. 312(2).

These, otherwise foreign, entities incorporate in, and therefore pay income taxes to, the FSM on their world-wide taxable revenue, see SCREP No. 13-179, J. of 13th Cong., 4th Reg. Sess. ___, ___ (2004),2 as their taxable income is "determined under International Financial Reporting Standard . . . or Generally Accepted Accounting Principles" depending on "the major corporation’s principal shareholder’s, if a corporation, place of incorporation, or, if an individual, country of primary residence."  54 F.S.M.C. 322.  And major corporations, that do not engage in business in the FSM, are exempt from the FSM gross revenue taxes.  54 F.S.M.C. 323.  FSM incorporation evidently brings these major corporations tax savings elsewhere in the world.  The Corporate Income Tax Act’s intent is to create much-needed revenue sources to partially offset decreased Compact of Free Association funding.  SCREP No. 13-202, J. of 13th Cong., 6th Spec. Sess. ___, ___ (2004) (the Act "presents an opportunity for the FSM to generate much-needed revenues, partially offsetting scheduled decrements in Compact funding").

Chuuk contends that it is entitled to a share of the corporate income tax by virtue of the Constitutional provision that "[n]ot less than 50% of the [national government’s tax] revenues shall be paid into the treasury of the state where collected."  FSM Const. art. IX, § 5.  The FSM disputes that this provision applies to the major corporation income tax imposed by Title 54, chapter 3, and, if it does apply, the FSM disputes that Chuuk is where any of that tax is "collected."

III.  Analysis

A.  Failure to Respond to Discovery

Chuuk contends that, since the FSM failed, for about a year, to produce the documents it had requested in discovery, the FSM should "be precluded from denying the requested information, and that Summary Judgment be granted as a matter of law, that . . . Chuuk State is part of the ’collection process’ of the subject Chapter 3 tax, and is therefore entitled by law to its Article IX Section 5 share of the tax."  Chuuk State Mot. for Partial Summ. J. or for Default J. at 8 (June 5, 2017).

The FSM argues that a default judgment is not possible under these circumstances because a litigant must first move for an order to compel discovery, and, only if a motion is granted and a party does not comply with that order, can a court issue a default judgment in the movant’s favor.

Chuuk is correct that it is possible to enter a default judgment against a defendant for discovery abuse.  See FSM Civ. R. 37(b)(2)(C) ("rendering a judgment by default against the disobedient party").  However, such a remedy is available only when the party, against whom the default judgment is sought, has disobeyed a court order to provide discovery, FSM Civ. R. 37(b)(2), but even then, courts have traditionally administered justice with mercy and allowed the non-complying party a second chance to comply with the discovery rules and the court orders made under them.  FSM Dev. Bank v. Salomon, 20 FSM R. 431, 439 (Pon. 2016).

In this case, not only has the FSM not disobeyed a court order compelling discovery (as no such order was sought or issued), but the FSM also, on July 28, 2017, responded to Chuuk’s document production request and provided (quite tardily) what appear to be the requested documents.  Chuuk has not indicated that the provided documents are not responsive to its request, or that those documents are incomplete, or that the documents are otherwise deficient or unsatisfactory.  The court therefore denies Chuuk’s default judgment request.

B.  Partial Summary Judgment

1.  Parties’ Positions

Chuuk also seeks partial summary judgment on the merits of its claim.  Chuuk maintains that it is entitled to 50% of the corporate income tax "collected" in Chuuk because, although the tax is a percentage of the major corporation’s foreign income, it is a local FSM income tax by virtue of the tax-paying business entity’s FSM incorporation under FSM law, through the Micronesia Registrar Advisor’s agency.  Chuuk asserts that the corporate income taxes paid by those business entities that are incorporated in Chuuk (with the Micronesia Registrar Advisor’s help) are taxes that are "collected" in Chuuk, and therefore Chuuk is entitled to 50% thereof.

The FSM contends that Chuuk has not shown any right to a share of any of the corporate income taxes because it has not shown that there are no genuine issue of material fact.  The FSM asserts that the term "where collected" has not been previously adjudicated and is a matter of first impression.  It further contends that the jurisdiction where an entity is incorporated cannot be relevant to "where" the taxes are "collected."  Relying on Bank of the FSM v. FSM, 5 FSM R. 346 (Pon. 1992), the FSM argues that what is relevant is where the business activity occurred.  The FSM argues that Chuuk has failed to show that the taxes at issue are either based on sources in Chuuk or that the major corporation’s revenue was generated in Chuuk.  The FSM asserts that therefore Chuuk is not entitled to summary judgment.

The FSM asserts that whether the entity paying corporate income taxes generates revenue from activities or sources in Chuuk is an issue of material fact.  But Chuuk’s contrary position is that it is entitled to a share of the major corporation income tax by virtue of the business entity’s incorporation in Chuuk, not because the major corporations conducted business activity in Chuuk or generated revenue in Chuuk.  The FSM does not dispute that there are major corporation taxpayers that can be considered as incorporated in Chuuk.  The FSM retorts that the place of incorporation has no bearing on the major corporation’s tax liability and is not where the corporate income tax is "collected."

2.  Corporate Income Taxes and "Where Collected"

Since that dispute is a legal issue, not a factual issue, the court concludes that there are no material facts genuinely in dispute.  The FSM is correct that this is an issue of first impression.  However, being an issue of first impression will not preclude summary judgment as long as the issue of first impression is solely a matter of law and there are no material factual issues.

The FSM national government is expressly granted the power to tax income.  FSM Const. art. IX, § 2(e).  And the Constitution further provides that "[n]ot less than 50% of the [tax] revenues shall be paid into the treasury of the state where collected."  FSM Const. art. IX, § 5.  Thus, the Constitution’s framers intended that at least half of all income taxes (and import taxes) received by the national government would be paid to the states.  This is apparent from the Constitutional Convention’s journals.

[T]he state governments should be guaranteed a high degree of fiscal autonomy. . . . [T]his guarantee has taken the form of a "not less than 50%" return of all central income and import tax revenue back to the state in which such revenues were collected.  This intergovernmental financial transfer shall be wholly unconditional--with no discretion left to the National Legislature except for the discretion to increase the proportional return above the 50% figure.

SCREP No. 38, II J. of Micro. Con. Con. 863, 864.  "[T]he protection of state fiscal guarantees was seen as too important an issue to be left to the absolute political discretion of the National Legislature."  Id. at 865.3

The court concludes that the Constitution’s framers contemplated and created a system wherein (at least) half of the income tax money received by the national government would be transferred to the various state treasuries - half of the income taxes received by the national government must go into one or another state treasury.

It is undisputed that the revenue collected under Title 54, chapter 3 is from an income tax.  These Title 54, chapter 3 major corporations’ income taxes are paid to the FSM national government because these business entities, although they earn their revenue elsewhere in the world, are incorporated in the FSM.  The court must therefore reject the FSM’s argument that an entity’s place of incorporation has no bearing on where the income tax it pays should be considered to be "collected."

The court must also reject the FSM’s contention, based on Bank of the FSM v. FSM, 5 FSM R. 346 (Pon. 1992), that the sole relevant factor is where the revenue-generating business activity occurred, and since the major corporations’ business activities are not in Chuuk, Chuuk is not entitled to any of the income tax they pay.  The court, in that case, held that the revenue the Bank of the FSM generated from accounts it maintained in Honolulu and Chicago was not subject to taxation under the FSM’s gross revenue tax (Title 54, chapter 1, subchapter IV) because the statute imposed the FSM gross revenue tax only on the gross income that a business derived, or was presumed to have derived, from sources within the FSM, but not on revenue from sources elsewhere in the world, since the gross revenue taxation scheme statutory scheme emphasized the location of the business activity that generated the revenue to be taxed.  Bank of the FSM v. FSM, 5 FSM R. 346, 348-49 (Pon. 1992).

The major corporations, that pay Title 54, chapter 3 income taxes, are generally exempt from the gross revenue tax, 54 F.S.M.C. 323, since they do not conduct business within the FSM, but are subject to taxation on income regardless of the location of the business activity that generated that income.  It is presumed that the bulk, if not all, of those major corporations’ taxable income is and will be derived from sources and business activity outside the FSM.  Accordingly, the court’s holding in Bank of the FSM v. FSM, 5 FSM R. 346 (Pon. 1992), is applicable only to the gross revenue tax in Title 54, chapter 1, but is not applicable to the later-enacted major corporation income tax in Title 54, chapter 3.  The court therefore holds that the major corporation income tax is subject to the constitutional mandate that the income taxes collected by the national government be shared with the states.

Turning to the question of into which state treasury the state share of a major corporation’s income tax should be paid, the state of incorporation seems most appropriate since the major corporation is paying income tax in the FSM because it is incorporated in the FSM.  This is logical.  The alternative would be to adopt (a legal fiction) position that a major corporation’s income tax is somehow "collected" simultaneously in all four states, who would then share among themselves the state half of the income tax under some as yet unknown formula.  That seems an unworkable approach for a court to take.

The court realizes that the Micronesia Registrar Advisor takes a percentage of the corporate income taxes paid by the major corporations it induced to incorporate in the FSM.  36 F.S.M.C. 208 ("[c]ompensation for the services provided by the Registration Advisor shall be a sum equal to a percentage of the revenue generated . . . .").  The court therefore holds that the state’s 50% share should be calculated from the net amount "collected" by the national government, that is, 50% of the amount of tax levied after the Registration Advisor’s percentage is deducted.  "Collected" is not necessarily synonymous with imposed or levied.  See Parsons v. People, 76 P. 666, 669 (Colo. 1904) (imposing or fixing the tax rate is not the same as the tax collected by execution); cf. Board of Comm’rs v. Hazlewood, 192 P. 217, 218, 11 A.L.R. 709, 711 (Okla. 1920) (when statute grants attorney percentage of amount collected for the county, the percentage is on the amount actually collected, not on the amount imposed).

Therefore, Chuuk should be granted summary judgment that it is entitled to 50% of the corporate income taxes that the national government collects from major corporations incorporated in Chuuk.

IV.  Motion for Reconsideration

A.  Reconsideration Filings and Hearing

On October 18, 2018, this came before the court to hear telephonically the FSM’s September 25, 2018 Motion for Reconsideration, the FSM’s September 25, 2018 Motion Requesting Interlocutory Appeal, and the FSM’s October 12, 2018 Supplemental Brief in Support of Motion for Reconsideration.  Chuuk did not file a written responses.  Its Attorney General had difficulty connecting telephonically from Ohio for the hearing had been reset to a day earlier for his convenience.  But he was cut off.  Although the court waited, he did not succeed in calling back.

The hearing then went ahead with just the FSM presenting its argument orally.  This seemed acceptable because whether Chuuk would have been heard, even if the telephone connection had not failed, was undetermined since, if a party fails to file a response to a motion, it usually will not be allowed to argue the motion orally.  Rudolph v. Louis Family, Inc., 13 FSM R. 118, 123-24 (Chk. 2005).

The day after the hearing, Chuuk filed a written opposition to the FSM’s reconsideration motion, complaining that the FSM never served the reconsideration motion on it.  The court’s file has certificates of service for the FSM’s two other September 25, 2018 filings, but none for the September 25, 2018 reconsideration motion, although there is one for the October 12, 2018 Supplemental Brief, which, therefore may itself be considered a second reconsideration motion (with Chuuk’s October 19, 2018 filing considered Chuuk’s timely opposition to it).

B.  Reconsideration

The relevant Constitutional provision reads, in its entirety:  "National taxes shall be imposed uniformly.  Not less than 50% of the revenues shall be paid into the treasury of the state where collected."  FSM Const. art. IX, § 5.

1.  Whether Subject to Revenue-Sharing Provision

The FSM contends that this provision cannot possibly apply to the major corporation income tax because no state is burdened by, or has to provide services to, any major corporation subject to the tax, and because the constitutional provision only applies to national taxes that are "uniformly imposed" throughout the FSM and, in the FSM’s view, the major corporation income tax does not constitute a "national tax scheme" that is "uniformly imposed."

The court must reject this argument.  The constitutional command that all national taxes be "imposed uniformly" is not a prerequisite that for revenue-sharing only.  It is a constitutional command to Congress that all taxes imposed by the national government be imposed uniformly.  In other words, Congress must impose an income or import tax at the same rate everywhere - it cannot impose a tax rate in one part of the FSM that is higher or lower than the tax rate elsewhere.

Moreover, the major corporation income tax does comply with the constitutional command that national taxes be "uniformly imposed."  The FSM major corporation income tax rate is uniform throughout the nation (and throughout the world).  It does not vary place to place.  And it is a national tax - a tax imposed by the national government pursuant to the national government’s constitutional power to tax income.

The FSM has not directed the court’s attention to any constitutional provision that gives the national government the authority to impose a major corporation income tax other than its Article XI, § 2(e) authority to tax income.

The Constitution delegates to the national government the power to impose only two types of taxes - that based on imports, FSM Const. art. IX, § 2(d), and that on income, FSM Const. art. IX, § 2(e).  Money collected through these forms of taxation are "the revenues" of which half must "be paid into the treasury of the state where collected."  FSM Const. art. IX, § 5.

Chuuk v. Secretary of Finance, 9 FSM R. 424, 434 (App. 2000).  Other national government revenues, derived from constitutional provisions other than its authority to tax income and imports, are not (with one exception4) constitutionally subjected to revenue-sharing.  Id. at 434-35 (FSM Exclusive Economic Zone fishing fees are imposed under the FSM’s power to regulate the EEZ’s exploitation of natural resources and social security taxes are imposed under the FSM’s power to establish social security and public welfare systems).  The tax at issue here is, however, an income tax.

The FSM contends that the major corporation income taxes cannot be constitutionally subject to revenue-sharing because, although a small percentage is paid at a Palikir office, the great majority of these taxes are paid directly into a bank account in Tokyo.  If this were a valid argument, then the FSM could avoid constitutionally-required revenue-sharing of some or much of the import and income taxes it collects merely by having certain importers, or certain employers, pay those taxes directly into an FSM national government overseas bank account.  That cannot be so.

The FSM also contends that since those corporations subject to the major corporation tax are incorporated by the national government, and not by any state, the tax on their income is not subject to revenue-sharing because it those corporations are national corporations, and not state corporations.  The court must reject this argument.  For a number of years after the FSM’s creation, and after the end of the Trust Territory government’s authority here, the national government was the only entity that registered and dissolved corporations until the states gradually developed that ability.  (Even now, it is still possible to get a corporate charter from the national government.)  The income tax (gross revenue tax) imposed on those corporations was unquestionably subject to the constitutionally required revenue-sharing.

Therefore, the court, upon reconsideration, must still conclude that the major corporation income tax is subject to the Constitution’s revenue-sharing provision.

2.  To Be Shared with Which State?

The FSM further contends that the major corporation income is not subject to revenue sharing because it is not collected in any state or deemed collected in any state because it is collected by the national government at the national government level and thus out of any state’s reach.  The court’s difficulty here, is that once it determined that the major corporation income tax was constitutionally subject to revenue sharing, it had to determine how to apply "the state where collected" mechanism.

Since the national government’s authority to tax the major corporations’ income is derived from those entities’ incorporation in the FSM, it seemed logical to assign the state "where collected" to the state where that entity was incorporated.  The court is aware that the FSM Registrar of Corporations is in Palikir, on Pohnpei.  Chuuk’s contention was that those major corporations that were incorporated through the auspices of an office or agent in Chuuk could be "considered as incorporated in Chuuk" and thus present in Chuuk for the purposes of determining "where collected."

Initially, the FSM did not seem to dispute that there were major corporations that could be "considered as incorporated" in Chuuk, but now it takes the position that there are no such corporations.  If so, that is a factual issue - the number of those major corporations, and which ones, that could be "considered as incorporated" in Chuuk - that is as yet undetermined and beyond the scope of this order.

The FSM asserts that the court is unilaterally rewriting the Constitution to read "shall be paid into the treasury of the state where the taxpayer business is incorporated" instead of the "shall be paid into the treasury of the state where collected."  What the court is trying to do is prevent the Constitution from what is, in effect, a unilateral rewriting of it to read - shall be paid into the treasury of the state where collected unless the national government can arrange to receive the money somewhere else.  In the absence of any more workable method, the court declines to alter this determination on this reconsideration.

V.  Interlocutory Appeal

A.  Appellate Rule 5(a) Prescribed Statement

The court aware of this ruling’s importance and that it is an interlocutory order since it does not set the amount of the FSM’s liability, or rule on the other remedies that Chuuk seeks, or enter a final judgment.  The court is of the opinion that this order involves one or more controlling questions of law about which there is substantial ground for difference of opinion and that an immediate appeal from this order may materially advance the litigation’s ultimate termination.

B.  Controlling Issues of Law

The key legal question that is the controlling issue of law whose resolution will materially advance this litigation’s termination is:

1.  Whether the Title 54, chapter 3 income tax is subject to the revenue-sharing provision of the Constitution article IX, section 5.

If the answer to this first question is yes it is an income tax subject to the Constitution’s revenue-sharing provision, then the two further controlling issues of law are:

2.  Whether the 50% state share is of the net proceeds received by the national government after the Registration Advisor’s compensation has been deducted or 50% of the total tax imposed.

3.  Whether the income taxes paid by major corporations "incorporated in Chuuk" are "collected" in Chuuk.

C.  Time Within Which to Petition for Interlocutory Appeal

Under FSM Appellate Rule 5(a), any party may seek permission for an interlocutory appeal of this order by petitioning the appellate division within ten days of this amended order’s date of entry.

During the motion hearing, the FSM asked the court to grant it an extension of time within which to petition the appellate division for permission for an interlocutory appeal, if the court did not grant its reconsideration motion.  The court cannot do that.  The Appellate Rules give the parties ten days from the entry of an appropriate order with the prescribed statement to petition the appellate division for permission to appeal.  FSM App. R. 5(a).

The appellate division is prohibited from extending the time to petition for permission to pursue an interlocutory appeal.  FSM App. R. 26(b).  The trial court cannot extend the time either.  In re Estate of Hartman, 7 FSM R. 409, 410 (Chk. 1996).  The only thing the trial court could do, although there is some authority to the contrary, is to reconsider the matter and then re-enter its order with the prescribed statement to start a new ten-day period running.  Id.  Thus, as the court orally noted during the hearing, a party has ten days from the entry of this order, to file its petition in the appellate division.

V.  Conclusion

Accordingly, Chuuk is granted partial summary judgment that the Title 54, chapter 3 major corporation income tax is subject to the Constitution’s revenue-sharing requirement.  The court concludes that Chuuk is constitutionally entitled to 50% of the Title 54, chapter 3 corporate income tax collected by the FSM from major corporations incorporated in Chuuk.  The court’s conclusions involve controlling questions of law as to which there is substantial ground for difference of opinion and an immediate appeal from this order should materially advance the litigation’s ultimate termination.  The parties have ten days to petition the appellate division for permission to make an interlocutory appeal.

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