may not be cited except as provided by
Minn. Stat. 480A.08, subd. 3 (1996).
In Re the Marriage of:
Colleen Ann Hemme, petitioner,
Alan David Hemme,
File No. F4960257
Alan D. Hemme, 213 Linden Street Southwest, Sleepy Eye, MN 56085 (respondent pro se)
Considered and decided by Peterson, Presiding Judge, Klaphake, Judge, and Davies, Judge.
This appeal is from a postdissolution order denying appellant Colleen Hemme's motion to interpret or strike a provision in the dissolution decree regarding the allocation of dependent tax exemptions. We affirm.
That, for so long as he is current in his child support obligation, the respondent shall be entitled to claim the minor child of the parties, Stephanie Ann Hemme, as a dependent for purposes of filing his federal and state income tax returns. [Appellant] shall be entitled to claim Todd Hemme and Chad Hemme as dependents on her returns, subject to the following conditions. Commencing with the tax year 1996, if claiming one or both of the other two children of the parties, Todd Alan Hemme and Chad David Hemme, as dependents would not result in a reduction of [appellant's] tax liability on her federal or state income tax returns, the respondent may claim one or both children as a dependent on his tax returns for that year. * * *
(Emphasis added.) Respondent argued that, under this provision, he was entitled to claim Todd and Chad as dependents on his 1996 tax returns because appellant was entitled to receive an earned income credit and, therefore, was not required to pay any taxes in 1996 even if she did not claim either boy as a dependent.
Appellant's 1996 adjusted gross income of $12,841 qualified her for the federal earned income credit and the corresponding Minnesota working family credit. Appellant's attorney, Patrick Lowther, explained in an affidavit how claiming Todd and Chad as dependents on appellant's tax returns would affect her income tax liability and, in turn, her earned income and working family credits:
3. Claiming only herself as a dependent, [appellant] would have taxable income for 1996 of $4,390.00 ($12,840 - $8,450). Her federal tax (15%) would be $658.50 and her state tax (6%) would be $263.40, for total tax of $921.90. Applying the applicable earned income credit and Minnesota family credit, which total $3,795.00, [appellant] would have a refund of $2,873.10.
4. If she claimed two dependents (herself and Todd or Chad), [appellant's] taxable income would be $1,840.00 ($12,840 - $11,000). Her federal tax would be $276.00 and her state tax would be $110.40, for a total of $386.40. As her EIC and MFC is $3,795.00, her refund would be $3,408.00.
5. Claiming three dependents (herself, Todd and Chad), [appellant's] taxable income would be $0. She would, therefore, receive the entire EIC as a refund of $3,795.00.
Appellant filed a motion in the district court to clarify the dependent tax exemption provision by adding language about the effect on appellant's tax refund of claiming the children as dependents or, alternatively, to strike the dependent tax exemption provision and reallocate the dependent tax exemptions between the parties. The district court concluded that the language in the dependent exemption provision was unambiguous and denied appellant's motion in its entirety.
In determining whether a contract is ambiguous, courts consider the meanings of words in the context in which they are being used. See Board of Regents of Univ. of Minn. v. Royal Ins. Co. of Am., 517 N.W.2d 888, 892-93 (Minn. 1994) (meaning of word was not ambiguous when considered within the context of the insurance policy provision); Sylvester Bros. Dev't Co. v. Great Central Ins. Co., 480 N.W.2d 368, 375 (Minn. App. 1992) (to determine whether word in insurance policy is ambiguous, court must consider word in the context of specific policy at issue), review denied (Minn. Mar. 26, 1992); see also Fuchs v. Cheeley, 285 Minn. 356, 360, 173 N.W.2d 358, 361 (1969) (an insurance policy, like any other contract, is construed to give effect to its plain and ordinary meaning).
The dependent exemption provision refers to appellant's tax liability on her income tax returns and provides that respondent may only claim one or both of the parties' sons as a dependent on his tax returns if appellant could not reduce her tax liability on her federal or state income tax returns by claiming the sons as dependents. The only tax liability computed on a federal individual income tax return is computed at lines 32-38 of form 1040. Income tax liability is based on taxable income. The number of dependents claimed on a federal income tax return affects the computation of taxable income and tax liability. Similarly, an individual's state income tax liability in Minnesota is based on the individual's federal taxable income. Because the number of dependents claimed on a federal income tax return affects the computation of taxable income for purposes of determining federal and state income tax liability and because no other tax liability is computed on the income tax returns, the term tax liability, as used in the dependent exemption provision, is not ambiguous. The district court therefore properly denied appellant's motion to clarify or strike the dependency exemption provision. See Burgmeier v. Farm Credit Bank of St. Paul, 499 N.W.2d 43, 47 (Minn. App. 1993) (when contract language is unambiguous, there is no room for construction), review denied (Minn. July 15, 1993).
In denying appellant's motion, the district court stated that
for 1996, it is undisputed that [appellant] has no tax liability and therefore claiming the two children would not "result in a reduction of her tax liability."
The record reflects that the reason appellant had no tax liability in 1996 was because she claimed both Todd and Chad as dependents on her income tax return.
When computing her taxable income in 1996, appellant was allowed to deduct from her adjusted gross income the $5,900 standard deduction for head of household and $2,550 for each dependent claimed on her federal income tax return. As Lowther explained in his affidavit, if appellant had claimed only herself as a dependent, her taxable income would have been $4,390. Her federal income tax liability, line 38 of form 1040, would have been $658.50, and her state income tax liability would have been $263.40. If appellant had claimed herself and one of the children, her taxable income would have been $1,840, her federal income tax liability $276, and her state income tax liability $110.40. Appellant was able to reduce her income tax liability to $0 only by claiming both of the children as dependents on her federal income tax return. The fact that appellant's federal and state income tax liabilities were paid by her earned income and working family credits does not change the fact that federal and state income tax liabilities would have been assessed against her in 1996 if she had not claimed both of her sons as dependents. See Sorenson v. Secretary of the Treasury of the U.S., 475 U.S. 851, 854-55, 106 S. Ct. 1600, 1603-04 (1986) (under the earned income credit program, an individual receives payment when his "earned-income credit exceeds his tax liability").