IN THE MATTER OF THE INCOME TAX PROTEST OF HARE, 2017 OK 60

Background

Bill Hare, Jr. was a 2% shareholder of two Oklahoma S‑corporations (Briggett, Inc. and Briggett Transportation, Inc.) he acquired in 1983.
In September 2007 the companies sold substantially all their assets (including tangible assets and goodwill) to a third party; Hare received pass‑through proceeds reported as long‑term capital gain on his federal return.
Hare amended his 2007 Oklahoma return in 2012 to claim a net capital gain deduction under 68 O.S. § 2358 for gains from sale of in‑state business assets, reducing his Oklahoma tax and seeking a refund.
The Oklahoma Tax Commission (OTC) denied the deduction to the extent proceeds were attributable to intangible personal property (goodwill), concluding the statute did not cover such asset sales.
An ALJ and the OTC sustained the denial; Hare appealed to the Oklahoma Supreme Court, which reviewed statutory interpretation de novo.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether sale of company assets (including goodwill) by S‑corporations counts as sale of an "indirect ownership interest" under 68 O.S. § 2358(F)(2)(a)(2)	Hare: sale of substantially all assets by pass‑through S‑corp is equivalent to sale of an indirect ownership interest and qualifies for the deduction	OTC: deduction applies only to sales of real/tangible property, stock, or equity interests; intangible asset sales (goodwill) are excluded	Court: sale of pass‑through entity assets is a sale of an indirect ownership interest and qualifies for the § 2358 deduction
Whether terms "direct" and "indirect" in § 2358 require treating asset sales by pass‑through entities as "indirect" ownership sales	Hare: statute's definitions show "indirect" means ownership through pass‑through entities, so asset sales qualify	OTC: ignored the "direct/indirect" distinction and read statute to exclude intangible asset sales	Court: definitions must be given effect; "indirect" covers pass‑through asset sales and the deduction applies
Whether the 2007 amendments to § 2358 are retroactive or merely clarifying of original intent	Hare: 2007 amendments clarify original statute and reflect intended coverage of intangible asset sales; therefore consistent with original law	OTC: 2007 amendment changed the law and cannot be applied retroactively to 2007 transaction	Court: amendments are clarifying of original purpose and support the interpretation that asset sales (including goodwill) were always intended to be covered
Whether denying deduction when transaction structured as asset sale but allowing it for equity sale is rational	Hare: no rational basis to discriminate based on transaction form; both reflect sale of ownership interest	OTC: no coherent justification offered	Court: disparate treatment is irrational; deduction must apply regardless of whether company interest was sold directly or indirectly

Key Cases Cited

Fanning v. Brown, 85 P.3d 841 (Okla. 2004) (statutory language construed by plain meaning)
Globe Life & Acc. Insur. Co. v. Okla. Tax Comm'n, 913 P.2d 1322 (Okla. 1996) (every word in statute must be given significance)
Lang v. Erlanger Tubular Corp., 206 P.3d 589 (Okla. 2009) (rules of construction not used when statute unambiguous)
Russell v. Chase Inv. Servs. Corp., 212 P.3d 1178 (Okla. 2009) (ascertaining legislative intent guides statutory interpretation)
Lumber 2, Inc. v. Illinois Tool Works, Inc., 261 P.3d 1143 (Okla. 2011) (undefined statutory terms given plain meaning)
CDR Sys. Corp. v. Okla. Tax Comm'n, 339 P.3d 848 (Okla. 2014) (purpose of capital gain deduction to promote in‑state business investment)
Am. Airlines, Inc. v. State, ex rel. Okla. Tax Comm'n, 341 P.3d 56 (Okla. 2014) (administrative orders affirmed when supported by substantial evidence and free from legal error)
Sunray Oil Corp. v. Okla. Tax Comm'n, 134 P.2d 995 (Okla. 1943) (stock is intangible personal property)
In re Cook's Trust, 135 P.2d 492 (Okla. 1943) (constructive receipt doctrine explained)