H. W. LANTERMAN, Helen K. Lanterman, Donald L. Russell, Evelyn Russell, Duane M. Hummel, Mary A. Hummel, Walton S. Russell, Mary Jane Russell, R. H. Weinhandl, F. O. Weinhandl, Harlan Weir, and Rebecca Weir, Appellees, v. Byron L. DORGAN, North Dakota State Tax Commissioner, Appellant.
Civ. No. 9301.
Supreme Court of North Dakota.
June 3, 1977.
Rehearing Denied July 27, 1977.
255 N.W.2d 891
We agree with Unterseher’s first contention. The enlargement of the term of the support obligation from sixteen to eighteen years is a substantive change in our Code, and, as such, is to be applied prospectively unless the Legislature expressly declares that such provision should be given a retroactive application.
Unterseher’s second contention is without merit. The trial court’s determination of the amount to be paid by a parent for the support of an illegitimate child during the period for which a duty of support is owed is discretionary, based upon the trial court’s consideration of all the relevant facts, including, but not limited to, those factors set out in
“5. . . .
“a. The needs of the child;
“b. The standard of living and circumstances of the parents;
“c. The relative financial means of the parents;
“d. The earning ability of the parents;
“e. The need and capacity of the child for education, including higher education;
“f. The age of the child;
“g. The financial resources and the earning ability of the child;
“h. The responsibility of the parents for the support of others; and
“i. The value of services contributed by the custodial parent.”
After having made careful examination of the affidavits submitted to the trial court concerning the financial conditions of the respective parties, and after taking judicial notice of the cost, at the time the judgment was rendered, of raising a child, we find that the trial court did not abuse its discretion in ordering that support payments be made in the amount of $150.00 per month.
For the reasons stated herein, the judgment of the district court is modified to reduce the term during which child support payments shall be made from “until the child shall have reached the age of majority” to be “until the child shall have reached the age of sixteen”. As so modified, the judgment is affirmed.
ERICKSTAD, C. J., and PEDERSON, VOGEL and SAND, JJ.
Vogel, Vogel, Brantner & Kelly, Fargo, for appellees; argued by C. Nicholas Vogel, Fargo.
PEDERSON, Justice.
This is an appeal by the Commissioner from a judgment of the district court of Burleigh County which, in effect, reversed and set aside an administrative decision in an income tax dispute. Material facts were stipulated. We affirm the judgment rendered by the trial court.
The taxpayers were shareholders in Mandan Creamery and Produce Company, a domestic corporation. It was incorporated in 1915 with a paid-in capital of $25,000. Periodically, the capital was increased by issuance of stock dividends and the transfer of earned surplus to capital. Cash dividends were also paid periodically to shareholders from current earnings. Earnings which were not otherwise distributed were transferred to the surplus account.
In 1972 the corporation decided to liquidate under a plan provided for in
When the taxpayers filed individual federal income tax returns in 1972, the full distribution in liquidation received was reported. After deducting the cost basis of the stock surrendered, the net gain was reduced by fifty percent as a capital gain.
For their 1972 North Dakota individual income tax returns, the taxpayers deducted the remaining fifty percent, claiming that this was a domestic dividend, or income received from stock or interest in a corporation which is excluded under
When the State individual income tax returns were audited in the ordinary routine of the tax department (
“ * * * that the taxpayers not be allowed to deduct distributions in liquidation issued pursuant to
Section 337 of the Internal Revenue Code on their 1972 and 1973 North Dakota income tax returns and that the determinations and assessments of additional income tax due as made by the Tax Commissioner for the taxable years 1972 and 1973 are correct * * * ”
The taxpayers appealed to the district court (
The parties neither briefed nor argued matters relating to the scope of and procedure on appeal from determinations of an administrative agency (
Pursuant to
“Under these provisions [twelve-month liquidations provision], if a corporation adopts a plan of complete liquidation and within 12 months thereafter distributes all its assets in complete liquidation (less assets retained to pay claims), then neither gain nor loss is recognized to the corporation from the sale or exchange of its assets within the 12-month period.” 33 Am.Jur.2d Federal Taxation, ¶ 2370, at 533.
“With a few exceptions, distributions in complete or partial liquidation give capital gain or loss to the shareholder, depending on whether the total amount distributed is more or less than his cost or other basis for his stock. The amount of the distribution is the sum of the cash plus the fair market value of any other property received by the shareholder in exchange for his stock.” 33 Am.Jur.2d Federal Taxation, ¶ 2354, at 528.
By the amendment of
The Commissioner and the taxpayers agree that the result of the enactment of Chapter 446, S.L.1967, was to make the taxable income for Federal income tax purposes the starting point from which State taxable income is derived, by adjustments as may be provided by law (
In writing about the Business Privilege Tax (also “Federalized”, see
“The comments made above are not exhaustive; and they are intended to be a survey somewhat illustrative of the problems of enacting a simple statute referenced to yet another statute, i. e., one riddled with exceptions, with considerable special interest legislation and nontax objectives.” [Emphasis added.]
Although it does not have application to this case, this Court commented on the “Federalization” of income tax in Messner v. Dorgan, 228 N.W.2d 311 (N.D.1975), to the effect that the “Federalization” does not detract from the validity of a separate “nonfederalized” area.
The pertinent State statutes are §§ 1, 2 and 3 of Chapter 446, S.L.1967, now codified as
“It is the intent of the legislative assembly to simplify the state income tax laws and to demonstrate that federal legislation is not necessary to deal with certain interstate tax problems, by adopting the federal definition of taxable income as the starting point for the computation of state income tax by all taxpayers and providing the necessary adjustments thereto to substantially preserve and maintain existing exemptions and deductions.
“It is the further intent of the legislative assembly to eliminate double taxation of the earnings of small corporations by recognizing a subchapter S election when made for federal income tax purposes.”
“ ‘Taxable income’ in the case of individuals, estates, trusts and corporations shall mean the taxable income as computed for an individual, estate, trust or corporation for federal income tax purposes under the United States Internal Revenue Code of 1954, as amended, plus or minus such adjustments as may be provided by this act and chapter or other provisions of law;”
“1. The taxable income of an individual, estate, or trust as computed pursuant to the provisions of the United States Internal Revenue Code of 1954 as amended, shall be:
* * * * * *
“i. Reduced by any dividends or income, up to a maximum of fifteen thousand dollars, received from stock or interest in any corporation and included in the adjusted gross income as computed for federal income tax purposes where the income of such corporation has been assessed and tax paid by the corporation under this chapter and such dividends or income was received by the taxpayer as income during the income year if such corporation has reported the name and address of each North Dakota resident owning stock and the amount of dividends or income paid each such person during the year, provided, that when only part of the income of any corporation shall have been assessed and corporation income tax paid thereon under this chapter, only a corresponding part of the dividends or income received therefrom and included in federal adjusted gross income shall be subtracted. The commissioner is hereby authorized to prescribe rules and regulations to implement this subdivision to avoid injustice to taxpayers, to prevent duplication of deductions, and to eliminate taxation of income not fairly and properly taxable under this chapter.”
The Commissioner argues that unless these taxpayers are required to treat their income from the liquidation alike on both Federal and State returns, there will be income which escapes taxation and we will not fulfill the concept of the “Federalized” return. The statutes are clear and unambiguous — the Federal taxable income is the starting point for the preparation of the State income tax return. Thereafter, it is the privilege of the taxpayer to make those adjustments specifically prescribed. For comparable rulings involving questions of ambiguity of the language in the tax statute, see Clapp v. Cass County, 236 N.W.2d 850 (N.D.1975), and In re Dilse, 219 N.W.2d 195 (N.D.1974).
This is not a statute to be understood after a light skim through (nor are many other tax statutes). Any careful reader will find it clear and unambiguous until he reaches the last sentence, which states:
“The commissioner is hereby authorized to prescribe rules and regulations to implement this subdivision to avoid injustice to taxpayers, to prevent duplication of deductions, and to eliminate taxation of income not fairly and properly taxable under this chapter.”
That could be interpreted only to authorize the Commissioner to adopt rules consistent with the statute to avoid injustice, prevent duplication of deductions, and exempt income which is not fairly and properly taxable.
This interpretation is in accord with what we said in Medical Properties v. North Dakota Board of Pharm., 80 N.W.2d 87 (N.D.1956), that the Legislature cannot delegate powers to an administrative agency to adopt rules which include substantive matter not included in the statute under which it is acting. It would be inconsistent with the statute for the Commissioner to adopt a rule (or for this Court to adopt an interpretation) which results in altering substantive rights granted by the statute. See also, Clapp v. Cass County, supra, where we said that interpretative regulations do not have the force of law, and
There were funds (accumulated surplus) received by the taxpayers in this case upon which the corporation had, over the years, paid corporate income tax, in addition to funds (profit on sale of assets) upon which the corporation had not paid corporate income tax. The statute specifies, in no uncertain terms, that “when only part of the income of any corporation shall have been assessed and corporation income tax paid thereon under this chapter, only a corresponding part of the dividends or income received therefrom and included in federal adjusted gross income shall be subtracted.”
When these taxpayers subtracted all of the funds received instead of only a corresponding part, they failed to comply with the statutory directive. The trial court correctly remanded the case to the Commissioner for the purpose of redetermination and the elimination from the deduction claimed by the taxpayers of that corresponding part of the funds received which represented corporation income not taxed.
The judgment is affirmed. There will be no costs allowed on the appeal, a question of public interest being involved.
ERICKSTAD, C. J., and VOGEL and SAND, JJ., concur.
H. W. LANTERMAN, et al., Appellees, v. Byron L. DORGAN, etc., Appellant.
Civ. No. 9301.
Supreme Court of North Dakota.
June 3, 1977.
PAULSON, Judge (dissenting).
I dissent. I did not agree with the decision of the majority of the members of this court in Messner v. Dorgan, supra, 228 N.W.2d 311 [dissent at page 321] (N.D.1975), and I do not agree with the majority opinion in the instant case. The majority of the members of this court continue to ignore the full impact of the so-called “Federalizing Act of 1967” (S.L.1967, Ch. 446), insofar as it applies to the North Dakota income tax law, Chapter 57-38 of the North Dakota Century Code.
The appellees are willing to accept federalizing of our State’s income tax law to the extent that it relieves the corporation, Mandan Creamery & Produce Company, from the payment of a state corporate income tax upon the gain realized from the sale of its assets; and to the extent that it provides a starting point, federal taxable income, for the shareholders in filing their state individual income tax returns. It is at this
In the instant case, while the income tax laws of North Dakota may have provided for a particular form of tax treatment during the period that Mandan Creamery & Produce Company was accumulating its surplus, this does not mean that such surplus inured to Mandan Creamery & Produce Company that same type of tax treatment after the statutory change in the income tax law decreed different treatment by virtue of the federalizing process.
The Legislature intended, by adopting the Federal definition of taxable income as a starting point for computing North Dakota income tax, that income defined for Federal income tax purposes as income from the sale of assets should be similarly defined as such for State tax purposes.
The Legislature enacted a law which in effect changed the method of tax treatment for corporation and individual income tax purposes (the gain resulting from the sale of assets by a corporation which had adopted a formal liquidation process). In not taxing such a gain to the corporation, the Legislature did not intend that the gain should be taxed to the shareholders. By adopting the Federal definition of taxable income, the Legislature provided a tax savings to both the corporation and the shareholders by taxing only the gain which resulted from the exchange of shares of stock for the monetary distribution received.
The North Dakota Supreme Court has previously determined that interpretations of the tax commissioner or any agency head should be given great weight. Voss v. Gray, 70 N.D. 727, 298 N.W. 1 (1941). The arguments which the tax commissioner has advanced in the instant case, as well as in Messner v. Dorgan, supra, demonstrate that the tax commissioner’s interpretations were practical in construction and dealt fairly with the issue involved. The majority of the court, by holding that the tax commissioner has adopted a ruling that alters substantive rights, indicates that the majority is ignoring the legislative intent expressed in S.B.No.393, supra and the majority, instead, is substituting its conclusion that one sentence in a paragraph, standing alone, will preserve for a taxpayer whatever alternative provision of the income tax law will benefit him.
The majority, in remanding the case to the tax commissioner, is stating that that part of the distribution received by a shareholder which represents his proportionate share of the gain resulting from the sale of corporate assets should be taxed to him at the maximum rates applicable to his particular situation, which could be 10 percent instead of the 6 percent maximum which the corporation would be taxed. No capital gain provisions are applicable. That part of the distribution which is in excess of the shareholder’s portion of the capital gains is tax exempt for State income tax purposes. The real irony of the majority’s decision now becomes evident.
Past legislative action clearly demonstrates that State income tax laws have been and continue to be federalized. The passage of S.B.No.393, supra, in 1967 has been followed by subsequent enactments of updating provisions whereby newly enacted Federal income tax provisions were incorporated into our State’s income tax laws (S.L.1969, Ch. 507; S.L.1973, Ch. 465, § 1; S.L.1975, Ch. 529). During the 1975 legislative session, the North Dakota Legislature continued to be cognizant of probable future changes in the Federal income tax law (S.L.1975, Ch. 534, § 2).
In the instant case, another cogent reason for dissenting from the majority opinion is that the assets of a dissolved corporation are not dividends, but are a proportionate share of such corporation’s assets, and are based upon the individual shareholder’s equity or proportionate ownership of the shares with reference to the total outstanding shares of the corporation.
There is a great distinction between a dividend received from an existing corporation and a distribution of assets in liquidation of a corporation which has determined to cease operations. In Rossi v. Rex Consolidated Mining Company, 108 Wash. 296, 183 P. 120 (Wash.S.Ct.1919), the question was asked:
“. . . are the assets of a dissolved corporation a dividend, where the board of directors authorized such assets to be distributed to its stockholders according to law?
In answer to this question, the Washington Court stated, 183 P. at page 121:
“. . . we think there can be no doubt that the assets of a dissolved corporation are not distributed as dividends, as dividends are commonly known. [Citations omitted.] A dividend, when spoken of in reference to an existing corporation, and not one being closed up and dissolved, is understood as a fund which the corporation sets apart from its profits to be divided among its members.”
Upon the trial of the Rossi case, supra, the Washington Court concluded that the proceeds of the sale of assets of a dissolved corporation were capital assets and not a dividend.
In the instant case, the Mandan Creamery & Produce Company, in addition, failed to comply with
“1. Dividends may be declared and paid in cash or property only out of the unreserved and unrestricted earned surplus of the corporation . . .”
This language, therefore, limits the application of