2 Or. Tax 420 | Or. T.C. | 1966
Submitted on briefs. Decision for defendant rendered August 25, 1966.
Appeal pending. Plaintiff filed this suit for a refund of Oregon corporation excise taxes for 1961.
Prior to June 21, 1961, California Oregon Power Company (hereinafter referred to as Copco) was a California corporation and a calendar year taxpayer doing business in Oregon and California. Copco was merged into plaintiff on June 21, 1961. On December 11, 1961, Copco filed a final Oregon corporation excise tax return for the period January 1, 1961, to June 21, 1961, and reported a net income of $3,167,000 apportioned to Oregon under the three-factor formula of property, payroll and sales. The net Oregon excise tax of $190,000 was based upon the six percent tax rate applied to the income apportioned to Oregon.
The plaintiff, as successor in interest to Copco, filed a claim for a refund with the defendant commission claiming that Copco's excise tax return for *422
1961 was erroneous because Copco ceased to exist as a legal entity under Oregon law on June 21, 1961, and, therefore, the provisions of ORS
"
317.095 . Computation of tax upon a change of taxable status or tax rate. (1) If the taxable status of a corporation under this chapter changes, or if any rate of tax imposed by this chapter changes, and if the taxable year includes the effective date of the change (unless that date is the first day of the taxable year), then tentative taxes shall be computed by applying the rate for the period before the effective date of the change, and the rate for the period on and after such date, to the taxable income for the entire taxable year, and the tax for such taxable year shall be the sum of that proportion of each such tentative tax which the number of days in each such period bears to the number of days in the entire taxable year. A corporation shall be deemed to have changed its taxable status on the effective date of the Act under which it first becomes subject to the provisions of this chapter, and a corporation which at any time ceases to be subject to this chapter shall be deemed to have changed its taxable status at that time."(2) This section shall apply only to taxable years ending on and after August 3, 1955."
The defendant contends that the above statute does not apply to a corporation going out of business and that Copco's excise tax should be based on the six percent rate applied to Copco's net income allocated to Oregon during 1961, as required by ORS
As an illustration, assuming that Copco's net income allocated to Oregon was $100,000 for the period *423
January 1, 1961, to June 21, 1961, then the tax commission would compute the tax at $6,000 based on the six percent rate provided for in ORS
($100,000 X 6% X 172) + ($100,000 X 0% X ----------------- --- ---------------------- 365
193) = $2827.00 --- 365
1. ORS
The defendant argues with substantial validity that ORS
2. However, the statute does not appear to be ambiguous. It provides for the application of the formula to a corporation which ceases to become subject to the corporate excise tax law. Copco clearly did so when it merged with plaintiff on June 21, 1961.
3. The next issue is the computation of tax liability based upon the interpretation of the formula in ORS
Plaintiff contends that the effective rate after its change of status on June 21 is zero and that the phrases "taxable year" and "entire taxable year" refer to a twelve-month calendar year.
The defendant contends that if ORS
Plaintiff's formula:
($100,000 X 6% X 172) + ($100,000 X 0% X --- 365
193) = $2827.00 ---- 365
Defendant's formula:
($100,000 X 6% X 172) + ($100,000 X 0% X --- 172
172) = $6000.00 --- 172
ORS
" 'Taxable year' means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the net income is computed under this chapter. 'Taxable year' includes, in the case of a return made for a fractional part of a year, the period for which such return is made. The first taxable year, to be called the taxable year 1929, shall be the calendar year 1929." (Emphasis supplied.)
The plaintiff argues that while the above statute appears to offer a choice of alternatives for a taxable year; i.e., calendar year, fiscal year or fractional part of a year, in reality only a fiscal year or a calendar year is involved because net income in Oregon must be computed on the basis of a fixed period of twelve months. In support thereof plaintiff states that ORS
4. ORS
Bankers Trust Co. v. Bowers,
The plaintiff also relies on Helvering v. Morgan's, Inc.,
The facts in the Morgan's case are substantially different from the instant case. The Haines Company continued to exist and file tax returns, the federal net loss carry forward statutes were involved, and there was no general effect on the amount of tax payable.
In addition to the factual difference in theMorgan's case the United States Tax Court and the Circuit Court of Appeals, after the Morgan's case, and before the amendment mentioned in the footnote, issued several decisions upholding the fractional year as compared to the twelve-month calendar or fiscal year. Royal Highlanders v. Commissioner, supra; General *428 Aniline and Film Corporation v. Commissioner,
In the Royal Highlanders case the United States Tax Court was dealing with federal statutes and regulations similar to the Oregon statutes and tax commission regulations and the Commissioner of Internal Revenue was taking substantially the same position as the plaintiff is in this case. Royal Highlanders had been a fraternal society created in 1896 and in May, 1937, it became a life insurance company and subject to the Internal Revenue Code for the first time. In computing Royal Highlander's net income for 1937 the Commissioner argued that petitioner's taxable year was the calendar year because its accounting year was on a calendar basis and that the taxable year concerns an accounting period and not the period for which a return was made. Sections 41, 47 and 48 of the Revenue Act of 1936 were involved. Section 41, providing that net income shall be computed on the basis of the taxpayer's annual accounting period — fiscal year or calendar year — is substantially the same as ORS
In answer to the Commissioner's argument that the petitioner's taxable year was a calendar year because its accounting period had been a calendar year, the Court stated:
"While admitting that petitioner in its return reported only its income and expenses for the period May 4 to December 31, 1937, respondent nevertheless insists that petitioner's taxable year is the calendar year 1937 for the reason that its accounting period has been and remains on a calendar year basis. On brief he urges that the term 'taxable year,' as defined in section 48, supra, and as referred to in article 41-1 of Regulations 94, is concerned with the taxpayer's period of accounting for net income and not with the period for which a return is made, except in the specified instances set forth in section 47, supra. Article 41-1 merely provides that net income must be computed with respect to a fixed period, and usually that period is twelve months and is known as the taxable year. The regulation does not provide that net income must always be computed with respect to a fixed period of twelve months, and inferentially recognizes that unusual instances may arise when it must be computed with respect to a period of less than twelve months.
"Respondent's reference to section 47, supra, indicates he is of the opinion that unless a return for a fractional part of a year is one that is provided for in that section, then it automatically becomes a return for the full calendar year if a taxpayer keeps its books on a calendar year basis. We do not, however, so interpret this section. Its purpose was to outline a plan for computing tax liability of a taxpayer which, because of a change in its accounting period, affiliation, etc., was required or permitted by the Commissioner to make 'a separate *430 return' for a fractional part of a year. Bankers Trust Co. v. Bowers, supra. It was never intended to prevent a corporation filing its first return as a taxable entity from filing a return for the period of the year in which it received taxable income, or to require that a return so filed be held to be a return for the full calendar year when in fact it was not.
"Petitioner filed a return for the fractional part of the year 1937 during which it was a taxable entity. Section 48(a) provides that the term 'taxable year' includes in the case of a return made for a fractional part of a year the period for which a return is made. Where no return was required for a portion of the year because petitioner was an exempt corporation, its taxable year, in our judgment, constituted the period covered by the return. * * *"
1 TC, p 191 .
In General Aniline and Film Corporation, supra, the Tax Court affirmed the principle announced in Royal Highlanders and applied it to a case where a corporation which had reported its income on a calendar year basis was dissolved by merger on September 20, 1940.
Royal Highlanders was reaffirmed in Anne Jacobs, supra, where a partnership was dissolved during its calendar year. The Tax Court held that a fractional period from April 1 to May 31, 1941, was a taxable year under the statute defining taxable year as a fiscal year, calendar year and including a fractional part of a year for which a return is made. The court stated that the dissolution of the partnership within its accounting period was an "unusual instance" (as mentioned in Art 41-1 in the Royal Highlanders case) requiring the computation of net income on a fractional basis. *431
What the Tax Court said in Royal Highlanders about Art 41-1 is equally applicable in the instant case. The defendant tax commission has two regulations, 316.160(1)-(A) and 316.160(1)-(D), which state in part:
"Reg. 316.160(1)-(A). Computation of Net Income. Net income must be computed with respect to a fixed period. This generally is a tax year of 12 months. However, in some instances it may be a shorter period. * * *"
"Reg. 316.160(1)-(D). Accounting Period. In most instances the return of a taxpayer is made and his income computed for his tax year, which is the calendar year unless he has established a fiscal year. * * * Except in the case of a first return, a taxpayer shall make his return on the basis upon which he made his return for the tax year immediately preceding, unless, with the approval of the commission, he has changed his accounting period. * * *"
Regulation 316.160(1)-(A), like the federal regulation Art 41-1 discussed in Royal Highlanders, supra, provides that net income must be computed with respect to a fixed period. However, the regulation clearly recognizes that facts may exist where the fixed period will be shorter than twelve months.
5. The tax commission Reg. 316.160(1)-(D) contains apparently conflicting language. The first sentence provides a general rule for computing income and filing a return on a calendar or fiscal year basis in accord with Reg. 316.160(1)-(A) and qualifies this general rule with the phrase "In most instances." This phrase when read with Reg. 316.160(1)-(A) recognizes that circumstances may occur where income is computed and a return filed for a period of less than twelve months. The regulation also states, however, *432
that except for his first return the taxpayer shall make his return on the same basis he made his return for the year immediately preceding. Read out of context this phrase categorically requires that all returns, except the first, be filed on the basis upon which the taxpayer filed his return for the preceding year. Standing alone this sentence would nullify ORS
6. On December 11, 1961, Copco filed its corporate excise tax return for the period January 1, 1961, to June 21, 1961, as its "final return." As it ceased to exist on June 21, 1961, its entire tax year ended on that date. It is agreed that in most instances net income is computed on the basis of a twelve-month calendar year. However, ORS
The order of the State Tax Commission is affirmed.
Costs to neither party.