Tulsa Tribune Co. v. State Ex Rel. Oklahoma Tax Commission
768 P.2d 891
Okla.
1989
Check Treatment

*1 COMPANY, an TULSA TRIBUNE corporation, Appellant,

Oklahoma Oklahoma, rel,

STATE of ex OKLA COMMISSION, TAX

HOMA

Appellees.

No. 66394.

Supreme Court of Oklahoma.

Jan. 28, 1989.

As Corrected Feb. Allen, Adams,

Mark F. H. James Ken- Dornblaser, Shorb, Randy neth E. R. Gable Gottwals, Inc., Tulsa, appellant & for Tulsa Co. Tribune Blankenship, J. Lawrence General Coun- sel, Struble, Welch, Marjorie B. Robert City, appellees Oklahoma Oklahoma Tax Com’n.

SUMMERS, Justice. Company (taxpayer), Tulsa an Tribune corporation, appeals an assess- ment for additional franchise taxes for the year July through June 1983.1 (Commis- Tax Commission sion) assessed additional franchise taxes requiring appellant report capi- after used, employed tal or invested Oklahoma certain undistributed income attributable to appellant’s wholly business activities Inn, (sub- subsidiary, Inc. owned Harvard Newspa- sidiary), corporations, and affiliate (1944), Tax Commission withdrew its as- 1986 the involving questions filed a Motion to Dismiss the which held that tax matters sessment and dismissal, objected urg- public appeal. importance court be of such merely opinion be- from us an to settle an issue of need not withhold determination “great reaching importance parties be- to domestic cause the issues between the have far foreign corporations November and objected in Oklahoma." It come moot. Our vote on the also C.J., Doolin, V.C.J., Simms, attempt was: to what viewed as an “to 1986 Order Wilson, JJ., judicial by simply "withdrawing Hodges, Hargrave and concur. avoid review" J., give challenged By Opala, Dissent: "I would dismiss and rule.” Order dated Novem- Motion, citing Payne award.” ber 1986 we denied the counsel-fee *2 68 O.S.1981 Magic Empire form of such existence.” per Printing Corporation, Tulsalite, Country Inc. Express, § and Green

Distributors, (affiliates). Inc. suggestion in the record that appears No subsidiary Tulsa Tribune or its or either supports its assessment The Commission pay failed to franchise tax. The affiliates of 68 opinion that the terms upon its based dispute entity’s only upon focuses which require and O.S.1981 §§ report capital the should as undis- return to undistrib- corporate taxpayers include subsidiary income of and tributed affil- and affiliates income of subsidiaries uted appellant The record iates. reflects tax as- annual franchise purposes of always done, report intended to as it had disagree. The Commis- We sessment. in acquiring of its interest the cost a reversal of position constitutes a sion’s affiliates, subsidiary and and sub- ambiguous standing construction of long prof- and undistributed sidiary’s affiliates’ cogent and in con- reason statutes without reported capital taxed as its would be Oral ruling in this court’s travention of companies’ in the annual franchise various Tax University Roberts v. Oklahoma tax returns. Commission, (Okla.1985). statutory Since taxation remains a crea- recognize, however that the Commis- We ture, question presented the initial asks appropriately assess franchise might sion applicable franchise Oklahoma tax whether part in parent company tax a based require company a to parent re- statutes parent’s upon income of the wholly port undistributed income of owned merely subsidiary an subsidiary if the were subsidiary and/or affiliate adjunct hold parent. We therefore used, employed corpo- in capital invested or legislation, specific assessment that absent activities the state. We find no rate upon capital franchise tax statutory requirement. such used, employed or invested upon franchise tax Oklahoma assesses income of shall not include undistributed organizations upon “capital business based subsidiary or af- paying company’s the tax used, or in the employed invested exercise companies unless the Oklahoma filiate power, privilege right inuring or to subsidiary or finds that organization this State.” 68 within in- entirely as companies function affiliate dispute parties 1203. The O.S.1981 § parent, adjuncts strumentalities construction of O.S.1981 § disregard require circumstances provides part statute relevant corporate to avoid separate entities “ ‘[Cjapital’ shall be construed include injustice. fraud or following: Statutes re- Title 68 of the Oklahoma stock, (1) Outstanding capital surplus quires tax assessment an annual franchise profits, undivided shall include organized un- “upon every corporation ... payment designated for the amounts der 68 O.S.1981 the laws of this State.” are of dividends until such amounts defi- taxes “be- 1203. Oklahoma franchise § nitely irrevocably placed to the credit day of payable on the 1st come due and subject of stockholders to withdrawal on 1208(c). This year each ...” 68 O.S.1981 bonds, § demand, notes, plus the amount of tax, its privilege annual assessment of indebt- debentures other evidences being require payment to purpose “to maturing payable edness more than for the of Oklahoma this tax State (3) The years term three after issuance. right granted by the of this State laws used ‘capital stock’ herein shall organization enjoy, under exist as all of interest or include written evidence State, management protection ownership of the laws of this in the control or organization.” powers, rights, privileges and immunities or other reason of the 68 O.S.1981 1209.2 from the State derived changes but those effective for ture amended 1209 in 1985 1963 form the statute was This apply We legisla- at issue. note here do not the facts assessment at issue. us, tions on the before Tulsa Trib- may franchise legislature measure used, une. capital invested upon based indeed define term employed, and portion dispute This turns provided the definition is neither “capital” “capital stock” as the statute which defines Thompson arbitrary nor unreasonable. interest or “all written evidence of owner- Building v. Oklahoma Tax Commis- Co. management ship in control or *3 (1942). sion, 132 P.2d 962 We Okl. organization.” or other 68 O.S. validity not the but the must determine provision 1981 1209. This has ef- been § applicable of the stat- proper construction as fective and remains effective since ute. amended in 1985. complains that the Com- Tulsa Tribune ap- The Tax has Oklahoma adhere to an forces it to mission’s action consistently plied to franchise this statute accounting chosen the Commis- practice The since enactment. tax returns its rejected the ar- We sion.3 considered record that this 1982 assess- reflects until to statutes silent as ac- gument that tax ment, required a cor- the Commissionnever counting practices construed to could be poration include income of to accounting particular a method. prohibit subsidiary part of or affiliate Liberty v. Tax Commission tax for of franchise tax purposes its base and Trust Co. Okla- National Bank assessment. (Okla.1955). City, 289 P.2d 388 homa Long standing precedents an ad- entitle Bank, we affirmed the trial Liberty In agency to correct an erroneous ministrative allowing the bank a refund of court’s order interpretation Helvering of the law. no paid protest statute Wilshire, taxes under L.Ed. 308 U.S. 60 S.Ct. required particular to use a ac taxpayers (1939); University Oral Roberts method, counting Commission, re the Commission employ permit (Okla.1986). the bank to the Ordinarily fused how- ever, debt” method in determin “reserve for bad We worthlessness bad debts. ruled interpretation “the or construction of an applicable the “aimed at statute4 was statute ambiguous or uncertain problems proof question on the worth charged is with its administration particular lessness of debts ... [and that] highest respect from the entitled to question nothing the statute in has to do courts, especially the administra- when allowing prohibiting either with use definitely tive settled and construction is for bad method of reserve debts uniformly applied years. a number of for accounting Bank, Liberty banks.” su In cases con- the administrative

pra at 392. except for struction will be disturbed very cogent reasons, provided Bank, in Liberty As the statutes before given construction so was reasonable. accounting require- specific contain us no University at 1014-15.” Oral Roberts obligations ments therefore create acceptable taxpayers Commission, choose one The record reflects that the Consequently, method over another. our in ruling its Tribune reversed Tulsa existing inquiry focus standing must lan- long application of the fran- applicable guage computa- to franchise tax Consequently, chise statutes. in- we tion, previous application quire statutory language and construction at whether the statutes, applicable subject interpre- effect of issue than one more tation, so, previous applications and construc- and if whether the Commission however, acquiring ownership cost substance amendment interest or in anoth- does not the method of assessment. entity reporting. alter “equity” er in tax method original differs in that increase in value Appellant contends here as it did below that applies forming the investment tax base. requires it the Commission’s assessment to use "equity” than the accounting. rather the “cost” method of 4. 68 O.S.1951 887. company’s "cost” uses method previous cogent ission, (1942). reversed its stance for rea- sons. disagree. We interpret parties We find that Power, Light Southwestern we statutory phrase ownership in “interest or defined the corporation’s capital value of a management corpora- control or purposes stock for corporate of annual li- very differently. tion” 68 O.S.1981 1209. censing value, fee as book or the market suggests The Commission the lan- corporation’s value of the assets minus its guage “written evidence of ... control or liabilities. Light Southwestern and Power management” separate from exists 62 P.2d at 640.5 The Commission errone- equal phrase to the “written evidence of ously assumes that undistributed income of ownership interest or in”. The sentence subsidiary a automatically qualifies as an punctuation indicating however contains no parent. asset of assumption This equal clauses are two elements holding strains the Light Southwestern Rather, employs series. the sentence beyond simple and Power *4 requirement its string prepositional phrases of each subor- that the Commission determine “book val- preceding Thus, gram- dinate to the one it. ue” for purposes by franchise tax subtract- imprecision matical renders the statute sus- ing taxpayer’s the liabilities from its as- ceptible varying interpretations which sets. 62 Southwestern P.2d at 639. require clarification and correction. uses, We determine which company in- stated, Simply capital stock includes all employs issue, vests or the asset here at written or ownership. evidence interest namely income of the subsidi- a company reports holdings Once its ary affiliates, and by turning to the rules businesses, degree other parent the of the governing corporate general entities. The company’s management control or of those rule corporation states that a is a important other businesses becomes in de- legal entity, separate “distinct apart and termining entity, parent as between entities, legal from other this but rule and subsidiary pays or affiliate franchise has its limitations. The legal distinct subsidiary’s the or affiliate’s un- entity may appears be avoided if it from distributed income. the examination of the entire facts either We make this determination exam (1) separate that corporate existence ining cases, which define the method design is a perpetrate or scheme to for computing the corporation’s value of a fraud, (2) corporation that one is so capital doing, stock. In so we find no organized controlled, and its affairs cogent reason for the Commission’s rever so merely conducted that it is an instru- previous sal of application its consistent mentality adjunct corpora- of another the franchise tax statutes. The Commis words, tion. other it appear must that urges sion interpretation that its of the one dummy is a or a sham.” changed statutes because of its erroneous State, Corp. Oil v. Gulf application construing of the cases (Okla.1961).6 predecessor licensing statutes which hold Further, capital applied that Tenth Circuit stock shall be measured general affirming book value. rule in Light Southwestern an order from Power Commission, Co. v. Western appeal Oklahoma Tax District of Oklahoma in an (1936); Thomp P.2d 637 to recover federal paid excise taxes under son Building Co. v. protest. Oklahoma Tax Comm Continental Oil Co. v. 5. While Light impre company Southwestern and Power ent was neither a common carrier nor cisely phrase uses the "market value” in defin purchaser wholly because its owned subsidi- value, recognize book we that standard ac ary operated pipeline, corpo- owned and counting principles define book value as the directors, subsidiary rations had different Kohler, cost of assets minus liabilities. E. A merely adjunct was not an instrument or (4th Dictionary 1970). Accountants ed. parent. State, Corp. Oil v. Gulf (Okla.1961). appeal In this from an order of the Oklahoma Commission, Corporation par- we ruled that the Oil, parent.” supra at Cir.1940); Continental (10th cert. 311 U.S. den. F.2d The court L.Ed. 443. 61 S.Ct. companies had separate found of its The Commissionbases this reversal taxes large part to created in evade been solely standing statutory application long corpo- disregard separate justified mis- consistently claim it has upon its entities, reasoned that rate ruling in applied this court’s Southwestern parent corporation mere that a “the fact Tax Light and Power Co. v. Oklahoma subsidiary, all of the stock owns Commission, However, supra. the Com- more, not standing alone and without appli- error occurred with its mission’s disregard of their enough to warrant the applies of the rule that “book value” cation usually is It separate juridical entities. determinations, finding in its these but ownership of is used stock undistrib- proper evidence without purpose employed not for uted income attributable Tulsa Tribune’s of the subsidi participating in the affairs subsidiary and consti- affiliate normal manner but ary in the usual and an asset Tulsa Tribune. tutes controlled con purpose dominating and for the Further, agree earlier we do not trolling it manner and to in such interpretation Light of Southwestern mere extent it becomes v. Power Co. Oklahoma (United parent instrumentality of present incorrect. The Commission’s was Co., 220 Valley Lehigh R.R. States application existing to the erroneous law 55 L.Ed. U.S. 31 S.Ct. presents cogent reason facts before Delaware, Lackawan United States *5 may properly upon which the Commission 516, Co., 238 U.S. na & Western R.R. prior application the fran- reverse 873, 1438; Chicago, M. & 59 L.Ed. S.Ct. chise statutes. Ry. Minneapolis Paul Civic St. Co. 553, Association, 490, specific legislation, assessment of 247 U.S. 38 S.Ct. Absent used, Reading capital 62 L.Ed. United States v. tax on Oklahoma franchise 425, Co., 64 L.Ed. 253 U.S. S.Ct. employed or in Oklahoma does invested 760), separate maintain cor where to taxpay- income of include entity injus porate work fraud or would compa- company’s subsidiary or affiliate er Co., 306 (Taylor tice v. Standard Gas nies unless Commission finds 669) 307, 59 83 L.Ed. U.S. S.Ct. subsidiary or affiliate function merged.” they are treated as entirely adjuncts as instrumentalities require parent, and that circumstances supra at 562. Continental Oil Co. disregard separate corporate entities to agreement par- By stipulation re- injustice. fraud or We therefore avoid ties, findings in its of fact the Commission Com- the order of the Oklahoma Tax verse that, period question, “for the states matter for further mission and remand this wholly [taxpayer], through a Protestant opinion. with proceedings consistent this cer- subsidiary ... also conducted owned addition, real activities. tain estate to its activities related

Protestant conducts C.J., HODGES, HARGRAVE, publishing through af- newspaper business LAVENDER, SIMMS, DOOLIN and less one hun- filiates in which it owns than KAUGER, JJ., concur. (100%) percent of the stock interests dred OPALA, V.C.J., dissents. however, is from the record ...” Absent us to would enable evidence which OPALA, Justice, Vice Chief “owner- whether Tulsa Tribune’s determine dissenting. purpose partici- ship of stock is for the today The court reverses the Oklahoma subsidiary in pating in the affairs Tax Commission’s assessment manner”, purpose or “for the [OTC’s] normal against Tulsa franchise taxes dominating controlling a additional remands Company it be- Tribune and to such an extent that manner [Tribune] proceedings. instrumentality cause for further the mere comes join pronounce- appeal I unable to this OTC seeks to have the dismissed am appeal ment. I would dismiss as hav- for mootness. We are informed affida- midap- mooted admitted been OTC’s following vit of the uncontroverted facts peal of its contested assess- withdrawal which occurred the contested tax as- after pay ment and would order that OTC Trib- (a) appealed: sessment came to be OTC appeal-related litiga- une’s counsel fees and Sep- directed its franchise tax division on expenses. sought tion The issue re- be tember 1986 to withdraw the March longer part lively solved is no “case or Tribune; (b) 1983 assessment controversy” antagonistic between de- September letter of 1986 the March wasting govern- mands. We are valuable withdrawn; (c) 25th assessment was resolving controversy ment resources on a protests of additional franchise tax assess- longer that is no viable. pending ments were before OTC on Octo- Tribune,

ber has the now midappeal develop- burden to overcome this I ment, tenders no counter-affidavit in re- sponse to the dismissal motion. MATERIAL MIDAPPEAL DEVELOPMENTS II appellate generally

While review is con- presented fined to the record corrective EXCEPTIONS TO MOOTNESS

process, well-recognized exception per- DOCTRINE appellate cogni- mits an tribunal to take occurring during zance of those facts jurisprudence recognizes but pendency appeal adversely of an af- “escape two hatches” from the mootness capacity fect the court’s to administer ef- public-interest4 doctrine—the and the likeli- permits fective relief.1 Rule this court exceptions. hood-of-recurrence5 Neither opposition to receive evidence in favor of or exceptions of these is invocable here. appeal’s By to an dismissal. affidavit at- question presents While the before us tached to a dismissal motion the movant *6 apprise controversy public can any this court of material mi- over revenue—and dappeal development.3 arguably public hence is one of inter- Commission, County 1. See Peppers Refining Corporation Lawrence v. Cleveland Home Loan Co. v. Auth., Okl., 314, [1981]; 451, 899, [1947]; 626 P.2d 315 Brown Okl. 198 179 P.2d 901 Hickox, Okl., 807, 609, 113, Investment Co. v. Payne 369 P.2d 808 193 Okl. 146 P.2d 116 [1962]; 764, Goodwin, Carlton v. State Farm supra Mutual Automo In [1944]. at we said that Co., Okl., 286, [1957]; bile Ins. P.2d 309 289-290 widespread may interest "[w]henever demand Chamblee, 94, City Tuba v. 188 Okl. 106 public an immediate resolution of some vital of 796, issue, P.2d 798 [1940]. impediment arising infirmity law from procedural posture in the of the case—however 7, Supreme 2. Rule Rules of the Court of Okla- recognized purely private litigation well in —will homa, O.S.1981, 15, App. provides: 12 Ch. reviewing power.” bar our exercise of motions, petitions, applications sugges- "All tions shall contain a brief statement of facts County 5. Lawrence v. Cleveland Home Loan thereof, objects except and of the in cases Auth., supra note 1 at 315-316. See also In re where all the facts relied are of record D.B.W., Okl., [1980], 616 P.2d 1151 Court, supported by in this shall be affidavit." involuntarily an individual had been committed [Emphasis mine.] discharged to a mental institution and was from hospital appeal while the from the commit Hickox, supra 3. Brown Investment Co. v. note 1 court, pending. ment order was D.B. In W. the 808; at and Carlton v. State Farm Mutual Auto- Owens, relying on the rationale of Rex v. 585 Co., supra mobile Ins. note 1 at 289-290. F.2d 432 and Southern P.T. Co. [10th Cir.1978] Westinghouse Auth., Com., 498, 515, 4. Elec. v. Grand River Dam v. Interstate Com. U.S. 219 31 Okl., [1986]; 279, 283, [1911], 720 P.2d 720 Lawrence v. S.Ct. 55 L.Ed. 310 stated that Auth., County supra Cleveland litigant Home Loan note the case was not moot because the there Goodwin, Okl., Application 1 at subjected repeatedly P.2d periods could be to brief of of [1979]; commitment, Special Indemnity involuntary Fund v. with each instance Reynolds, [1948]; evading judicial review. recurrence in fully litigated.8 short, not be Tribune likelihood of its est6 —the substantially similar same showing its burden of has not met that context is at best legal pure conjec- in this retains appeal one of issue raised a residue viability based on circum- because is ture. yet evading “capable repetition, stances covered tax assessment The withdrawn review.” years 1982-1983. Reassessment period for the same precise tax Tribune tendered here Because issue subject to a bar of limitations.7 would be now and the likelihood of its is time-barred states that no midappeal affidavit substantially OTC’s in a similar con- recurrence pending by any fran- protest then was conjectural, is I order text at best would taxpayer. does inform chise Tribune would direct that appeal dismissed but being as- of additional franchise taxes us legal pay appeal-related OTC for Tribune’s or of against other entities sessed litigation expenses.10 services similarly protests by taxpayers af- pending Moreover, has not shown Tribune fected. supporting facts

by counter-affidavit likely impose OTC is

its assertion that future; in the neither has

the contested tax if a tax such assess-

it demonstrated again, contest could imposed

ment were interest method' ments briefing this statement affected. This serts, business to domestic and “would one OTC Tribune, it “is issue does petition-in-error and broad in affiliates and subsidiaries” would be argues would characterize the significantly time. in Oklahoma.” on the resolution of this accounting not have have great public the other that there There, narrowly directing “wide-ranging foreign corporations doing interest. affect far-reaching OTC to account for "fail[s] far-reaching importance hand, attempts to framed other us to OTC’s asserts its motion neither It asserts to use controversy taxpayers" issue, ramifications" case effect. widespread nor response OTC ‘equity invest- extend refute issue only does as- which it forthwith The terms of mission a written “(a) ing, added.] affecting (g) herein shall make and enter an appeal ner taxpayer directly homa_” himself Within reasonable provided for Any taxpayer aggrieved [******] protest finding of to the provided shall set to the be mailed to the or his [Emphasis mine.] Supreme within the and a the Tax Supreme Court for, forth protest under duly-authorized agent_ provide in Section copy Court....” may appeal time after the time and in the man- order in taxpayer.... by any disposition 225 of pertinent part: Commission oath, order writing [Emphasis order, therefrom hearing directly signed Code, made Okla- shall rul- 223(a) provide in The terms of 68 O.S.1981 *7 D.B.W., 1151; supra at 9. In re note 5 Southern part: pertinent Com., supra note P.T. Interstate Com. Co. v. “No tax levied under the assessment v. S.Ct. at and Rex 219 U.S. at 515 except pro- provisions state tax law Owens, supra note 5. following paragraphs sec- vided tion, expiration shall be made after earmarks of vexa- 10. OTC’s conduct bears the (3) years from the date the return was three Trib- The waited until tiousness. after required to be filed the date return was attempting une before had filed brief-in-chief filed, later, period expires whichever by withdrawing controversy moot proceedings by court no warrant moving for dis- and then contested assessment previous for assessment the col- without City ground. & See Nat. Bank missal begun Owens, Okl., lection of such tax shall be after the P.2d 8-9 [1977] Trust Co. v. period." [Emphasis expiration Okl., mine.] of such Hoebel, Moses offending here Both and in Owens [1982]. (68 O.S.Supp.1987 8. The Oklahoma Code controversy’s party sought bring ab- about a 225) provides 221 and O.S.1981 for an §§ rupt designed conduct to thwart its reso- end adequate review of OTC assessments. judicial proceeding. due lution in course may regarded pertinent longer The lutely be as abso- terms 221 are: state " * * * (c) thirty (30) days by sovereign immunity protected from after the Within liability mailing proposed vexatious or bad-faith [tax] the aforesaid assess- counsel-fee litigation for ment, lawyers the Tax conduct of its functionar- with Com- file BERRY, for himself and all Retir

D.M. July 1, prior to

ants who retired

receiving from the Oklahoma benefits System Employees Retirement

Public pursuant

established al.,

Statutes, Appellants et Section rel.,

STATE of Oklahoma ex OKLAHOMA

PUBLIC EMPLOYEES RETIREMENT

SYSTEM, Appellees.

No. 65499.

Supreme Court Oklahoma.

Jan. Burrage, Stamper, Stamper,

Michael Joe Antlers, Burrage, Otis & Alan B. McPher- on, McPheron, Durant, Craige, Webster & appellants. for Stringer, Larry Joplin, Harvey L.E. E. D. Ellis, Jr., Dunlevy, Crowe & City, appellees.

SUMMERS, Justice. plaintiff, Berry, appeals D.M. from granting summary trial court’s order defendant, judgment in favor of the Okla- *8 ment, authority ies. See State ex rel. Poulos v. State Bd. or bureau authorized to make Okl., [1982], Equal., 1274-1275 rules or formulate orders shall be entitled to O.S.Supp.1987 costs, See also terms of 12 entity recover such state court 941(B), statute, provi an whose after-enacted attorney witness and reasonable fees fees if liability impose sions on counsel-fee proper jurisdiction tribunal or a court of de- proceeds without "reasonable basis" or acts proceeding brought termines that was provisions in a "frivolous” manner. without reasonable basis or is frivolous.... 941(B), here, pertinent are: apply any proceeding shall This subsection brought respondent any proceeding "The before state administrative tribunal com- on or after November 1987.” [Em- state administrative tribunal menced before any board, commission, agency, depart- phasis state added.]