309 P.2d 267 (Okla. 1957), 36731, Selected Investments Corp. v. Oklahoma Tax Com'n

Docket Nº:36731.
Citation:309 P.2d 267
Case Date:March 12, 1957
Court:Supreme Court of Oklahoma

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309 P.2d 267 (Okla. 1957)




No. 36731.

Supreme Court of Oklahoma.

March 12, 1957.

Rehearing Denied April 2, 1957.

Syllabus by the Court

1. Oklahoma Statutes fully recognize the rule that State Income Taxes should be assessed against the proper entity earning and receiving the income involved, whether such entity be an individual, corporation, partnership, trust or estate. 68 O.S.1951 § 874.

2. Income earned and received by one legal entity cannot be assessed against another legal entity along with the income actually earned by and received by such other legal entity, though such other legal entity rendered service to the first legal entity aiding or resulting in the earning and receiving of income of and by the first legal entity.

3. Record examined and held that 'Trust Fund' here involved is a separate entity from 'Corporation' here involved, and that the income here involved was the income of 'Trust Fund' and not the income of 'Corporation;' and that the assessment of a tax against 'Corporation' on account of such items of income was without authority of law.

Appeal from the District Court of Oklahoma County; Albert C. Hunt, District Judge.

Action by Selected Investment Corporation, a taxpayer, against Oklahoma Tax Commission for refund of income taxes paid under protest against legality of the assessment of such tax and for statutory interest thereon. Judgment for defendant, and plaintiff appeals. Reversed and remanded with directions.

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Washington, Thompson & Wheeler, Oklahoma City, Louis Loss, Cambridge, Mass., of counsel, for plaintiff in error.

R. F. Barry, W. F. Speakman, E. J. Armstrong, Oklahoma City, for defendant in error.

WELCH, Chief Justice.

To the income tax or on the income tax return of the plaintiff, Selected Investment Corporation, for 1948 the Oklahoma Tax Commission in effect made or applied an added assessment on the sum of $543,215.35 earned by investments of money from the Selected Investment Trust Fund.

'Commission' contends this sum was an earning and income of Selected Investment Corporation, while 'Corporation' contends it did not own the Trust Fund nor its earnings or income, and that the sum mentioned was the earnings and the income of 'Trust Fund' as a separate legal entity, and that therefore such income is not taxable to plaintiff corporation.

The controversy first presents the question: Whether 'Corporation' and 'Trust Fund' are separate legal entities, and whether the income here involved was in fact and law the income of 'Corporation' or the income of 'Trust Fund' as a separate legal entity.

In considering that question we must examine the structure, ownership and operation of 'Trust Fund' and of 'Corporation.' The Selected Investment Corporation was created by incorporating under Oklahoma Laws, and by receiving its charter as an Oklahoma Corporation. It is owned by its corporate stockholders and operated by its officers and Board of Directors in the usual manner of a corporation.

It was stipulated by the parties that 'Corporation' was incorporated in 1930, and that the Articles of Incorporation as filed in the Secretary of State's office provided:

'* * * that the purposes for which the corporation is formed are to transact a general investment business, to create, manage and supervise under indentures or other contractual relationships, investments, trust funds, and the cash securities therein, and to issue certified bonds as evidence of the separate revocable trusts or participating interests, the holders of such certificates before any such funds are created, managed or supervised to designate the trustee therefor, to enter into, may perform and carry out contracts with any corporation so as to permit that person to buy, sell, hold, and deal in all kinds of listed and unlisted securities, and to loan money on real and personal property.'

One of the business operations of 'Corporation,' or perhaps its principal business, was the management of trust funds as it was specifically authorized to do.

Now the structure, creation and operation of 'Trust Fund' was about as follows: By advertising and soliciting, individuals were induced to make cash investments. The money so advanced, less a stated or agreed percentage to 'Corporation' for its initial fee and/or expense was to be and was in fact deposited in a separate fund or deposit in a designated bank as a trust fund owned by the investors therein, the bank being designated as trustee thereof. This was done and 'Trust Fund' was thereby created and implemented pursuant to a contract or indenture providing at length and in great detail for the trustee to receive the money and for the handling and operation of 'Trust Fund.' Provision was made for changing of the trustee in case the first trustee wanted to resign, or in case of certain other eventualities with provision for bonding the trustee. Each investor who advanced money to invest in, and thus to build up, 'Trust Fund' was issued a certificate showing his investment, referring to the original trust agreement or indenture and making the investor a party thereto, and thereby the investor was made an owner of his proportionate share of the 'Trust Fund.' There was provision for the investor certificate holder to revoke the trust as to his part or share and to withdraw therefrom and to surrender his certificate and receive payment of his share

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in the fund of the value of his proportionate share at that time. It was the money so advanced to such fund and so deposited in trust which created and constituted 'Trust Fund.'

The indenture or trust agreement provided that 'Corporation' would manage and direct investments from 'Trust Fund.' The trustee had no authority to make investments from the trust fund or expenditure therefrom except such as were directed by 'Corporation.' The plan was that 'Corporation' would select stocks and bonds or certain other properties or property interests of mortgages to be purchased for 'Trust Fund' and held for income and interest to 'Trust Fund,' and for possible increase in value. Such stocks and bonds or other properties were the property of 'Trust Fund.' The purchase price therefor was paid by the trustee out of 'Trust Fund' upon the direction of 'Corporation.' All income from any such stocks or bonds or other property interests went into 'Trust Fund' and upon sale of any such items the sale price or money received therefor went into 'Trust Fund.' There was provision for certain periodical...

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