Blangers v. State, Dept. of Revenue and Taxation
| Decision Date | 25 May 1988 |
| Docket Number | No. 16404,16404 |
| Citation | 114 Idaho 944,763 P.2d 1052 |
| Parties | , 56 USLW 2704 Robert F. BLANGERS, Patrick R. Bartleson, Robert J. Tully, Walter T. Bartholomew, William M. Richter, Raymond H. Reedy, James H. Weaver and Walter E. Dunlop, Plaintiffs-Appellants, Cross-Respondents, v. STATE of Idaho, DEPARTMENT OF REVENUE AND TAXATION, Idaho State Tax Commission, Commissioner Larry G. Looney, Commissioner Carol M. Dick, Commissioner Morgan Munger and Commissioner Darwin L. Young, Commissioners of State Tax Commission, State of Idaho and the State of Idaho, Defendants-Respondents, Cross- Appellants. |
| Court | Idaho Supreme Court |
Sims, Liesche & Newell, P.A., Coeur d'Alene, Paine, Hamblen, Coffin, Brooke & Miller, Spokane, Wash., for plaintiffs-appellants, cross-respondents. Wm. Fremming Nielsen argued.
Jim Jones, Atty. Gen., Larry M. Dunn (argued), Deputy Atty. Gen., Boise, for defendants-respondents, cross-appellants.
This is an income tax case. The primary issue is whether the State of Idaho may impose an income tax on nonresident railway employees on nonstop transcontinental freight trains traveling across the panhandle of Idaho. We agree with the conclusion of the trial court that the laws of Idaho require the employees to pay Idaho income tax, but reverse the decision of the trial court upholding the constitutionality of the income tax on the earnings of these nonresident employees. We conclude that the Idaho law imposing a tax on the income of these employees while they are traveling through Idaho violates the due process clause of the fourteenth amendment and the commerce clause (art. I, § 8, cl. 3) of the United States Constitution.
Burlington Northern Railroad Company (BN) a federal land grant railroad, employed engineers, brakemen, firemen and conductors (the train crews), all of whom were residents of the state of Washington and not Idaho residents or domiciliaries. In the course of their employment with BN the train crews occupied nonstop transcontinental freight trains (the trains) traveling between Spokane, Washington, and Whitefish or Missoula, Montana, and back to Spokane. The mileage and time spent in Idaho constituted less than fifty percent of the total mileage and time of each of the members of the train crews while they were employed by BN.
The trains were "through" trains that did not perform any switching in Idaho. The trains made no scheduled stops in Idaho. Orders directing the trains came from outside the borders of Idaho. There were no crew changes within Idaho. The train crews neither reported for work nor were they dismissed in Idaho. In the spring of 1983, the train crews received written notice from the Idaho State Tax Commission (the Commission) that they were subject to Idaho income tax. The notice indicated that all taxes due for years prior to 1978 would be waived and no penalties imposed, if they filed returns for the years 1978 through 1982 and paid the income taxes before August 1, 1983.
A class action lawsuit was filed on behalf of the train crews seeking declaratory judgment determining whether the compensation earned while they were traveling through Idaho was subject to Idaho income tax and whether the application of the Idaho income tax statutes to these earning violated provisions of the Idaho Constitution and the United States Constitution.
The parties stipulated to the facts of the case. The trial court ruled that the train crews were subject to Idaho income tax for income earned by them while employed on trains traveling through the state, that the imposition of the tax did not violate provisions of either the Idaho Constitution or the United States Constitution, but that the statute of limitations barred the Commission from imposing a tax prior to 1980.
The train crews appealed the declaratory judgment of the trial court. The Commission cross-appealed the trial court's decision that the statute of limitations prevented the Commission from assessing any tax against the train crews for any period prior to 1980.
In 1959 the Idaho Legislature declared its intent "to impose a tax on ... the income of nonresidents which is the result of activity within or derived from sources within this state." I.C. § 63-3002. This intent has remained unchanged to date and was implemented by a provision imposing a tax "upon that part of the taxable income of any nonresident individual ... derived from sources within the state of Idaho." I.C. § 63-3024. In 1965 this Court held that a nonresident railroad employee who was employed on a train that made a daily run from a town within Idaho to a town outside Idaho was required to pay income tax on that portion of his income that was allocated to the miles the train traveled in Idaho. Gee v. West, 90 Idaho 173, 409 P.2d 116 (1965). The train crews contend that in 1965 the Idaho Legislature changed the theory of taxation for nonresidents to a "base of operations" theory. They argue that under this theory, a nonresident is taxed only if the nonresident has a base of operations in the state. For support they cite a concurring opinion in Gee. This contention is not sustained by the Idaho income tax statutes that have been in effect at times pertinent to this case.
From 1976 until 1986 I.C. § 63-3024 imposed a tax "upon that part of the taxable income of any nonresident individual ... derived from sources within the state of Idaho as set forth in section 63-3027A, Idaho Code." In 1986 the words "as set forth in section 63-3027A" were changed to "computed as required by section 63-3027A." 1986 Idaho Sess. Laws, ch. 90, pp. 262, 267. Despite periodic amendments by the legislature of I.C. § 63-3027A since 1976, this statute has continued to provide for the determination of the taxable income of a part-year or nonresident individual. The contention of the train crews that I.C. § 63-3027A has failed to set forth a means of determining what portion of the income of a nonresident is derived from sources within the state of Idaho is fallacious. The purpose of the reference in I.C. § 63-3024 to I.C. § 63-3027A was to provide for a means of computing taxable income, not to determine what portion of the gross income of a nonresident was derived from sources within the state of Idaho.
The portion of the income of a nonresident "derived from sources within the state of Idaho" must be determined by reference to the decisions of this Court in Barraclough v. State Tax Commission, 75 Idaho 4, 266 P.2d 371 (1954) and Gee. These decisions established that where compensation for personal services is involved The regulations of the Commission have been consistent with this result. The challenge of the train crews that these regulations have violated the uniformity requirement of art. 7, § 5 of the Idaho Constitution is not valid. That section applies only to ad valorem taxes. Johnson v. Diefendorf, 56 Idaho 620, 627, 57 P.2d 1068, 1071 (1936).
[114 Idaho 947] the source of income is the location where the services are performed. Therefore, applying the statutes and this Court's rulings in Barraclough and Gee concerning the source of income for personal services, the compensation of the train crews for the services performed while they pass through Idaho are within the coverage of the Idaho income tax laws.
Because of our decision, infra, declaring that the application of the Idaho income tax statutes to the income of the train crews while traveling through Idaho is unconstitutional, we do not consider the question of the applicable statute of limitations.
The train crews contend that their presence in Idaho while traveling on the transcontinental trains is not a sufficient nexus under the due process clause of the fourteenth amendment and the commerce clause of the Constitution of the United States to allow Idaho to subject the compensation they earn while traveling through Idaho to state income taxes. We agree.
The United States Supreme Court has held that "just as a state may impose general income taxes upon its own citizens and residents whose persons are subject to its control, it may, as a necessary consequence, levy a duty of like character, and not more onerous in its effect, upon incomes accruing to nonresidents from their property or business within the state, or their occupations carried on therein." Shaffer v. Carter, 252 U.S. 37, 52, 40 S.Ct. 221, 225, 64 L.Ed. 445 (1920). There the Court upheld an Oklahoma income tax on an Illinois resident who had engaged in the oil business in Oklahoma "having purchased, owned, developed and operated a number of oil and gas mining leases, and being the owner in fee of certain oil-producing land, in that state." Id. at 45, 40 S.Ct. at 223. The Court held that the Oklahoma tax was valid under both the due process clause of the fourteenth amendment and the commerce clause. On the same day that Shaffer was decided by the Supreme Court, the Court also issued its opinion in Travis v. Yale & Towne Manufacturing Co., 252 U.S. 60, 40 S.Ct. 228, 64 L.Ed. 460 (1920), sustaining the validity of a New York net income tax imposed on a business, trade, profession or occupation carried on in New York by nonresidents. In Travis the Court upheld the tax against a challenge based on the due process clause of the fourteenth amendment. No challenge was presented before the Supreme Court on the basis of the commerce clause. Id. at 75-76, 40 S.Ct. at 230.
The leading case on the taxation of the personal income of nonresidents by a state since Shaffer and Travis is American Commuters Association, Inc. v. Levitt, 405 F.2d 1148 (2nd Cir.1969). There the Second Circuit upheld the validity...
To continue reading
Request your trial
-
Moses v. Idaho State Tax Com'n, s. 18079
...paying, but to the location where the services are performed or the money is earned. Blangers v. State, Dept. of Revenue & Taxation, 114 Idaho 944, 763 P.2d 1052 (1988), cert. denied, 489 U.S. 1090, 109 S.Ct. 1557, 103 L.Ed.2d 860 (1989); Gee v. West, 90 Idaho 173, 409 P.2d 116 (1965); Barr......
-
Duane A. Toliver v. City of Middletown
...held that there was not a sufficient nexus to justify the imposition of Idaho's state tax upon train crews who merely transverse the state. Id. at 952. The train crews through Idaho on transcontinental trains without stopping or transacting any business within the state of Idaho. Id. The co......
-
TTX Co. v. Idaho State Tax Com'n
...TAXING TTX ON INCOME IT RECEIVED FROM PROPERTY IN IDAHO DOES NOT VIOLATE THE DUE PROCESS CLAUSE. In Blangers v. Dept. of Revenue & Taxation, 114 Idaho 944, 763 P.2d 1052 (1988), cert. denied, 489 U.S. 1090, 109 S.Ct. 1557, 103 L.Ed.2d 860 (1989), this Court reviewed at length the substantia......