David v. Idaho State Tax Comm'n

• Decision Date: 29 April 2010
• Docket Number: No. 35848.,35848.
• Citation: 230 P.3d 734,148 Idaho 842
• Court: Idaho Supreme Court
• Parties: David and Kathy PARKER, Plaintiffs-Appellants,v.IDAHO STATE TAX COMMISSION, Defendant-Respondent.

148 Idaho 842

230 P.3d 734

David and Kathy PARKER, Plaintiffs-Appellants,v.IDAHO STATE TAX COMMISSION, Defendant-Respondent.

No. 35848.

Supreme Court of Idaho,

Boise, December 2009 Term.

March 17, 2010.

Rehearing Denied April 29, 2010.

COPYRIGHT MATERIAL OMITTED

Lawrence G. Sirhall Jr., Boise, for appellant.

Hon. Lawrence G. Wasden, Attorney General, Boise, for respondent. Lawrence Allen argued.

HORTON, Justice.

This appeal involves Idaho state income tax payments by David and Kathy Parker for income earned in 2003 and 2004. The Idaho State Tax Commission (the Commission) determined that the Parkers' tax payments were deficient for those years. David and Kathy sought review by the district court. The district court granted summary judgment in favor of the Commission. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

The Parkers were married at all times during 2003 and 2004 (“the relevant years”). Kathy was domiciled in Idaho and David was domiciled in Nevada throughout this time. The Parkers filed income tax returns with both the Internal Revenue Service and the Commission declaring their status as “married filing joint” for the relevant years. Nevada does not impose an individual income tax, so the Parkers did not file tax returns with that state. On their Idaho returns for the relevant years, the Parkers reported only the income earned by Kathy while she was domiciled in Idaho and did not report the income earned by David.

The Commission conducted an audit of the Parkers' returns for the relevant years and determined that one-half of the income earned by David was subject to Idaho income tax because Kathy was entitled to one-half of the Nevada income as community property. On April 2, 2007, the Commission issued a notice of deficiency to the Parkers, and on May 3, the Parkers' accountant filed a petition for redetermination and asked the Commission for a hearing. Following the hearing, the Commission issued a decision ¹ upholding the determination that the Parkers owed income tax on one-half of the income earned by David while domiciled in Nevada for the relevant years.

The Parkers timely filed a petition for judicial review of the Commission's amended decision on February 22, 2008 and made the security deposit required by I.C. § 63-3049. The Parkers alleged that the Commission's determination was “capricious, without a basis in law or fact, arbitrary and otherwise erroneous.” The Commission responded on March 14, 2008, pointing out that the action should proceed as a de novo proceeding pursuant to I.C. § 63-3049, rather than as a petition for review, and therefore filed an answer to what it termed the Parkers' “complaint.” On June 24, 2008, the parties filed a statement of “Stipulated Facts” which specified, among other things, that the sole issue before the district court was whether the Commission erred when it determined that one-half of the income earned by David while he was domiciled in Nevada is subject to Idaho income tax.

On July 1, 2008, the Parkers filed a motion for summary judgment requesting the court to require the Commission to recalculate the Parkers' income tax without the inclusion of David's income. The Parkers also filed an affidavit from David in which he stated that he did not receive any financial assistance from Kathy or have any Idaho-sourced income during the years in question. The Commission filed a responsive “Affidavit of Jim Gunter Regarding Summary Judgment” on July 18, 2008. Gunter is the tax specialist with the Commission who conducted the redetermination in the Parkers' case. Although styled as an “affidavit,” this document is something between an affidavit and a legal brief in which Gunter expresses his opinions as to questions of tax and community property law. In the affidavit, Gunter asserted that David would have been required to file an Idaho income tax return even if he and Kathy had filed separate returns due to David's share of the taxable income from certain Idaho real estate income pass-through entities. The Parkers moved to strike this opinion on the basis that it was a legal conclusion that was for the court to make and as speculative and irrelevant.

On October 23, 2008, the district court issued its combined “Order Denying [the Parkers'] Motion to Strike,” “Order Denying [the Commission's] Motion to Strike,” “Order Granting [the Commission's] Motion for Summary Judgment,” and “Order Denying [the Parkers'] Motion for Summary Judgment.” The court found that the Parkers were not entitled to equitable relief under Idaho law. The court also rejected the Parker's claim that the Commission's determination violated the Due Process Clause and the Commerce Clause. The Parkers timely appealed from the district court's final judgment in which the Commission was awarded $36,709.

II. STANDARD OF REVIEW

A taxpayer may appeal a determination by the Commission by filing a complaint against the Commission in district court. I.C. § 63-3049. The case is to proceed as a de novo bench trial. I.C. § 63-3049; cf. I.C. § 63-3812(c).² A deficiency determination issued by the Commission is presumed to be correct, and the burden is on the taxpayer to show that the Commission's decision is erroneous. Albertson's Inc. v. State Dep't of Revenue, 106 Idaho 810, 814, 683 P.2d 846, 850 (1984).

When this Court reviews a district court's decision on summary judgment, it employs the same standard as that properly employed by the trial court when originally ruling on the motion. Summary judgment is proper “if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” I.R.C.P. 56(c).

Kolln v. Saint Luke's Reg'l Med. Ctr., 130 Idaho 323, 327, 940 P.2d 1142, 1146 (1997) (internal citations omitted).

III. ANALYSIS

The district court upheld the Commission's decision that one-half of David's Nevada earnings were taxable because, by operation of Idaho community property law, those earnings are income attributable to Kathy. The Parkers urge on appeal that the district court erred in not applying Nevada community property law, in not concluding that taxing one-half of David's earnings would violate due process, and in not striking the portions of Gunter's affidavit that asserted that David received income generated in Idaho. The Parkers also allege that the district court erred in not holding that taxing one-half of David's Nevada earnings would violate the Commerce Clause. Finally, the Parkers contend that the district court erred in not reading federal provisions for equitable relief into Idaho tax law. The Commission seeks attorney fees on appeal.

A. We decline to address whether the district court erred in applying Idaho rather than Nevada community property law.

The Parkers argue that the district court erred in applying Idaho rather than Nevada community property law and that under Nevada law, David's earnings during the years in question might be considered separate property. Specifically, the Parkers allege that the district court erred in only discussing Idaho community property law when the Commission, in its amended decision, discussed both Idaho and Nevada community property law. The Parkers, however, stipulated before the district court that “[t]he Audit Division determined that one-half of the income earned by Mr. Parker while he was domiciled in Nevada was subject to Idaho income tax because under the community property laws of Idaho, Ms. Parker was entitled to one-half of the Nevada income.” There is no indication in the record that the Parkers said anything more regarding the choice of law to the district court, and the district court did not address the issue or mention Nevada community property law in its decision. Accordingly, we decline to address the choice of law issue for the first time on appeal. Dunn v. Baugh, 95 Idaho 236, 238, 506 P.2d 463, 465 (1973).

B. We affirm the district court's holding that the taxation of Kathy's one-half interest in David's Nevada earnings does not violate due process.

The Parkers assert that the State of Idaho (the State), through the Commission, violates due process when it taxes income earned outside of its borders.

It is undisputed that during the relevant years, Kathy was an Idaho resident and that she and David were married. Idaho Code § 32-906 provides that property acquired after marriage is community property, subject to exceptions not present in this case. This includes a spouse's earnings. Suter v. Suter, 97 Idaho 461, 466, 546 P.2d 1169, 1174 (1976). As David's earnings during the relevant years were community property, Kathy's one-half interest in those earnings were subject to federal taxation. Forbush v. Commissioner, T.C. Memo.1979-214, 38 T.C.M. (CCH) 871, 1979 WL 3279 (U.S.Tax Ct.) (citing Hopkins v. Bacon, 282 U.S. 122, 51 S.Ct. 62, 75 L.Ed. 249 (1930); Goodell v. Koch, 282 U.S. 118, 51 S.Ct. 62, 75 L.Ed. 247 (1930); Poe v. Seaborn, 282 U.S. 101, 51 S.Ct. 58, 75 L.Ed. 239 (1930)). See also Babcock v. Commissioner, T.C. Memo.1979-372, 39 T.C.M. 139(CCH), 1979 WL 3424 (U.S.Tax Ct.).

Idaho's taxation scheme mirrors that of federal law. “It is the intent of the [Idaho] legislature ... insofar as possible to make the provisions of the [Idaho Income Tax Act] identical to the provisions of the Federal Internal Revenue Code relating to the measurement of taxable income....” I.C. § 63-2002. Therefore, for purposes of computing Idaho taxable income, just as in computing federal taxable income, one-half of David's earnings are included in determining Kathy's gross income. The question is whether the fact that this income derived from Nevada somehow precludes the State from taxing it.

This Court answered the question whether the State may tax income earned outside of its borders in Herndon v. West, 87 Idaho 335, 393 P.2d 35 (1964). In that case, the taxpayer was a resident of Idaho...