Hagood v. Heckers
Decision Date | 20 August 1973 |
Docket Number | No. C--292,C--292 |
Citation | 513 P.2d 208,182 Colo. 337 |
Parties | L. N. HAGOOD, Petitioner, v. John H. HECKERS, Executive Director, Colorado Department of Revenue,Respondent. Mary C. HAGOOD, Petitioner, v. John H. HECKERS, Executive Director, Colorado Department of Revenue,Respondent, Amoco Production Company, Amicus Curiae. |
Court | Colorado Supreme Court |
Fairfield & Woods, Peter F. Breitenstein, Denver, for petitioners.
John P. Moore, Atty. Gen., John E. Bush, Deputy Atty. Gen., Bernard S. Kamine, Asst. Atty. Gen., Denver, for respondent.
V. C. McClintock, Roscoe Walker, Jr., Kerry R. Brittain, Gorsuch, Dirgis, Campbell, Walker & Grover, Denver, for amicus curiae.
Petitioners L. N. Hagood and Mary Hagood, plaintiffs below, brought separate actions to recover Colorado normal income taxes for 1965 through 1968 assessed against them as nonresident taxpayers under 1965 Perm.Supp., C.R.S.1963, 138--1--15. Suit was filed naming John H. Heckers, Executive Director of the Colorado Department of Revenue, as defendant. Heckers will be referred to as Director or respondent. The disputed income was paid to and received by petitioners outside Colorado pursuant to royalty agreements in conjunction with assignments of federal oil and gas leases.
In the trial court the parties stipulated to the controlling facts. Commencing in 1940, the United States Department of Interior granted to the petitioners, Wyoming residents for the tax years in question, five noncompetitive oil and gas leases covering federal lands located in Colorado. Each lease was granted pursuant and subject to the Mineral Leasing Act, 30 U.S.C. § 181 et seq., as amended. Prior to the tax years in question, by separate written agreements approved by the Department of Interior, petitioners assigned their rights and interest to the leases in question to various parties; consideration for the assignments consisted of certain immediate cash payments and future overriding royalties based on a percentage of the market value of the oil and gas which might be produced, saved and marketed from the leased premises.
Payments based upon the overriding royalty agreements were subsequently paid by the assignees and received by petitioners. Petitioners paid no income tax on the royalties. The Colorado Department of Revenue, by Notices of Deficiency dated October 18, 1968, asserted petitioners owed Colorado normal income tax on the disputed income, plus interest, for 1965 and 1966. Pursuant to 1965 Perm.Supp., C.R.S.1963, 138--9--2, petitioners filed protests to the Department's Notices of Deficiency. By Final Determination dated March 24, 1969, the Department denied petitioners' protests and determined that they owed Colorado normal income taxes on the disputed income and interest in the total amount of $2,491.42. Petitioners did not appeal from the Director's Final Determination, but paid the total assessed deficiency to the Department under protest. Later, petitioners filed their respective refund claims with the Department to recover their taxes and interest paid under protest. On June 16, 1969, the Department ruled it would take no action on petitioner's refund claims. Thereafter, on December 18, 1969, petitioners paid under protest an additional $2,353.44 for Colorado normal income taxes on the disputed income, including interest, assessed for 1967 and 1968.
On August 22, 1969, petitioners brought separate tax refund suits against the Director pursuant to 1967 Perm.Supp., C.R.S.1963, 138--9--7 to recover the taxes paid for the years 1965 and 1966. These suits were consolidated, and by stipulation approved by the trial court dated September 16, 1970, the parties agreed that the trial court, by summary judgment, was to determine the taxpayers' refund claims for the years 1967 and 1968 as well as the 1965 and 1966 claims. The trial court entered summary judgment in favor of petitioners. Based upon what it determined to be controlling principles of federal law, the trial court held that the disputed income was not subject to Colorado normal income tax because such income was not derived from nor attributable to taxpayers' ownership of any interest in real or tangible personal property in Colorado, as required by the taxing statute. The court directed the repayment to the taxpayers of the collected taxes, plus interest, for the tax years 1965--1968.
On appeal, the Court of Appeals reversed the determination of the trial court. Hagood v. Heckers, 31 Colo.App. 172, 502 P.2d 961. The court there held that the characterization of the disputed income must be determined without regard to federal statutes and the federal leases, which leases had the effect only of delineating the rights and relationships between the contracting parties. Following common law principles applicable to private oil and gas leases, the Court of Appeals determined the retained royalty interest to be an interest in tangible property, and thus taxable under the statute in question.
This court granted certiorari to the Court of Appeals on the following issues: (1) To characterize the nature of the overriding royalty reserved by petitioners, must reference be made to federal interpretations of the interest in question, or may such a determination be based solely upon state common law construction of the nature of the interest? (2) Is the overriding royalty an interest in real or tangible personal property in Colorado so as to be taxable under the Colorado nonresident income tax statute?
We hold that (1) federal law is not determinative of the characterization of the interests in question, and (2) the overriding royalty interest, for purposes of the state taxing statute, should be considered an interest in real property. We therefore affirm the judgment of the Court of Appeals.
The relevant portions of the Colorado nonresident income tax statute, 1965 Perm.Supp., C.R.S.1963, 138--1--15, read as follows:
(Emphasis added.)
It is the definition of 'real or tangible personal property' which serves as the basis for dispute in this suit.
Petitioner contends that, as the oil and gas generating the income in question is derived from lands within the federal public domain, subject to the conditions and restrictions imposed by the Mineral Leasing Act, Supra, the effect of petitioners' assignments of leases must be determined with respect to federal law. Specifically, petitioners contend that under federal law, the rights reserved by petitioners following assignment of the leases were not 'real or tangible personal property' within the context of the taxing statute. The Director contends that federal law is not relevant to the characterization of the rights in question when dealing with these interests for purposes of state taxation. To determine whether reference must be made to federal law in construing 'real or tangible personal property,' we must first examine the federal statutory scheme in question to determine whether an issue of federal preemption arises.
Prior to 1920, the right to explore for and to produce oil from the public domain was subject to the placer mining laws of the United States. See Act of May 10, 1872, 17 Stat. 91, 30 U.S.C. §§ 22--42; Act of February 11, 1897, 29 Stat. 526. Persons who made a proper placer location were permitted to develop the property for oil and gas purposes and, on proof of valuable discovery, could secure patent from the United States to the lands covered by the claim. Such patent conveyed full title to the land, and no interest in the land or production from the land was retained by the United States. United States v. Marshall Silver Min. Co., 129 U.S. 579, 9 S.Ct. 343, 32 L.Ed. 734. The Mineral Leasing Act of 1920, 30 U.S.C. §§ 181--263, represented a decisive departure from the mining location laws, Briefly, the Act created a system whereby lands valuable for certain minerals, including oil, which were in the public domain at the time of the Act, were no longer alienable in fee to private citizens. The Act contained provisions whereby applicants following prescribed regulations were granted leases on tracts of land within the public domain. In return for the privilege of developing the lands for the enumerated minerals, the applicants were to pay a royalty to the United States proportional to the production from the leased lands.
Although the Act comprehensively regulates various aspects of the leasing process, no claim has been made by petitioners that Congress intended Exclusive control over federal lands leased for oil and gas development. Section 189 of the Act states as follows:
Thus, by federal statute, the power of the states to tax income generated from federal lands under the jurisdiction of the Mineral Leasing Act is recognized. Se...
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