Syllabus
by the Court.
1.
Under the provisions of Article 2, Chapter 62, Session Laws
1939, 32 Okl.St.Ann. § 51 et seq., known as the Community
Property Act, where income is received by a taxpayer after
the filing of an election to come under the terms of the Act
which is produced by sales of oil and gas from producing
leases owned and operated by the taxpayer, and from oil and
gas royalties owned by the taxpayer, said income constitutes
community property of the taxpayer and his wife and should be
so treated in determining the amount of income tax due the
State from said taxpayer and his wife.
2.
Where a profit is realized from the sale of a nonproducing
oil and gas lease made subsequent to the effective date of
election to come under the terms of Community Property Act
supra, which lease, prior to said date, was the separate
property of the husband, said profit is properly taxed as
separate income of the husband.
3.
Article 2, Chapter 62, Session Laws 1939, 32 Okl.St.Ann. § 51
et seq., known as the Community Property Act, is not
violative of Section 57 of Article 5, nor of sections 2, 7,
15, or 23 of Article 2, nor of section 46 of Article 5, of
the Constitution of Oklahoma, Okl.St.Ann.
Appeal
from Oklahoma Tax Commission.
In the
matter of the income tax of C. C. Harmon. From an order of
the Oklahoma Tax Commission assessing an additional tax
against Harmon's income for certain months, he appeals.
Order
vacated, and cause remanded with directions.
WELCH
Chief Justice.
This is
an appeal by C. C. Harmon, hereinafter referred to as
appellant, from an order of the Oklahoma Tax Commission
assessing additional income tax against his income for the
months of November and December, 1939. The sole question
involved herein is whether or not the income involved was
derived from community property of appellant and his wife or
from the separate property of appellant and involves a
construction of the Community Property Act, Article 2,
Chapter 62, Session Laws 1939, 32 Okl.St.Ann. § 51 et seq. We
have not heretofore been called upon to construe any portion
of this Act.
The
items of income herein involved are listed by the Tax
Commission as follows:
(1) "Cash from sales of oil and gas from Oklahoma oil
and gas royalties after deducting gross production taxes and
20% depletion. These royalty interests were acquired by C. C.
Harmon in his name with his separate funds before November 1,
1939. The deeds under which he acquired title include general
warranty deeds, mineral deeds, and conveyances of oil and gas
rights.
(2) "Cash from sales of oil and gas from Oklahoma oil
and gas leases after deducting operation expense,
depreciation and depletion. These leases were acquired by C.
C. Harmon in his name with his separate funds before November
1, 1939.
(3) "Profit from sale of non-producing oil and gas lease
to Carter Oil Company, less cost of lease. This lease was
acquired by C. C. Harmon in his name with his separate funds
before November 1, 1939."
Section 1 of Article 2, Chapter 62, supra, provides that the
Act shall apply only to husbands and wives and to their
property after the filing of a written election to come under
the terms of the Act.
Section 2 provides that the written election shall be
executed in duplicate signed and acknowledged by both husband
and wife and copies thereof filed in the office of the County
Clerk of the county of the residence of the signers thereof
and in the office of the Secretary of State.
Section 3 of the Act provides: "All property, both real
and personal, of the husband owned or claimed by him before
the effective date of the election to come under the terms of
the Act, as provided in Section 1 of this Act, and that
acquired afterwards by gift, including gifts of the
wife's interest in community property, by division of
community property, by devise, or by descent, as also the
increase of all lands thus owned or acquired, shall
be his separate property. The separate property of the
husband shall not be subject to the debts contracted by the
wife or liable for her torts, either before or after the
effective date of said election, except as may be permitted
by law as to his property prior to the enactment of this Act.
The husband shall have the sole management, control and
disposition of his separate property, both real and personal,
to the extent permitted by law as to his property prior to
the enactment of this Act."
Section 4 of the Act provides: "All property, both real
and personal, of the wife owned or claimed by her before the
effective date of the election to come under the terms of the
Act as provided in Section 1 of this Act, and that acquired
afterwards by gift, including gifts of the husband's
interest in community property, by division of community
property, by devise, or by descent, as also the increase of
all lands thus owned or acquired, shall be her separate
property. The separate property of the wife shall not be
subject to the debts contracted by the husband or liable for
his torts, either before or after the effective date of said
election, except as may be permitted by law as to her
property prior to the enactment of this Act. The wife shall
have the sole management, control and disposition of her
separate property, both real and personal, to the extent
permitted by law as to her property prior to the enactment of
this Act."
Section 6 of the Act provides, in part, as follows: "All
property acquired by the husband or the wife after the
effective date of the election to come under the terms of the
Act as provided in Section 1 of this Act, except that which
is separate property of either one or the other, shall be
deemed the community or common property of the husband and
the wife and each, subject to the provisions of this Act,
shall be vested with an undivided one-half interest therein.
***"
The
written election herein was filed in the office of the County
Clerk of Nowata County and in the office of the Secretary of
State on October 26, 1939. There is involved only the income
accruing to the parties for the months of November and
December. It is the appellant's contention that only
one-half of the income derived from the sources hereinabove
stated is taxable as against him for the reason that the
property was community property. But the Commission held that
the income was appellant's separate property, therefore
all of such income derived from said sources was taxable as
against him.
In
support of its finding the Commission argues that while an
oil and gas lease does not convey any right, title or
interest in or to the oil in place, nevertheless the
lessee is vested with a valuable property right and that the
income results from the enhanced value of the lease and that
such enhancement in value does not change the property from
separate property to community property.
As
heretofore stated, the Act in question has never been
construed by this court, but the question presented here
requires a determination of the nature of the property rights
from which the income was derived. On this point there is no
dearth of authority.
The
case of Anderson v. Helvering, 310 U.S. 404, 60
S.Ct. 952, 954, 84 L.Ed. 1277, involved a question of
taxability of income derived by a producer of an oil lease.
Therein the court said:
"Oil and gas reserves like other minerals in place, are
recognized as wasting assets. The production of oil and gas,
like the mining of ore, is treated as an income-producing
operation, not as a conversion of capital investment as upon
a sale, and is said to resemble a manufacturing business
carried on by the use of the soil. Burnet v. Harmel,
287 U.S. 103, 106, 107, 53 S.Ct. 74, 75, 77 L.Ed. 199 [202,
203]; Bankers' [Pocahontas] Coal Co. v. Burnet,
287 U.S. 308, 53 S.Ct. 150, 77 L.Ed. 325; United States
v. Biwabik Min. Co., 247 U.S. 116, 38 S.Ct. 462, 62
L.Ed. 1017; Von Baumbach v. Sargent Land Co., 242
U.S. 503, 521, 522, 37 S.Ct. 201, 206, 61 L.Ed. 460 [470];
Stratton's Independence v. Howbert, 231 U.S.
399, 414, 34 S.Ct. 136, 139, 58 L.Ed. 285 [291]. The
depletion effected by production is likened to the
depreciation of machinery or the using up of raw materials in
manufacturing. United States v. Ludey, 274 U.S. 295,
302, 303, 47 S.Ct. 608, 610, 611, 71 L.Ed. 1054 [1058, 1059];
Lynch v. Alworth-Stephens Co., 267 U.S. 364, 370, 45
S.Ct. 274, 275, 69 L.Ed. 660, [662]. Compare Von Baumbach
v. Sargent Land Co., supra, 242 U.S. at pages 524, 525,
37 S.Ct. 201, 208, 209, 61 L.Ed. 460 [471, 472], ***
'The words "gross income from the property," as
used in the statute governing the allowance for depletion,
mean gross income received from the operation of the oil and
gas wells by one who has a capital investment therein,--not
income from the sale of the oil and gas properties
themselves.' Helvering v. Elbe Oil Land [Development]
Co., 303 U.S. 372, 375, 376, 58 S.Ct. 621, 622, 82 L.Ed. 904
[906, 907]."
It is
argued by the Commission that since the Act in question was
patterned after the Texas law the authorities of that state
construing the Community Property Law of Texas should be
followed. We are referred to the cases of State v
Hatcher, 115 Tex. 332, 281 S.W. 192, and Stephens v.
Stephens, Tex.Civ.App., 292 S.W. 290. An examination of
these authorities discloses that the opinions are predicated
upon the proposition that oil in place is a part of the land
and the execution of an oil and gas lease is in effect a sale
of a portion of the land. See, also,...
