In re Blain
| Decision Date | 24 September 1946 |
| Docket Number | 32074. |
| Citation | 172 P.2d 795,197 Okla. 459,1946 OK 238 |
| Parties | In re BLAIN. |
| Court | Oklahoma Supreme Court |
Appeal from Order of Oklahoma Tax Commission.
Proceeding in the matter of the protest of Laura Blain, individually and as the executrix of the last will and testament of W. S Blain, deceased, against proposed assessment of income tax. From an order of the Oklahoma Tax Commission overruling the protest, the protestant appeals.
Order reversed and cause remanded with directions to sustain the protest.
Syllabus by the Court
1. It is a cardinal rule that in the construction of statutes the legislative intent must govern, and to arrive at the legislative intent the entire act must be considered together with all other enactments upon the same subject, and when the intention of the Legislature can be gathered from the entire statute, words may be modified, altered, or supplied to give the statute the force and effect which the Legislature intended.
2. The provision of Tit. 68 O.S.1941 § 880, making 'cost of the particular property' the basis for computing depletion is to be construed together with the provisions of section 883 thereof, making cost of property the basis for computing gain or loss. And, where by the provisions of the latter section the value of property, at the time it was acquired by devise, is made the basis of computation as an exception to such cost basis, it likewise is to be deemed an exception to cost basis prescribed in said section 880.
3. The 1943 Act of the Legislature, S.L.1943, p. 181, Ch. 21, sec. 1(g), section 880, Tit. 68 O.S.1941, and thereby expressly providing in said section that the fair market value of property at time of acquirement, where acquired by devise, should be an exception to the cost basis in said section prescribed, is merely declaratory of a legislative intent embodied in the existing law but to be gathered therefrom only by construing said section 880 and its companion section, 883, together.
Reily & Reily, of Shawnee, for plaintiff in error.
E. L. Mitchell and C. W. King, both of Oklahoma City, for defendant in error Oklahoma Tax Commission.
This appeal is prosecuted by Laura B. Blain individually as sole distributee under the will of W. S. Blain, deceased, and as executrix thereof under appointment of the county court of Pottawatomie county, from an order of Oklahoma Tax Commission overruling her protest to additional tax found by the Commission to be owing on consideration of fiduciary income tax report.
The difference between $8.18, the amount of tax reported by protestant, and $123.96 ascertained by the Commission, appears to have resulted solely from the difference in the standards respectively applied in ascertaining the allowable deduction.
The estate consisted of an undivided interest in oil and gas mineral rights in land. And the sources of reported income were from the sale of part of such interest and sale of oil produced to credit of royalty interest operated under lease.
The profit reflected on sale of royalty interest was computed on value basis of $541 per acre, that being the value basis of $541 the Commission for purpose of computing inheritance tax paid thereon. The deduction claimed by reason of depletion through oil produced was based on the appraised value as cost equivalent and computed on what is termed 'unit of production' method (Carter, State Auditor, v. Phillips, 88 Okl. 202, 212 P. 747), and it is contended here by protestant that the course pursued is not only authorized by law but is in accordance with the Rules and Regulations of the Commission promulgated under statutory authority.
The commission entertained the view that the method so employed was not authorized and that the sole method permitted by law for ascertaining the allowable deduction was upon the percentage basis provided by statute and computed the tax which is the subject of the protest here involved.
The only provisions of the statute which we deem necessary to consider in passing upon the legality of the tax as found by the Commission are the following from Tit. 68 O.S.1941 § 880, subparagraph (g):
'(g) A reasonable allowance for depreciation, to cover the exhaustion, wear and tear of property, the income from which is required to be included in gross income under this Act, when such property is used in trade or business, and including a reasonable allowance for obsolescence; and an allowance, according to the peculiar condition in each case; in the cases of mines, oil or gas wells, other mineral or natural deposits and timber, situated within the State, to cover the depletion caused by the removal from the natural of such products, together with the depreciation of improvements used in connection with such operations; such allowance in all cases to be made under rules and regulations to be prescribed by the Commission, and to be based upon cost of the particular property, increased by the cost of development not otherwise deducted and reduced by the depletion allowed (but not less than the amount allowable) in respect of the property since its acquisition by the taxpayer; * * * and, provided, further, that in the case of income derived from oil and/or gas wells, any such taxpayer may at his option deduct as an allowance for depletion in lieu of the calculation of depletion as otherwise provided herein twenty (20%) per centum of the gross income from such property during the taxable year, * * *.'
The substance of the argument made in support of the percentage tax applied by the Commission is, that the word 'cost' as used in the quoted statute has reference to an actual cost and in the absence thereof, which is the case here, the 20% of the gross income provided alternately in the statute is controlling.
Assuming it to be true, as stated, that the right to depletion on cost basis is applicable only where there is an actual cost expended--a conclusion to which we cannot subscribe--it does not follow that the Commission would be justified in its award of depletion on the percentage basis. We entertain the view that, under the terms of the Act, in the absence of an allowance for depletion under the prescribed cost basis, there would exist no authority to apply the percentage basis. Under the terms of the statute quoted, which is a substitute for the earlier statutes prescribing percentage as the sole basis for depletion, O.S.1931, secs. 12503 and 12507, and which were expressly repealed, S.L.1933, Ch. 195, the consent of the taxpayer is made a prerequisite to use of the percentage basis. But such consent, if given, would be unavailing as authority therefor unless given in pursuance of the option afforded by the statute so to do. Hence, without warrant for depletion deductible on cost basis there could arise no option to substitute the percentage 'in lieu of the calculation of depletion as otherwise provided herein.' And for these reasons under the facts in this case there is no authority for the act of the Commission in computing, as was done, the tax on the percentage basis.
Though the question whether deduction for depletion is allowable on cost basis is immaterial herein, as indicated, to a decision on said protest, it is necessarily involved in the ultimate determination of the extent of the tax liability.
The basis of the Commission's contention that the allowable depletion contemplated must rest upon an actual cost basis, and hence has no application here, is substantially reflected in the following which we quote from the brief of the defendant in error:
'Subsection (f) of Section 883, Title 68 Oklahoma Statutes 1941, reads as follows: "The basis upon which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the same as that provided in this Section, for the purpose of determining the gain or loss from the sale or other disposition of such property.'
'It will be noted that the basis as above provided is the basis for depreciation and not for depletion. The phrase 'exhaustion, wear and tear, and obsolescence' is the phrase used synonymously with depreciation in the Act and established accounting usage, and is never construed as including depletion. * * *
'Had it been the intention of the Legislature that cost depletion be allowed on any basis other than actual cost it would have been expressed in subsection (f), Section 883, above quoted. * * *
'The only provision made in the Act for depletion of oil and gas property is that made in Section 880 above quoted, that being on cost and on no other basis. It will be noted that this same section provides for a depreciation but does not in the case of depletion provide the basis as is therein provided for depletion. The basis for depreciation is provided by subsection (f) of Section 883 hereinabove quoted. It therefore follows that the only provision for depletion in this case is the statutory percentage depletion as allowed by the Commission. * * *
'As evidence that the legislature recognized that there was no basis provided for 'cost depletion' on...
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