In re Levy

• Decision Date: 03 October 1939
• Docket Number: 28997.
• Citation: 94 P.2d 537,185 Okla. 477,1939 OK 355
• Parties: In re LEVY.
• Court: Oklahoma Supreme Court

94 P.2d 537

185 Okla. 477, 1939 OK 355

In re LEVY.

No. 28997.

Supreme Court of Oklahoma

October 3, 1939

Syllabus by the Court.

1. Deductions to be allowed in computing net income, under the net income tax law, depend entirely upon the legislative will, and must be clearly expressed.

2. The owner of an undivided interest in land in Oklahoma, who makes an oil and gas mining lease thereon for a cash bonus reserving a royalty in the oil and gas produced thereunder is not entitled, when returning his income for taxation, to deduct from such bonus the allowance "to cover the depletion caused by removal from the natural state" in case of oil, gas and other minerals, granted by subdivision (g) of Sec. 9, Art. 6, Ch. 66, S.L.1935, 68 Okl.St.Ann. § 880 (g).

Appeal from Tax Commission.

Proceeding in the matter of the protest of Leon Levy to a deficiency assessment on his 1936 Oklahoma state income tax return. From an order of the tax commission denying protestant's depletion deduction on cash bonus for execution of oil and gas lease, he appeals.

Affirmed.

Keaton Wells & Johnston, of Oklahoma City, for plaintiff in error and protestant.

Dick Jones, of Okemah, A. L. Herr, of Chickasha, and Wendell Barnes and C. D. Stinchecum, both of Oklahoma City, for defendant in error.

HURST Justice.

Protestant Leon Levy, in making his income tax return for the year 1936, deducted 20 per cent from a $45,000 cash bonus received by him from the sale of an oil and gas mining lease upon an undivided interest in lands in Oklahoma. The deduction was made on the assumption that protestant was entitled to a depletion allowance on said sum, under subdivision (g) of Sec. 9, Art. 6, Ch. 66, S.L.1935, 68 Okl.St.Ann. § 880(g), for the reason that such bonus was equivalent to advanced royalties, or that to the extent of such 20 per cent, it represented a conversion of a capital asset. In support of this position protestant cites numerous cases construing the Federal Income Tax Acts, typified by Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L.Ed. 199, and Herring v. Commissioner, 293 U.S. 322, 55 S.Ct. 179, 79 L.Ed. 389. These decisions are not controlling, as the Federal Statute does not contain any provision similar to the restrictive clause found in our law, and, in the determination of the question before us, cannot subvert the plain intent of the legislature as expressed in the act above referred to.

The production of oil is a major industry in this State, and the peculiar characteristics of the business, and the terms used therein have been before this Court in many cases, and were unquestionably known to and recognized by the Legislature at the time this Statute was enacted. An oil and gas lease has been defined as "a grant of the exclusive right * * * to take all the oil and gas that could be found by drilling wells upon the particular tract". Rich v. Donaghey, 1918, 71 Okl. 204, 177 P. 86, 89, 3 A.L.R. 352. While it purports to be a present conveyance, yet, by reason of the fugitive nature of such substances, no title in them actually vests in the lessee until reduced to possession.

Rich v Donaghey, supra; Kolachny v. Galbreath, 26 Okl. 772, 110 P. 902, 38 L.R.A.,N.S., 451. A bonus is defined as the cash consideration moving from the lessee to the landowner for the execution of the lease. Carroll et al. v. Bowen et al., 1937, 180 Okl. 215, 68 P.2d 773. Depletion of the store of oil or gas under the land, if there be any, commences at the time the oil or gas is reduced to possession by the lessee (Breeding v. Ritterhoff, 126 Okl. 225, 259 P. 227), at which time delivery of the royalty, or share...