Kopp v. Baird, 8532

• Decision Date: 25 June 1957
• Docket Number: No. 8532,8532
• Citation: 313 P.2d 319,79 Idaho 152
• Parties: Thomas R. KOPP and Mary Kopp, husband and wife, Plaintiffs-Appellants, v. Ed. D. BAIRD, Commissioner and Chairman of the State Tax Commission, Lloyd A. Fenn, Commissioner of the State Tax Commission, Joseph H. Nettleton, Commissioner of the State Tax Commission, T. C. Waddoups, Commissioner of the State Tax Commission, composing the State Tax Commission of the State of Idaho, and The State Tax Commission, P. G. Neill, Tax Collector of the State of Idaho, Defendants-Respondents.
• Court: Idaho Supreme Court

Page 319

313 P.2d 319

79 Idaho 152

Thomas R. KOPP and Mary Kopp, husband and wife, Plaintiffs-Appellants, v. Ed. D. BAIRD, Commissioner and Chairman of the State Tax Commission, Lloyd A. Fenn, Commissioner of the State Tax Commission, Joseph H. Nettleton, Commissioner of the State Tax Commission, T. C. Waddoups, Commissioner of the State Tax Commission, composing the State Tax Commission of the State of Idaho, and The State Tax Commission, P. G. Neill, Tax Collector of the State of Idaho, Defendants-Respondents.

No. 8532.

Supreme Court of Idaho.

June 25, 1957.

Rehearing Denied July 23, 1957.

Anderson & Anderson, Pocatello, for appellants.

Graydon W. Smith, Atty. Gen., Elbert E. Gass, Asst. Atty. Gen., for respondents.

SMITH, Justice.

Appellants commenced this proceeding in the first instance as a declaratory judgment action some time prior to rendition of respondent State Tax Commissioner's formal order affirming respondent State Tax Collector's determination of a tax deficiency. Respondent State Tax Commission had entered said order by the time appellants filed their second amended complaint.

Appellants in their second amended complaint set forth that at all the times alleged they were and now are residents of the State of Idaho; that they own lands in the State of Wyoming to which appellant Thomas R. Kopp received patent October 24, 1924, from the United States; that, quoting appellants, 'said lands were not put to any use until the Phillips Petroleum Company drilled a discovery well on said lands for oil and thereafter discovered paying oil deposit on said lands,' and that appellants 'receive as their share of said oil extracted from said land one-eighth of the value of the oil extracted therefrom.'

Appellants then allege notice to them by respondent, State Tax Collector, of his determination of a deficiency of $1,356.50 in the amount of the tax shown by their tax return for the year 1951, to which they entered their formal protest for a re-determination by respondent State Tax Commission; that upon review, said Commission affirmed the determination of the deficiency as made by respondent, State Tax Collector.

Appellants then assert that the determination is illegal because an assessment pursuant thereto would result in taxation of 'royalties from oil lands located in Converse County, Wyoming,' and constitutes an attempt to tax the Wyoming land, whereas, the State of Idaho has no authority to tax said income assertedly arising from the land so situate outside this State.

The trial court sustained respondents' general demurrer to appellants' second amended complaint without leave to amend, and thereupon awarded judgment in favor of the respondent State Tax Collector for the amount of the deficiency, together with interest, until paid. Plaintiffs appealed from the judgment.

Appellants assign error of the trial court in determining in effect that the amount of the royalties, assertedly by appellants received pursuant to an oil lease in the State of Wyoming, is taxable in the State of Idaho.

The decisive question presented for determination is one of law, i. e., the validity of the deficiency tax determination. The second amended complaint shows such justiciable controversy, which should be settled. Appellants have requested this Court to pass upon such question and both parties have argued the merits. The record discloses sufficient facts upon which to base a decision, thereby to obviate another appeal. In Taggart v. Latah County, Idaho, 298 P.2d 979, 980, this Court said:

'Although the trial court found the complaint did not state a cause of action, a justiciable issue is presented in this case, and the record discloses sufficient facts to base a decision upon and to obviate another appeal. We deem it proper to state our views upon the merits. Grayot v. Summers, 75 Idaho 125, 269 P.2d 765. The decisive question to be determined is not one of fact, but is purely one of law.'

The tax provided by the Property Relief Act of 1931, ordinarily referred to as Idaho's income tax act, Idaho Sess.Laws 1931 (E.S.), c. 2; I.C., Tit. 63, c. 30, is a tax 'upon every individual * * * which shall be according to and measured by his net income.' I.C. § 63-3011. This Court, in Diefendorf v. Gallet, 51 Idaho 619, 634, 10 P.2d 307, 313, holding that the tax, measured by the amount of the net income is an excise, and not an imposition upon the property from which it is derived, or upon the source of the income, quoted from and adopted the reasoning of State ex rel. Sallie F. Moon Co. v. Wisconsin Tax.Comm., 166 Wis. 287, 163 N.W. 639, 165 N.W. 470, as follows:

'* * * It is the recipient of the income that is taxed, not his property; and the vital question in each case is, Has the person sought to be taxed received an income during the tax year? If so, such income, unless specifically exempted, is subject to a tax though the property out of which it is paid may have been exempt from an income tax in the hands of the payor. It is the relation that exists between the person sought to be taxed and the specific property claimed as income to him that determines whether there shall be a tax. If the person sought to be taxed is the recipient during the tax year of such specific property as income in its ordinary significance, then the person is taxed. But the tax is upon the right or ability to produce, create, receive, and enjoy, and not upon specific property. Hence the amount of the tax is measured by the amount of the income, irrespective of the amount of specific property, or ability necessary to produce or create it. In the ordinary acceptation of the term this may be said to be a tax upon income as the statute denominates it. But the tax does not seek to reach property, or an interest in property as such. It is a burden laid upon the recipient of an income.'

In 85 C.J.S., Taxation, § 1090 b, pp. 701-703, is set forth certain principles in regard to the imposition upon the domiciliary taxpayer of a tax measured by his income received from whatever source, as follows:

'* * * Domicile or residence within the state is a valid basis for the imposition of an income tax by the state. It is competent for a state to impose a tax on the income of a resident thereof, or a domestic corporation, whether such income be derived from sources within or outside the state. The enjoyment of the privileges of residence within the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government, and a tax measured by the net income of residents is an equitable method of distributing the burden of government among those privileged to enjoy its benefits. The tax is founded on the protection afforded by the state to the recipient of the income in his person, in his right to receive the income, and in his enjoyment of it when received; these are rights and privileges which attach to domicile within the state and the economic advantage realized by the receipt of income and the power to control it bear a direct relationship to the rights and privileges attached to domicile and to the equitable distribution of the tax burden. Neither the privilege nor the burden is affected by the character of the source from which the income is derived and for that reason income is not necessarily clothed with the tax immunity enjoyed by its source. * * * It may also tax the income derived from land located outside the state although it is without power to tax the land; although where an income tax is regarded as a tax on the property from which the income is derived, an income tax may not be imposed on income from property located outside the state.'

I.C. § 63-3013(b), subd. 7 exempts from taxation:

'Income of resident persons and domestic corporations of the state of Idaho * * * from the conducting and carrying on of their professions, vocations, trades or businesses, when derived from sources outside of the state of Idaho.'

I.C. § 63-3019 provides in part:

'a. In the case of a nonresident individual to the extent that he has a business situs in the state of Idaho, * * * the following items of gross income shall be treated as income from sources within the state of Idaho:

* * *

* * *

'3. Rentals or royalties from property located in the state or from any interest in such property.'

I.C. § 63-3022, provides:

'The taxable income of a resident individual, trust or estate, or partnership, of the state of Idaho, to the extent that they have a business situs outside the state of Idaho, and of a domestic corporation of the state of Idaho, shall be determined by the method designated by sec. 63-3019 for determining gross income and items deductible from gross income.'

In Barraclough v. State Tax Commission, 75 Idaho 4, 11, 266 P.2d 371, 375, it is stated:

'Section 63-3013, including (b), par. 7, Section 63-3019 and Section 63-3022, I.C., and deal with taxable income and * * * deal with the same subject matter, are in pari materia and must be read together to determine the legislative intent. Nampa Lodge No. 1389, etc. v. Smylie, 71 Idaho 212, 229 P.2d 991; State v. Casselman, 69 Idaho 237, 205 P.2d 1131.

'The three sections under discussion when taken together show a plan on the part of the Legislature to treat resident taxpayers and nonresident taxpayers on an equal basis. The income of a nonresident for personal services performed within the state to the extent that he has a business situs within the state is to be treated as taxable income. On the other hand, the income of a resident for personal services performed outside the state to the extent that he has a business situs outside the state is to be exempt from taxation by the state. The plan outlined by the three sections for determination of taxable income is simple, workable and equitable between residents and nonresidents.

'* * * It is the establishment of a business situs outside the state that brings into play the...