Neumann v. Tax Commission
| Decision Date | 08 May 1979 |
| Docket Number | No. 49197,49197 |
| Parties | Wanda Rose NEUMANN, Appellant, v. TAX COMMISSION of the State of Oklahoma, the State of Oklahoma, Appellee. |
| Court | Oklahoma Supreme Court |
ORDER VACATED AND CAUSE REMANDED WITH DIRECTIONS.
Speck, Philbin, Fleig, Trudgeon & Lutz, by Donald R. Philbin, Oklahoma City, for appellant.
Jan Eric Cartwright, Atty. Gen., Donald B. Nevard, Gen. Counsel, Stanley J. Alexander, Clyde E. Fosdyke, Oklahoma City, F. Karen Grethen, Purcell, for appellee.
This is an appeal by Wanda Rose Neumann, hereinafter called Taxpayer, from an order of the Oklahoma Tax Commission which sustained an assessment of additional income taxes for the year 1971. The question presented is whether the method of apportioning personal exemptions and deductions set out in 68 O.S.1971, Sec. 2358(B)(3) is arbitrary and unreasonable. It is conceded that the Commission followed the letter of the law with regard to that sub-section. It provides as follows:
In the case of resident individuals having adjusted gross income from sources both within and without the state, the itemized or standard deductions and personal exemptions shall be reduced to an amount which is the same portion of the total thereof as Oklahoma adjusted gross income is of adjusted gross income.
Taxpayer had income from both within and without the state in 1971, as well as interest on federal obligations. The principle of apportioning personal exemptions and deductions to arrive at a taxable income, where the taxpayer has income from both within and without the state, is well settled. In Walker v. Oklahoma Tax Commission, 196 Okl. 207, 164 P.2d 242, this Court held in the third paragraph of the syllabus:
The State may classify persons and the origins of their incomes, And may apportion deductions or exemptions, provided the classifications and apportionment are Reasonable and related to the object of taxation. (Emphasis added).
The problem presented by this appeal arises because Taxpayer as has been stated had income consisting of interest on federal obligations. Oklahoma does not levy an income tax on such income. In this connection see 31 U.S.C.A., Sec. 742, which provides as follows:
Except as otherwise provided by law, all stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations Or the interest thereon, or both, be Considered, directly or indirectly, in the computation of the tax, except nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations and except estate taxes or inheritance taxes. (Emphasis added).
Under 68 O.S.1971, Sec. 2353(11), "Adjusted gross income" means " adjusted gross income" as defined in the Internal Revenue Code. Since interest on federal obligations is subject to the federal income tax, "adjusted gross income" includes interest on federal obligations. Under Sec. 2353(13) "Oklahoma adjusted gross income" means "adjusted gross income" as reported to the federal government but "adjusted further as hereinafter provided". The "further adjustment" is found in Sec. 2358, which requires,...
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