Oklahoma Tax Com'n v. American Refrigerator Transit Co.

• Decision Date: 22 December 1959
• Docket Number: No. 38451,38451
• Citation: 349 P.2d 746
• Parties: OKLAHOMA TAX COMMISSION, Plaintiff in Error, v. AMERICAN REFRIGERATOR TRANSIT COMPANY, a corporation, Defendant in Error.
• Court: Oklahoma Supreme Court

Page 746

349 P.2d 746

1959 OK 271

OKLAHOMA TAX COMMISSION, Plaintiff in Error, v. AMERICAN REFRIGERATOR TRANSIT COMPANY, a corporation Defendant in Error.

No. 38451.

Supreme Court of Oklahoma.

Dec. 22, 1959.

Rehearing Denied Feb. 2, 1960.

Syllabus by the Court

1. A state may levy an income tax on income accruing from personal property having a situs within the state without violating any provision of the Federal Constitution.

2. Units of a car rental company's rolling stock, such as refrigerator cars here involved, habitually used in Oklahoma, acquire a situs here for income tax purposes.

3. Under Oklahoma's Income Tax Act, an income tax is levied on rental income accruing to a car rental company for exclusive use of its cars in Oklahoma by others, such as the lessees here involved.

Appeal from District Court of Oklahoma County; Wm. L. Fogg, Judge.

This is an action by the American Refrigerator Transit Company, a foreign corporation, against the Oklahoma Tax Commission, to recover income taxes assessed for the year 1955 and paid under protest. The District Court of Oklahoma County rendered judgment for the plaintiff for the income taxes paid under protest and the Tax Commission has appealed. Reversed with directions.

E. J. Armstrong, Oklahoma City, for plaintiff in error.

Henry B. Taliaferro, Jr., Claude Monnet, Monnet, Hayes, Bullis, Grubb & Thompson, Oklahoma City, for defendant in error.

HALLEY, Justice.

This action involves a controversy between the Oklahoma Tax Commission, herein referred to as 'Commission,' and American Refrigerator Transit Company, a corporation, hereinafter referred to as plaintiff, as to the correctness of the Commission's action in assessing an income tax against the plaintiff for the year 1955.

The assessment was made and approved by the Commission over the protest of plaintiff, which paid the income tax assessed under protest, and then filed this action in the District Court of Oklahoma County to recover the income tax it paid under protest. The District Court rendered judgment for the plaintiff and the Commission has appealed.

The parties entered into a stipulation covering all material facts involved, which are as follows:

Plaintiff is a corporation organized under the laws of New Jersey and has never qualified to do business in Oklahoma. Its business has constantly been making refrigerator cars available on a rental basis to railroad companies for the transportation in interstate commerce by railroads of perishable commodities. It has never dealt with shippers, and all freight charges payable by shippers have always been collected and retained by the railroads which rent and use the cars. The lines over which the cars traveled belong to various railroad companies. Not in the year 1955, nor any other year did plaintiff have or maintain any office or place of business, repair facilities, shop, employees or agents within the State of Oklahoma. The only property the plaintiff ever had in Oklahoma during 1955 or any other year was the refrigerator cars as they were hauled through Oklahoma by operating railroad companies under leases executed outside Oklahoma.

That plaintiff has never dealt with shippers and its cars traveled over roads owned by railroads; that freight charges are collected by the railroads which rent plaintiff's cars; that in 1955, (the income tax year in controversy) plaintiff did not have or maintain, 'office or place of business, repair facilities, shop, employees or agents in Oklahoma', but on occasions plaintiff's cars were repaired in Oklahoma by the railroad handling them; and the only property the plaintiff had in Oklahoma was its cars.

The Commission proposed the assessment of income taxes against plaintiff for 1955, to which plaintiff filed a protest of the assessment and, following a hearing, the Commission assessed income taxes for 1955 in the principal amount of $888.91, with interest in the amount of $135.31, which amounts were paid under protest. After payment, notice of intention to file this action to recover taxes paid under protest was filed and this action was then begun.

Plaintiff proceeded under 68 O.S.1951, § 1475, and denied that it was or is liable to Oklahoma for income taxes, but that if it is, the correct amount would be the amount assessed, a total of $1,024.22, the amount paid by it under the order of the Commission.

The during the year 1955, plaintiff owned an average of 9,718 cars, and during that year they traveled 268,157,757 miles, of which 4,039,933 were in Oklahoma, making 1.50657 per cent of the total mileage that was traveled in Oklahoma; and that under the mileage rates prescribed by Rule 18 of the Association of American Railroads, 'The aggregate amount of rentals paid plaintiff in 1955, as measured by Oklahoma mileage during 1955, was $61,391.91, and 96 per cent of this amount was remitted to plaintiff to its main office in St. Louis, Missouri, and the remaining four per cent (4%) was remitted by the operating railroad companies, to the Commission as freight car taxes as provided by Section 805(1)[805e] of Title 68 O.S.1951, as freight car taxes.'

That 'The consideration from the railroads to plaintiff for the use of plaintiff's cars was and is in the form of rent. The rental was and is, paid on the basis of a determined amount per mile that each car traveled, and the rent per mile being that published in Rule 18, Code of Per Diem Rules. The railroads rendered monthly reports of the mileage that each car traveled to the plaintiff at its principal place of business which is, and has always been in St.Louis, Missouri.'

The stipulation of facts contains considerable matter relative to arrangements under which car rentals were paid, and the briefs contain arguments relative to whether such arrangements or contracts were entered into within or outside Oklahoma. Since it is stipulated that the income involved represents rentals paid on the basis of miles traveled by plaintiff's cars in Oklahoma, such mileage being determined under Rule 18, we deem it unnecessary to determine whether such contracts were entered into within or without Oklahoma.

It was stipulated that '(P)laintiff did no business and derived no income from property in the State of Oklahoma during the year 1955, unless under the facts here involved, the ownership of cars that moved on Oklahoma and the receipt of rentals constituted the doing of business and the deriving of income in Oklahoma.'

The plaintiff contends the contracts under which its cars were rented were entered into out of Oklahoma; that it was not present in Oklahoma; that it owned no property in Oklahoma and did no business here; that the income involved here arose from and is attributable to rental contracts entered into outside of this State and is not attributable to either property owned or business done in this State, and for that reason such income as tangible income is not subject to income taxes here.

The Commission does not agree with any of plaintiff's contentions. The principal contention of the Commission to be considered here is its contention that the rental income here involved is attributable to the use of plaintiff's cars in Oklahoma and is for that reason subject to Oklahoma income taxes.

The statutes by which we must decide the principal question before us are 68 O.S.1951 §§ 876(a), 878(a)(e) and (g)(1) and (3). In Section 876(a), supra, it is provided in part that 'A tax is hereby levied upon every person * * * with respect to, the entire income * * * which is derived from all property owned partly within and partly without this State. * * *' Section 878(a) supra, provides in part that 'The term 'gross...