Oklahoma Tax Commission v. Smith, 55079

• Decision Date: 05 May 1980
• Docket Number: No. 55079,55079
• Citation: 1980 OK 74,610 P.2d 794
• Parties: OKLAHOMA TAX COMMISSION, Appellant, v. Robert B. SMITH, Appellee.
• Court: Oklahoma Supreme Court

Page 794

610 P.2d 794

1980 OK 74

OKLAHOMA TAX COMMISSION, Appellant, v. Robert B. SMITH, Appellee.

No. 55079.

Supreme Court of Oklahoma.

May 5, 1980.

Appeal from the District Court of Oklahoma County, Harold C. Theus, Presiding Judge.

In an appeal from a judgment of the District Court of Oklahoma County holding portions of House Bill 1484 of the 37th Legislature of the State of Oklahoma unconstitutional as measured against both State and Federal Constitutions, it is held House Bill 1484 neither violates the Equal Protection Clause of the Fourteenth Amendment to the Federal Constitution, nor impermissibly encroaches on the Oklahoma Constitution's reservation to the people of the right to Initiative. Judgment of the trial court is reversed.

REVERSED.

Marjorie Patmon, Gen. Counsel, David Hudson, Sp. Counsel, Bryce A. Baggett, Sp. Counsel, Oklahoma City, for appellant.

Bloodworth, Smith & Biscone by Robert B. Smith, Oklahoma City, for appellee.

Jan Eric Cartwright, Atty. Gen. of Oklahoma, Richard F. Berger, Asst. Atty. Gen., for Attorney General.

HARGRAVE, Justice.

This appeal to the Oklahoma Supreme Court is brought by the Oklahoma Tax Commission from a summary judgment in favor of the plaintiff, Robert B. Smith. The order and judgment of the Oklahoma County District Court holds in substance that portions of the Oklahoma income tax laws are null and void. That judgment is based upon Federal Constitutional grounds as well as State Constitutional underpinnings which are: Equal protection of law under the 14th Amendment to the Federal Constitution and the Oklahoma Constitution; reservation to the people of the State of Oklahoma of the rights of the initiative and referendum. The judgment holds 68 O.S.1979 Supp. § 2355 A invalid on the basis of the equal protection grounds offered, and holds the Legislature had no authority to enact the aforesaid § A after Initiative Petition 309, being State Question 539, had been filed with the Secretary of State but before its submission to the voters of the state because both the State Question and House Bill 1484 of the Thirty-Seventh Legislature dealt with the subject of income taxation.

In the trial court stipulations were entered into pertaining to Initiative Petition No. 309 and the Constitutional underpinnings of such a petition, powers and duties of the Tax Commission, and the passage of the 37th Legislature's House Bill 1484. Those stipulations provide a framework for the subsequent judgment of the District Court, and in turn, this appeal. Article V, Section 1 of the Constitution of the State of Oklahoma reserves unto the people of the State of Oklahoma the power

. . . to propose laws and amendments to the Constitution and to enact or reject the same at the polls independent of the Legislature, and also reserve power at their own option to approve or reject at the polls any act of the Legislature.

The manner of exercise of this power is delineated in § 2 of that same article. The power of initiative is spoken to first in Section 2:

The first power reserved by the people is the initiative, and eight per centum of the legal voters shall have the right to propose any legislative measure, and fifteen per centum of the legal voters shall have the right to propose amendments to the Constitution by petition, . . .

The second power defined in Article V § 2 is that of referendum which is historically linked to that of initiative but serves the related but distinct objective of allowing the people to pass upon subjects of legislation approved by the Legislature apart from the preceding provision's reservation of the power to induce legislation. The referendum is described thusly:

. . . The second power is the referendum, and it may be ordered (except as to laws necessary for the immediate preservation of the public peace, health, or safety), either by petition signed by five per centum of the legal voters or by the Legislature as other bills are enacted. . . .

As stipulated, there exist certain Constitutional restraints upon the powers of initiative and referendum in § 7 of the same Article, being Article V § 7 of the Oklahoma Constitution:

§ 7. Powers of legislature not affected.

The reservation of the powers of the initiative and referendum in this article shall not deprive the Legislature of the right to repeal any law, propose or pass any measure, which may be consistent with the Constitution of the State and the Constitution of the United States.

The stipulations entered into reduce those portions of Initiative Petition 309, involved in this appeal, to two proposals fixing the rate of taxation on taxable income to a ceiling of 6% and at the same time providing for a full deduction for federal tax paid to arrive at the taxable income figure. The disapproval of this initiative measure by the voters is included in the stipulations. Additionally, it was stipulated that HB 1484 of the 37th Legislature was passed prior to the vote on the state question, and the provisions of that bill include different rates of taxation of adjusted gross income dependent upon whether the taxpayer elects to deduct from his gross income figure the tax paid to the federal government.

Both parties to the litigation moved for summary judgment in the trial court. In its trial brief in support of the motion for summary judgment the Oklahoma Tax Commission alleged the absence of a case or controversy sufficient for the invocation of the Oklahoma Declaratory Judgment Act, 12 O.S.1971, § 1651, and additionally argued that the failure of the State Question rendered the controversy as joined moot. The Commission's second point was that the Legislature is empowered by the State Constitution to levy an annual tax sufficient to defray state expenses; that Oklahoma income taxes have been uniformly upheld as Constitutional, and that deductions from taxable income are purely a matter of grace dependent upon the Legislative will alone. Plaintiff taxpayer responded to this motion alleging the proceeding was properly brought as a declaratory judgment action under the authority of State ex rel. Board of Examiners in Optometry v. Lawton, 523 P.2d 1064 (Okl.1974). The taxpayer's second response stated that under Coalgate v. Harvey, 296 U.S. 404, 56 S.Ct. 252, 80 L.Ed. 299 (1935), the classification of taxpayers on different tax rates, depending upon whether or not they deduct federal taxes paid, breached the principle that the classification must be reasonable, and must rest on some ground of difference having a fair and substantial relation to the object of the legislation, so that all persons similarly circumstanced will be treated alike.

The plaintiff taxpayer moved for summary judgment in his favor and was ultimately successful in the trial court. In his trial brief on the motion the plaintiff presented an argument referable to the surtax levied by the provisions of House Bill 1484 found at 68 O.S.1979 Supp. § 2355 A. This provision admittedly was operative only if State Question 539 (Initiative Petition No. 309) passed, and the stipulated facts negate such conclusion. Secondly, plaintiff taxpayer asserted those provisions of HB 1484 now in effect are unconstitutional under the State and Federal Constitutions in that it provides a disparate method of computing tax without a rational basis for the unequal treatment imposed. The disparity is a maximum tax rate of either 6% or 17% of taxable income, and the choice of classification was made to depend upon the taxpayer's decision to deduct or not to deduct federal taxes before arriving at taxable gross income. The authority cited as demonstrating a violation of equal protection is Coalgate v. Harvey, supra, with similar argument appended. The Tax Commission responded to this request for summary judgment and set out in its brief the above quoted Oklahoma Constitutional provisions in addition to Article X § 2 and Article X § 12, as amended 1968, then submitted plaintiff's exclusive and adequate remedy at law was to pay the tax and challenge the constitutionality of the statute. The Commission sought to establish a distinction between the case at bar and In re Referendum Petition # 1, 203 Okl. 298, 220 P.2d 454 (1950), pointing to the distinction between a referendum against an enacted measure and the initiative approach to enacting positive legislation, submitting thereby that the proper analysis of this action required the authority of the case of Granger et al. v. City of Tulsa et al, 174 Okl. 565, 51 P.2d 567 (1935). The Commission's response to the equal protection argument submitted that the taxpayer is the classifying party, not the State, and that the requirements of a rational classification with a reasonable relation to the object to be achieved were met. Lastly, there was argued no authority to establish a taxpayer's "right" to any deduction save Legislative grace. The Commission proposed that the classification of taxpayers utilizing the federal deduction and those that do not into two different percentage schedules rationally attempted to attain the ultimate end of final taxation at near the same rate regardless of the alternative chosen.

The trial court made a journal entry of judgment setting forth findings of fact and conclusions of law. In those findings of fact, the Court determined plaintiff is a taxpayer and has standing to contest "the propriety of tax laws within the State . . . "; that House Bill 1484, codified at 68 O.S.1979 Supp. § 2352, et seq., would affect plaintiff, and he could reasonably expect enforcement against him. The trial court also found § 2358.B.8.a., supra, to provide alternative rates of taxation "depending upon whether or not the taxpayer elects to avail himself of a deduction for federal taxes paid," and that the amount of tax owed by an individual could vary depending upon the taxpayer's selection of schedules. Additionally, the trial court's findings state that House Bill 1484 was enacted after...