Oklahoma-Texas Trust v. Oklahoma Tax Com'n
| Decision Date | 05 February 1946 |
| Docket Number | 32003. |
| Citation | 168 P.2d 607,197 Okla. 114,1946 OK 40 |
| Parties | OKLAHOMA-TEXAS TRUST v. OKLAHOMA TAX COMMISSION. |
| Court | Oklahoma Supreme Court |
Rehearing Denied May 7, 1946.
Appeal from the Oklahoma Tax Commission.
Proceeding by the Oklahoma-Texas Trust, an express trust created under the laws of Oklahoma, to obtain a refund of income taxes. From an order of the Oklahoma Tax Commission denying the application for refund, the applicant appeals.
Order affirmed.
Syllabus by the Court.
1. The term 'association' for income tax purposes taxable as a 'corporation' embraces 'business trust' and what the Legislature did not intend to embrace within the term 'association' was a pure 'trust', that is a trust of traditional pattern where property is conveyed by will, deed, or declaration to a trustee or is to be retained by the settlor on specified trusts for a certain term for designated persons. 68 O.S.1941 §§ 874 and 884.
2. Where attributes of investment trusts were a continuing entity as holder of legal title to the trust res, centralized management through trustees, security from termination or interruption by death of owners of beneficial interests facilitation of transfer of beneficial interests, and introduction of large numbers of participants without affecting continuity of the enterprise, and limitation of liability of participants to the property embraced in the undertaking, the trusts were 'associations' for income tax purposes, and hence taxable as 'corporations.' 68 O.S.1941 §§ 874 and 884.
3. The full text of subsection D.1 of 68 O.S.1941 § 884 discloses the legislative intent to there deal with estates of deceased persons and of minors under guardianship, and with pure trusts, that is trusts of traditional pattern where property is conveyed by will, deed or declaration, to a trustee for a certain term for described persons.
4. The full text of subsections (d), (d)(1), and (d)(2) of 68 O.S.1941 § 874 makes plain the legislative intent to classify as corporations all business trusts created under the laws of Oklahoma and having the attributes referred to in paragraph two of this syllabus.
5. In setting out the exceptions stated in subsection (d)(2) of 68 O.S.1941 § 874 the Legislature intended to make it plain that all partnerships, and also all estates of deceased persons or minors, and all pure trusts, that is trusts having the attributes referred to in paragraph three of this syllabus, were not to be included in the classification with corporations for income tax purposes. Those stated exceptions do not indicate any legislative intent to place business trusts having the attributes referred to in paragraph two of this syllabus in a classification for income taxes along with individuals, estates of deceased persons and minors, and pure trusts, that is trusts having the attributes referred to in paragraph three of this syllabus.
6. Record examined and held that plaintiff in error is a business trust created under the laws of Oklahoma and was properly taxed under the income tax laws as a corporation.
Keaton, Wells & Johnston, of Oklahoma City (Geo. E. H. Goodner and Scott P. Crampton, both of Washington, D. C., of counsel), for plaintiff in error.
E. L. Mitchell and C. W. King, both of Oklahoma City, for defendant in error.
This is an appeal from an order of the Oklahoma Tax Commission denying the application for refund of income taxes which plaintiff had paid at corporation rates for the years 1940, 1941, and 1942.
The issue is presented here on the merits. No procedural question is involved. The one question presented is whether plaintiff was properly taxed as a corporation, or is taxable as an individual. In the latter event plaintiff is entitled to recover full refund.
The question turns on a construction of the statute. Does 68 O.S.1941 § 874 apply or is the later section 884 of the same title applicable to plaintiff? The Tax Commission held to the former, denied the latter, and denied any refund.
In material substance section 874, supra, provides as follows:
And the material portion of section 884, supra, provides as follows:
'D. 1. The tax imposed by this Act on individuals shall apply to estates and trusts, which tax shall be collected and paid annually upon, and with respect to, the income of estates or of any kind of property held in trust including:
'(a) Income received by estates of deceased persons during the period of administration or settlement of the estate;
'(b) Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interests; '(c) Income held for future distribution under the terms of the will or trust;
'(d) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct; and
'(e) Income of an estate during the period of administration or settlement permitted by subdivision three hereof to be deducted from the net income upon which the tax is to be paid by the fiduciary.'
It is necessary to note the formation and structure of plaintiff as an entity, and to seek the legislative intent, to determine the tendered question.
The plaintiff was created as a legal entity by three individuals who associated themselves together to engage generally in the oil business under a lengthy formal declaration of trust duly executed and recorded in compliance with statutory requirements.
Thereafter plaintiff engaged extensively in the oil business under the stated name of 'Oklahoma-Texas Trust,' with a designated principal place of business in Oklahoma; with an official seal or authority to adopt an official seal; with a president, one or more vice presidents and a treasurer and secretary; with provision for the execution of instruments by the president and secretary, with the official seal when adopted; with limitation of liability to the property of the trust only; with one hundred seven thousand (107,000) participating interests sold to investors at ten dollars each, evidenced by certificates of ownership, transferable on the books of the trust. The governing board called 'trustees' was composed of the three individuals above referred to, with provisions for selecting successor trustees, for the holding of meetings, taking action by a majority, and provision as to their compensation.
As to the moneys of the association or trust, the primary purpose was to buy and own oil producing properties, to be operated for income and profit, however, there was authority also to invest in government bonds.
As to the income it was to be used as follows: First, to pay operating expenses, fees and taxes; second, to be retained on hand as working capital and for anticipated expenditures in such sum as the trustees deemed reasonable and proper; third, to make interest payments to certificate holders monthly or quarterly at the trustees' direction; fourth, to pay 27 1/2 per cent of the oil and gas sale receipts into a reinvestment fund; with the balance to be deposited in a capital retirement fund and so used until all retirement-of-capital coupons attached to participating certificates had been retired, thereafter such balance to be distributed to certificate holders monthly or quarterly in the discretion of the trustees.
There was provision for the keeping of accurate books and records, for diligence and good faith in management and many details not needing further recital.
It is at once seen that the makeup or arrangement of plaintiff is much like that of a corporation. And, though it is not of controlling importance, the plaintiff paid the state's regular corporation license fees.
The exact question which controls decision here has not heretofore been presented to this court.
Of some persuasive authority is the decision of the United States Court of Appeals for the District of Columbia in Second Carey Trust v. Helvering, 75 U.S.App.D.C. 263, 126 F.2d 526. There the court considered a declaration of trust identical in all material substance with the one here involved. It was there held that the trust entity was taxable as a corporation under the Federal Act which provides that 'the term 'corporation' includes associations, joint-stock companies, and insurance companies,' Revenue Act 1934, § 801(a)(2), 26 U.S.C.A. Int.Rev.Acts, page 790.
We think the above quoted provision of the Oklahoma statute is the same in material substance and indicates the same legislative intent, however, there is some difference in verbiage.
In the Carey Trust case, supra, the court held in part as follows:
'Where an organization has the characteristics as well as powers of a business trust, that is enough to make it an 'association' taxable...
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