Spratt v. Hatfield, 39117

• Decision Date: 03 April 1964
• Docket Number: No. 39117,39117
• Citation: 127 N.W.2d 545,267 Minn. 535
• Parties: Dr. Charles N. SPRATT et al., Appellants, v. Rolland F. HATFIELD, Commissioner of Taxation of Minnesota, Respondent.
• Court: Minnesota Supreme Court

Page 545

127 N.W.2d 545

267 Minn. 535

Dr. Charles N. SPRATT et al., Appellants, v. Rolland F. HATFIELD, Commissioner of Taxation of Minnesota,

Respondent.

No. 39117.

Supreme Court of Minnesota.

April 3, 1964.

Rehearing Denied April 30, 1964.

Syllabus by the Court

1. Where Minnesota resident taxpayers received income assignable to Minnesota and income not assignable to Minnesota in 1956, their nonbusiness deductions must be allocated on the basis of relative gross income under applicable statutes.

2. While the state and its political subdivisions may be estopped in certain cases the same as an individual, the application of estoppel is strictly limited to purely proprietary matters and generally is not applied to matters involving questions of governmental power or the exercise thereof. In the levy and imposition of taxes, the state acts in its sovereign capacity, and hence, in an action for the collection thereof, cannot be subjected to an equitable estoppel.

Joseph Shefner, Minneapolis, for appellants.

Walter F. Mondale, Atty. Gen., Jerome J. Sicora, Sp. Asst. Atty. Gen., St. Paul, for respondent.

FRANK T. GALLAGHER, C.

Appeal from a summary judgment entered in the district court for defendant.

This action was brought by two Minnesota residents, referred to herein as the taxpayers, against the commissioner of taxation to recover an additional income tax assessment of $548.66 for the year 1956, pursuant to Minn.St.1953, § 290.50, subd. 2. The taxpayers paid the assessment on August 25, 1960, and filed a claim on January 6, 1961, for a refund. The commissioner denied the claim on November 3, 1961, and thereafter this action was commenced.

The questions which we consider pertinent for a determination of this case are:

(1) Where a Minnesota resident receives income assignable to Minnesota and income not assignable to Minnesota, must such resident's nonbusiness deductions be allocated on the basis of relative gross income or on the basis of relative adjusted gross income? The commissioner claims it should be on the basis of Gross income and the taxpayers claim on the basis of Adjusted gross income. ¹

(2) Does the doctrine of estoppel apply to the state when it acts in its sovereign or governmental capacity?

Inasmuch as the tax year involved here is 1956, the statute applicable to this case is Minn.St. 1953, § 290.18, as amended by L.1955, c. 170. The regulations applicable are Minnesota Income Tax Regulations 1955. The taxpayers received gross income from both Minnesota and South Dakota sources in 1956.

1. The first question concerns the interpretation of § 290.18 as it existed in 1956. Subd. 1 thereof read in part as follows:

'The taxable net income shall * * * be computed by deducting from the gross income assignable to this state * * * deductions * * * in accordance with the following provisions:'

With respect to nonbusiness deductions, paragraph (2) of subd. 1 provided that the 'proportion of such deductions' to be allowed is that proportion which 'the taxpayer's Gross income trom sources Within this state * * * bears to his Gross income from all sources, * * *.' ² (Italics supplied.)

The term 'gross income,' as used in § 290.18, is defined in Minnesota Income Tax Regulations 1955, Regulation 2018(1)(c), as '(a) in the case of a business involving the sale of personal property, the gross profit, and (b) in all other cases, the gross earnings or receipts.'

The trial court granted the commissioner's motion for summary judgment. In a memorandum attached and made a part of the order, the trial court pointed out that our decision in Duluth-Superior Dredging Co. v. Com'r. of Taxation, 217 Minn. 346, 14 N.W.2d 439, ³ established that gross income was the proper basis for allocation where a corporate income tax problem of similar nature to the instant case was presented. It was the opinion of the trial court that no logical reason appeared for differentiating between individual and corporation taxpayers in deciding this problem. We find nothing in the statutes involved which would compel such a differentiation. The trial court commented that while it might be more equitable to allocate income for the taxpayers in the instant case on the adjusted gross income basis, this court, nevertheless, had decided on the gross income basis in Duluth-Superior Dredging Co. v. Com'r. of Taxation, supra.

Although there may be merit to the taxpayers' contention that the adjusted gross income basis would be more equitable, we must remember that we are considering here the statutes applicable in 1956, the year for which the assessment in question was made.

We have considered taxpayers' arguments and citations, ⁴ but we believe the essential question is whether the commissioner was justified in using the Gross income instead of Adjusted gross income in denying taxpayers' claim for a refund of the 1956 assessment. It is our opinion that he was so justified and that the summary judgment for the commissioner must be affirmed.

2. Taxpayers claim, however, that the commissioner is estopped from acting as he did in the matter because he or his predecessors permitted the use of adjusted gross income in...