Trunkline Gas Co. v. Collector of Revenue
| Decision Date | 21 December 1965 |
| Docket Number | No. 6486,6486 |
| Citation | 182 So.2d 674 |
| Parties | TRUNKLINE GAS COMPANY, Plaintiff-Appellee, v. COLLECTOR OF REVENUE, Defendant-Appellant. |
| Court | Court of Appeal of Louisiana — District of US |
Cyrus J. Greco, Chapman L. Sanford, John B . Smullin, Baton Rouge, for appellant.
C. McVea Oliver, of Oliver, Digby & Fudickar, Monroe, Chester J. Coco, Marksville, for appellee.
Before ELLIS, LOTTINGER, LANDRY, REID and BAILES, JJ.
The Collector of Revenue of the State of Louisiana, defendant-appellant herein, appeals from the judgment of the trial court decreeing that plaintiff-appellee was entitled to full credit deduction in computing net income the amount of federal income taxes it owed to the federal government on the basis of its separate income tax return. This income tax return was not filed with the federal government but the data thereof consolidated with other wholly owned subsidiaries of the parent company, Panhandle Eastern Pipe Line Company, which resulted in the payment by the parent company of an amount of federal income tax less than the total aggregate of federal income tax due by all of the affiliates.
Herein Trunkline Gas Company will be most of the time referred to simply as Trunkline, and the Collector of Revenue as Collector.
The Collector of Revenue assessed Trunkline Gas Company with additional income tax and interest on returns filed by it for the years 1957, 1958 and 1959. Trunkline paid the additional tax and interest under protest and then filed with the Louisiana Board of Tax Appeals a petition for a redetermination of the assessment levied by the Collector. The case was heard by the Board of Tax Appeals on a stipulation of facts, and the Board of Tax Appeals upheld the Collector's assessment. Trunkline then filed this suit in the Nineteenth Judicial District Court for a review of the decision of the Board of Tax Appeals.
The facts stipulated to by the parties to this action are the following:
'1. Petitioner is a Delaware Corporation, qualified to do business in Louisiana, and is engaged in the business of buying, transporting, and selling natural gas in interstate commerce. It operates a natural gas pipeline originating at a point in Texas near McAllen, Texas, through the states of Texas, Louisiana, Arkansas, Mississippi, Tennessee, Kentucky, Illinois, and terminates at the Indiana-Michigan Border.
'2. Trunkline Gas Company has filed with the State of Louisiana income tax returns showing a net allocable income earned within or derived from sources within Louisiana, as defined in R.S. 47:243, and net apportionable income derived from sources in this State, as defined in R.S. 47:244, as follows:
For the year 1957: $628,477.00
For the year 1958: $641,897.00
For the year 1959: $248,297.00
'3. The determination of income set forth in the preceding stipulation is admitted to be correct.
'4. Petitioner is a wholly owned subsidiary of Panhandle Eastern Pipe Line Company. Panhandle Eastern Pipe Line and its subsidiaries, including petitioner, filed consolidated federal income tax returns for the years in question.
'5. Petitioner computes its federal income tax liability on a separate return basis as though it were not a member of the consolidated group, and draws a check for the amount of federal income tax so computed, either to its parent or to the federal government and forwards both the computations and the check to its parent, Panhandle Eastern Pipe Line Company.
'6. Panhandle Eastern Pipe Line Company then computes the amount of the group's tax liability on a consolidated basis and forwards the Internal Revenue Service the consolidated federal income tax return and its check along with any check received from the subsidiary and other members of the consolidated group drawn to the Internal Revenue Service in payment of the consolidated federal income tax liability.
'7. Federal income tax computed on a separate return basis under the Internal Revenue Code of 1954 on earnings of Trunkline Gas Company used in determining Trunkline's earnings derived from sources within Louisiana is as follows:
For the year 1957: $2,775,449.00
For the year 1958: $2,779,389.00;
For the year 1959: $1,314,199.00.
'8. In determining net income subject to tax under the provisions of Title 47 of the Louisiana Revised Statutes, Trunkline Gas Company has deducted from the net allocable income earned within or derived from sources within this state and the net apportionable income derived from sources in this state for the years 1957, 1958, and 1959, respectively, the proportionate part of the federal income taxes set forth in paragraph 7 above attributable to Louisiana income.
'9. As a result of a field examination of petitioner's Louisiana income tax returns for the calendar years 1957, 1958, and 1959, and Collector proposed an assessment of additional income tax as detailed below:
Amount of Proposed
Tax Period Assessment
---------- ------------------
1957 $291.21
1958 791.50
1959 488.55
The Collector in computing the amount of Federal income tax to be allowed as a deduction on the Louisiana income tax return for each of the above years allocated the consolidated federal income tax liability among members of the group on the basis of the ratio of the petitioner's federal net income tax on a separate return basis to the total separate return basis to the total separate return tax of all profit companies of the consolidated group times the consolidated federal income tax liability in accordance with the provision ITR 55(2). Of the total deficiency set out above the following amounts resulted from the Collector's adjustment to allocate consolidated federal income tax:
1957 $241.24
1958 696.84
1959 239.16
'10. Petitioner is the only member of the consolidated group which has income from sources within Louisiana.
'11. Trunkline Gas Company has paid, for application on the group federal income tax liability in each of the years in dispute, the amount set forth in paragraph 7 hereof.
'12. The Federal Power Commission and Securities Exchange Commission accept as Trunkline's Federal Income Tax liability its computations on a separate return basis. Also, Trunkline's reports to its stockholders and bondholders show Federal tax liability as computed on a separate return basis.
'13. Other corporations deriving income from sources within Louisiana and which join their parent corporation in filing a consolidated Federal Income Tax return, have consistently complied with Louisiana's ITR 55.2.'
Among the several income tax provisions of our law that we have before us for applicable and interpretation in this case are R.S. 47:55 and R.S. 47:241 and ITR 55.2. The trial court held with respect to these two statutes and the regulations that there was a conflict between R.S. 47:55 and 47:241 relative to the deduction of federal income tax in the computation of net income for income tax purposes allowable to nonresident corporations doing business in Louisiana, and that because of this conflict ITR 55.2 is illegal and unenforceable. These statutes provide:
'R.S. 47:55. Deductions from gross income; taxes generally
In computing net income, there shall be allowed as deductions all taxes paid or accrued within the taxable year except: (The excepts have no application to this case.)
'R.S. 47:241. Net income subject to tax
'The net income of a nonresident individual or foreign corporation subject to the tax imposed by this Chapter shall be the sum of the net allocable income earned within or derived from sources within this state, as defined in R.S. 47:243, and the net apportionable income derived from sources in this state, as defined in R.S. 47:244, less the amount of federal income taxes attributable to the net allocable income and net apportionable income derived from sources in this state. The amount of federal income taxes to be so deducted shall be that portion of the total federal income tax which is levied with respect to the particular income derived from sources in this state to be computed in accordance with rules and regulations of the collector of revenue. Proper adjustment shall be made for the actual tax rates applying to different classes of income and for all differences in the computation of net income for purposes of federal income taxation as compared to the computation of net income under this Chapter. Where the allocation of the tax is to be based on a ratio of the amount of net income from sources in Louisiana to the amount of total net income of a particular class, both the numerator and the denominator of the fraction used in determining the ratio shall be computed on the basis that such net income is determined for federal income tax purposes. As amended Acts 1950, No. 445, § 1.
While we fail to find in the record an offering of ITR 55.2, we believe there is no dispute between the plaintiff and defendant that the regulation as cited in the Collector's brief is correctly stated to be:
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