Case Title: Republic Natural Gas Co. v. Axe

Citation: 197 Kan. 91, 415 P.2d 406

Docket Number: 44,475

State: kansas

Court: Kansas Supreme Court

Date: 1966-06-11T00:00:00Z

Document:
197 Kan. 91 (1966)
415 P.2d 406
REPUBLIC NATURAL GAS COMPANY, a Dissolved Corporation, Appellant,
v.
LEONARD H. AXE, Director of Revenue of the Department of Revenue, State of Kansas, Substituted for WAYNE E. McCOY, Appellee.
No. 44,475

Supreme Court of Kansas.
Opinion filed June 11, 1966.
Robert J. Roth, of Wichita, argued the cause, and A.W. Hershberger, Richard Jones, Wm. P. Thompson, H.E. Jones, Jerome E. Jones, William R. Smith and Robert J. O'Connor, all of Wichita, were with him on the brief for appellant.
Dean Burkhead, of Topeka, argued the cause, and C.A. Arterburn, of Topeka, was with him on the brief for appellee.
The opinion of the court was delivered by
FROMME, J.:
This is an action for refund of income tax paid to the State of Kansas on a gain realized from a sale of assets by Republic Natural Gas Company, a dissolved corporation, in their fiscal year ending June 30, 1962.
The Republic Natural Gas Company will be referred to as the corporation. Leonard H. Axe, Director of Revenue of the Department of Revenue, State of Kansas, will be referred to as the director.
The corporation was incorporated under the laws of Delaware, and was one of the developers of the natural gas industry in the *92 Hugoton Field in Kansas. It filed its Kansas income tax return on June 27, 1962, and paid a tax of $1,844,079.20, which amount included tax on a capital gain of $51,117,426.00 resulting from the sale of assets in liquidation.
A claim for refund by the corporation in the amount of $1,789,109.91 was filed with the director. The director refused to take action on this claim. Action was filed in the District Court of Shawnee County pursuant to the provisions of G.S. 1961 Supp., 79-3230. The director filed answer. The case was submitted on the following Stipulation of Facts:
Upon oral motion of the defendant, Leonard H. Axe, who succeeded to the position of Director of Revenue, was substituted as the proper party defendant in place of Wayne E. McCoy. The trial court entered judgment in favor of the director. Plaintiff has appealed.
The appellant herein contends: (1) That no taxable capital gain was realized by the corporation and the court erred in finding the sale of assets was made by the corporation and not by the stockholders; (2) That the State of Kansas is committed to a policy requiring application of Section 337 of the Internal Revenue Code of 1954 to the Kansas tax laws.
The court below found that the assets were not distributed in kind to the individual stockholders but such assets were sold by the corporation and the proceeds of said sale were then distributed proportionately to the individual stockholders. The corporation contends that the plan of complete liquidation and distribution which qualified under Section 337 of the U.S. Internal Revenue Code in effect constituted the corporation the agent of the stockholders to whom a physical distribution could not be made, and the only taxable gain was realized by the individual stockholders. This theory does not appear to be supported by the evidence in this case.
The provisions of the Delaware corporation law are similar to the Kansas law governing dissolution of a corporation. Both provide three years for continuation of the corporation after dissolution for purposes of suit and winding up affairs of the corporation. (K.S.A. 17-3606.)
The law of Delaware provides that corporations shall be continued bodies corporate for a term of three years after dissolution for the purpose of enabling them gradually to settle and close their business, to dispose of and convey their property and to divide their *94 capital stock. (8 Del. C. § 278.) In such case they remain intact as corporations. Their acts are those of a corporation and binding upon the stockholders.
The stipulated facts include a statement that the assets were not distributed in kind to the individual stockholders but such assets were sold by the corporation and the proceeds of said sale distributed proportionately to the individual stockholders.
The Kansas statutes relating to income tax in this case are as follows:
G.S. 1961 Supplement, 79-3203 (b):
G.S. 1961 Supplement, 79-3205 (a) (1):
G.S. 1961 Supplement, 79-3212:
G.S. 1961 Supplement, 79-3216:
Prior to 1954 the federal laws were comparable. Section 112 of the Internal Revenue Code, which compares to G.S. 1961 Supp. 79-3212, read as follows:
"RECOGNITION OF GAIN OR LOSS.
*95 In 1954 the Congress of the United States amended the Internal Revenue Code by adding Section 337 which is as follows:
"(a) GENERAL RULE,  If 
Section (b) defines what property is subject to provisions of Section 337; subsection (c) provides certain limitations upon the application of Section 337; subsection (d) provides certain special rules for certain minority shareholders, none of which apply here.
The State of Kansas has not adopted a provision similar to Section 337 of the Federal Internal Revenue Code. This is not disputed.
The director pursuant to legislative authority granted to him by K.S.A. 79-3236 has adopted certain regulations to assist in carrying out the income tax laws. One such regulation is as follows:
Regulation 92-4-71:
This regulation remained in effect at the time of the dissolution and liquidation of the corporation.
The appellant puts forth the ingenious argument that the Kansas legislature has amended the Kansas income tax laws from time to time to conform with the Federal Act, and the director has on numerous occasions directed changes in the regulations to conform. Appellant then reasons that because of such practice of the Kansas legislature and the director, Kansas is committed to a policy requiring application of Section 337 of the Internal Revenue Code to Kansas income tax law. We cannot agree. Taxation is a specific legislative method of providing income with which to carry out governmental functions. Federal taxation is completely within the *96 authority of the congress of the United States. State taxation is within the authority of the legislature of Kansas. The amendment or repeal of a federal taxing statute will not and cannot effect a like change in the Kansas taxing law. Such change must come, if at all, by action of the Kansas legislature.
We have examined the law expressed in the cases of Comm'r. v. Court Holding Co., (1945) 324 U.S. 331, 65 S. Ct. 707, 89 L. Ed. 981; U.S. v. Cumberland Pub. Serv. Co., (1950) 338 U.S. 451, 70 S. Ct. 280, 94 L. Ed. 251; Jones v. Grinnell, 179 F.2d 873 (10th Cir.1950); Wichita Term. El. Co. v. Commissioner of Int. R., 162 F.2d 513 (10th Cir.1947); Ingle Coal Corporation v. Commissioner of Int. Rev., 174 F.2d 569 (1949) and other cases cited by appellant. These were decided before the 1954 Internal Revenue Code incorporated Section 337 I.R.C. into federal law. Although there may be difficulty in reconciling these federal decisions under the provisions of Section 112 of the 1939 Internal Revenue Code it is apparent that these federal cases of the United States courts held such transactions as are involved in the instant case to be taxable. These were decided under a federal tax law very similar to the Kansas statutes set forth in this opinion.
Where a statute of one jurisdiction has been judicially construed before the adoption of the statute by this jurisdiction, our courts will assume that the statute as judicially construed was adopted. Stebbins v. Guthrie, 4 Kan. 353, 364; McHenry v. Hubbard, 156 Kan. 415, 420, 134 P.2d 1107.
Appellant points to the holdings of the Board of Tax Appeals set forth in the stipulation of facts as authority. These were reversed by decision of the board in a group of later cases also set forth in the same paragraph of the stipulation.
The Board of Tax Appeals is in the executive branch of the government and has no authority to legislate or set public policy. K.S.A. 74-2433. See also Sprague Oil Service v. Fadely, 189 Kan. 23, 367 P.2d 56.
No power has ever been delegated to this board to adopt or determine laws contrary to express statutory provisions. Any such attempted delegation of power would be unlawful delegation of power and not binding upon this court.
Neither the Director of Revenue nor this court can grant an exemption from a tax which has not been specifically granted by the legislature of the state of Kansas. Change in this area of public policy is for the legislature. The question of the wisdom, justice or *97 expediency of legislation is for that body and not for the courts. McAllister v. Fair, 72 Kan. 533, 536, 84 Pac. 112; State, ex rel., v. Kansas Turnpike Authority, 176 Kan. 683, 695, 273 P.2d 198.
The general rule has been that exemptions from general taxing laws are to be strictly construed, and where a taxpayer seeks to escape the impact of a tax law he has the burden of pointing out some specific exemption under the taxing statutes. Nutrena Mills, Inc. v. State Tax Comm., 150 Kan. 68, 75, 91 P.2d 15; Federal Land Bank v. Board of County Commissioners, 187 Kan. 148, 157, 354 P.2d 679; Midwest Solvents Co. v. State Comm. of Rev. & Taxation, 183 Kan. 104, 109, 325 P.2d 311. No such exemption has been pointed out by appellant.
The judgment is affirmed.