Opinion ID: 1167899
Heading Depth: 1
Heading Rank: 3

Heading: Is the Statute of Limitation Applicable?

Text: The Corporation Excise Tax Law contained the following provisions during the years in question: ORS 317.405(1): As soon as practicable after the return is filed the commission shall audit it and compute the tax, and shall give notice to the taxpayer of any deficiency and of its proposal to assess the same   . ORS 317.410(1): (1) If the commission discovers from the audit of the return or otherwise that any portion of the income of any taxpayer has not been assessed, it may, at any time within three years after the return was filed, compute the tax and give notice to the taxpayer of the amount due, including penalty and interest thereon. However, if the commission finds that gross income equal to 25 percent or more of the gross income reported has been omitted from the taxpayer's return, additional tax may be assessed upon such return at any time within five years after the return was filed. These limitations to the assessment of such tax or additional tax, including penalty and interest thereon, shall not apply to the assessment of additional taxes, and penalty and interest thereon, upon false or fraudulent returns, or in cases where no return has been filed.    The plaintiff contends that the taxes involved in this case are additional assessments for the years 1947 to 1951 which were made after the expiration of the three-year period provided in the foregoing statute and are, therefore, barred. The Commission answers that it has not made additional assessments of excise tax, but is merely endeavoring to collect unpaid taxes already assessed against which improper offsets have been claimed. The Commission says that the statute of limitations is applicable only to the taxation of omitted income; that the income of the plaintiff was correctly reported in its returns, and that the only error was in the offsets which, it is argued, are nothing more nor less than payments or credits on the tax determined. Therefore, it is said, the case is no different than it would be if the taxpayer had been given credit for payment of a check which had been returned for insufficient funds. 4, 5. Bearing in mind that statutes limiting the time for action by the government in collecting its taxes are to be strictly construed in favor of the government, U.S. v. Southern Lumber Company (8 Cir) 51 F2d 956, 78 ALR 619, cert den 284 US 680, 76 L ed 574, 52 S Ct 197, we see no escape from the state's position. By its terms the statute of limitations is confined to cases where the commission discovers from the audit provided for in ORS 317.405(1), or otherwise, that  any portion of the income of any taxpayer has not been assessed. [italics added] The word assessed is variously defined according to the context in which it is used. See 4 Words and Phrases (perm ed) 408 et seq. As stated in Philadelphia B. & W.R. Company v. Mayor and Council et al., 30 Del Chan 213, 57 A2d 759, 764, the words `assessed or assessment', when applied to taxation may have a broad or a narrow meaning, depending upon the context of the statute   . They may, therefore, mean merely the valuation of property, or may include the entire method of imposing the tax. In income tax law it is said that an assessment is completed when the person and income to be taxed have been properly listed and the amount determined so as to be ready for certification to the treasurer. Weyenberg Shoe Manufacturing Co. v. Kelley, 210 Wis 638, 246 NW 48. There has been some discussion in the briefs of the term self-assessment, meaning thereby assessment by the filing of a return. (See 9 Mertens Law of Federal Income Taxation, § 49.81; Atlantic Mutual Insurance Co. v. McMahon, 153 F Sup 48) but, as the parties seem to be agreed that the propriety of the use of that expression is not involved, it need not be given further attention. For present purposes it is not necessary to determine whether the word assessed in ORS 317.410(1) is used in its widest or in a restricted sense. It is sufficient to inquire whether the word was intended to include the action of the Commission in finding that there was a tax deficiency because of improper offsets claimed by the plaintiff. 6. Offset is thus defined in Black's Law Dictionary, 4th ed, p 1237: A deduction; a counterclaim; a contrary claim or demand by which a given claim may be lessened or canceled. In tax law an offset is a different thing from a deduction taken for the purpose of determining net income. 5 Mertens op. cit.; Northwestern Ice & Cold Storage Co. v. Galloway, 151 Or 260, 49 P2d 359; Keyes v. Chambers et al., 209 Or at 605, 307 P2d 498. In Northwestern Ice & Cold Storage Co. v. Galloway , we considered the question whether under the corporation excise tax law the taxpayer could offset personal property taxes accrued but not paid. In holding that the tax must have been paid before it was entitled to be used as an offset, we called attention to the difference between a deduction and an offset, and said:    Under the statute, as we construe it, in all cases the offset consists of a payment credited upon a payment. (151 Or at 266). In Keyes v. Chambers the question was whether a taxpayer was entitled to a credit against personal income taxes for income taxes paid by her to the Canadian Government. The statute provided that Residents of this state shall be allowed a credit against the taxes imposed by this act for net income taxes imposed by and paid to another state or country on income taxes under this act. OCLA, § 110-1605(a). In construing the statute, we said: A provision allowing a credit against a tax is, in effect, an exemption from liability for a tax already determined and admittedly valid. (207 Or at 645). The word credit, as used in such a statute, is the equivalent of an offset. 3 Paul and Mertens Law of Federal Income Taxation 535, note 13. And the provision for a credit on account of taxes paid to a foreign country is a permissive credit against taxes and is not to be confused with the deduction of certain taxes in determining net income. 5 Mertens op.cit., § 33.01, ch 33, p 5. It follows from these authorities that this case is not concerned with income that has not been assessed. No error in the amount of the tax is involved, for there is no charge that the income of the plaintiff was not correctly reported in its returns. In effect, the Commission found that credit for a payment upon a tax previously correctly determined had been erroneously claimed by the taxpayer and allowed by the Commission. It did nothing with regard to the income of the taxpayer or the amount of the tax. The three-year limitation on the Commission's action applies to a case where the Commission discovers that the income of any taxpayer, or any portion thereof, has not been assessed. The Commission may, in that event, within three years after the return was filed compute the tax and give notice to the taxpayer of the amount due etc. The Commission made no such discovery, nor did it compute the tax. It simply ascertained the balance due for failure of payment and notified the taxpayer of the deficiency. The statute does not apply to such a case, and there is no other statute imposing a limitation of time on the Commission's authority to collect the deficiency. The plaintiff cites regulation 6.605(1) of the regulations of the Commission relating to the Personal Income Tax Act and made applicable to the Corporation Excise Tax Act by regulation 7.000 relating to the latter act. Regulation 6.605(1) reads: A deficiency is the amount by which the tax as correctly computed exceeds the tax reported by the taxpayer, after adjustments for prior assessments, collections, refunds, credits and abatements. Counsel for plaintiff, in quoting the regulation, have emphasized the words after adjustments for credits. We do not think that adoption of this regulation has any bearing on the question before us. As stated in 9 Mertens op.cit, § 49.129: A deficiency is neither a legal theory nor an intangible concept. It is an amount of tax due representing the difference between the amount returned by the taxpayer and the amount which, in fact and law, is due the Government. Counsel argue that it would appear from the regulation that the amounts in question here constituted `deficiencies' and had to be assessed within three years from the time the respective returns were filed. But before it can be said that the statute of limitations is applicable it must appear that there was income of the taxpayer which had not been assessed, and the regulation, as we view it, throws no light on that question. Plaintiff calls our attention to Rothensies, Collector v. Electric Storage Battery Co., 329 US 296, at 301, 67 SCt 271, at 273, 91 L ed 296, where the Supreme Court, commenting on the need of a statute of limitations in an income tax system, concluded: Hence, a statute of limitation is an almost indispensable element of fairness as well as practical administration of an income tax policy. There can be no question about the soundness of this observation. But the court cannot supply a statute of limitations where the legislature has failed to enact one, nor, where the state is concerned, even adopt a liberal construction of such a statute in order to make it apply to a case which does not come within its terms. Thus, we are reluctantly brought to the conclusion that the statute of limitations here in question is not a bar to the collection of the taxes for the years 1947 to 1951. The decree of the circuit court is reversed. No costs or disbursements will be allowed. WARNER, J., sat but did not participate in the decision.