Opinion ID: 1179739
Heading Depth: 2
Heading Rank: 2

Heading: Extended Systems, Inc. v. Tax Commission

Text: The Internal Revenue Code offers taxpayers either a credit or deduction for a portion of research and development expenses (R & D expenses). In 1990 and 1991, Extended Systems, Inc. (ESI) chose the credit option for R & D expenses pursuant to I.R.C. § 41. Pursuant to I.R.C. § 280C(c), ESI's deductions for R & D expenses on its federal income tax returns were reduced by the amount of the credit. On its state income tax returns for those years, ESI deducted the full amount of the allowable R & D expenses from its income that was attributable to Idaho. The Commission assessed a deficiency against ESI, ruling that a corporate taxpayer cannot claim deductions it did not take on its federal returns. ESI appealed the Commission's decision to the district court which granted ESI summary judgment, using the same rationale as in the Potlatch case. The Commission appealed. This Court consolidated the two cases for oral argument on appeal.