Court Opinion

ID: 5022209
Source: CourtListenerOpinion
Date Created: 2021-10-01 04:20:30.221816+00
Date Added: 2024-06-11T08:17:48.363787
License: Public Domain

CLAY, Commissioner.
We have before us an income tax question. The circuit court dismissed an appeal from an order of the Kentucky Tax Commission directing the payment of approximately $400 additional tax on the taxpayer’s 1954 income.
In 1951 the taxpayer sustained a substantial loss from the sale of capital assets. Under the federal income tax law a part of that loss could be off-set against capital gains for that year, and the unused portion of the capital loss could be carried over for five succeeding years, to be off-set against succeeding net capital gains.
In 1951 the Kentucky income tax statute did not recognize capital gains and losses, as such, in the computation of taxable net income. However, in 1954, Acts 1954, c. 79, the Kentucky income tax law was revised to conform more closely to the federal law. Under KRS 141.050 it was provided “computations of income for purposes of this chapter shall be as nearly as practicable identical with the calculations required for Federal income tax purposes”. KRS 141.-010(9), defining terms, provides, with certain exceptions not here applicable, “ ‘net income,’ in the case of taxpayers other than corporations, means the same as net income defined under Section 21 of the Internal Revenue Code * *
Section 21 of the Federal Internal Revenue Code, 26 U.S.C.A. § 21 defined “net income” as gross income computed under section 22 less deductions allowed by section 23. Section 23(e) allowed as a deduction the capital loss carry-over with which we are here concerned.
It is the contention of the taxpayer that net income for the year 1954 under the Kentucky law must be computed as the net income under the federal law (with exceptions not important here), and since the federal law recognized a right to deduct the *926unused portion of this 1951 capital loss in the year 1954, it must be similarly deductible under the Kentucky law. In substance the Commonwealth’s argument is that the new Kentucky tax law of 1954 created a tax liability for transactions taking place in 1954 and thereafter, and to uphold appellant’s contention would be to give a retroactive effect to the statute.
 On the face of it, and particularly in view of the fact that income tax computations under the state and federal laws were so entirely different in 1951, no reason is apparent why the legislature would permit the dredging up of old transactions for the purpose of determining taxable income under the new law. However, KRS 141.-010(9), standing alone, does seem to authorize such computation.
As militating against such interpretation, Acts 1954, c. 79, § 34, provides:
“Unless otherwise provided herein, the provisions of this Act shall be applicable to all taxpayers for all taxable years beginning on or after January 1, 1954. With respect to all taxable years beginning before January 1, 1954, the provisions of KRS Chapter 141, as they existed immediately prior to enactment of this Act, shall remain applicable, the same as though they had not been amended or repealed by this Act.”
The obvious meaning of this provision is that income tax computations for years prior to 1954 are governed by the prior laws. Since under the statute effective in 1951 this capital loss was clearly extinguished as a computable item in determining income tax liability, to breathe new life into it under the new law would be contrary to the provision of the statute above quoted. We must construe this provision as limiting the scope of the definition contained in KRS 141.010(9').
It seems to us that the 1954 law made a clean break with the past, and the federal law formulas were-to be used henceforth to the extent that'they involved transactions taking place in 1954 and thereafter. The tax commission and the circuit court correctly decided the issue.
The judgment is affirmed.