Court Opinion

ID: 3843068
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:12:02.056085+00
Date Added: 2024-06-11T13:05:53.638918
License: Public Domain

Decision on stipulated facts.
Decision for defendant rendered March 14, 1967.
Appeal pending.
The facts have been stipulated.
M  M Woodworking Company, an Oregon corporation, (hereinafter referred to as M  M) paid *Page 513 
certain personal property assessments during its excise tax periods which ended on February 28, 1955, March 3, 1956 and August 17, 1956. The personal property taxes, which were paid under protest, were used by M  M as an offset in computing its corporation excise taxes in accordance with ORS 317.085 then in effect.
Litigation concerning the validity of the personal property taxes followed and a refund of $41,933.25 was received in 1962 for the excise tax period ending February 28, 1955; a refund of $21,933.82 was received in 1962 for the period ending March 3, 1956, and $48,269.41 was refunded in 1959 for the period ending August 17, 1956.
On or about August 17, 1956, Simpson Redwood Company, the predecessor of the plaintiff herein, completed a transaction resulting in the purchase of the assets of M  M. The latter was dissolved on May 1, 1957. As part of the purchase agreement Simpson Redwood agreed to "assume and pay all liabilities of M M existing on the closing date, [August 17, 1956] whether current, fixed, contingent or other."
On May 6, 1963, Simpson Redwood was merged with Simpson Timber Company, the plaintiff herein.
In February, 1963, after the personal property tax refunds had been received, the defendant commission informed Simpson Redwood that it owed additional corporation excise taxes for the years ending February 28, 1955, March 3, 1956 and August 17, 1956, because of the refund of the personal property taxes which had previously been used by M  M as an offset in computing its corporate excise taxes.
The defendant did not issue notices of proposed assessment or notices of deficiency assessment (ORS *Page 514 314.405) but instead advised plaintiff that it intended to issue warrants for the collection of the additional excise taxes. Plaintiff then filed this suit in the Tax Court for a declaratory judgment declaring the rights of the parties.
The plaintiff contends that the defendant is prevented from collecting the additional excise taxes by the three-year statute of limitations contained in ORS 314.410.
The defendant counters with the argument that the Oregon Supreme Court in Warm Sprgs. Lbr. Co. v. Tax Com., 217 Or. 219,342 P.2d 143 (1959), held that the statute of limitations did not apply to cases involving personal property tax offsets.
In that case the tax commission in 1956 and 1957 issued notices of deficiency assessments arising out of personal property tax offsets taken by plaintiff against its excise taxes during 1947 to 1953. The plaintiff contended that the assessments for the years 1947 to 1951, inclusive, were barred by the three-year statute of limitations then found in ORS317.410 which at that time stated in part:
    "(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. * * *" (Emphasis supplied.)
The tax commission contended and the court agreed that the three-year limitation was applicable to the taxation of omitted income. Did the disallowance of a personal property tax offset and consequent increase in excise tax liability constitute an assessment against the taxpayer's income within the meaning of *Page 515 
the statute? The court held it did not. The plaintiff's income was not involved for it had been correctly reported on the return. The issue involved an erroneous offset against a proper tax. The court emphasized that the statute of limitations did not apply because the "income of any taxpayer" had not been assessed under the terms of the statute.
The decision in Warm Springs would be controlling in this case if it were not for the fact that the legislature amended the statute in 1959 (Or L 1959, ch 212) and eliminated the reference to "income" which has not been assessed and substituted "a deficiency exists." The pertinent parts of the statute, ORS 314.405, now reads:
    "(1) * * * If the commission discovers from the audit of a return or otherwise that a deficiency exists, it shall compute the tax and give notice to the taxpayer of its proposal to assess the deficiency, * * *." (Emphasis supplied.)
Other references to "deficiency" appear in subsections (2), (3), (4) and (5)(a).
The plaintiff argues that the decision in Warm Springs is no longer applicable because we are now dealing with a "deficiency" when the tax commission seeks the recovery of additional excise taxes and the three-year statute of limitations applies.
There is substantial merit to plaintiff's position. Also, the tax commission admits that the 1959 amendments created some ambiguities in the statute when it is related to the WarmSprings decision. The amendments were contained in Senate Bill 48, which was introduced at the request of the State Tax Commission. The legislative minutes indicate that counsel for the commission testified before the Senate Taxation *Page 516 
Committee that the amendments were intended to clarify, but not to change, the statute.
1. The 1959 amendments became effective on August 5, 1959.Warm Springs was decided by the Supreme Court on July 15, 1959.
To hold that the 1959 amendments changed the law enunciated in Warm Springs requires a finding that the legislature inadvertently and unintentionally enacted a statute of limitations applying to personal property tax offsets where none existed previously. To do so would require the court to believe that the tax commission, at the same time it was arguing in the Supreme Court in Warm Springs that the three-year statute of limitations did not apply, was requesting the legislature to enact a statute of limitations merely by substituting "deficiency" for "income." The court found in WarmSprings that statutes of limitations are strictly construed in favor of the government. If the legislature in 1959 had intended to adopt a statute of limitations applying to personal property tax offsets, it could have used language similar to the 1965 amendment to ORS 314.405 when the statute of limitations in ORS 314.410 was clearly and specifically made to apply to personal property tax offsets.1
The next issue is whether plaintiff Simpson Timber *Page 517 
Company is liable for the excise taxes as a transferee of M 
M under ORS 314.310(1) which reads in part:
    "(1) When a taxpayer ceases to exist or is no longer subject to the jurisdiction of this state * * * being indebted for taxes upon or measured by net income, the transferee of the money or property of the taxpayer shall be liable for any such tax or deficiency in tax, including penalties and interest, imposed by law on the taxpayer and accruing or accrued upon the date of the transfer, * * *."
Simpson Redwood acquired all the assets of M  M on August 17, 1956, and agreed to assume and pay all "liabilities of M 
M existing on the closing date, whether current, fixed, contingent or others." M  M was dissolved on May 1, 1957 and the personal property tax refunds were received in 1959 and 1962.
The plaintiff argues that at the time M  M ceased to exist on May 1, 1957, it was not "indebted for taxes upon or measured by net income" under the statute because the liability of M 
M, if any, did not arise until the personal property tax refunds were received in 1959 and 1962.
The tax commission contends that when M  M ceased to exist it was indebted for taxes to the extent that its liability was contingent. The original payment of the taxes had failed to the extent that the claimed offset was rendered ineffective by the eventual refund of the personal property taxes which had been claimed as an offset against the excise taxes.
2. Paraphrasing ORS 314.310(1) above, it states that when a taxpayer ceases to exist and is indebted for taxesaccruing or accrued, the transferee shall be liable for such tax. The phrase in the statute "being indebted for taxes upon or measured by net income" does nothing more than establish that the section applies *Page 518 
to excise or corporate income taxes. The determining factor is the liability for taxes "accruing or accrued."
3, 4. In U.S. v. Consolidated Edison Co., 366 U.S. 380,81 S. Ct. 1326, 6 L ed2d 356, 7 AFTR2d 1451, 61-1 USTC ¶ 9462 (1961), the court was confronted with the question of whether real property taxes paid under protest constituted a payment in the year of remittance or whether such payment accrued in the year the amount of tax was finally adjudicated. The court found that the deduction of the tax must await the event of the litigation and was deductible in the year in which its liability was adjudicated. The court stated:
  "* * * As correctly observed by the Court of Appeals, 'A payment may constitute a capital expenditure, an exchange of assets, a prepaid expense, a deposit, or a current expense,' and '[w]hen the exact nature of the payment is not immediately ascertainable because it depends on some future event, such as the outcome of litigation, its treatment for income tax purposes must await that event.' 279 F.2d, at 156. (Emphasis added.)"
The personal property taxes paid by M  M were also paid under protest. M  M's liability for the taxes wasaccruing on the date of the transfer. The actual amount of tax owed was not determined until it was finally adjudicated. Simpson Redwood Company and Simpson Timber are liable as transferees under ORS 314.310.
The plaintiff also contends that there is no statutory authority for the tax commission to recover the additional excise taxes resulting from the refund of the personal property taxes. The decision that the three-year statute of limitations in ORS 314.410(1) does not apply and that the plaintiff is liable as the *Page 519 
transferee of M  M answers the plaintiff's contention that the tax commission has no statutory authority to recover the additional excise taxes. The taxable years involved remain open and the correction takes effect under the statutes in effect for those years. For the years involved, M  M was liable for additional excise taxes which were not paid because of the deduction taken by M  M while it was contesting the validity of the personal property assessment. Plaintiff assumed that liability as a transferee, (ORS 314.310 (1)), and is liable for the additional excise taxes.
The order of the tax commission is affirmed.
No costs.
1 ORS 314.405(8)(d):
    "(8) Additional assessments and deficiency assessments with respect to any tax return shall be made pursuant to this section, and not otherwise, within the time limits prescribed by ORS 314.410, including but not limited to the assertion of additional tax arising from:
"* * * * *
    "(d) Improper credits or offsets against the tax claimed in the return pursuant to ORS 316.455 (blind, old age and dependency), ORS 316.475 (taxes paid to another state or country), or ORS 317.070 (personal property tax offset)." (Emphasis supplied.) *Page 520