Court Opinion

ID: 9563497
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:40:24.445652+00
Date Added: 2024-06-11T09:17:52.653687
License: Public Domain

LAVENDER, Justice.
This appeal, by Scott-Rice Company, a domestic corporation, arises in a proceeding before the Oklahoma Tax Commission involving the amount of franchise tax due from the company for each of the fiscal years 1965-66, 1966-67, and 1967-68.
The tax in question is levied by Section 1203 of the “Oklahoma Franchise Tax Code” of 1963, now appearing as 68 O.S. 1971 § 1203. Admittedly, the corporation is one of the domestic business organizations subject to the provisions of that statute.
Before computing the amount of franchise tax to be paid (and actually paid) with its annual franchise tax return for each of those years, the company deducted, from the amount of its capital as stated in the return, its valuation of certain Oklahoma Turnpike Authority bonds owned by it. Without questioning the value of the bonds, the Tax Commission computed the total amount of the franchise tax for each year on the basis of the stated amount of capital without the claimed deduction, and assessed an additional amount as the unpaid balance of the tax computed on that basis.
The company filed a protest against each assessment, contending that the franchise tax in question is an ad valorem tax levied upon the taxpayer’s assets constituting its “capital” as that term is used in the statute and, when applied to the value of a taxpayer’s Oklahoma Turnpike Authority bonds, results in taxation of those bonds contrary to the provision in Section 14 of the Oklahoma Turnpike Act (69 O.S.1961, § 664, now appearing as 69 O.S.1971 § 1714) that:
“ * * * the bonds issued under the provisions of this Article, their transfer and the income therefrom (including any profit made on the sale thereof) shall at all times be free from taxation within the State. * *
After a hearing on those protests, the Tax Commission entered an order denying *210the protests, and the additional assessments became effective. The company paid the amounts so assessed and appealed to this court as provided for in the statutes now appearing as 68 O.S.1971, §§ 221 and 225.
The only issue presented in the appeal concerns the applicability, or non-applicability, of the above-quoted provision of the Turnpike Authority Act with respect to the tax in question.
The answer depends upon whether the tax is levied upon any one or more of three separate and distinct things: (a) assets which include such bonds, or (b) income from such assets, or (c) the transfer of such assets. First National Bank and Trust Company of Tulsa et al. v. Oklahoma Tax Commission (1968), Okl., 447 P.2d 441, 443. If the tax is not levied upon one of those three things, that tax-exemption provision does not apply with respect to the tax. If it is so levied, the exemption applies.
The parties tacitly concede that the franchise tax in question is not levied upon any transfer of any property or assets (as was the estate tax involved in the case just cited), and is not levied upon any income from property or assets. They also tacitly concede that Oklahoma Turnpike Authority bonds purchased with capital assets of a domestic corporation or other business organization subject to the provisions of Section 1203 of the Franchise Tax Code would constitute a part of the “capital” of the organization as that term is defined and used in that code.
Thus, the basic question presented herein is whether, as contended by the taxpayer, the franchise tax levied by Section 1203 of the Franchise Tax Code is levied upon the property which constitutes the “capital” of the taxpayer. That statute provides:
“There is hereby levied and assessed a franchise or excise tax upon every corporation, association, joint stock company, common law or statutory trust, and other business organizations, as defined in Section 1201 of this Code, organized under the laws of this State, equal to One Dollar and Twenty-five cents ($1.-25) for each One Thousand Dollars ($1,000.00) or fraction thereof of the amount of capital used, invested or employed in the exercise of any power, privilege or right inuring to such organization, within this State; it being the purpose of this section to require the payment of the State of Oklahoma this tax for the right granted by the laws of this State to exist as such organization and enjoy, under the protection of the laws of this State, the powers, rights, privileges and immunities derived from the State by reason of the form of such existence.” (Emphasis supplied)
First of all, we point out that the provisions of the Oklahoma Constitution concerning direct “taxes” on property, on an ad valorem basis, are contained in Sections 6, 6A, 8, 9, 9A, 9B, 10, 10A, 12A, 26, 27, and 35, of Article 10, and Sections 1 and 2 of Article 12-A, thereof. They authorize the levying of such taxes for county, city, town, and school district purposes, and provide certain exemptions therefrom. Section 9 of Article 10 contains a provision that:
“No ad valorem tax shall be levied for State purposes, nor shall any part of the proceeds of any ad valorem tax levy upon any kind of property in this State be used for State purposes.”
The tax imposed by Section 1203 of the Franchise Tax Code is levied, expressly, for State purposes (Section 1208). If construed as a tax levied upon property on an ad valorem basis, as contended for by the company, the statute would be violative of the quoted provision of Section 9 of Article 10.
If possible, we must construe the statute so that it will be constitutional instead of unconstitutional. Section 12 of Article 10 of the Constitution expressly authorizes the Legislature to provide for the levy and collection of “specific taxes,” including “license,” “franchise,” and “excise” taxes.
*211This court has not heretofore had to determine whether or not the tax levied by Section 1203, supra, or by a substantially similar statute, was a tax levied upon property, ad valorem or otherwise. However, it has passed upon the question of whether or not some other state taxes were taxes on property — “property taxes.” Those cases arose because a county, city, or religious and/or charitable organization claimed exemption from the particular tax under the tax-exemption provisions of Section 6 of Article 10 of the Constitution.' In each case, this court held that the tax-exemption applied only with respect to “property taxes,” and that the tax in question was not a “property tax” but was an “excise tax.”
See: In re City of Enid (1945), 195 Okl. 365, 158 P.2d 348; City of Ardmore v. State of Oklahoma ex rel. Oklahoma Tax Commission (1934), 168 Okl. 316, 32 P.2d 728; Board of Commissioners of McClain County et al. v. Oklahoma Tax Commission (1939), 185 Okl. 625, 95 P.2d 605; Oklahoma Tax Commission v. Sisters of Sorrowful Mother (1939), 186 Okl. 339, 97 P.2d 888; Application of Baptist General Convention of Oklahoma et al. (1945), 195 Okl. 258, 156 P.2d 1018; City of Clarimore v. Oklahoma Tax Commission (1946), 197 Okl. 223, 169 P.2d 299.
In the City of Enid case, this court discussed, at some length, the distinction between “property taxes” and “excise taxes” or “excises” as pointed out in opinions from a number of other jurisdictions. Some of the statements are that a “property tax” is levied directly on the property itself; that the necessity of paying such a tax falls upon the owner of particular property merely because he is the owner, regardless of the use or disposition made of the property; that an “excise tax” is a tax imposed on performance of an act, engaging in an occupation, or enjoyment of a privilege; that the obligation to pay an “excise tax” is based upon voluntary action of the person taxed in performing the act, engaging in the occupation, or enjoying the privilege, which is the subject of the excise, and the element of absolute and unavoidable demand, as in the case of a “property tax,” is lacking. And, in the first paragraph of its syllabus to that case, the court held that:
“A declaration in a statute providing for the levy and collection of a sales tax that the tax thereby imposed is an excise tax, must be accepted unless the declaration is incompatible with the effect of the statute.”
That rule is just as applicable to the declaration in Section 1203 of the Franchise Tax Code that the tax thereby levied is “a franchise or excise tax.” And, that declaration is compatible with the provisions of the same section that the tax is levied upon each of the organizations described therein, in payment for the right, granted by the laws of this state, to exist as such an organization and enjoy the powers, rights, privileges and immunities derived from the state by reason of the form of its existence.
Except for the fact that the tax is levied on a fiscal-year basis and the amount of the tax, if any becomes due with respect to a particular fiscal year, depends upon and is measured by the amount, in dollars, of certain assets of the organization, those provisions of Section 1203, and the other pertinent provisions of the code, are wholly incompatible with the concept of “property taxes.”
The tax is levied for state purposes, and is payable to the Oklahoma Tax Commission. Although it is levied on a fiscal-year basis, it is not levied for the fiscal year during which the organization pays an incorporating, qualifying or filing fee or tax to the Secretary of State. If the tax for any fiscal year is not paid before it becomes delinquent, the Tax Commission may enter an order directing the suspension of the charter or other instrument of organization under which the taxpayer was organized and the forfeiture of all corporate or other rights inuring thereunder. The delinquent tax, and penalty thereon, is collectible in the same manner as other state taxes payable to the Tax Commission. *212The exercise of any of the rights, privileges or powers of any such domestic organization, without payment of the tax constitutes a misdemeanor. The amount of capital used, invested or employed in the exercise of any of such powers, rights, or privileges within this state is involved in, but only in, the computation of the amount of the tax payable for any fiscal year with respect to which an organization elects to exercise any of those powers, rights or privileges within this state. The amount of capital involved is not the subject of the tax, but is the yardstick by which the amount of the tax is measured.
The tax imposed by Section 1203 of the Franchise Tax Code is a franchise or excise tax, levied upon each of the organizations described in that section, in payment for the privilege of exercising and enjoying the rights, powers, privileges and immunities mentioned therein, and is only measured by the amount of capital used, invested or employed in the exercise of any of such rights, powers or privileges.
This view is in harmony with the statement in Great Lakes Pipe Line Company v. Oklahoma Tax Commission (1951), 204 Okl. 518, 523, 231 P.2d 655, 661, concerning the 1941 “Oklahoma Corporation License Law” (68 O.S.1941, §§ 634-643) which was repealed by the 1949 act that' became our present “Franchise Tax Code” :
“ * * * It is measured by the amount of capital used, invested, or employed in Oklahoma. In our opinion it is a tax levied on a corporation for its right to exist in Oklahoma, and as a prerogative [prerequisite?] to the right of exercising its corporate functions in this state. * * *.”
It is also in harmony with this court’s analysis of the same Section 1203 involved herein, in Personal Loan & Finance Company of Capitol Hill v. Oklahoma Tax Commission et al. (1968), Okl., 437 P.2d 1015. That case involved an assessment of additional tax based upon the taxpayer-corporation’s having deducted from the amount of its capital the amount of its loan obligations to its parent corporation, in spite of a provision in subsection (b) of Section 1209 precluding such a deduction for advances between parent and subsidiary organizations. The issue of law presented was whether or not that provision constituted an unconstitutional classification of “subjects” of the tax. In answering that question in the negative, this court first analyzed the statute as follows :
“* * * Title 68 O.S.Supp.1963, § 12-1203, renumbered Title 68 O.S.Supp. 1965, § 1203, levies and assesses a franchise or excise tax upon the taxpayer equal to $1.25 for each $1000 ‘of the amount of capital used, invested or employed in the exercise of any power, privilege or right inuring to’ it, within this State and requires payment of the tax for the right to exist as a corporation and enjoy under the protection of the State the powers, rights, privileges and immunities derived from the State. * * *.” (Emphasis supplied)
Especially in view of that analysis of the statute, .it is reasonably clear that subsequent statements in the opinion, to the effect that the statute levies a “franchise tax” upon the amount of capital used, invested or employed in Oklahoma, were not intended to characterize the tax as a “property tax” levied upon capital of such an organization.
Contrary to the corporation’s contention herein, the case of In re Oklahoma National Life Insurance Company (1918), 68 Okl. 219, 173 P. 376, did not involve a predecessor of Section 1203 of the present franchise tax code. It involved an early predecessor of Section 2432 of the present ad valorem tax code, and does not support the corporation’s contention that the franchise tax is levied upon the property and assets of the affected organizations according to the value thereof.
The tax levied by Section 1203 of the Franchise Tax Code is not levied upon assets constituting the “capital” of the business organizations mentioned in that statute, or upon the transfer of any such *213assets, or upon income from any such assets. Consequently, the tax-exemption provision of Section 14 of the Oklahoma Turnpike Act does not apply with respect to such tax and require that the value of bonds issued under the provisions of that act be deducted from the amount of the taxpayer’s capital before computing the amount of the tax due from the taxpayer.
The Oklahoma Tax Commission’s order involved in this appeal is affirmed.
DAVISON, V. C. J., and JACKSON, IRWIN and BARNES, JJ„ concur.
BERRY, C. J., and WILLIAMS and HODGES, JJ., dissent.