Court Opinion

ID: 4794602
Source: CourtListenerOpinion
Date Created: 2021-08-20 06:56:17.88494+00
Date Added: 2024-06-11T08:09:53.390582
License: Public Domain

ON REHEARING
HAMLIN, Justice.
Rehearing was granted in this matter in order that we might consider defendants-appellants’ assignment of the following errors ascribed to the opinion of this Court on original hearing:
1. The Court failed to properly construe LSA-R.S. 47:55 as modified by the provisions of LSA-R.S. 47:241.
2. The Court erred in holding that no federal income tax was paid on the Louisiana ordinary income because Louisiana ordinary income and ordinary loss outside Louisiana offset each other for federal income tax purposes.
3. The Court erred in finding that although the taxpayers’ Louisiana ordinary income was included in the federal returns, it was offset rather than taxed, and that no portion of the federal tax was collected on it.
4. The Court erred in ruling that the federal income tax deduction is a matter of grace and in construing the statute allowing it narrowly and strictly.
5. The Court erred in overruling the pleas of unconstitutionality filed by defendants-appellants.
In our original opinion, we concluded that the Louisiana Collector of Revenue had properly applied the provisions of LSA-R.S. 47:55(4) and LSA-R.S. 47:241 to the income of the defendants on which a Louisiana income tax was demanded, and that the method of calculating the deficiency allegedly due was correct. Our conclusions were reached after a consideration of errors assigned by the appellants to the findings of the trial court; the assertions supra are similar. On this rehearing we shall reiterate only that which is necessary for our present determination.
*847The exhibits-of record disclose that Mrs’. Hunt paid no federal income tax for the year 1953; her return reflects that she suffered a loss. N. B. Hunt chose to pay an alternative tax instead of the regular tax to the federal government; the computation of the alternative tax is reflected on his 1953 federal income tax return as follows:

After audit by the federal Collector of Internal Revenue, the excess of net long-term capital gain over net short-term capital loss was reduced, by $108.24, to $741,443.71; the alternative tax ultimately paid was $385,-550.73, a reduction of $56.28. Corrected adjusted income other than capital gains was increased to $716,706.68. These adjustments are of no moment. The normal tax, as opposed to the alternative tax, would have been approximately $626,187.04, supra.
As set forth in our original opinion, for federal tax purposes N. B. Hunt’s Louisiana ordinary income of $647,589.44 was offset entirely by his ordinary losses, non-Louisiana, of $686,140.73. Of the $741,443.71 capital gains, only $12,817.24 was attributed to Louisiana. These figures were derived from N. B. Hunt’s federal income tax return for the year 1953.
Defendants filed a joint Louisiana income tax return for the calendar year 1953. Set forth therein" was adjusted gross income and net income for federal income tax of $718,013.10 and $692,631.43, respectively; the federal total tax liability was stated to be $385,607.01. For Louisiana tax purposes, defendants reported $683,373.49 income and then reduced this amount to $320,674.11 by ordinary deductions and a federal tax deduction of $361,699.38-, they computed their Louisiana income tax liability to be $16,734.46. The $361,699.38 federal tax deduction was computed on a ratio of 93.8% of the federal alternative tax of $385,607.01, supra; the ratio was computed by placing Louisiana income — federal basis — over total income- — federal basis—

*848The deficiency which the Louisiana Collector of Revenue demands herein was determined as follows:
“Net Income Reported $320,674.11
“Add: Federal Tax claimed 361,699.38
Income from Partnership not reported [This amount not contested] 7,584.89
“Total $689,958.38
“Deduct Federal Tax allowed 6,664.96
“Net Income as adjusted $683,293.42
“Total Tax as adjusted 38,486.26
“Less Tax Paid 16,734.46
“Additional Tax assessed [This is the amount in dispute herein] $ 21,751.80”
LSA-R.S. 47:55 (4) provides that in computing net income for Louisiana income tax purposes, no deduction shall be allowed for any income taxes paid on net income on which no Louisiana income tax has been paid, and, on which, for any reason whatsoever, no Louisiana income tax will be paid.
LSA-R.S. 47:241, which appears in Sub-Part F. Non-Resident Individuals and Foreign Corporations of the Income Tax Law of Louisiana, provides that the net income of a non-resident individual shall be the sum of the net allocable income earned within or derived from sources within this state and the net apportionable income derived from sources in this state less the amount of federal income taxes attributable to the net allocable income and net apportionable income derived from sources in this state.
Appellants contend that, “If Section 241 had intended that the. tax had to rest specifically on identifiable Louisiana income, it would not have used the word 'attributable’ which is much broader than the word ‘paid’. The difference in wording between Section 55 and Section 241 is intentional and has a reason for the change in language. All of the taxes referred to in Section 55 are specific taxes and the objects to which they apply are easily identified. Their location within the taxing jurisdiction of the State is easily ascertained. On the other hand the taxation of the Louisiana income of a nonresident or foreign corporation is complicated by rules of allocation and apportionment. Furthermore the federal income tax computation is based on a heterogeneous mixture of all types of income from all sorts of sources. In the federal scheme the income is all thrown together, numerous deductions are made, and the net income to be taxed is not identified as income from any particular source. All income of every nature contributes to the result and the tax is attributable to that result.”.
Appellants further contend that the Louisiana income has a causal connection with the alternative tax, that the large amount paid as an alternative tax can be ascribed in part to the Louisiana income which amounts to 93.96% (adjusted from 93.8%, supra) of the total income, and that this percentage of the tax is entirely attributable to the Louisiana income.
“A ‘realized’ gain or loss from a disposition of property, measured as discussed above, and recognized for inclusion as an item of gross income, or as an allowable deduction in the year of ‘realization’ is classified as ordinary or *849capital. Ordinary gains and losses enter into the computation of tax payable in the same manner as other items of income or deduction which are not given preferential treatment by the Code. Gains and losses classified as capital are subject to special rules. * * * ” 26 U.S.C.A., Guide, page 73. (Emphasis ours.)
“ * * * The purpose of the capital gains provisions of the Income Tax law is to relieve a taxpayer of excessive tax burdens on gains resulting from a conversion of capital investments. * * * ” Sherlock v. C. I. R., 5 Cir., 294 F.2d 863, certiorari denied 369 U.S. 802, 82 S.Ct. 641, 7 L.Ed.2d 549.
“The principles of law which control are clear and not in conflict. All decisions recognize that the capital gain provision of the Revenue Law was passed for a special group of taxpayers. It was passed to relieve a taxpayer from excessive tax burdens resulting from those situations where property had been purchased for an investment, had been held for a long period of time and had greatly appreciated in value. Congress intended to give a taxpayer relief from the tax burden which would result if he were required to report the appreciated value over a long period of time as ordinary income in the year the capital asset was liquidated. Being an exception to the general rule of taxation, the provision must be narrowly construed and one who seeks the benefits of its provision must bring himself strictly within the terms of the exception. If the findings of the Tax Court find support in the record, we may not reverse because we, in the first instance, might have reached a different conclusion.” Real Estate Corporation, Inc. v. C. I. R., 10 Cir., 301 F.2d 423, certiorari denied, 371 U.S. 822, 83 S.Ct. 37, 9 L.Ed.2d 61.
On innumerable occasions, we have said that each case stands on its own facts and circumstances. Herein, we cannot determine or surmise what appellants’ 1953 federal income tax would have been if they had had no Louisiana ordinary income to be offset by ordinary losses (suffered in other states). We cannot determine or surmise what appellants’ Louisiana income tax for 1953 would be if the approximately $740,000.00 of capital gains had been realized in Louisiana and not in states other than Louisiana. The facts of this case clearly show that appellants voluntarily chose the alternative tax plan for computation and payment of their federal tax; they paid their federal tax on capital gains (other than $12,817.24) realized outside of Louisiana. Appellants accepted the relief offered them by the federal government and paid their federal tax by employing a method of calculation which is an exception to the general rule. We cannot say that the federal tax paid by appellants (93.8% of $385,-607.01, or $361,699.38) was attributable to the net allocable income or the net appor-tionable income derived from sources in this state; we find no causal connection between appellants’ Louisiana taxable income and the alternative tax paid to the federal government. Hence, the Louisiana Collector of Revenue was correct in adding $361,699.38, the federal tax deduction claimed, to $320,674.11, net income reported; he was likewise correct in employing LSA-R.S. 47:55(4) and LSA-R.S. 47:241 to complement each other.
Appellants further contend that ordinary income and capital gains are included in a taxpayer’s taxable income, and that the alternative tax provisions affect only the rate of taxation. This contention might be correct in certain instances, but it is not applicable to the facts of the present matter. The circumstances here definitely reflect that N. B. Hunt paid his 1953 federal income tax on capital gains only as appears by reference to lines 17, 21, 23, and *85025 of the Computation of Alternative Tax for Calendar Year 1953, supra. (52% of $741,551.95 = $385,607.01.)
As stated supra, the errors assigned herein are similar to the contentions advanced on original hearing. We find no error in our conclusions made on original hearing and see no reason to further repeat the issues.
For the reasons assigned the judgment and decree originally rendered herein is approved, reinstated, and made the final judgment of this Court.
HAMITER, J., dissents.
McCALEB, J., dissents with written reasons.
SUMMERS, J., dissents for the reasons assigned and for the reasons assigned by McCALEB, J.