OSCN Found Document:ARNOLD et al. v. OKLAHOMA TAX COMMISSION
THOMAS E. PRINCE, VICE-CHIEF JUDGE:
¶1 Rodney and Deborah Arnold (Protestants/Appellants) appeal the Oklahoma Tax Commission's (Respondent/Appellee) Order denying the Arnolds' Income Tax Protests for the 2016 and 2017 tax years. The Arnolds protested the Commission's denial of their tax refunds for the 2016 and 2017 tax years after the Commission determined the Arnolds' requested refunds were filed outside of the three (3) year limitation period imposed by 68 O.S. § 2373Matter of Protest of Raytheon Co. & Subsidiaries, 2022 OK 32512 P.3d 333
BACKGROUND
¶2 The Arnolds initiated the underlying administrative action upon their protest of the Commission's denial of the Arnolds' refunds from the 2016 and 2017 tax years. The administrative record reflects, in relevant part, that the Arnolds made estimated tax payments through the course of the 2016 and 2017 tax years which resulted in substantial overpayment of both years' tax liabilities. The Arnolds' estimated payments generated an overpayment of $188,071.00 for the 2016 tax year and $244,482.00 for the 2017 tax year. Although the Arnolds made incremental payments during the 2016 and 2017 tax years, the Arnolds did not file their 2016 and 2017 Form 511 Oklahoma Tax Returns until October 15, 2020, and October 15, 2021, respectively. Upon the Arnolds' belated filing of their 2016 and 2017 tax returns, the Arnolds opted to have both years' refunds carried forward to be applied to the following tax year (i.e. $188,071.00 to be applied to the 2017 tax year and $244,071.00 applied to the 2018 tax year). One of the legal issues here is whether the three (3) year time period to claim a refund begins on the final date of the extended filing deadline, which the Arnolds automatically received by virtue of their valid federal filing extensions.
¶3 The administrative record contains evidence that the Arnolds received valid extensions from the IRS to file both their 2016 and 2017 tax returns. An Account Transcript from the IRS reflected an extended deadline of October 15, 2017 for the 2016 tax return. Although the record contains no equivalent document from the IRS concerning the Arnolds' 2017 tax return, the record includes a Form 504-I Application for Extension of Time to File an Oklahoma Income Tax Return.
¶4 Following the Arnolds' filing of their 2016 tax return on October 15, 2020 (wherein the Arnolds elected to have their refund of $188,071.00 carried over to the 2017 tax year), the Commission notified the Arnolds on November 20, 2020 that $94,011.00 of their 2016 refund was barred by statute because it had been filed outside the applicable three (3) year limitation period. On October 17, 2024, the Commission notified the Arnolds that $188,071.00 of their 2016 refund was now barred by statute, which the Arnolds timely protested via letter on November 8, 2024. After the Arnolds' filing of their 2017 tax return on October 15, 2021 (wherein the Arnolds elected to have their refund of $244,482.00 carried over to the 2018 tax year), the Commission informed the Arnolds on October 29, 2021 that their claimed refund of $244,482.00 from the 2017 tax year had been adjusted to $56,411.00 because they filed their 2017 Return outside the three (3) year limitation period. On November 15, 2021, the Commission notified the Arnolds that $56,411.00 of their 2017 refund was barred by statute. The Arnolds timely protested the Commission's denial of their 2017 refund via letter on January 13, 2022.
¶5 The Office of Administrative Law Judges received the Arnolds' protests on August 23, 2023, and, thereafter, assigned the case to Administrative Law Judge Megan Holden. The Arnolds' 2016 and 2017 protests were, subsequently, consolidated into a single case following a Joint Motion to Consolidate on January 6, 2023. Following pre-trial briefing, a hearing on the Arnolds' protests proceeded on July 17, 2025. Witness testimony included, in relevant part, a detailed breakdown of the Arnolds' tax payment timeline by Jolly Kurien, a Senior Case Management Specialist at the Commission. Throughout her testimony, Ms. Kurian reiterated that the three (3) year limitation period in 68 O.S. § 2373
Q. (BY MS. LANFAIR) All right. So -- so a copy of the extension wasn't mailed in, just a copy -- just a verification that it [had] happened?
A. Verification --
Q. That it had been filed --
A. -- yes.
Q. -- with the federal --
A. And -- and -- and, of course it solved [sic] the internal revenue acknowledged [sic] --
Q. O, yeah. No, I just -- again, I -- I -- I thought I was missing a page.
A. Yes.
Q. And so I just wanted to, like, clarify before I let everyone go.
MS. LANFAIR: Okay. That's -- that is my only question. I'm sorry. Thank you.
Mr. Moyers' Office Manager, James Mark Pulley, testified to his role in the preparation of returns and their standard office procedures regarding the submission of the federal extension request along with state returns.
¶6 The ALJ issued her Findings, Conclusions, and Recommendations on August 1, 2025, wherein she determined the Arnolds' 2016 and 2017 returns were filed outside of the three (3) year statute of limitations imposed by 68 O.S. § 2373
[The Arnolds] filed their original 2016 Return on or about October 15, 2020, more than three years after years after the original due date of April 18, 2017. [The Arnolds] filed their original 2017 Return on October 15, 2021, also more than three years after the original due date of April 17, 2018. Additionally, [the Arnolds] had a tax liability for each year in question, and were required to file Form 504-I along with their Form 511 and proof of federal extension. [The Arnolds] provided this form with their 2017 Form 511, but not their 2016 Form 511. [The Arnolds] therefore did not have a valid Oklahoma extension for tax year 2016.
(emphasis added). The ALJ concluded by recommending that the Arnolds' protests be denied. The Commission's three (3) judge panel adopted the ALJ's Findings, Conclusions, and Recommendations and entered its Order denying the Arnolds' protests on August 26, 2025. The Arnolds, thereafter, initiated this timely appeal.
STANDARD OF REVIEW
¶7 When the Commission acts in its adjudicative capacity, its orders will be affirmed on appeal if the record contains substantial evidence supporting the facts upon which the order is based and the order is free from legal error. Matter of Protest of Hare, 2017 OK 60398 P.3d 317citing Am. Airlines, Inc. v. State, ex rel. Oklahoma Tax Comm'n, 2014 OK 95341 P.3d 56Union Texas Petroleum, A Div. of Allied Chem. Corp. v. Corp. Comm'n of State of Okl., 1981 OK 86651 P.2d 652
¶8 The Commission's legal rulings are reviewed de novo and subject to this court's plenary, independent and non-deferential re-examination. Grasso v. Oklahoma Tax Comm'n, 2011 OK CIV APP 37249 P.3d 1258citing Blitz U.S.A., Inc. v. Oklahoma Tax Commission, 2003 OK 5075 P.3d 883de novo review. Blitz U.S.A., Inc. v. Oklahoma Tax Comm'n, 2003 OK 5075 P.3d 883as corrected (May 22, 2003).
ANALYSIS
¶9 The Arnolds asserted three (3) issues on appeal in their Pet.-in-Error, 68 O.S. § 2373Matter of Protest of Raytheon Co. & Subsidiaries, 2022 OK 32512 P.3d 33368 O.S. § 2373Raytheon, whether the Arnolds complied with the requisite filing extension procedure imposed by 68 O.S. § 216Matter of Protest of Raytheon Co. & Subsidiaries applies to individual taxpayers and corporate taxpayers alike. By virtue of our application of Raytheon to individual taxpayers, we find the Commission erred in utilizing the Arnolds' original due dates of April 18, 2017 and April 17, 2018 as the date the Arnolds "paid" their taxes because they received valid extensions for both tax years. In summary, the Arnolds' claim for their refund of $188,071.00 for the 2016 tax year, as well as their refund of $56,411.00 for the 2017 tax year were timely raised within three (3) years of the Arnolds' extended filing deadline. The Commission's August 26, 2025 Order is, accordingly, reversed.
A. Application of Matter of Protest of Raytheon Co. & Subsidiaries to Individual Taxpayers
¶10 The Arnolds contend the Commission erred as a matter of law when it declined to extend the Supreme Court's interpretation of 68 O.S. § 2373Matter of Protest of Raytheon Co. & Subsidiaries, 2022 OK 32512 P.3d 333
Except as provided in subsection H of Section 2375 of this title, the amount of the refund shall not exceed the portion of the tax paid during the three (3) years immediately preceding the filing of the claim, or, if no claim was filed, then during the three (3) years immediately preceding the allowance of the refund.
68 O.S. § 2373Neer v. State ex rel. Oklahoma Tax Comm'n, 1999 OK 41982 P.2d 1071Id. at ¶ 24. Prior to Raytheon, the date of a taxpayer's "payment" of income taxes (and, consequently, the start of § 2373's three (3) year limitation period) had been interpreted as the date taxes were initially due. See, e.g., Strelecki v. Oklahoma Tax Comm'n, 1993 OK 122872 P.2d 910as clarified on reh'g (Mar. 23, 1994); see also, e.g., Neer v. State ex rel. Oklahoma Tax Comm'n, 1999 OK at ¶ 2, 982 P.2d at 1073; see also, e.g., Matlock v. State ex rel. Okl. Tax Comm'n, 2001 OK CIV APP 10429 P.3d 614Raytheon, however, revisited the meaning of the phrase "tax paid" where a taxpayer obtains a valid extension to file a particular year's tax return. Matter of Protest of Raytheon Co. & Subsidiaries, 2022 OK 32512 P.3d 333
¶11 In Raytheon, following the overpayment of its taxes for the 2012 tax year (timely filed on September 27, 2013 after receiving a valid filing extension), Raytheon -- a corporate taxpayer -- filed an Amended Tax Return for the 2012 tax year on September 27, 2016, wherein it sought a refund for its prior overpayment. Id. The Commission denied Raytheon's refund claim, concluding it was asserted more three (3) years after its original filing deadline of March 15, 2023, while Raytheon maintained its claim was raised within three (3) years of its extended filing deadline of September 27, 2013. Id., at ¶¶ 1-3. In reviewing the plain language of 68 O.S. § 2373 Court found the phrase "portion of the tax paid during the three (3) years immediately preceding the filing of the claim" to be ambiguous, explaining the phrase could mean either (1) when the original return was actually filed (on the extended filing deadline of September 27, 2013); or (2) when the return was originally due (on March 15, 2013). Id. at ¶ 8. Upon engaging in the tenants of statutory construction, the Supreme Court concluded that, because Raytheon received a valid extension to file its taxes and did so within the extended timeframe, Raytheon's taxes were "deemed paid" when it filed its tax return on September 27, 2013. Id. at ¶ 18. Consequently, the Supreme Court held that Raytheon's claim for a refund for the 2012 tax year had been timely filed within the three (3) year period imposed by 68 O.S. § 2373Id.
¶12 The Supreme Court's holding in Raytheon was, however, limited in application, as the Supreme Court included a footnote distinguishing Raytheon from an earlier case from a separate division of this Court -- Matlock v. State ex rel. Okl. Tax Comm'n, 2001 OK CIV APP 10429 P.3d 614Matlock Court similarly considered 68 O.S. § 2373Raytheon differentiated its analysis from that of the Matlock Court by limiting its application of § 710:50-9-2 to the specific facts presented, explaining the following:
Matlock is inapposite [to Raytheon] because (1) the taxpayers in [Matlock] failed to timely file a return when originally due and did not request an extension; and (2) taxpayers were individuals and not corporations. Thus § 710:50-9-2 specifically applied to the facts presented.
Matter of Protest of Raytheon Co. & Subsidiaries, 2022 OK at ¶ 15 n. 13, 512 P.3d at 340. The Arnolds, the Commission, and the ALJ each acknowledge, however, that the Supreme Court misapplied the facts of Matlock in its Raytheon footnote, as the Matlock taxpayers did receive a valid extension to file their return for the tax year at issue. See Matlock v. State ex rel. Okl. Tax Comm'n, 2001 OK CIV APP at ¶ 1, 29 P.3d at 615 ("[t]he Matlocks filed and received an extension of time to file their 1993 federal income tax return which then became due on October 15, 1994. This extension extended the 1993 state income tax return date to October 15, 1994."). In light of this misapplication of fact, we read Raytheon to have effectively overruled Matlock.
¶13 We recognize the Supreme Court also distinguished Raytheon from Matlock because Raytheon dealt with a corporate taxpayer while Matlock dealt with individual taxpayers. Matter of Protest of Raytheon Co. & Subsidiaries, at ¶ 15 n. 13. Nevertheless, the Supreme Court did not cite any case law or engage in any statutory analysis to show that the statutory period in § 2373 should be interpreted differently based upon the status of the taxpayer. See 68 O.S. § 1352see also First Nat. Bank of Stillwater v. State ex rel. Oklahoma Tax Comm'n, 1970 OK 33466 P.2d 644Raytheon should not be extended to individual taxpayers who receive a valid filing extension from the Commission.
B. Interplay Between the Date Taxes are Deemed "Paid" in & Filing Extension Procedure in
¶14 The Arnolds further contend that our application of Raytheon to individual taxpayers renders their claims for refunds for both the 2016 and 2017 tax years timely. As noted in our analysis supra., 68 O.S § 2373 functions as a three (3) year statute of repose which begins to run on the date a taxpayer's taxes are "paid". Neer v. State ex rel. Oklahoma Tax Comm'n, 1999 OK at ¶ 20, 982 P.2d at 1079. Like the parties in Raytheon, the Arnolds and the Commission present differing interpretations of the phrase "tax paid" as it is used in 68 O.S. § 2373Matter of Protest of Raytheon Co. & Subsidiaries, 2022 OK 32512 P.3d 333Raytheon to individuals, we must, necessarily, interpret § 2373's three (3) year period to begin running on the extended filing deadline where the taxpayer receives a valid filing extension for a particular tax year. Nevertheless, for the Arnolds to have received the benefit of the extended filing deadline (and, consequently, a belated start to § 2373's three (3) year limitation period), the Arnolds must have obtained valid filing extension for the 2016 and 2017 tax years.
¶15 It is undisputed that the Arnolds obtained valid federal extensions to file their 2016 and 2017 Returns. The Commission's Order, however, found that the Arnolds failed to comply with the requisite procedure to obtain valid Oklahoma filing extensions. Title 68 O.S. § 216 pursuant to written request".
(a) A valid extension of time in which to file a Federal Income Tax Return automatically extends the due date of the Oklahoma Income Tax Return, unless Oklahoma liability is owed. A copy of the Federal extension must be attached to the Oklahoma Return. If the due date for filing the Federal Return is not extended or if an Oklahoma liability is owed, an extension of time to file the Oklahoma Return may be granted only by OTC Form 504. Ninety percent (90%) of the tax liability must be paid by the original due date for the return to avoid penalty charges for late payment.
OAC § 710:50-3-4(a) (amended 2017).
¶16 We find the use of the phrase "Oklahoma liability owed" in § 710:50-3-4(a) to be ambiguous, especially when applied to the facts of this case. See YDF, Inc. v. Schlumar, Inc., 2006 OK 32136 P.3d 656See, e.g., Cox v. State ex rel. Oklahoma Dep't of Human Servs., 2004 OK 1787 P.3d 607
¶17 Because we find Commission's use of the phrase "Oklahoma liability owed" in OAC § 710:50-3-4(a) to be ambiguous where taxpayers preemptively made estimated payments in excess of their ultimate liability for a particular tax year, we must employ the rules of statutory interpretation to ascertain legislative intent. Rickard v. Coulimore, 2022 OK 9505 P.3d 920Dolese Bros. v. State ex rel. Oklahoma Tax Comm'n, 2003 OK 464 P.3d 1093YDF, Inc. v. Schlumar, Inc., 2006 OK 32136 P.3d 656
¶18 As stated supra., 68 O.S. § 21668 O.S. §§ 201 See McIntosh v. Watkins, 2019 OK 6441 P.3d 1094
Ninety percent (90%) of the tax liability must be paid by the original due date for the return to avoid penalty charges for late payment.
By adding this additional provision related to a taxpayer's extended payment timeline, the Commission's rule implies that taxpayers who "owe an Oklahoma liability" have not yet tendered full payment of their taxes for a particular year. Finally, § 710:50-3-4 embraces different terminology when referring to a taxpayer's total "tax liability" for a particular year, the "liability paid", and the "liability owed". In light of our view that the language used in OAC § 710:50-3-4(a) is ambiguous and that the Arnolds had made timely and excessive quarterly estimated tax payments during 2016 and 2017, we conclude the Arnolds did not "owe" an Oklahoma liability for the 2016 and 2017 tax years. Because it is undisputed the Arnolds received valid federal filing extensions for the 2016 and 2017 tax years, the Arnolds filing deadlines with the Commission were "automatically extend[ed]" pursuant to § 710:50-3-4(a) so long as the Arnolds attached a copy of their Federal Extension to 2016 and 2017 State Returns.
¶19 In the underlying administrative record, it is undisputed that the Arnolds filed an OTC Form 504-I for the 2017 tax year, thus satisfying the Commission's extension procedure of § 710:50-3-4(a) regardless of our interpretation of the phrase "Oklahoma liability owed." Thus, the Commission erred in finding that the Arnolds did not receive valid extensions for the 2017 tax year. Regarding the 2016 tax year, J. Moyers, CPA, testified to the Arnolds' tax payment timeline, maintaining that he prepared both the Arnolds' 2016 and 2017 Returns and requested extensions for both tax years from the IRS. Although it was established in the administrative proceeding below that a copy of the Arnolds' federal filing extension was not attached to the version of the Arnolds' 2016 Return that was admitted into evidence, the Arnolds' CPA, Mr. Moyers testified during his direct testimony that "[a]ll necessary federal attachments would -- goes with the State of Oklahoma return . . ." . Although he stated that he did not have a specific recollection of the return, he stated that "the federal attachment automatically goes with the state income tax return." OTC's counsel ineffectively attempted during the cross-examination phase of Mr. Moyers' testimony to establish or clarify that "a copy of the extension wasn't mailed in, . . . just a verification that it [had] happened?" The on-the-record exchange between OTC's counsel and Mr. Moyers on that point (as quoted in Background section, supra.) was, at best, unclear. Their on-the-record exchange is not viewed by this Court as having established or clarified any fact in controversy. While we acknowledge the fundamental role of the fact finder in administrative proceedings, the cross-examination of Mr. Moyers, when viewed in context of his overall testimony, only represented conjecture and inference on the point OTC's counsel attempted to establish: i.e,, to call into question Mr. Moyers' testimony that "the federal attachment automatically goes with the state income tax return.". It is well-established that findings of fact by an administrative agency which are based merely on conjecture and inference may not be sustained. Stipe v. State ex rel. Bd. of Trs. of Oklahoma Pub. Emps. Ret. Sys., 2008 OK 52188 P.3d 120See In re Protest of Freymiller, Inc., 2005 OK CIV APP 94127 P.3d 615
¶20 Because the evidence in the record shows that the Arnolds received valid extensions to file both their 2016 and 2017 Returns, we find the Commission erred in denying the Arnolds' claims for refunds. In applying Raytheon to individual taxpayers, we conclude that, where a taxpayer receives a valid filing extension, 68 O.S. § 2373
CONCLUSION
¶21 Based upon the foregoing analysis, the Commission's Order is, therefore, reversed.
DOWNING, P.J., and MITCHELL, J., concur.