First of McAlester Corp. v. Oklahoma Tax Commission

1985 OK 52, 709 P.2d 1026, 1985 Okla. LEXIS 131
CourtSupreme Court of Oklahoma
DecidedJuly 2, 1985
Docket60488, 60653
StatusPublished
Cited by20 cases

This text of 1985 OK 52 (First of McAlester Corp. v. Oklahoma Tax Commission) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
First of McAlester Corp. v. Oklahoma Tax Commission, 1985 OK 52, 709 P.2d 1026, 1985 Okla. LEXIS 131 (Okla. 1985).

Opinion

HODGES, Justice.

On June 21, 1983, and June 29, 1983, First of McAlester Corporation and First State Bank & Trust Company of Shawnee, Oklahoma (appellants), respectively, filed separate petitions in error. Simultaneous therewith approximately 268 appeals were filed with this Court. On September 19, 1983, this Court consolidated the foregoing named actions and stayed all other appellate proceedings of similarly situated banks pending resolution of such consolidated appeal. Further, this Court authorized the Oklahoma Bankers Association and any bank whose appeal is stayed to file amicus curiae briefs. 1

Appellants in the instant consolidated action seek review of the Oklahoma Tax Commission Order No. 83-05-10-15 rendered May 10, 1983, denying appellants’ and all other banks’ claims for refund and denying all exclusions from net income for calculations of bank tax liability accrued prior to the decision of the United States Supreme Court in the case of Memphis Bank & Trust Co. v. Garner, 459 U.S. 392, 103 S.Ct. 692, 74 L.Ed.2d 562 (1983) and determining that Memphis Bank should be applied prospectively only.

Shortly after the Memphis Bank decision, appellants sought a refund of “in lieu tax” paid to the State of Oklahoma through the Oklahoma Tax Commission (Commission or appellee) pursuant to the requirements of 68 O.S. 1981 §§ 2370 and 2371, for the years of 1979, 1980 and 1981, respectively. Appellant First State Bank & *1028 Trust Company of Shawnee has filed and appellant First of McAlester Corporation asserts that it will file 1982 returns with the Commission excluding interest on federal securities from net income in reliance upon the United States Supreme Court’s pronouncement in Memphis Bank. Appellants specifically request that Order No. 83-05-10-15 be vacated and the cause be remanded to the Commission with instructions to enter its Order granting appellants’ claims for refund for the years 1979 through 1981, and allowing appellants’ exclusions from net income for calculations of bank tax liability accrued prior to the Memphis Bank case. In addition, appellants seek declaratory relief from this Court, finding 68 O.S. 1981 §§ 2370 and 2371 2 invalid from the date those provisions of law became effective in the State of Oklahoma on June 22, 1971, and directing the Commission to honor claims for refunds for any amounts paid pursuant to those provisions since that date. Appellee requests that this Court uphold and affirm its Order and give prospective application to avoid inequity or hardship.

On January 24, 1983, the United States Supreme Court decided Memphis Bank, wherein the Court reviewed a Tennessee statute that imposed a tax on a bank’s net earnings, and defined net earnings to include income from obligations of the United States and its instrumentalities but excluded interest earned on the obligations of Tennessee and its political subdivisions. 3 *1029 Each bank was required under the statute to pay to the local governments of Tennessee an excise tax of 3% of its net earnings for the preceding year, less 10% of the ad valorem taxes paid by the bank for that year. The Memphis Bank & Trust Company paid the required excise tax under protest and subsequently filed an action in state court to recover the portion of taxes paid covering interest income on federal obligations. The United States Supreme Court, in reversing the judgment of the Tennessee Supreme Court, unanimously held that the Tennessee bank tax violated the immunity of obligations of the United States from state and local taxation and found that the tax could not be characterized as nondiscriminatory under the exception for nondiscriminatory franchise taxes as provided for in 31 U.S.C. § 742. 4 459 U.S. at 398. See also Federal Tax Immunity; Memphis Bank & Trust Co. v. Garner; Washington v. United States, 37 Tax Law 375 (1984).

On June 6, 1983, the Governor of Oklahoma signed into law Enrolled House Bill 1380, 5 which amended the provisions of 68 O.S. 1981 § 2370 by deleting the final paragraph of subsection C and adding a new subsection D and repealing 68 O.S. 1981 § 2371. Although the legislative history is silent as to the intent of the Legislative, it is apparent that its intent was to cure any constitutional infirmities that might be found in the in lieu bank tax provisions.

The dispositive issues presented in this consolidated appeal are as follows: (1) Whether the now repealed Oklahoma taxing scheme, which included income from federal securities, was unconstitutional; (2) If answered in the affirmative, should the invalid tax levy condemned by the Memphis Bank case, be nullified prospectively or retroactively to 1971, the date of enactment of 68 O.S. 1981 §§ 2370 and 2371?

I.

Turning now to appellants’ constitutional claim, that the Commission’s Order is contrary to the holding and intent of the Memphis Bank case in that it mandates recognition by the Commission that the in lieu tax “impermissibly discriminated against *1030 the Federal Government and those with whom it deals” from the date §§ 2370 and 2371 became effective in Oklahoma on June 22, 1971.

The relevant provisions of the United States Constitution to the present case are article I, § 8, clause 2 (the “Borrowing Clause”) 6 and article VI, clause 2 (the “Supremacy Clause”). 7 In reliance upon Memphis Bank, appellants argue that the in lieu tax violates the federal constitutional immunity of United States obligations from state and local taxation. McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819) established the constitutional doctrine of tax immunity derived from the Borrowing and Supremacy Clauses that, “States may not impose taxes directly on the Federal Government, nor may they impose taxes the legal incidence of which falls on the Federal Government.” Memphis Bank, 459 U.S. at 397, 103 S.Ct. at 696 (quoting United States v. County of Fresno, 429 U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d 683 (1977)). “Where, as here, the economic but not the legal incidence of the tax falls on the Federal Government, such a tax generally does not violate the constitutional immunity if it does not discriminate against holders of federal property or those with whom the Federal Government deals.” Id.

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1985 OK 52, 709 P.2d 1026, 1985 Okla. LEXIS 131, Counsel Stack Legal Research, https://law.counselstack.com/opinion/first-of-mcalester-corp-v-oklahoma-tax-commission-okla-1985.