Strizver v. Department of Revenue

• Court: Oregon Tax Court
• Decided: March 21, 2012
• Docket: TC-MD 110969D
• Status: Unpublished

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax

CHRIS STRIZVER ) and SUSAN STRIZVER, ) ) Plaintiffs, ) TC-MD 110969D ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION

Plaintiffs appeal Defendant’s Notice of Refund Denial, dated July 12, 2011, for the 2010

tax year. The parties filed cross-motions for summary judgment. There is no factual dispute.

This matter is now ready for decision.

I. STATEMENT OF FACTS

Plaintiffs filed a nonresident Oregon state income tax return as residents of the state of

Washington for the 2010 tax year. (Def’s Cross-Mot for Summ J at 1.) Plaintiffs’ Oregon return

for 2010 deducted $3,170 in sales taxes paid as an itemized deduction. (Id.) When processing

Plaintiffs’ return, Defendant added back the $3,170 sales tax paid deduction. (Id.)

Plaintiffs ask this court to repeal ORS 316.8211 to allow a deduction for sales tax paid;

or, in the alternative, expand ORS 316.131 to include sales tax paid to another state, allowing

Plaintiffs to claim a credit for sales tax paid to Washington state. (Ptfs’ Mot for Summ J at 1.)

Plaintiffs allege that ORS 316.821 is unlawful because it is in conflict with ORS 316.007,

stating in pertinent part, that “Oregon [income] tax law is to mirror federal [income] tax law.”

(Id. at 2; Ptfs’ Compl at 3.) Even though Plaintiffs admit that ORS 316.007 “is a policy

1 All references to Oregon Revised Statutes (ORS) refer to 2009.

DECISION TC-MD 110969D 1 statement and does not bind Oregon to adhere 100% to the IRS provisions,” they assert that that

“the [Fourteenth] Amendment [to the U.S. Constitution] does require that any deviations be non-

arbitrary and affect all taxpayers equally.” (Ptfs’ Mot for Summ J at 2.) Plaintiffs allege that

ORS 316.821 denies “a subset of Oregon taxpayers” who have “paid a [Washington] state sales

tax” to recognize their total sales tax deduction claimed on their federal income tax return. (Id.)

Plaintiffs allege that this statute “targets a very specific subset of Oregon taxpayers that reside in

states other than Oregon as only nonresidents will pay sales tax * * * significant enough to

justify deducting [it] on their federal Schedule A form.” (Id.) Plaintiff argues “while ORS

316.821 applies to all Oregon taxpayers that elect to deduct sales tax, it affects only nonresidents

and arbitrarily denies them access to 100% of their valid federal deductions.” (Id.) Plaintiffs

claim that “[t]here is no other deduction that Oregon taxpayers are required to add back into their

Oregon taxable income * * *.” However, Plaintiffs acknowledge that Oregon taxpayers do have

to add back Oregon state income tax claimed as a federal itemized deduction. (Id.)

Plaintiffs further assert that ORS 316.131 should be expanded to allow nonresidents to

receive a credit for sales tax paid to the nonresident’s home state, similar to the credit allowed by

the statute for income tax paid the nonresident’s home state. (Id. at 2-3.) Plaintiffs allege that

“[t]he only valid justification for the Oregon Department of Revenue to deny a nonresident’s

sales tax deduction is that a state sales tax is equal to and on par with a state income tax.” (Id. at

2.) Plaintiffs also alleged that because “a taxpayer’s federal sales tax deduction can be

determined directly from the taxpayer’s income by use of the Optional State and Certain Local

Sales Tax Tables on the Federal Schedule A form,” state sales tax is related to income. (Id. at 3.)

(Emphasis in original.)

///

DECISION TC-MD 110969D 2 Defendant stated in its Cross-Motion for Summary Judgment that there are “no genuine

issues of material fact,” and Defendant is entitled to judgment as a matter of law. (Def’s Cross-

Mot for Summ J at 1.) Defendant alleges that Plaintiffs claimed an itemized sales tax deduction

that is subject to being added back for the purposes of determining Oregon taxable income under

ORS 316.821(2). (Id. at 2.) Defendant addressed Plaintiffs’ concern that only Oregon taxpayers

who have paid state sales tax are affected by ORS 316.821 by pointing out that ORS

316.695(1)(d)-(A) does not allow Oregon taxpayers that include state income tax as an itemized

deduction on their federal taxes to use that same deduction on their Oregon taxes. (Id.)

In response, Plaintiffs argue that because both state sales tax and state income tax taken

as a deduction when calculating federal taxable income must be added back when calculating

Oregon taxable income, either income tax or sales tax paid to nonresident’s home state should be

allowed as a credit toward Oregon taxes. (Ptf’s Resp to Cross-Mot for Summ J at 1-2.)

Plaintiffs claimed Defendant treats sales tax and state income tax the same by adding both to

state taxable income but treats the taxes differently when one of the taxes could reduce a

taxpayer’s taxable income, allowing a credit for income taxes paid to another state but offering

no comparable credit for sale tax paid to another state. (Id. at 2.)

II. ANALYSIS

As this court has previously noted, “[t]he Oregon Legislature intended to make Oregon

personal income tax law identical to the Internal Revenue Code (IRC) for purposes of

determining Oregon taxable income, subject to adjustments and modifications specified by

Oregon law. ORS 316.007.” Ellison v. Dept. of Rev., TC-MD No 041142D, WL 2414746 *6

(Sept 23, 2005)(emphasis added). Thus, contrary to Plaintiffs’ assertion, Oregon tax law is not

required by statute to mirror federal income tax law. (See Ptfs’ Mot for Summ J at 2.)

DECISION TC-MD 110969D 3 Nonetheless, Oregon adopted the federal definition for deductions, including those

allowed under Internal Revenue Code (IRC) section 164(b)(5)(A):2

“Election to deduct State and local sales taxes in lieu of State and local income taxes. At the election of the taxpayer for the taxable year, subsection (a) shall be applied—

“(i) without regard to the reference to State and local income taxes, and

“(ii) as if State and local general sales taxes were referred to in a paragraph thereof.”

In 2005, the Oregon legislature modified the application of IRC section 164(b)(5)(A) for state

income tax purposes when it passed Senate Bill 31, which included an add-back provision: “A

taxpayer that elects to deduct state and local sales taxes under section 164(b)(5) of the Internal

Revenue Code for federal tax purposes shall add the amount deducted to federal taxable income

for purposes of the tax imposed by this chapter.” ORS 316.821(2). Because Oregon is not

required by statute to mirror federal income tax law, the legislature could enact such a law.

Plaintiffs allege that Oregon law violates their Fourteenth Amendment rights. (Ptfs’ Mot

for Summ J at 2.) Plaintiffs allege that they are part of a subset of Oregon taxpayers treated

differently based on residency. (Id.) All Oregon taxpayers are treated the same. Oregon

taxpayers may take either a deduction for state sales tax paid or a deduction for state income tax

paid to reduce their federal taxable income. See IRC 164(a); 164(b)(5)(a). If an Oregon taxpayer

reduces his federal taxable income by the amount of state sales tax paid, the taxpayer is required

to add back the amount of the deduction claimed when determining Oregon taxable income as

stated in ORS 316.821(2). If an Oregon taxpayer reduces his federal taxable income by the

2 All references to the IRC are to the 1986 code and include updates applicable to 2010.

DECISION TC-MD 110969D 4 amount of state income tax paid, the taxpayer is required to add back the amount of the

deduction claimed when determining Oregon taxable income as stated in ORS 16.695(1)(d)(A).3

When computing Oregon taxable income, an Oregon taxpayer’s status as a resident or

nonresident is not a factor in allowing or disallowing sales or income tax paid to reduce federal

taxable income. The fact that Plaintiffs live in Washington State and are subject to Washington’s

sales tax when they make purchases in that state does not invalidate Oregon’s income tax

requirements. See Dept. of Rev. v. Hughes, 15 OTC 316, 321 (2001)(explaining that taxes in one

state do not make a different type of tax in another state unfair). Thus, because ORS 316.821

does not discriminate, the court does not find that ORS 316.821 is unconstitutional. Plaintiffs

have not set forth any other legal basis for granting their request to repeal ORS 316.821.

Plaintiffs allege “that a state sales tax is directly related to income just as an income tax

is.” (Ptfs’ Mot for Summ J at 3.) Plaintiffs allege that the credit toward Oregon income tax due

allowed to nonresident Oregon taxpayers who pay income tax in their home state should also

apply to nonresidents to who pay sales tax in their home state. (Id.) Plaintiffs ask this court to

expand ORS 316.131 allow a credit for sales tax paid to another state as well as income tax paid

to another state. (Id. at 1.) The court must review the statute as written. ORS 174.010 provides

in pertinent part:

“In the construction of a statute, the office of the judge is simply to ascertain and declare what is, in terms or in substance, contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars such construction is, if possible, to be adopted as will give effect to all.”

3 ORS 316.695(1)(d)(A) states in pertinent part that, when computing Oregon state taxable income, a taxpayer’s itemized deductions claimed on his federal income tax return is reduced by the amount of “the deduction for Oregon income tax.”

DECISION TC-MD 110969D 5 In addition to this statutory direction, the court is governed by precedent set by the Oregon

Supreme Court which indicates that the judge must first look to the text and context of the

statute. PGE v. Bureau of Labor and Industries, 317 Or 606, 859 P2d 1143 (1993). Words of

common usage are to be given their plain, natural, and obvious meaning. Perez v. State Farm

Mutual Ins. Co. (Perez), 289 Or 295, 299, 613 P2d 32 (1980).

ORS 316.131(1) provides:

“A nonresident shall be allowed a credit against the taxes otherwise due under this chapter for income taxes imposed by and paid to the state of residence (not including any preference, alternative or minimum tax) on income taxable under this chapter * * *.”

(Emphasis added). An income tax is a tax imposed on income. See ORS 316.037(1)(a)

(describing Oregon’s personal income tax as a tax imposed on income). An income tax is

distinguishable from a sales tax, which is levied on the consumption of commodities

within the taxing jurisdiction. See Keller v. Dept. of Rev. 319 Or 73, 76, 872 P2d 414

(1994) (noting that incomes taxes are distinguishable from other forms of taxes). A sales

tax is not an income tax, therefore the statute on its face, does not apply to income tax.

The court may not “insert what has been omitted” by including “sales tax”’ as an

exception to the statute. The statute is not ambiguous or subject to alternative

interpretation, and therefore must be accorded its plain and obvious meaning. Perez, 289

Or at 299. The court may not expand ORS 316.131(1) to include sales tax when a plain

reading of the statue does not include or imply that a nonresident may credit sales tax

paid to their state of residence against income tax imposed by Oregon.

III. CONCLUSION

After careful review of the pleadings, Plaintiffs are not entitled to claim a deduction for

sales tax paid to Washington state in determining their Oregon taxable income. The court

DECISION TC-MD 110969D 6 concludes that Oregon’s income tax laws do not discriminate against Plaintiffs based on their

status as nonresidents, and the court does not have the authority to insert “sales tax” in the plain

language of ORS 316.131(1). Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiffs’ Motion for Summary Judgment

is denied.

IT IS FURTHER DECIDED that Defendant’s Cross-Motion for Summary Judgment is

granted.

Dated this day of March 2012.

JILL A. TANNER PRESIDING MAGISTRATE

If you want to appeal this Decision, file a Complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.

Your Complaint must be submitted within 60 days after the date of the Decision or this Decision becomes final and cannot be changed.

This document was signed by Presiding Magistrate Jill A. Tanner on March 21, 2012. The Court filed and entered this document on March 21, 2012.

DECISION TC-MD 110969D 7