Alexander v. Commissioner

MEMORANDUM OPINION

The Commissioner determined deficiencies in the windfall profit taxes of A. S. Alexander, Jr., and the J. A. Holley Trust U-2 for the taxable year 1980 in the following amounts:

At the time the petitions in this case were filed, Alexander resided in Charleston, West Virginia, and Charleston National Bank, trustee of the trust, had its principal office in that city. The case was submitted on the basis of a stipulation of facts pursuant to our Rule 122.

During the taxable year 1980, each petitioner held mineral rights and interests in oil producing properties in West Virginia. Petitioners sold the oil from their respective properties to the Pennzoil Company, which withheld from the proceeds the windfall profit tax applicable to such sales. Sec. 4995(a)(1). ¹ The windfall profit tax (WPT) was a Federal excise tax on the "windfall profit" from taxable crude oil and was imposed by section 4986(a). ² Pertinent*146 portions of the WPT are set forth in the margin. ³ The sole issue for decision is whether certain West Virginia taxes paid by petitioners qualify for the "severance tax adjustment" defined in section 4996(c), and thus reduce the amount of "windfall profit" subject to the windfall profit tax.

*147 For present purposes, "windfall profit" may be defined as the difference between the price for which oil was sold and the price for which it would have been sold if crude oil prices had not been deregulated and if the OPEC cartel had not driven up the price of oil. See sections 4988-4989; S. Rept. 96-394 (1979), 1980-3 C.B. 131, 142; H. Rept. 96-304 (1979), 1980-3 C.B. 85, 88, 91. In substance, the severance tax adjustment operates as a deduction, reducing the amount of windfall profit subject to the WPT. See section 4988(a). Indeed, the Conference Report repeatedly refers to the severance tax adjustment as a "deduction." H. Rept. 96-817 (1980), 1980-3 C.B. 245, 264-265; See also S. Rept. 96-394 (1979), 1980-3 C.B. 131, 173; H. Rept. 96-304 (1979), 1980-3 C.B. 85, 117. Disregarding certain limitations not relevant here, the severance tax adjustment consists of the state severance taxes attributable to the windfall profit portion of the sale proceeds. See section 4996(c)(1) and (3). In order for a tax to qualify as a "severance tax," it must be "imposed by a State with respect to the extraction *148 of oil, and determined on the basis of the gross value of the extracted oil." Sec. 4996(c)(2); see also section 51.4996-2, Excise Tax Regs.

Petitioners were subject to the West Virginia income tax (article 21 of chapter 11, W.Va. Code (1987)) and the West Virginia business and occupation taxes (B & O taxes) (article 13 of chapter 11, W.Va. Code (1987)). Petitioners claim that the B & O taxes they paid qualify for the severance tax adjustment described in section 4996(c). The B & O taxes here involved have been referred to by the parties as "severance" taxes ⁴ and we accept that characterization to the extent that it is relevant in the computation of the Federal windfall profit tax.

*149 Furthermore, there is no question that petitioners in fact "paid" the West Virginia severance taxes, at least in form. However, section 11-21-8a of the West Virginia Code allowed these B & O taxes to serve as a credit against petitioners' state income tax liability. ⁵ Although the use of the B & O taxes as a credit against the state income tax is subject to certain limitations, we must assume that petitioners did in fact use their severance taxes to discharge their respective income tax liabilities pro tanto, since they have not satisfied their burden of showing otherwise.

The fact that these B & O taxes served to eliminate an equal amount of state*150 income tax suggests that although the B & O taxes were in form "imposed * * * and determined on the basis of the gross value of the extracted oil" as required by section 4996(c)(2), they were actually imposed on some other basis, or not imposed at all. The precise question before us, then, is whether these West Virginia severance taxes that were used to reduce state income tax liability may be taken into account as a "severance tax adjustment" to reduce the amount of windfall profit subject to the tax imposed by section 4986(a). On the record before us, we hold that these West Virginia severance taxes do not qualify for the "severance tax adjustment."

It would seem, upon a superficial examination of the problem, that petitioners should prevail, because the West Virginia taxes were indeed imposed by that state "with respect to the extraction of oil, and determined on the basis of the gross value of the extracted oil" in accordance with the literal language of section 4996(c)(2). But it has often been stated, in one form of words or another, that what may appear to be unambiguous upon a literal reading of a statute must yield to a different result that is called for by the intention*151 of Congress as disclosed in the legislative history. As we pointed out in Carasso v. Commissioner, 34 T.C. 1139, 1142 (1960), affd. 292 F.2d 367 (2d Cir. 1961), cert. denied 369 U.S. 874, 8 L. Ed. 2d 277, 82 S. Ct. 1144 (1962):

Although there may have been support at one time for such a rigid limitation upon the interpretation of statutes (cf. Caminetti v. United States, 242 U.S. 470, 61 L. Ed. 442, 37 S. Ct. 192), it is now established beyond successful challenge that a court may seek out any reliable evidence as to legislative purpose regardless of whether the statutory language appears to be clear. United States v. Amer. Trucking Ass'ns., 310 U.S. 534, 543-544, 84 L. Ed. 1345, 60 S. Ct. 1059; United States v. Dickerson, 310 U.S. 554, 562, 84 L. Ed. 1356, 60 S. Ct. 1034; United States v. Rosenblum Truck Lines, 315 U.S. 50, 55, 86 L. Ed. 671, 62 S. Ct. 445; Harrison v. Northern Trust Co., 317 U.S. 476, 479, 87 L. Ed. 407, 63 S. Ct. 361; Cabell v. Markham, 148 F.2d 737, 739 (C.A. 2), affirmed 326 U.S. 404, 409, 90 L. Ed. 165, 66 S. Ct. 193; C. & S. Air Lines v. Waterman Corp., 333 U.S. 103, 106, 92 L. Ed. 568, 68 S. Ct. 431; Schwegmann Bros. v. Calvert Corp., 341 U.S. 384, 390-395, 399, 95 L. Ed. 1035, 71 S. Ct. 745. Cf. *152 also Ozawa v. United States, 260 U.S. 178, 194, 67 L. Ed. 199, 43 S. Ct. 65; Church of the Holy Trinity v. United States, 143 U.S. 457, 472, 36 L. Ed. 226, 12 S. Ct. 511. As the Supreme Court said in the American Trucking case (310 U.S. 534 at 543-544, 60 S. Ct. 1059, 84 L. Ed. 1345):