Shaffer v. Carter
Headline: Court upholds Oklahoma income tax on out-of-state oil owner and allows State to collect by lien on his Oklahoma property, making it easier for Oklahoma to enforce taxes on non-residents.
Holding: The Court held that Oklahoma may tax income that an out-of-state owner earns from in-state oil operations and may enforce payment by a lien on his Oklahoma property because the income arose there.
- Allows states to tax non-residents’ income from in-state property or business.
- Permits enforcement by lien on in-state property used to produce income.
- Affirms collection power despite differences in resident and non-resident deductions.
Summary
Background
The plaintiff was a Chicago resident and oil operator who owned and ran oil leases and producing land in Oklahoma. For 1916 he reported net income over $1,500,000 and a tax liability exceeding $76,000 under Oklahoma’s 1915 income tax law. After the State Auditor assessed the tax and a sheriff threatened to levy a warrant, he sued to stop enforcement, arguing the law violated the Fourteenth Amendment, the commerce clause, and the privileges and immunities clause of Article IV.
Reasoning
The Court considered whether a State may tax income earned in that State by a non-resident and whether the law’s enforcement by a lien on all property was lawful. Relying on long-standing principles that States may tax persons, property, and businesses within their borders, the Court held a State may tax income from property or business carried on in the State. The statute limited nonresident taxation to income from in-state property or business. The Court also found the lien lawful in this case because the plaintiff’s Oklahoma property and leases were the source of the taxed income and his in-state operations were treated as a single business.
Real world impact
The decision allows States to tax out-of-state owners on income produced by property or business inside the State, and to enforce collection against the in-state property that generated the income. The interlocutory appeal was dismissed and the final decree denying relief was affirmed, so the State may proceed with collection under these facts.
Dissents or concurrances
One Justice, McReynolds, dissented from the judgment. The opinion does not set out his reasoning in this text.
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